<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
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
(State of Incorporation)
76-0433811
(I.R.S. Employer Identification No.)
700 State Street, Racine, WI 53404
(Address of principal executive offices including Zip Code)
Registrant's telephone number, including area code: (414) 636-6011
----------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [_]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of the latest practicable date.
Common Stock, par value $0.01 per share: 77,820,484 shares outstanding as
of June 30, 1999.
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<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Part I--Financial Information
Case Corporation and Consolidated Subsidiaries--
Statements of Income.................................................. 3
Balance Sheets........................................................ 6
Statements of Cash Flows.............................................. 7
Statements of Changes in Stockholders' Equity......................... 8
Notes to Financial Statements......................................... 9
Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................ 17
Part II--Other Information................................................ 29
Item 1. Legal Proceedings............................................... 29
Item 2. Changes in Securities........................................... *
Item 3. Defaults Upon Senior Securities................................. *
Item 4. Submission of Matters to a Vote of Security Holders............. 29
Item 5. Other Information............................................... *
Item 6. Exhibits and Reports on Form 8-K................................ 29
</TABLE>
- --------
*No response to this item is included herein for the reason that it is
inapplicable or the answer to such item is negative.
2
<PAGE>
PART I
FINANCIAL INFORMATION
CASE CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1999 and 1998
(in millions, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Consolidated
----------------------------
Three Months Six Months
Ended Ended
June 30, June 30,
------------- --------------
1999 1998 1999 1998
------ ------ ------ ------
<S> <C> <C> <C> <C>
Revenues:
Net sales....................................... $1,346 $1,646 $2,430 $2,943
Interest income and other....................... 124 88 241 172
------ ------ ------ ------
1,470 1,734 2,671 3,115
Costs and Expenses:
Cost of goods sold.............................. 1,094 1,274 2,026 2,293
Selling, general and administrative............. 163 155 337 301
Research, development and engineering........... 46 57 95 109
Interest expense................................ 76 57 151 104
Other, net...................................... 28 9 58 24
------ ------ ------ ------
Income (loss) before taxes........................ 63 182 4 284
Income tax provision (benefit).................... 27 56 16 89
------ ------ ------ ------
36 126 (12) 195
Equity in income--Case Capital.................... -- -- -- --
------ ------ ------ ------
Net income (loss)................................. $ 36 $ 126 $ (12) $ 195
====== ====== ====== ======
Preferred stock dividends......................... 1 1 3 3
------ ------ ------ ------
Net income (loss) to common....................... $ 35 $ 125 $ (15) $ 192
====== ====== ====== ======
Per share data:
Basic earnings (loss) per share................. $ 0.47 $ 1.68 $(0.20) $ 2.59
====== ====== ====== ======
Diluted earnings (loss) per share............... $ 0.46 $ 1.61 $(0.20) $ 2.48
====== ====== ====== ======
</TABLE>
The accompanying notes to financial statements are an integral part of these
Statements of Income.
Reference is made to Note 1 for definitions of "Case Industrial" and "Case
Capital."
3
<PAGE>
CASE CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(in millions, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Case Industrial
-----------------------------------
Six Months
Three Months Ended Ended June
June 30, 30,
------------------- --------------
1999 1998 1999 1998
--------- --------- ------ ------
<S> <C> <C> <C> <C>
Revenues:
Net sales................................. $ 1,346 $ 1,646 $2,430 $2,943
Interest income and other................. 11 8 21 16
--------- --------- ------ ------
1,357 1,654 2,451 2,959
Costs and Expenses:
Cost of goods sold........................ 1,094 1,274 2,026 2,293
Selling, general and administrative....... 145 143 302 280
Research, development and engineering..... 46 57 95 109
Interest expense.......................... 33 26 65 44
Other, net................................ 10 (1) 24 6
--------- --------- ------ ------
Income (loss) before taxes.................. 29 155 (61) 227
Income tax provision (benefit).............. 14 47 (8) 69
--------- --------- ------ ------
15 108 (53) 158
Equity in income--Case Capital.............. 21 18 41 37
--------- --------- ------ ------
Net income (loss)........................... $ 36 $ 126 $ (12) $ 195
========= ========= ====== ======
</TABLE>
The accompanying notes to financial statements are an integral part of these
Statements of Income.
Reference is made to Note 1 for definitions of "Case Industrial" and "Case
Capital."
4
<PAGE>
CASE CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1999 and 1998
(in millions, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Case Capital
-------------------------
Three Months Six Months
Ended Ended June
June 30, 30,
------------- -----------
1999 1998 1999 1998
------ ------ ----- -----
<S> <C> <C> <C> <C>
Revenues:
Net sales.......................................... $ -- $ -- $ -- $ --
Interest income and other.......................... 117 80 226 156
------ ------ ----- -----
117 80 226 156
Costs and Expenses:
Cost of goods sold................................. -- -- -- --
Selling, general and administrative................ 18 12 35 21
Research, development and engineering.............. -- -- -- --
Interest expense................................... 47 31 92 60
Other, net......................................... 18 10 34 18
------ ------ ----- -----
Income (loss) before taxes........................... 34 27 65 57
Income tax provision (benefit)....................... 13 9 24 20
------ ------ ----- -----
21 18 41 37
Equity in income--Case Capital....................... -- -- -- --
------ ------ ----- -----
Net income (loss).................................... $ 21 $ 18 $ 41 $ 37
====== ====== ===== =====
</TABLE>
The accompanying notes to financial statements are an integral part of these
Statements of Income.
Reference is made to Note 1 for definitions of "Case Industrial" and "Case
Capital."
5
<PAGE>
CASE CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 1999, AND DECEMBER 31, 1998
(in millions, except share data)
(Unaudited)
<TABLE>
<CAPTION>
Consolidated Case Industrial Case Capital
---------------------- ---------------------- ---------------------
June 30, December 31, June 30, December 31, June 30, December 31,
ASSETS 1999 1998 1999 1998 1999 1998
------ -------- ------------ -------- ------------ -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Current Assets:
Cash and cash
equivalents........... $ 120 $ 142 $ 86 $ 107 $ 34 $ 35
Accounts and notes
receivable............ 2,894 2,476 1,611 1,594 1,291 934
Inventories............ 1,395 1,430 1,395 1,430 -- --
Deferred income taxes.. 269 272 249 252 20 20
Prepayments and other.. 51 49 48 47 3 2
------- ------- ------- ------- ------ ------
Total current assets. 4,729 4,369 3,389 3,430 1,348 991
------- ------- ------- ------- ------ ------
Long-Term Receivables... 1,943 1,938 153 326 1,762 1,593
Other Assets:
Investments in joint
ventures.............. 95 98 80 83 15 15
Investment in Case
Capital............... -- -- 506 459 -- --
Equipment on operating
leases, net........... 511 468 -- -- 511 468
Goodwill and
intangibles........... 343 358 343 358 -- --
Other.................. 490 373 221 201 296 190
------- ------- ------- ------- ------ ------
Total other assets... 1,439 1,297 1,150 1,101 822 673
------- ------- ------- ------- ------ ------
Property, Plant and
Equipment, at cost..... 2,176 2,144 2,170 2,139 6 5
Accumulated
Depreciation........... (1,137) (1,048) (1,135) (1,046) (2) (2)
------- ------- ------- ------- ------ ------
Net property, plant
and equipment....... 1,039 1,096 1,035 1,093 4 3
------- ------- ------- ------- ------ ------
Total................ $ 9,150 $ 8,700 $ 5,727 $ 5,950 $3,936 $3,260
======= ======= ======= ======= ====== ======
<CAPTION>
LIABILITIES AND EQUITY
----------------------
<S> <C> <C> <C> <C> <C> <C>
Current Liabilities:
Current maturities of
long-term debt........ $ 9 $ 9 $ 9 $ 9 $ -- $ --
Short-term debt........ 1,487 1,310 739 766 748 550
Accounts payable....... 566 605 556 625 17 25
Restructuring
liability............. 60 99 60 99 -- --
Other accrued
liabilities........... 841 847 780 785 61 62
------- ------- ------- ------- ------ ------
Total current
liabilities......... 2,963 2,870 2,144 2,284 826 637
------- ------- ------- ------- ------ ------
Long-Term Debt.......... 3,478 3,080 971 972 2,507 2,108
Other Liabilities:
Pension benefits....... 195 205 195 205 -- --
Other postretirement
benefits.............. 176 161 176 161 -- --
Other postemployment
benefits.............. 37 37 37 37 -- --
Other.................. 191 153 95 99 96 54
------- ------- ------- ------- ------ ------
Total other
liabilities......... 599 556 503 502 96 54
------- ------- ------- ------- ------ ------
Commitments and
Contingencies (Note 7)
Minority Interest....... 6 7 5 5 1 2
Preferred Stock with
Mandatory Redemption
Provisions............. 18 77 18 77 -- --
Stockholders' Equity:
Common Stock, $0.01
par value; authorized
200,000,000 shares,
issued 82,981,612,
outstanding
77,820,484............ 1 1 1 1 -- --
Paid-in capital........ 1,524 1,430 1,524 1,430 269 269
Retained earnings...... 1,093 1,116 1,093 1,116 255 214
Accumulated other
comprehensive income.. (254) (159) (254) (159) (18) (24)
Unearned compensation
on restricted stock... (26) (31) (26) (31) -- --
Treasury stock,
5,161,128 shares, at
cost.................. (252) (247) (252) (247) -- --
------- ------- ------- ------- ------ ------
Total stockholders'
equity.............. 2,086 2,110 2,086 2,110 506 459
------- ------- ------- ------- ------ ------
Total................ $ 9,150 $ 8,700 $ 5,727 $ 5,950 $3,936 $3,260
======= ======= ======= ======= ====== ======
</TABLE>
The accompanying notes to financial statements are an integral part of these
Balance Sheets.
Reference is made to Note 1 for definitions of "Case Industrial" and "Case
Capital."
6
<PAGE>
CASE CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(in millions)
(Unaudited)
<TABLE>
<CAPTION>
Case Case
Consolidated Industrial Capital
-------------- ------------ ------------
Six Months Six Months Six Months
Ended Ended Ended
June 30, June 30, June 30,
-------------- ------------ ------------
1999 1998 1999 1998 1999 1998
------ ------ ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Operating activities:
Net income (loss)................ $ (12) $ 195 $ (12) $ 195 $ 41 $ 37
Adjustments to reconcile net
income (loss) to net cash
provided (used) by operating
activities:
Depreciation and amortization.. 115 88 81 71 34 17
Deferred income tax expense
(benefit)..................... (1) 12 (1) 12 -- --
Loss on disposal of fixed
assets........................ 2 1 2 1 -- --
Cash paid for restructuring.... (32) (21) (32) (21) -- --
Undistributed (earnings) loss
of unconsolidated
subsidiaries.................. (1) (5) (42) (39) -- 1
Changes in components of
working capital:
(Increase) decrease in
receivables................. (509) (501) (123) (342) (342) (51)
(Increase) decrease in
inventories................. (59) (293) (59) (293) -- --
(Increase) decrease in
prepayments and other
current assets.............. (4) (3) (3) (3) (1) --
Increase (decrease) in
payables.................... 67 65 33 (47) (10) 4
Increase (decrease) in
accrued liabilities......... 14 (107) 15 (68) (1) (39)
(Increase) decrease in long-
term receivables.............. 30 (246) 175 24 (136) (263)
Increase (decrease) in other
liabilities................... 65 54 24 54 41 --
Other, net..................... (170) (59) (60) (18) (119) (52)
------ ------ ----- ----- ----- -----
Net cash provided (used) by
operating activities....... (495) (820) (2) (474) (493) (346)
------ ------ ----- ----- ----- -----
Investing activities:
Proceeds from the sale of
businesses and assets........... 4 1 4 1 -- --
Expenditures for property, plant
and equipment................... (52) (49) (51) (49) (1) --
Expenditures for equipment on
operating leases................ (74) (189) -- -- (74) (189)
Acquisitions and investments..... 4 (40) 4 (40) -- --
------ ------ ----- ----- ----- -----
Net cash provided (used) by
investing activities....... (118) (277) (43) (88) (75) (189)
------ ------ ----- ----- ----- -----
Financing activities:
Proceeds from the issuance of
long-term debt.................. 493 279 -- -- 493 279
Payment of long-term debt........ (5) (8) (5) (8) -- --
Proceeds from the issuance of
short-term debt................. 125 -- -- -- 125 --
Payment of short-term debt....... (10) -- (10) -- -- --
Net increase (decrease) in short-
term revolving credit
facilities...................... (36) 718 16 508 (52) 210
Proceeds from the issuance of
common stock.................... 33 46 33 46 -- --
Repurchases of common stock...... -- (58) -- (58) -- --
Dividends paid (common and
preferred)...................... (11) (11) (11) (11) -- --
Other, net....................... 4 (5) 4 (5) -- --
------ ------ ----- ----- ----- -----
Net cash provided (used) by
financing activities....... 593 961 27 472 566 489
------ ------ ----- ----- ----- -----
Effect of foreign exchange rate
changes on cash and cash
equivalents...................... (2) (1) (3) (1) 1 --
------ ------ ----- ----- ----- -----
Increase (decrease) in cash and
cash equivalents................. $ (22) $ (137) $ (21) $ (91) $ (1) $ (46)
Cash and cash equivalents,
beginning of period.............. 142 252 107 185 35 67
------ ------ ----- ----- ----- -----
Cash and cash equivalents, end of
period........................... $ 120 $ 115 $ 86 $ 94 $ 34 $ 21
====== ====== ===== ===== ===== =====
Cash paid during the period for
interest......................... $ 141 $ 92 $ 66 $ 40 $ 81 $ 52
====== ====== ===== ===== ===== =====
Cash paid during the period for
taxes............................ $ 37 $ 88 $ 26 $ 62 $ 11 $ 26
====== ====== ===== ===== ===== =====
</TABLE>
The accompanying notes to financial statements are an integral part of these
Statements of Cash Flows.
Reference is made to Note 1 for definitions of "Case Industrial" and "Case
Capital."
7
<PAGE>
CASE CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(in millions)
(Unaudited)
<TABLE>
<CAPTION>
Accumulated
Other
Common Paid-in Unearned Retained Treasury Comprehensive Comprehensive
Stock Capital Compensation Earnings Stock Income Total Income
------ ------- ------------ -------- -------- ------------- ------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1997................... $ 1 $1,334 $(14) $1,074 $ (96) $(102) $2,197
Comprehensive income:
Net income............. -- -- -- 64 -- -- 64 $ 64
Translation
adjustment............ -- -- -- -- -- (18) (18) (18)
Pension liability
adjustment, net of
$15 tax benefit....... -- -- -- -- -- (39) (39) (39)
-----
Total................ $ 7
=====
Dividends declared...... -- -- -- (22) -- -- (22)
Capital contributions on
stock issuance......... -- 70 -- -- -- -- 70
Recognition of
compensation on
restricted stock....... -- -- 8 -- -- -- 8
Issuance of restricted
stock, net of
forfeitures............ -- 26 (25) -- (2) -- (1)
Acquisition of treasury
stock.................. -- -- -- -- (149) -- (149)
--- ------ ---- ------ ----- ----- ------
Balance, December 31,
1998................... $ 1 $1,430 $(31) $1,116 $(247) $(159) $2,110
=== ====== ==== ====== ===== ===== ======
Comprehensive income:
Net income (loss)...... -- -- -- (12) -- -- (12) $ (12)
Translation
adjustment............ -- -- -- -- -- (95) (95) (95)
-----
Total................ $(107)
=====
Dividends declared...... -- -- -- (11) -- -- (11)
Capital contributions on
stock issuance......... -- 33 -- -- -- -- 33
Conversion of Series A
Cumulative Convertible
Preferred Stock........ -- 59 -- -- -- -- 59
Recognition of
compensation on
restricted stock....... -- -- 5 -- -- -- 5
Issuance of restricted
stock, net of
forfeitures............ -- 2 -- -- (5) -- (3)
--- ------ ---- ------ ----- ----- ------
Balance, June 30, 1999.. $ 1 $1,524 $(26) $1,093 $(252) $(254) $2,086
=== ====== ==== ====== ===== ===== ======
</TABLE>
The accompanying notes to financial statements are an integral part of
these Statements of Changes in Stockholders' Equity.
8
<PAGE>
CASE CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(1) Basis of Presentation
The accompanying financial statements reflect the consolidated results of
Case Corporation and also include, on a separate and supplemental basis, the
combination of Case's industrial companies and financial services companies as
follows:
Case Industrial--The financial information captioned "Case Industrial"
reflects the consolidation of all majority-owned subsidiaries
except for Case Capital, the Company's wholly owned retail
credit subsidiary. Case Capital has been included using the
equity method of accounting whereby the net income and net
assets of Case Capital are reflected, respectively, in the
income statement caption, "Equity in Income--Case Capital,"
and the balance sheet caption, "Investment in Case Capital."
Case Capital--The financial information captioned "Case Capital" reflects
the consolidation of Case's retail credit subsidiaries.
All significant intercompany transactions, including activity within and
between "Case Industrial" and "Case Capital" have been eliminated.
Certain reclassifications have been made to conform the prior years'
financial statements to the 1999 presentation.
In the opinion of management, the accompanying unaudited financial
statements of Case Corporation and Consolidated Subsidiaries contain all
adjustments which are of a normal recurring nature necessary to present fairly
the financial position as of June 30, 1999, and the results of operations,
changes in stockholders' equity and cash flows for the periods indicated. It
is suggested that these interim financial statements be read in conjunction
with the financial statements and the notes thereto included in the Company's
1998 Annual Report on Form 10-K/A. Interim financial results are not
necessarily indicative of operating results for an entire year.
(2) Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. This
statement must be adopted no later than January 1, 2001, although earlier
application is permitted. The Company is evaluating the impact of adopting
SFAS No. 133.
Effective January 1, 1999, the Company adopted Statement of Position
("SOP") No. 98-5, "Reporting on the Costs of Start-Up Activities." The
Company's accounting for the costs of start-up activities is consistent with
the guidelines established in the SOP and, as a result, the adoption of this
statement had no effect on the Company's financial position or results of
operations.
(3) Inventories
Inventories are stated at the lower of cost or market, generally using the
first-in, first-out (FIFO) method. Inventory cost includes material, labor and
overhead.
Inventories consist of the following (in millions):
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
-------- ------------
<S> <C> <C>
Raw materials....................................... $ 230 $ 258
Work-in-process..................................... 151 167
Finished goods...................................... 1,014 1,005
------ ------
Total inventories............................... $1,395 $1,430
====== ======
</TABLE>
9
<PAGE>
CASE CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(Continued)
(4) Restructuring
1992 Restructuring Program
In response to depressed market conditions during the early 1990's, Case
embarked on a long-term restructuring program (the "1992 Restructuring
Program"). The Company had determined that major structural and strategic
changes were necessary in order to reduce fixed costs and excess capacity;
focus, discontinue or replace unprofitable and noncompetitive product lines;
and restructure product distribution to strengthen Case's competitive position
in the global market place.
An analysis of Case's 1992 Restructuring Program is summarized in the table
below (in millions):
<TABLE>
<CAPTION>
1999 Activity
---------------------------------
Balance at Balance at
December 31, Reserves June 30,
1998 Utilized* 1999
------------ --------- ----------
<S> <C> <C> <C>
Employee termination payments.......... $22 $(4) $18
Cost related to
closing/selling/downsizing existing
facilities............................ 11 (3) 8
Other costs............................ 4 (2) 2
--- --- ---
Total restructuring.................... $37 $(9) $28
=== === ===
</TABLE>
- --------
*Includes currency translation
During the first six months of 1999, the Company expended $4 million for
employee termination payments related to the final severance, outplacement and
other benefit payments related to the closure of the Neuss, Germany,
facilities. The remaining reserve balance of $18 million for employee
termination payments at June 30, 1999, is for costs to complete the
outsourcing and rationalization of selected parts production and manufacturing
at the Company's component plants in France, as well as the rationalization of
company-owned retail stores in Europe.
During the first half of 1999, the Company expended $3 million for the
closure of the Neuss headquarters and administrative offices. The closure of
the Neuss headquarters operations has now been completed, and all Neuss
administrative operations have been integrated into other existing Case
facilities.
The June 30, 1999, reserve balance of $8 million for costs related to
closing/selling/downsizing existing facilities includes all final closure/sale
costs for the rationalization of nine company-owned retail stores in Europe.
The Company has entered into negotiations for the sale of these stores, and
management currently anticipates that all of the stores will be
sold/rationalized by December 31, 1999.
During the first six months of 1999, the Company expended $2 million for
legal and professional fees associated with the retail store negotiations and
the closure of the Neuss headquarters and administrative offices. The $2
million reserve balance is for remaining legal and professional fees for the
rationalization of the nine company-owned retail stores in Europe.
Management believes that the reserve balance of $28 million at June 30,
1999, is adequate to complete the remaining actions as outlined under the 1992
Restructuring Program, and the Company anticipates that all actions under this
program will be completed by December 31, 1999.
10
<PAGE>
CASE CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(Continued)
1998 Restructuring Program
In 1998 the worldwide retail demand for agricultural equipment declined
significantly from the strong levels of the past several years. To address the
global decline in the agricultural equipment industry, Case progressively
lowered its agricultural equipment production levels and took a number of
aggressive actions to further strengthen the Company's competitive position in
the global agricultural equipment industry.
During the fourth quarter of 1998, the Company recorded a restructuring
charge of $132 million ($96 million after tax) related to the announced
closure of its Hamilton, Ontario, and Hugo, Minnesota, manufacturing
facilities, as well as other actions that include a worldwide workforce
reduction, including contract and temporary personnel, of 2,600 (the "1998
Restructuring Program").
An analysis of Case's 1998 Restructuring Program is summarized in the table
below (in millions):
<TABLE>
<CAPTION>
1998 Activity 1999 Activity
----------------------- ---------------------------------
1998 Balance at Balance at
Restructuring Reserves December 31, Reserves June 30,
Program Utilized* 1998 Utilized* 1999
------------- --------- ------------ --------- ----------
<S> <C> <C> <C> <C> <C>
Employee termination
payments.................. $ 58 $ (8) $50 $(22) $28
Pension and OPRB costs..... 36 (36) -- -- --
Writedown of assets:
Property, plant and
equipment............... 25 (25) -- -- --
Cost related to
closing/selling/downsizing
existing facilities....... 12 (1) 11 (8) 3
Other costs................ 1 -- 1 -- 1
---- ---- --- ---- ---
Total restructuring.... $132 $(70) $62 $(30) $32
==== ==== === ==== ===
</TABLE>
- --------
*Includes currency translation.
As of June 30, 1999, the Company's Hamilton, Ontario, manufacturing
facility has largely been closed, with final production at this facility to be
completed by July 31, 1999. During the second quarter, the Company also
completed the closure of its Hugo, Minnesota, manufacturing facility. The
Company has integrated the majority of the related product lines from these
facilities into other existing Case manufacturing locations in Kansas,
Illinois and North Dakota or, in some instances, it has outsourced production.
The reserve balance of $28 million for employee termination payments at
June 30, 1999, represents the remaining cash severance costs to reduce
personnel as a result of closing and/or downsizing manufacturing facilities in
the United States, Canada, Europe, Australia and Brazil. These termination
payments include the cost of severance and contractual benefits in accordance
with collective bargaining arrangements and Company policy, and also include
costs for outplacement services, medical, supplemental unemployment, and
vacation and retirement payments. As of June 30, 1999, the Company had
terminated approximately 2,400 people, including contract and temporary
personnel, under the 1998 Restructuring Program.
The reserve balance of $3 million at June 30, 1999, for costs related to
closing/selling/downsizing existing facilities, is for remaining facility exit
costs for the Hamilton closure. These facility exit costs include employee
costs associated with the plant closure after operations cease and related
legal and professional expenses. During the first six months of 1999, the
Company expended $8 million for closure costs related to Hamilton and Hugo, as
well as for costs to terminate dealer contracts as a direct result of
downsizing Case agricultural equipment operations in Germany, Brazil and
Argentina.
11
<PAGE>
CASE CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(Continued)
Other costs of $1 million at June 30, 1999, are primarily for incremental
legal and professional costs to support the 1998 Restructuring Program.
Management believes that the restructuring reserve balance of $32 million
at June 30, 1999, is adequate to complete all remaining activities as outlined
under the 1998 Restructuring Program, and the Company anticipates that all
actions under this program will be completed by December 31, 1999.
The Company expects to fund the cash requirements of its 1992 and 1998
Restructuring Programs with cash flows from operations and additional
borrowings under the Company's existing credit facilities. The specific
restructuring measures and associated estimated costs were based on
management's best business judgment under prevailing circumstances. If future
events warrant changes to the reserve, such adjustments will be reflected as
"Restructuring charges" in the applicable statements of income.
(5) Debt
During the second quarter of 1999, Case Credit Corporation ("Case Credit"),
the wholly owned subsidiary of Case Capital, issued $125 million of its
medium-term notes pursuant to its $800 million shelf registration statement
filed with the Securities and Exchange Commission in January 1999. These
floating-rate notes mature in May 2000 and bear interest based on three-month
LIBOR (with an initial interest rate of 5.21%). During the first quarter of
1999, Case Credit issued an aggregate of $250 million of its medium-term notes
pursuant to its $1 billion shelf registration statement filed with the
Securities and Exchange Commission in May 1998. These fixed-rate notes have
maturities that range between two and three years and bear interest between
5.85% and 6.15%.
During the first quarter of 1999, Case Credit's Canadian subsidiary, Case
Credit Ltd., issued C$200 million of its medium-term notes pursuant to a
short-form prospectus and prospectus supplement filed with the Canadian
Securities Administrators. These notes mature in June 2001 and bear interest
at 6.30%.
Also during the first quarter, Case Credit Australia Pty Ltd issued A$175
million of its medium-term notes pursuant to its medium-term note program.
These notes have maturities that range from twenty-four to thirty months and
bear interest based on BBSW for the floating-rate notes, and 5.75% for the
fixed-rate notes.
The net proceeds from these issuances were used to fund Case Capital's
growth initiatives and for other corporate purposes, including the repayment
of short-term indebtedness.
(6) Income Taxes
Case Industrial's effective income tax rate of 13% for the first six months
of 1999 was lower than the U.S. statutory rate of 35% primarily due to losses
in certain foreign jurisdictions for which no immediate tax benefit was
recognizable and foreign losses taxed at different rates, partially offset by
state tax benefits, research and development tax credits, and reductions in
the tax valuation reserves in certain foreign jurisdictions. Case Industrial's
effective tax rate of 30% for the first six months of 1998 reflects the
recognition of tax benefits from the Company's foreign sales corporation,
research and development tax credits, and net reductions in the tax valuation
reserves in certain foreign jurisdictions, partially offset by state income
taxes and foreign income taxed at different rates.
Case Capital's effective income tax rate of 37% for the first six months of
1999 was slightly higher than the U.S. statutory rate primarily due to foreign
income taxed at different rates and state income taxes. For the first six
months of 1998, Case Capital's effective tax rate of 35% was equal to the U.S.
statutory rate.
12
<PAGE>
CASE CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(Continued)
(7) Commitments and Contingencies
Environmental
Expenditures for ongoing compliance with environmental regulations that
relate to current operations are expensed or capitalized as appropriate.
Expenditures that relate to an existing condition caused by past operations and
which do not contribute to current or future revenue generation are expensed.
Liabilities are recorded when environmental assessments indicate that remedial
efforts are probable and the costs can be reasonably estimated. Estimates of
the liability are based upon currently available facts, existing technology and
presently enacted laws and regulations. All available evidence is considered,
including prior experience in remediation of contaminated sites, other parties'
share of liability at the waste sites and their ability to pay and data
concerning the waste sites released by the U.S. Environmental Protection Agency
or other organizations. These liabilities are included in the accompanying
Balance Sheets at their undiscounted amounts. Recoveries are evaluated
separately from the liability and, if appropriate, are recorded separately from
the associated liability in the accompanying Balance Sheets.
Case receives from time to time inquiries and/or notices of potential
liability at multiple sites that are the subject of remedial activities under
Federal or state environmental laws and Case may be required to share in the
cost of clean-up. Case is also involved in remediating a number of other sites,
including certain of its currently and formerly operated facilities or those
assumed through corporate acquisitions. Based upon information currently
available, management is of the opinion that any such potential liability or
remediation costs will not have a material adverse effect on Case's financial
position or results of operations.
Product liability
Product liability claims against Case arise from time to time in the
ordinary course of business. There is an inherent uncertainty as to the
eventual resolution of unsettled claims. However, in the opinion of management,
any losses with respect to existing claims will not have a material adverse
effect on Case's financial position or results of operations.
Other
Case is the subject of various other legal claims arising from its
operations, including product warranty, dealer disputes, worker'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.
13
<PAGE>
CASE CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(Continued)
(8) 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>
Three
Months Six Months
Ended Ended
June 30, June 30,
------------ -------------
1999 1998 1999 1998
----- ----- ------ -----
<S> <C> <C> <C> <C>
Basic
Net income (loss)............................... $ 36 $ 126 $ (12) $ 195
Less: Preferred stock dividends................. (1) (1) (3) (3)
----- ----- ------ -----
Net income (loss) after preferred stock
dividends...................................... $ 35 $ 125 $ (15) $ 192
===== ===== ====== =====
Weighted-average shares outstanding............. 73.1 73.9 73.0 73.9
===== ===== ====== =====
Basic earnings (loss) per share................. $0.47 $1.68 $(0.20) $2.59
===== ===== ====== =====
Diluted
Net income (loss)............................... $ 36 $ 126 $ (12) $ 195
Less: Antidilutive preferred stock dividends.... (1) N/A (3) N/A
----- ----- ------ -----
Net income (loss) after antidilutive preferred
stock dividends................................ $ 35 $ 126 $ (15) $ 195
===== ===== ====== =====
Weighted-average shares outstanding--Basic...... 73.1 73.9 73.0 73.9
Effect of Dilutive Securities (when dilutive):
Convertible preferred stock................... -- 3.5 -- 3.5
Stock options................................. 1.3 0.8 -- 0.9
Restricted stock.............................. 0.6 0.2 -- 0.2
----- ----- ------ -----
Weighted-average shares outstanding--Diluted.... 75.0 78.4 73.0 78.5
===== ===== ====== =====
Diluted earnings (loss) per share............... $0.46 $1.61 $(0.20) $2.48
===== ===== ====== =====
</TABLE>
(9) Accumulated Other Comprehensive Income
The components of accumulated other comprehensive income as of June 30,
1999 and December 31, 1998, are as follows (in millions):
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
-------- ------------
<S> <C> <C>
Cumulative translation adjustment................... $(207) $(112)
Pension liability adjustment........................ (47) (47)
----- -----
Total accumulated other comprehensive income.... $(254) $(159)
===== =====
</TABLE>
(10) Segment Information
Case Corporation has three reportable operating segments:
Agricultural Equipment
The agricultural equipment segment 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.
14
<PAGE>
CASE CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(Continued)
Construction Equipment
The construction equipment segment 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.
Financial Services
The financial services segment reflects the operations of Case Capital, the
wholly owned finance subsidiary of Case. The financial services segment
provides financing for retail installment sales contracts and leases,
commercial lending within the equipment industry, multiple lines of insurance
products and offers a private-label credit card. These financing arrangements
are established in conjunction with the purchase or lease of new and used Case
farm and construction equipment and other new and used products to end-use
customers.
Case evaluates segment performance based on operating earnings. Case
defines operating earnings as the income of Case Industrial before interest,
taxes, restructuring charges and extraordinary items, including the income of
Case Capital on an equity basis. Transfers between segments are accounted for
at market value.
Case's reportable segments are strategic business units that offer
different products and services. Each segment is managed separately as they
require different technology and marketing strategies.
A summary of Case's reportable segment information is set forth in the
following table (in millions):
<TABLE>
<CAPTION>
Three Months Six Months
Ended June Ended June
30, 30,
-------------- --------------
1999 1998 1999 1998
------ ------ ------ ------
<S> <C> <C> <C> <C>
Revenues:
Net sales
Agricultural equipment........................ $ 756 $1,016 $1,305 $1,799
Construction equipment........................ 590 630 1,125 1,144
------ ------ ------ ------
Total net sales............................. 1,346 1,646 2,430 2,943
Financial services.............................. 117 80 226 156
Other revenues.................................. 7 8 15 16
------ ------ ------ ------
Total revenues.............................. $1,470 $1,734 $2,671 $3,115
====== ====== ====== ======
Segment profit (loss):
Agricultural equipment.......................... $ (5) $ 113 $ (104) $ 154
Construction equipment.......................... 67 68 108 117
Financial services.............................. 21 18 41 37
------ ------ ------ ------
Total....................................... $ 83 $ 199 $ 45 $ 308
====== ====== ====== ======
</TABLE>
(11) Agreement and Plan of Merger
On May 15, 1999, Case Corporation, a Delaware corporation ("Case"), Fiat
S.p.A., a company organized under the laws of Italy, New Holland N.V., a
company organized under the laws of the Netherlands, and Fiat Acquisition
Corporation, a Delaware corporation and a wholly owned subsidiary of Fiat
("Merger Sub"), entered into an Agreement and Plan of Merger whereby Merger
Sub will merge (the "Merger") with and into Case, with Case as the surviving
corporation in the Merger (the "Merger Agreement"). At the effective time of
the Merger, each share of Case Common Stock, par value $0.01 per share,
outstanding immediately prior to the effective time of the Merger will be
converted into the right to receive $55 in cash. Consummation of the Merger is
subject to a number of conditions, including (i) the approval and adoption of
the Merger Agreement by the stockholders of Case entitled to vote thereon,
(ii) the expiration of all required regulatory waiting periods applicable to
the Merger, and (iii) certain other customary conditions.
15
<PAGE>
CASE CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(Concluded)
A Special Meeting of Stockholders will be held on August 17, 1999, for the
purpose of considering and voting on a proposal to approve and adopt the
Merger Agreement.
(12) Redemption of Series A Cumulative Convertible Preferred Stock
On June 2, 1999, Case called for the redemption of all 1.5 million
outstanding shares of its Series A Cumulative Convertible Preferred Stock
("Series A Preferred Stock") on July 6, 1999. All holders of Series A
Preferred Stock elected to convert each share of such stock into 2.2686 shares
of Case Common Stock, prior to the time of redemption. As of June 30, 1999,
1,187,325 shares of Series A Preferred Stock had been so converted into Case
Common Stock, and the remaining 312,675 shares of such stock were converted on
July 6, 1999.
(13) Subsequent Event
On July 27, 1999, Case Credit issued $200 million of its commercial paper
that was subsequently purchased by a subsidiary of Fiat S.p.A. The commercial
paper matures on August 26, 1999, and bears interest at market rates. Also see
Note 11, "Agreement and Plan of Merger."
16
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Three Months Ended June 30, 1999 vs. Three Months Ended June 30, 1998
Analysis of Results of Operations
Summary of Revenues
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 and offers a broad array of financial products
and services. As used herein, "Case Industrial" refers to the Company's
agricultural and construction equipment operations. Case's financial services
business is provided through Case Capital Corporation, including its wholly
owned subsidiary Case Credit(R) Corporation ("Case Credit") and their
subsidiaries and joint ventures (collectively, "Case Capital" or "Financial
Services"). Case Capital provides and administers financing for the retail
purchase or lease of new and used Case and other agricultural and construction
equipment and other products to end-use customers. Case's revenues for the
second quarter of 1999 and 1998 were derived from the following sources (in
millions):
<TABLE>
<CAPTION>
For the Three
Months Ended
June 30,
-------------
1999 1998
------ ------
<S> <C> <C>
Revenues:
Net sales:
Agricultural equipment.................................. $ 756 $1,016
Construction equipment.................................. 590 630
------ ------
Total net sales....................................... 1,346 1,646
Financial services........................................ 117 80
Other revenues............................................ 7 8
------ ------
Total revenues........................................ $1,470 $1,734
====== ======
</TABLE>
Case's sales are derived from the manufacture and distribution of a full
line of farm equipment and light- to medium-sized construction equipment, and
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,
and the other factors set forth below under "Outlook." During the second
quarter of 1999 and 1998, net sales of Case products were made into the
following geographic regions (in millions):
<TABLE>
<CAPTION>
For the Three
Months Ended
June 30,
-------------
1999 1998
------ ------
<S> <C> <C>
Net sales:
North America............................................. $ 722 $ 924
Europe*................................................... 491 557
Asia Pacific.............................................. 73 77
Latin America............................................. 60 88
------ ------
Total net sales......................................... $1,346 $1,646
====== ======
</TABLE>
- --------
*Includes Africa and Middle East
Revenues
On a consolidated basis, worldwide revenues decreased $264 million or 15%
in the second quarter of 1999 to $1,470 million. Net sales of farm and
construction equipment decreased $300 million or 18% to $1,346 million. The
decrease in net sales consists of a 19% volume decrease, partially offset by a
1% increase resulting from the impact of acquisitions.
17
<PAGE>
Sales in North America were $722 million in the second quarter of 1999
versus $924 million for the same period in 1998. The year-over-year decrease
primarily reflects lower sales of tractors, combines and loader/backhoes,
partially offset by increased sales of cotton pickers and skid steers. In
Europe, 1999 second quarter sales were $491 million, down 12% from the $557
million reported in the same period in 1998, primarily reflecting decreased
sales of combines and loader/backhoes, partially offset by strong sales of
large row-crop tractors. In the Company's Asia Pacific region, sales were $73
million, down slightly from the $77 million reported during the second quarter
of 1998, reflecting weaker economic conditions in that region. In the
Company's Latin American region, sales of Case agricultural and construction
equipment were $60 million, down 32% from the $88 million reported during the
same period in 1998, primarily reflecting ongoing unfavorable economic
conditions in Brazil.
In the second quarter of 1999, Case Capital revenues increased 46% to $117
million, as compared to $80 million during the same period in 1998, driven by
increased finance revenues earned on retail and other notes and finance
leases.
Earnings
The Company recorded net income of $36 million in the second quarter of
1999, down $90 million from $126 million for the second quarter of 1998.
Diluted earnings per share for the second quarter of 1999 was $0.46 as
compared to $1.61 per share in the same quarter of 1998, reflecting lower
year-over-year net income.
The Company's industrial operations recorded income, before equity income
of Case Capital, of $15 million in the second quarter of 1999 as compared to
income of $108 million in the second quarter of 1998. The Company's second
quarter operating results include the impact of aggressive actions initiated
by the Company in response to the industry-wide downturn in the agricultural
equipment market, as well as incremental expenses associated with the proposed
business merger of Case and New Holland N.V. Also see Note 11, "Agreement and
Plan of Merger." The Company continues to progressively lower agricultural
equipment production to address declining retail demand and is continuing its
cost reduction initiatives. The decrease in net income primarily resulted from
lower agricultural equipment sales, particularly higher margin, large
agricultural equipment.
Case's operating earnings for the second quarter of 1999 were $83 million
as compared to $199 million for the same period in 1998. Case defines
operating earnings as industrial earnings before interest, taxes, changes in
accounting principles, restructuring charges and extraordinary items,
including the income of Case Capital on an equity basis. Case Capital recorded
net income of $21 million in the second quarter of 1999, as compared to net
income of $18 million for the same period in 1998. A reconciliation of Case
Industrial's income to operating earnings is as follows (in millions):
<TABLE>
<CAPTION>
Case Industrial
Three Months
Ended
June 30,
-----------------
1999 1998
------- --------
<S> <C> <C>
Net income............................................... $ 36 $ 126
Income tax provision..................................... 14 47
Interest expense......................................... 33 26
------- --------
Operating earnings..................................... $ 83 $ 199
======= ========
</TABLE>
Consolidated interest expense was $76 million in the second quarter of 1999
as compared to $57 million in the second quarter of 1998. The year-over-year
increase in consolidated interest expense primarily reflects higher average
debt levels for Case Capital, largely due to the growth in Case Capital's on-
balance-sheet receivables and increased equipment on operating leases.
Interest expense for Case Industrial increased from $26 million in the second
quarter of 1998 to $33 million in the second quarter of 1999.
18
<PAGE>
Business Segment Operating Results
The following is a discussion of Case Corporation's industry segment
operating results. Case defines operating earnings as industrial earnings
before interest, taxes, changes in accounting principles, restructuring
charges and extraordinary items. Operating earnings for Case Capital are
reported on a net income basis.
Agricultural Equipment
Operating earnings for Case's worldwide agricultural equipment business
decreased from $113 million in the second quarter of 1998 to an operating loss
of $(5) million during the second quarter of 1999. The decrease in operating
earnings is primarily due to lower agricultural equipment sales in nearly all
product categories, particularly higher margin, large equipment, partially
offset by lower research, development and engineering expenses due to project
reprioritization and reductions in discretionary spending. Agricultural
equipment sales decreased $260 million or 26% in the second quarter of 1999 to
$756 million, reflecting the year-over-year global decline in the agricultural
equipment industry. Worldwide sales of high horsepower and four-wheel drive
tractors decreased 42% while worldwide sales of combines decreased 35% from
the same period last year. The lower retail demand and resulting decrease in
dealer orders were due to the continued decline in the global agricultural
market and the ongoing overall economic uncertainties in several emerging
markets. In addition, commodity prices and exports of farm commodities have
dropped substantially year-over-year, affecting large-scale production
agriculture.
Construction Equipment
Operating earnings for Case's worldwide construction equipment business
were $67 million in the second quarter of 1999 as compared to $68 million in
the second quarter of 1998. The slight year-over-year decrease in operating
earnings is primarily due to lower construction equipment sales in nearly all
product categories. Construction equipment sales decreased $40 million or 6%
in the second quarter of 1999 to $590 million, driven by decreased sales of
loader/backhoes and wheel loaders, partially offset by increased sales of skid
steers.
Financial Services
Net income for the second quarter of 1999 was $21 million as compared to
$18 million for the second quarter of 1998, reflecting higher finance income
earned on retail and other notes and finance leases and increased operating
lease income. These increases were partially offset by an increase in the
Company's credit loss provision as a result of the significant growth in Case
Credit's serviced portfolio. In addition, 1999 second quarter operating
results reflect increased interest expense due to higher average on-balance-
sheet receivables and increased equipment on operating leases, as well as
higher operating expenses in support of Case Capital's growth initiatives,
including increased depreciation expense for equipment on operating leases.
Six Months Ended June 30, 1999 vs. Six Months Ended June 30, 1998
Analysis of Results of Operations
Summary of Revenues
Case's revenues for the first six months of 1999 and 1998 were derived from
the following sources (in millions):
<TABLE>
<CAPTION>
For the Six Months
Ended June 30,
-------------------
1999 1998
--------- ---------
<S> <C> <C>
Revenues:
Net sales:
Agricultural equipment............................ $ 1,305 $ 1,799
Construction equipment............................ 1,125 1,144
--------- ---------
Total net sales................................. 2,430 2,943
Financial services.................................. 226 156
Other revenues...................................... 15 16
--------- ---------
Total revenues.................................. $ 2,671 $ 3,115
========= =========
</TABLE>
19
<PAGE>
During the fist six months of 1999 and 1998, net sales of Case products
were made into the following geographic regions (in millions):
<TABLE>
<CAPTION>
For the Six Months
Ended June 30,
-------------------
1999 1998
--------- ---------
<S> <C> <C>
Net sales:
North America....................................... $ 1,369 $ 1,694
Europe*............................................. 821 940
Asia Pacific........................................ 139 145
Latin America....................................... 101 164
--------- ---------
Total net sales................................... $ 2,430 $ 2,943
========= =========
</TABLE>
- --------
*Includes Africa and Middle East
Revenues
On a consolidated basis, worldwide revenues decreased $444 million or 14%
in the first six months of 1999 to $2,671 million. Net sales of farm equipment
and construction equipment decreased $513 million or 17% to $2,430 million.
The decrease in net sales consists of a 19% volume decrease and a 1% negative
exchange impact, partially offset by a 2% increase resulting from the impact
of acquisitions and a 1% improvement in price realization.
Sales in North America were $1,369 million in the first six months of 1999
versus $1,694 million for the same period in 1998. The year-over-year decrease
primarily reflects lower sales of tractors and combines, partially offset by
increased sales of loader/backhoes, skid steers and cotton pickers. In Europe,
sales for the first six months of 1999 were $821 million, down 13% from the
$940 million reported in the same period in 1998, primarily reflecting
decreased sales of combines, low horsepower tractors and loader/backhoes,
partially offset by increased sales of large row-crop tractors and excavators.
In the Company's Asia Pacific region, sales were $139 million, down slightly
from the $145 million reported during the first six months of 1998, reflecting
weaker economic conditions in that region. In the Company's Latin American
region, sales of Case agricultural and construction equipment were $101
million, down 38% from the $164 million reported during the same period in
1998, reflecting ongoing unfavorable economic conditions in Brazil.
In the first six months of 1999, Case Capital revenues increased 45% to
$226 million, as compared to $156 million during the same period in 1998,
primarily driven by increased finance revenues earned on retail and other
notes and finance leases.
Earnings
The Company recorded a net loss of $(12) million in the first six months of
1999, as compared to net income of $195 million in 1998. On a diluted basis,
the Company reported a per share loss of $(0.20) in the first six months of
1999, as compared to diluted earnings per share of $2.48 in the same period of
1998.
The Company's industrial operations recorded a loss, before equity income
of Case Capital, of $(53) million in the first six months of 1999, as compared
to income of $158 million in the same period of 1998. The Company's six month
operating results include the impact of aggressive actions initiated by the
Company in response to the industry-wide downturn in the agricultural
equipment market. The Company has progressively lowered agricultural equipment
production to address declining retail demand and is continuing its cost
reduction initiatives. The decrease in net income primarily resulted from a
27% decrease in agricultural equipment sales, as well as currency depreciation
in Brazil.
20
<PAGE>
Case's operating earnings for the first six months of 1999 were $45
million, as compared to $308 million for the same period in 1998. Case defines
operating earnings as industrial earnings before interest, taxes, changes in
accounting principles, restructuring charges and extraordinary items,
including the income of Case Capital on an equity basis. Case Capital recorded
net income of $41 million in the first six months of 1999, as compared to net
income of $37 million for the same period in 1998. A reconciliation of Case
Industrial's income to operating earnings is as follows (in millions):
<TABLE>
<CAPTION>
Case Industrial
Six Months
Ended June 30,
----------------
1999 1998
------- -------
<S> <C> <C>
Net income (loss)....................................... $ (12) $ 195
Income tax provision (benefit).......................... (8) 69
Interest expense........................................ 65 44
------- -------
Operating earnings.................................... $ 45 $ 308
======= =======
</TABLE>
Consolidated interest expense was $151 million in the first six months of
1999, as compared to $104 million in the first six months of 1998. The year-
over-year increase in consolidated interest expense primarily reflects higher
average debt levels for Case Capital, largely due to the growth in Case
Capital's on-balance-sheet receivables and increased equipment on operating
leases. Case Industrial's interest expense was $65 million in the first six
months of 1999 versus $44 million in the comparable period of 1998.
Case Industrial's effective income tax rate of 13% for the first six months
of 1999 was lower than the U.S. statutory rate of 35% primarily due to losses
in certain foreign jurisdictions for which no immediate tax benefit was
recognizable and foreign losses taxed at different rates, partially offset by
state tax benefits, research and development tax credits, and reductions in
the tax valuation reserves in certain foreign jurisdictions. Case Industrial's
effective tax rate of 30% for the first six months of 1998 reflects the
recognition of tax benefits from the Company's foreign sales corporation,
research and development tax credits, and net reductions in the tax valuation
reserves in certain foreign jurisdictions, partially offset by state income
taxes and foreign income taxed at different rates.
Case Capital's effective income tax rate of 37% for the first six months of
1999 was slightly higher than the U.S. statutory rate primarily due to foreign
income taxed at different rates and state income taxes. For the first six
months of 1998, Case Capital's effective tax rate of 35% was equal to the U.S.
statutory rate.
Business Segment Operating Results
The following is a discussion of Case Corporation's industry segment
operating results. Case defines operating earnings as industrial earnings
before interest, taxes, changes in accounting principles, restructuring
charges and extraordinary items. Operating earnings for Case Capital are
reported on a net income basis.
Agricultural Equipment
Operating earnings for Case's worldwide agricultural equipment business
decreased from $154 million in the first six months of 1998 to an operating
loss of $(104) million in 1999. The decrease in operating earnings is
primarily due to significantly lower year-over-year agricultural equipment
sales in nearly all product categories, particularly high margin, large
equipment, and increased selling, general and administrative expenses.
Agricultural equipment sales decreased $494 million or 27% in the first six
months of 1999 to $1,305 million, reflecting the dramatic year-over-year
global decline in the agricultural equipment industry. Worldwide sales of high
horsepower and four-wheel drive tractors decreased 43% while worldwide sales
of combines decreased 48% from the same period last year. The lower retail
demand and resulting decrease in dealer orders were due to the
21
<PAGE>
continued decline in the global agricultural market and the overall economic
uncertainties in several emerging markets. In addition, commodity prices and
exports of farm commodities have dropped substantially year-over-year,
affecting large-scale production agriculture. Selling, general and
administrative expenses in the first six months of 1999 increased over the
prior year's level primarily due to additional bad debt provisions resulting
from economic uncertainties in several emerging markets. These decreases in
operating earnings were partially offset by lower research, development and
engineering expenses due to project reprioritization and reductions in
discretionary spending, as well as benefits from the Company's restructuring
actions and ongoing cost improvement initiatives.
Construction Equipment
Operating earnings for Case's worldwide construction equipment business
decreased from $117 million in the first six months of 1998 to $108 million in
1999. The decrease in operating earnings is primarily due to the year-over-
year decline in construction equipment sales and increased selling, general
and administrative expenses, largely due to higher year-over-year advertising
and trade show costs. Research, development and engineering expenses also
increased year-over-year largely due to expenditures for new product
development. Construction equipment sales decreased $19 million or 2% in the
first six months of 1999 to $1,125 million, primarily due to decreased sales
of wheel loaders and loader/backhoes, partially offset by increased sales of
skid steers and trenchers.
Financial Services
Net income for the first six months of 1999 was $41 million as compared to
$37 million for the first six months of 1998, reflecting higher finance income
earned on retail and other notes and finance leases and increased operating
lease income. These increases were partially offset by an increase in the
Company's credit loss provision as a result of the significant growth in Case
Credit's serviced portfolio. In addition, operating results for the first six
months of 1999 reflected increased interest expense due to higher average on-
balance-sheet receivables and increased equipment on operating leases, as well
as higher operating expenses in support of Case Capital's growth initiatives,
including increased depreciation expense for equipment on operating leases.
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.
In the first six months of 1999, cash used by operating activities was $495
million. Cash used by Case Industrial and Case Capital during the first six
months was $2 million and $493 million, respectively. Net cash used by
operating activities primarily resulted from increased levels of wholesale
receivables and inventory. Net cash used by operating activities in the first
six months of 1999 was also impacted by higher year-over-year expenditures for
restructuring activities, including expenditures related to the closing of the
Company's Hamilton, Ontario, and Hugo, Minnesota, manufacturing facilities.
These uses of cash were partially offset by depreciation and amortization.
Cash used by Case Capital was $493 million as compared to $346 million in
1998, reflecting the year-over-year growth in Case Capital's on-balance-sheet
portfolio. In the first six months of 1998, cash used by operating activities
was $820 million. Cash used by Case Industrial and Case Capital during the
first six months of 1998 was $474 million and $346 million, respectively. The
net cash used by operating activities primarily resulted from increased levels
of wholesale receivables and inventory, partially offset by net income and
depreciation and amortization. The increase in wholesale and retail
receivables primarily reflects increased levels of on-balance-sheet
receivables as part of Case Capital's growth initiatives. The increase in
inventories reflects the impact of 1997 acquisitions and increased inventory
for impending shipments to the former Soviet Union in the third quarter of
1998.
22
<PAGE>
Net cash used by investing activities was $118 million and $277 million for
the first six months of 1999 and 1998, respectively. Case invested $52 million
and $49 million in property, plant and equipment during the first six months
of 1999 and 1998, respectively. Cash used by Case Capital included $74 million
and $189 million for the purchase of equipment on operating leases during the
first six months of 1999 and 1998, respectively.
Net cash provided by financing activities was $593 million for the first
six months of 1999, primarily due to the issuance of $618 million of medium-
term notes by Case Credit to repay outstanding debt and to fund its growing
portfolio. Net cash provided by financing activities was $961 million for the
first six months of 1998 and was primarily used to support increased levels of
receivables and inventories. During the first six months of 1998, Case Capital
issued an aggregate of $279 million of medium-term notes. The net proceeds
from the medium-term note issuances were used to fund Case Capital's growth
initiatives and for other corporate purposes, including the repayment of
indebtedness.
Future Liquidity and Capital Resources
The Company has various lines of credit and liquidity facilities that
include borrowings under both committed credit facilities and uncommitted
lines of credit. The Company also has the ability to issue commercial paper in
the United States, Canada, Europe and Australia. Under the terms of the
Company's commercial paper programs, the principal amount of the commercial
paper outstanding, combined with the amounts outstanding under the applicable
revolving credit facility, cannot exceed the total amount available under the
revolving credit facility.
The Company maintains sufficient committed lines of credit and liquidity
facilities to cover its expected funding needs on both a short-term and long-
term basis. The Company manages its aggregate short-term borrowings so as not
to exceed its availability under its committed lines of credit. The Company
accesses short-term debt markets, predominantly through commercial paper
issuances and uncommitted credit facilities, to fund its short-term financing
requirements and to ensure near-term liquidity. As funding needs are
determined to be of a longer-term nature, the Company may access medium- and
long-term debt markets, as appropriate and as available, to refinance short-
term borrowings and, thus, replenish its short-term liquidity. The Company's
long-term financing strategy is to maintain continuous access to the debt and
equity capital markets to accommodate its liquidity needs. Whenever necessary,
funds provided from operations are supplemented from external borrowing
sources.
Restructuring
1992 Restructuring Program
In response to depressed market conditions during the early 1990's, Case
embarked on a long-term restructuring program (the "1992 Restructuring
Program"). The Company had determined that major structural and strategic
changes were necessary in order to reduce fixed costs and excess capacity;
focus, discontinue or replace unprofitable and noncompetitive product lines;
and restructure product distribution to strengthen Case's competitive position
in the global market place.
An analysis of Case's 1992 Restructuring Program is summarized in the table
below (in millions):
<TABLE>
<CAPTION>
1999 Activity
---------------------------------
Balance at Balance at
December 31, Reserves June 30,
1998 Utilized* 1999
------------ --------- ----------
<S> <C> <C> <C>
Employee termination payments.......... $22 $(4) $18
Cost related to
closing/selling/downsizing existing
facilities............................ 11 (3) 8
Other costs............................ 4 (2) 2
--- --- ---
Total restructuring.................... $37 $(9) $28
=== === ===
</TABLE>
- --------
*Includes currency translation
23
<PAGE>
During the first six months of 1999, the Company expended $4 million for
employee termination payments related to the final severance, outplacement and
other benefit payments related to the closure of the Neuss, Germany,
facilities. The remaining reserve balance of $18 million for employee
termination payments at June 30, 1999, is for costs to complete the
outsourcing and rationalization of selected parts production and manufacturing
at the Company's component plants in France, as well as the rationalization of
company-owned retail stores in Europe.
During the first half of 1999, the Company expended $3 million for the
closure of the Neuss headquarters and administrative offices. The closure of
the Neuss headquarters operations has now been completed, and all Neuss
administrative operations have been integrated into other existing Case
facilities.
The June 30, 1999, reserve balance of $8 million for costs related to
closing/selling/downsizing existing facilities includes all final closure/sale
costs for the rationalization of nine company-owned retail stores in Europe.
The Company has entered into negotiations for the sale of these stores, and
management currently anticipates that all of the stores will be
sold/rationalized by December 31, 1999.
During the first six months of 1999, the Company expended $2 million for
legal and professional fees associated with the retail store negotiations and
the closure of the Neuss headquarters and administrative offices. The $2
million reserve balance is for remaining legal and professional fees for the
rationalization of the nine company-owned retail stores in Europe.
Management believes that the reserve balance of $28 million at June 30,
1999, is adequate to complete the remaining actions as outlined under the 1992
Restructuring Program, and the Company anticipates that all actions under this
program will be completed by December 31, 1999.
1998 Restructuring Program
In 1998 the worldwide retail demand for agricultural equipment declined
significantly from the strong levels of the past several years. To address the
global decline in the agricultural equipment industry, Case progressively
lowered its agricultural equipment production levels and took a number of
aggressive actions to further strengthen the Company's competitive position in
the global agricultural equipment industry.
During the fourth quarter of 1998, the Company recorded a restructuring
charge of $132 million ($96 million after tax) related to the announced
closure of its Hamilton, Ontario, and Hugo, Minnesota, manufacturing
facilities, as well as other actions that include a worldwide workforce
reduction, including contract and temporary personnel, of 2,600 (the "1998
Restructuring Program").
An analysis of Case's 1998 Restructuring Program is summarized in the table
below (in millions):
<TABLE>
<CAPTION>
1998 Activity 1999 Activity
----------------------- ---------------------------------
1998 Balance at Balance at
Restructuring Reserves December 31, Reserves June 30,
Program Utilized* 1998 Utilized* 1999
------------- --------- ------------ --------- ----------
<S> <C> <C> <C> <C> <C>
Employee termination
payments.................. $ 58 $ (8) $50 $(22) $28
Pension and OPRB costs..... 36 (36) -- -- --
Writedown of assets:
Property, plant and
equipment............... 25 (25) -- -- --
Cost related to
closing/selling/downsizing
existing facilities....... 12 (1) 11 (8) 3
Other costs................ 1 -- 1 -- 1
---- ---- --- ---- ---
Total restructuring.... $132 $(70) $62 $(30) $32
==== ==== === ==== ===
</TABLE>
- --------
*Includes currency translation.
24
<PAGE>
As of June 30, 1999, the Company's Hamilton, Ontario, manufacturing
facility has largely been closed, with final production at this facility to be
completed by July 31, 1999. During the second quarter, the Company also
completed the closure of its Hugo, Minnesota, manufacturing facility. The
Company has integrated the majority of the related product lines from these
facilities into other existing Case manufacturing locations in Kansas,
Illinois and North Dakota or, in some instances, it has outsourced production.
The reserve balance of $28 million for employee termination payments at
June 30, 1999, represents the remaining cash severance costs to reduce
personnel as a result of closing and/or downsizing manufacturing facilities in
the United States, Canada, Europe, Australia and Brazil. These termination
payments include the cost of severance and contractual benefits in accordance
with collective bargaining arrangements and Company policy, and also include
costs for outplacement services, medical, supplemental unemployment, and
vacation and retirement payments. As of June 30, 1999, the Company had
terminated approximately 2,400 people, including contract and temporary
personnel, under the 1998 Restructuring Program.
The reserve balance of $3 million at June 30, 1999, for costs related to
closing/selling/downsizing existing facilities, is for remaining facility exit
costs for the Hamilton closure. These facility exit costs include employee
costs associated with the plant closure after operations cease and related
legal and professional expenses. During the first six months of 1999, the
Company expended $8 million for closure costs related to Hamilton and Hugo, as
well as for costs to terminate dealer contracts as a direct result of
downsizing Case agricultural equipment operations in Germany, Brazil and
Argentina.
Other costs of $1 million at June 30, 1999, are primarily for incremental
legal and professional costs to support the 1998 Restructuring Program.
Management believes that the restructuring reserve balance of $32 million
at June 30, 1999, is adequate to complete all remaining activities as outlined
under the 1998 Restructuring Program, and the Company anticipates that all
actions under this program will be completed by December 31, 1999.
The Company expects to fund the cash requirements of its 1992 and 1998
Restructuring Programs with cash flows from operations and additional
borrowings under the Company's existing credit facilities. The specific
restructuring measures and associated estimated costs were based on
management's best business judgment under prevailing circumstances. If future
events warrant changes to the reserve, such adjustments will be reflected as
"Restructuring charges" in the applicable statements of income.
Year 2000
Case Corporation understands that it is important to our customers and
stakeholders that Case's products, services and internal systems are not
adversely affected by the Year 2000. Case has implemented procedures that it
deems necessary to safeguard the Company from computer-related issues
associated with adverse effects as a result of improperly recognizing the
millennial date change. These procedures include, where necessary, the
inventorying/assessing, planning, constructing/testing, and
implementing/certifying of critical internal-use hardware and software
systems, as well as other embedded systems in the Company's manufacturing
plants, other buildings, equipment and other infrastructure. The Company
believes that these procedures will adequately address both the information
technology and non-information technology aspects of our business. Based upon
its review and efforts to date, the Company believes that future external and
internal costs to be incurred for the modification of internal-use software to
address Year 2000 issues will not have a material adverse effect on Case's
financial position, cash flows or results of operations.
The Company believes, based upon its review and efforts to date, that
external and internal remediation costs to be incurred for the modification of
internal-use software to address Year 2000 issues will, in the aggregate,
approximate $40 million to $45 million. As of June 30, 1999, the Company has
incurred approximately $31 million of costs for Year 2000 remediation, and the
Company currently anticipates that remaining Year 2000 remediation costs will
approximate $9 million for the balance of 1999 and $3 million in
25
<PAGE>
2000. These cost estimates include the costs of external contractors, non-
capitalizable purchases of software and hardware, and the direct cost of
internal employees working on Year 2000 projects. Case maintains a process
that tracks the cost and time of external contractors, however, the Company
does not separately track its own internal costs incurred for the Year 2000
project. Internal costs are compiled principally from the related payroll
records for those personnel directly working on the Year 2000 effort. The
Company's cost estimate does not include the cost of implementing contingency
plans, which are in the process of being developed, and also does not include
any potential litigation or warranty costs related to Year 2000 issues if the
Company's remediation efforts are not successful.
Case has also undertaken a program to alert its suppliers and dealers of
Year 2000 issues. Based on its contacts with suppliers and dealers, the
Company believes that a majority of our most important suppliers are Year 2000
compliant, and the Company anticipates that most of its dealers will be Year
2000 compliant by September 30, 1999. Case will continue to work with its
remaining suppliers and its dealers throughout 1999 to secure Year 2000
compliance by December 31, 1999. Based on third-party representations and
internal testing, and subject to the Company's ongoing compliance efforts, the
costs and uncertainties relating to timely resolution of Year 2000 issues
applicable to the Company's business and operations are not reasonably
expected by the Company to have a material adverse effect on Case's financial
position, cash flows or results of operations. For those suppliers and dealers
that have not adequately responded to our Year 2000 concerns, we are following
up to ultimately achieve an acceptable level of compliance within our supply
chain. As there can be no assurance that an acceptable level of Year 2000
compliance will be achieved, Case is in the process of developing contingency
plans to address potential issues.
Case has completed all steps with regards to Year 2000 compliance that it
considers necessary regarding its agricultural and construction equipment and,
as a result, the Company has no information to suggest that its agricultural
and construction equipment is not Year 2000 compliant. The Company believes,
based on its review and testing, that products purchased from Case will
accurately determine chronological dates and accurately perform all
calculations and data manipulations based upon such dates.
Based upon Case's review and efforts to date, the Company currently
anticipates completion of critical Year 2000 compliance issues by September
30, 1999, and the Company plans to continue integration testing throughout the
balance of 1999. If Case's Year 2000 compliance efforts, as well as the
efforts of the Company's suppliers and dealers, individually and in the
aggregate, are not successful, it could have a material adverse effect on the
Company's financial position, cash flows and results of operations. Factors
that could cause actual results to differ include unanticipated supplier or
dealer failures, disruption of utilities, transportation or telecommunications
breakdowns, foreign or domestic governmental failures, as well as
unanticipated failures on our part to address Year 2000 related issues. The
Company's most reasonably likely worst case scenario in light of these risks
would involve a potential loss in sales resulting from order, production and
shipping delays throughout the Company's supply chain caused by Year 2000
related disruptions. The degree of sales loss impact would depend on the
severity of the disruption, the time required to correct it, whether the sales
loss was temporary or permanent, and the degree to which our primary
competitors were also impacted by the disruption. The Company is in the
process of developing Year 2000 contingency plans that will be designed to
mitigate the impact on the Company if its Year 2000 compliance efforts are not
successful. The Company's contingency plans are targeted for a September 30,
1999 completion, with plan audits and testing to continue throughout the
balance of 1999. Case's contingency plans may include the use of alternative
systems and non-computerized approaches to our business including manual
procedures for machine operation, collecting and reporting of its business
information, as well as alternative sources of supply. At this time, the
Company has not determined whether it will be necessary to stockpile inventory
or supplies as part of its contingency plans.
The information included in this "Year 2000" section represents forward-
looking statements and involves risks and uncertainties that could cause
actual results to differ materially from those in the forward-looking
statements.
26
<PAGE>
Outlook
The market conditions for Case's agricultural and construction equipment
and financial services businesses vary by regions of the world.
Demand for agricultural equipment continued to decline during the second
quarter of 1999. This decline is the result of low commodity prices, driven by
high grain stock levels and lower exports of farm commodities to Asia and
other markets. The decline in exports has particularly affected large-scale,
production agriculture farmers. Strong spring plantings and favorable growing
conditions have resulted in an improved 1999 harvest outlook. In addition,
financing for equipment purchases in emerging markets is expected to remain
extremely difficult. As a result of these factors, the Company now expects
retail sales of higher margin, production agricultural equipment in North
America to decline by approximately 35 percent in 1999, while worldwide sales
of agricultural equipment are expected to remain at approximately 8 to 10
percent lower than the previous year.
The global outlook for the construction equipment market differs by region.
In North America, demand is stable due to continued strong housing
construction activity and increased infrastructure spending in the United
States. Interest rate conditions remain favorable for construction activity.
In Europe, the market has improved over previous expectations as stronger
market conditions in France and the United Kingdom are expected to keep sales
steady with last year, despite declines in Germany and the Africa/Middle East
region. In the Asia Pacific region, business conditions have stabilized and
the company expects construction equipment sales to rise slightly from low
1998 levels. In Latin America, construction activity continues to be markedly
lower as government spending and commercial privatization has slowed due to
economic conditions there, principally in Brazil. In total, worldwide
construction equipment sales in 1999 are expected to remain unchanged from
1998 levels.
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 and its customers'
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), the effect of conversion to the Euro,
technological difficulties (including Year 2000), changes in environmental
laws, and employee and labor relations. Further information concerning factors
that could significantly impact expected results is included in the following
sections of the Company's Form 10-K/A Annual Report for 1998, as filed with
the Securities and Exchange Commission: Business--Employees, Business--
Environmental Matters, Business--Significant International Operations,
Business--Seasonality and Production Schedules, Business--Competition, Legal
Proceedings, and Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Derivatives
The Company uses derivative financial instruments to manage its foreign
currency and interest rate exposures. Case does not hold or issue financial
instruments for trading purposes. For information regarding Case's foreign
currency and interest rate risk management, reference is made to Item 7 and
Note 12 to the Case Financial Statements in the Company's 1998 Annual Report
on Form 10-K/A. There has been no material change in the Company's market risk
exposures that affect the quantitative and qualitative disclosures as
presented as of December 31, 1998.
27
<PAGE>
Agreement and Plan of Merger
On May 15, 1999, Case Corporation, a Delaware corporation ("Case"), Fiat
S.p.A., a company organized under the laws of Italy, New Holland N.V., a
company organized under the laws of the Netherlands, and Fiat Acquisition
Corporation, a Delaware corporation and a wholly owned subsidiary of Fiat
("Merger Sub"), entered into an Agreement and Plan of Merger whereby Merger
Sub will merge (the "Merger") with and into Case, with Case as the surviving
corporation in the Merger (the "Merger Agreement"). At the effective time of
the Merger, each share of Case Common Stock, par value $0.01 per share,
outstanding immediately prior to the effective time of the Merger will be
converted into the right to receive $55 in cash. Consummation of the Merger is
subject to a number of conditions, including (i) the approval and adoption of
the Merger Agreement by the stockholders of Case entitled to vote thereon,
(ii) the expiration of all required regulatory waiting periods applicable to
the Merger, and (iii) certain other customary conditions.
A Special Meeting of Stockholders will be held on August 17, 1999, for the
purpose of considering and voting on a proposal to approve and adopt the
Merger Agreement.
Redemption of Series A Cumulative Convertible Preferred Stock
On June 2, 1999, Case called for the redemption of all 1.5 million
outstanding shares of its Series A Cumulative Convertible Preferred Stock
("Series A Preferred Stock") on July 6, 1999. All holders of Series A
Preferred Stock elected to convert each share of such stock into 2.2686 shares
of Case Common Stock prior to the time of redemption. As of June 30, 1999,
1,187,325 shares of Series A Preferred Stock had been so converted into Case
Common Stock, and the remaining 312,675 shares of such stock were converted on
July 6, 1999.
Subsequent Event
On July 27, 1999, Case Credit issued $200 million of its commercial paper
that was subsequently purchased by a subsidiary of Fiat S.p.A. The commercial
paper matures on August 26, 1999, and bears interest at market rates.
28
<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
For a description of legal proceedings to which the Company is party, see
footnote 7 to the Case financial statements included in this Form 10-Q.
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders of the Company was held on May 12, 1999.
At the meeting, stockholders voted upon (i) the election of a Board of
Directors to serve until the 2000 Annual Meeting of Stockholders and until
their successors are elected and have qualified, (ii) the Case Corporation
Employee Stock Purchase Plan as amended, and (iii) the appointment of Arthur
Andersen LLP as independent public accountants for the year 1999. Proxies for
the meeting were solicited pursuant to Regulation 14 under the Securities
Exchange Act of 1934. There were 64,320,474 shares of common stock present at
the meeting in person or by proxy, each such share being entitled to one vote
on each matter being voted upon.
There was no solicitation in opposition to management's nominees for
director as listed in the proxy statement for the meeting and all such
nominees were elected by the following vote:
<TABLE>
<CAPTION>
Nominee Votes For Votes Withheld
------- ---------- --------------
<S> <C> <C>
Pei-yuan Chia................................... 63,587,744 732,730
Ronald E. Goldsberry............................ 63,598,291 722,183
Jeffery T. Grade................................ 63,580,233 740,241
Thomas R. Hodgson............................... 63,599,994 720,480
Katherine M. Hudson............................. 63,594,820 725,654
Gerald Rosenfeld................................ 63,276,626 1,043,848
Jean-Pierre Rosso............................... 63,575,303 745,171
Theodore R. Tetzlaff............................ 63,215,980 1,104,494
</TABLE>
The Case Corporation Employee Stock Purchase Plan as amended was approved
by the following vote:
<TABLE>
<CAPTION>
Votes For Votes Against Abstentions
--------- ------------- -----------
<S> <C> <C>
55,388,444 8,803,211 128,819
</TABLE>
The appointment of Arthur Andersen LLP as independent public accountants
was approved by the following vote:
<TABLE>
<CAPTION>
Votes For Votes Against Abstentions
--------- ------------- -----------
<S> <C> <C>
64,008,003 116,160 196,311
</TABLE>
There were no broker non-votes on any of the aforementioned matters at the
meeting.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
A list of the exhibits included as part of this Form 10-Q is set forth in
the Index to Exhibits that immediately precedes such exhibits, which is
incorporated herein by reference.
(b) Reports on Form 8-K.
In a Current Report on Form 8-K dated April 19, 1999, the Company reported
the issuance of a press release disclosing, among other things, its unaudited
financial results for the quarter ended March 31, 1999.
29
<PAGE>
In a Current Report on Form 8-K dated May 15, 1999, the Company reported (i)
the Agreement and Plan of Merger, dated as of May 15, 1999, by and among Case
Corporation, Fiat S.p.A., New Holland N.V. and Fiat Acquisition Corporation and
Amendment No. 2 to the Rights Agreement, dated as of December 8, 1995, between
Case Corporation and First Chicago Trust Company of New York, as Rights Agent
and (ii) the issuance of a press release on May 17, 1999 disclosing the
existence of said Agreement and Plan of Merger.
In a Current Report on Form 8-K dated June 2, 1999, the Company reported the
issuance of a press release disclosing, among other things, the Company's call
for redemption of all of its issued and outstanding Series A Cumulative
Convertible Preferred Stock on July 6, 1999.
30
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Case Corporation
/s/ Theodore R. French
By __________________________________
Theodore R. French
President, Financial Services, and
Chief Financial Officer
(Principal Financial Officer and
authorized signatory for Case
Corporation)
Date: August 2, 1999
31
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequential
Exhibit Page
Number Description of Exhibits Number
------- ----------------------- ----------
<C> <S> <C>
4 The Company hereby agrees to furnish to the Securities
and Exchange Commission,
upon its request, the instruments with respect to its
guaranty of certain indebtedness issued by its
subsidiaries, which indebtedness does not exceed 10% of
the Company's total consolidated assets.
11 Computation of Earnings Per Share of Common Stock.
12 Computation of Ratio of Earnings to Fixed Charges and
Preferred Dividends.
27 Financial Data Schedule
</TABLE>
32
<PAGE>
EXHIBIT 11
CASE CORPORATION AND CONSOLIDATED SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE OF COMMON STOCK
(in millions, except share amounts)
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
June 30, June 30,
-------------- -------------
1999 1998 1999 1998
------ ------ ------ -----
<S> <C> <C> <C> <C>
Computations for Statements of Income
Basic
Net income (loss)............................. $ 36 $ 126 $ (12) $ 195
Less: Preferred stock dividends............... (1) (1) (3) (3)
------ ------ ------ -----
Net income (loss) after preferred stock
dividends.................................... $ 35 $ 125 $ (15) $ 192
====== ====== ====== =====
Weighted-average shares outstanding........... 73.1 73.9 73.0 73.9
====== ====== ====== =====
Basic earnings (loss) per share............... $ 0.47 $ 1.68 $(0.20) $2.59
====== ====== ====== =====
Diluted
Net income (loss)............................. $ 36 $ 126 $ (12) $ 195
Less: Antidilutive preferred stock dividends.. (1) N/A (3) N/A
------ ------ ------ -----
Net income (loss) after antidilutive preferred
stock dividends.............................. $ 35 $ 126 $ (15) $ 195
====== ====== ====== =====
Weighted-average shares outstanding--Basic.... 73.1 73.9 73.0 73.9
Effect of Dilutive Securities (when dilutive):
Convertible preferred stock................. -- 3.5 -- 3.5
Stock options............................... 1.3 0.8 -- 0.9
Restricted stock............................ 0.6 0.2 -- 0.2
------ ------ ------ -----
Weighted-average shares outstanding--Diluted.... 75.0 78.4 73.0 78.5
====== ====== ====== =====
Diluted earnings (loss) per share............... $ 0.46 $ 1.61 $(0.20) $2.48
====== ====== ====== =====
</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>
Six
Months
Ended
June 30,
----------
1999 1998
---- ----
<S> <C> <C>
Net income (loss).................................................. $(12) $195
Add:
Interest......................................................... 151 104
Interest capitalized............................................. 2 --
Amortization of capitalized debt expense......................... 2 1
Portion of rentals representative of interest factor............. 6 5
Income tax expense and other taxes on income..................... 16 89
Fixed charges of unconsolidated subsidiaries..................... 4 2
---- ----
Earnings as defined............................................ $169 $396
==== ====
Interest........................................................... $151 $104
Interest capitalized............................................... 2 --
Amortization of capitalized debt expense........................... 2 1
Portion of rentals representative of interest factor............... 6 5
Fixed charges of unconsolidated subsidiaries....................... 4 2
---- ----
Fixed charges as defined....................................... $165 $112
==== ====
Preferred Dividends:
Amount declared.................................................. $ 3 $ 3
Gross-up to pre-tax based on effective rates of 371% and 31%,
respectively.................................................... $ 13 $ 4
Ratio of earnings to fixed charges and preferred dividends......... -- 3.41x
==== ====
Deficiency of earnings to fixed charges and preferred dividends.... $ (9) --
==== ====
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from
the Company's 10-Q and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 120
<SECURITIES> 0
<RECEIVABLES> 2,894
<ALLOWANCES> 0
<INVENTORY> 1,395
<CURRENT-ASSETS> 4,729
<PP&E> 2,176
<DEPRECIATION> 1,137
<TOTAL-ASSETS> 9,150
<CURRENT-LIABILITIES> 2,963
<BONDS> 3,478
18
0
<COMMON> 1
<OTHER-SE> 2,085
<TOTAL-LIABILITY-AND-EQUITY> 9,150
<SALES> 2,430
<TOTAL-REVENUES> 2,671
<CGS> 2,026
<TOTAL-COSTS> 2,458
<OTHER-EXPENSES> 58
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 151
<INCOME-PRETAX> 4
<INCOME-TAX> 0
<INCOME-CONTINUING> (12)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12)
<EPS-BASIC> (0.20)
<EPS-DILUTED> (0.20)
</TABLE>
