<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 September 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: (262) 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: 79,324,985 shares outstanding as
of September 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
Item 1. Legal Proceedings............................................... 30
Item 2. Changes in Securities........................................... *
Item 3. Defaults Upon Senior Securities................................. *
Item 4. Submission of Matters to a Vote of Security Holders............. 30
Item 5. Other Information............................................... *
Item 6. Exhibits and Reports on Form 8-K................................ 30
</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 NINE MONTHS ENDED SEPTEMBER 30, 1999 and 1998
(in millions, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Consolidated
---------------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- ------------------
1999 1998 1999 1998
--------- --------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Net sales............................ $ 1,139 $ 1,418 $ 3,569 $ 4,361
Interest income and other............ 127 116 368 288
--------- --------- -------- --------
1,266 1,534 3,937 4,649
Costs and Expenses:
Cost of goods sold................... 994 1,149 3,020 3,442
Selling, general and administrative.. 154 146 491 447
Research, development and
engineering......................... 45 58 140 167
Interest expense..................... 79 66 230 170
Other, net........................... 27 21 85 45
--------- --------- -------- --------
Income (loss) before taxes............. (33) 94 (29) 378
Income tax provision (benefit)......... (30) 31 (14) 120
--------- --------- -------- --------
(3) 63 (15) 258
Equity in income--Case Capital......... -- -- -- --
--------- --------- -------- --------
Net income (loss)...................... $ (3) $ 63 $ (15) $ 258
========= ========= ======== ========
Preferred stock dividends.............. -- 2 3 5
--------- --------- -------- --------
Net income (loss) to common............ $ (3) $ 61 $ (18) $ 253
========= ========= ======== ========
Per share data:
Basic earnings (loss) per share...... $ (0.04) $ 0.84 $ (0.24) $ 3.44
========= ========= ======== ========
Diluted earnings (loss) per share.... $ (0.04) $ 0.82 $ (0.24) $ 3.30
========= ========= ======== ========
</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 NINE MONTHS ENDED SEPTEMBER 30, 1999 and 1998
(in millions, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Case Industrial
---------------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- ------------------
1999 1998 1999 1998
--------- --------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Net sales............................ $ 1,139 $ 1,418 $ 3,569 $ 4,361
Interest income and other............ 10 11 31 27
--------- --------- -------- --------
1,149 1,429 3,600 4,388
Costs and Expenses:
Cost of goods sold................... 994 1,149 3,020 3,442
Selling, general and administrative.. 137 134 439 414
Research, development and
engineering......................... 45 58 140 167
Interest expense..................... 33 26 98 70
Other, net........................... 8 7 32 13
--------- --------- -------- --------
Income (loss) before taxes............. (68) 55 (129) 282
Income tax provision (benefit)......... (42) 17 (50) 86
--------- --------- -------- --------
(26) 38 (79) 196
Equity in income--Case Capital......... 23 25 64 62
--------- --------- -------- --------
Net income (loss)...................... $ (3) $ 63 $ (15) $ 258
========= ========= ======== ========
</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 NINE MONTHS ENDED SEPTEMBER 30, 1999 and 1998
(in millions, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Case Capital
-------------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -----------------
1999 1998 1999 1998
--------- --------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Net sales............................... $ -- $ -- $ -- $ --
Interest income and other............... 120 108 346 264
--------- --------- -------- --------
120 108 346 264
Costs and Expenses:
Cost of goods sold...................... -- -- -- --
Selling, general and administrative..... 17 12 52 33
Research, development and engineering... -- -- -- --
Interest expense........................ 49 43 141 103
Other, net.............................. 19 14 53 32
--------- --------- -------- --------
Income (loss) before taxes................ 35 39 100 96
Income tax provision (benefit)............ 12 14 36 34
--------- --------- -------- --------
23 25 64 62
Equity in income--Case Capital............ -- -- -- --
--------- --------- -------- --------
Net income (loss)......................... $ 23 $ 25 $ 64 $ 62
========= ========= ======== ========
</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 SEPTEMBER 30, 1999, AND DECEMBER 31, 1998
(in millions, except share data)
(Unaudited)
<TABLE>
<CAPTION>
Consolidated Case Industrial Case Capital
-------------------------- -------------------------- --------------------------
September 30, December 31, September 30, December 31, September 30, December 31,
ASSETS 1999 1998 1999 1998 1999 1998
------ ------------- ------------ ------------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Current Assets:
Cash and cash
equivalents........... $ 184 $ 142 $ 145 $ 107 $ 39 $ 35
Accounts and notes
receivable............ 2,680 2,476 1,477 1,594 1,223 934
Inventories............ 1,276 1,430 1,276 1,430 -- --
Deferred income taxes.. 269 272 249 252 20 20
Prepayments and other.. 53 49 50 47 3 2
------- ------- ------- ------- ------ ------
Total current assets. 4,462 4,369 3,197 3,430 1,285 991
------- ------- ------- ------- ------ ------
Long-Term Receivables... 1,796 1,938 66 326 1,702 1,593
Other Assets:
Investments in joint
ventures.............. 89 98 73 83 16 15
Investment in Case
Capital............... -- -- 529 459 -- --
Equipment on operating
leases, net........... 528 468 -- -- 528 468
Goodwill and
intangibles........... 345 358 345 358 -- --
Other.................. 508 373 228 201 308 190
------- ------- ------- ------- ------ ------
Total other assets... 1,470 1,297 1,175 1,101 852 673
------- ------- ------- ------- ------ ------
Property, Plant and
Equipment, at cost..... 2,159 2,144 2,153 2,139 6 5
Accumulated
Depreciation........... (1,117) (1,048) (1,115) (1,046) (2) (2)
------- ------- ------- ------- ------ ------
Net property, plant
and equipment....... 1,042 1,096 1,038 1,093 4 3
------- ------- ------- ------- ------ ------
Total................ $ 8,770 $ 8,700 $ 5,476 $ 5,950 $3,843 $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........ 1,029 1,310 600 766 429 550
Accounts payable....... 482 605 486 625 16 25
Restructuring
liability............. 35 99 35 99 -- --
Other accrued
liabilities........... 761 847 689 785 72 62
------- ------- ------- ------- ------ ------
Total current
liabilities......... 2,316 2,870 1,819 2,284 517 637
------- ------- ------- ------- ------ ------
Long-Term Debt.......... 3,671 3,080 990 972 2,681 2,108
Other Liabilities:
Pension benefits....... 198 205 198 205 -- --
Other postretirement
benefits.............. 184 161 184 161 -- --
Other postemployment
benefits.............. 37 37 37 37 -- --
Other.................. 211 153 97 99 114 54
------- ------- ------- ------- ------ ------
Total other
liabilities......... 630 556 516 502 114 54
------- ------- ------- ------- ------ ------
Commitments and
Contingencies (Note 7).
Minority Interest....... 8 7 6 5 2 2
Preferred Stock with
Mandatory Redemption
Provisions............. 2 77 2 77 -- --
Stockholders' Equity:
Common Stock, $0.01
par value; authorized
200,000,000 shares,
issued 84,472,857,
outstanding
79,324,985............ 1 1 1 1 -- --
Paid-in capital........ 1,578 1,430 1,578 1,430 269 269
Retained earnings...... 1,086 1,116 1,086 1,116 278 214
Accumulated other
comprehensive income.. (247) (159) (247) (159) (18) (24)
Unearned compensation
on restricted stock... (23) (31) (23) (31) -- --
Treasury stock,
5,147,872 shares, at
cost.................. (252) (247) (252) (247) -- --
------- ------- ------- ------- ------ ------
Total stockholders'
equity.............. 2,143 2,110 2,143 2,110 529 459
------- ------- ------- ------- ------ ------
Total................ $ 8,770 $ 8,700 $ 5,476 $ 5,950 $3,843 $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 NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(in millions)
(Unaudited)
<TABLE>
<CAPTION>
Consolidated Case Industrial Case Capital
-------------- ---------------- --------------
Nine Months Nine Months Nine Months
Ended Ended Ended
September 30, September 30, September 30,
-------------- ---------------- --------------
1999 1998 1999 1998 1999 1998
----- ------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Operating activities:
Net income (loss)......... $ (15) $ 258 $ (15) $ 258 $ 64 $ 62
Adjustments to reconcile
net income (loss) to net
cash provided (used) by
operating activities:
Depreciation and
amortization........... 175 135 122 106 53 29
Deferred income tax
expense (benefit)...... (2) 6 (2) 6 -- --
(Gain) loss on disposal
of fixed assets........ 2 (1) 2 (1) -- --
Cash paid for
restructuring.......... (58) (25) (58) (25) -- --
Undistributed (earnings)
loss of unconsolidated
subsidiaries........... (2) -- (66) (62) -- 1
Changes in components of
working capital:
(Increase) decrease in
receivables.......... (280) (644) 29 (379) (278) (162)
(Increase) decrease in
inventories.......... 68 (350) 68 (350) -- --
(Increase) decrease in
prepayments and other
current assets....... (5) (18) (5) (18) -- --
Increase (decrease) in
payables............. (34) (53) (54) (146) (11) (10)
Increase (decrease) in
accrued liabilities.. (63) (81) (85) (46) 22 (37)
(Increase) decrease in
long-term receivables.. 175 (197) 263 57 (78) (251)
Increase (decrease) in
other liabilities...... 84 44 35 44 49 --
Other, net.............. (186) (85) (67) (8) (129) (79)
----- ------- ------- ------- ------ ------
Net cash provided
(used) by operating
activities.......... (141) (1,011) 167 (564) (308) (447)
----- ------- ------- ------- ------ ------
Investing activities:
Proceeds from the sale of
businesses and assets.... 10 7 11 7 (1) --
Expenditures for property,
plant and equipment...... (89) (108) (88) (108) (1) --
Expenditures for equipment
on operating leases...... (108) (273) -- -- (108) (273)
Acquisitions and
investments.............. 12 (61) 12 (61) -- --
----- ------- ------- ------- ------ ------
Net cash provided
(used) by investing
activities.......... (175) (435) (65) (162) (110) (273)
----- ------- ------- ------- ------ ------
Financing activities:
Proceeds from the issuance
of long-term debt........ 515 629 22 -- 493 629
Payment of long-term debt. (6) (3) (6) (3) -- --
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........ (328) 774 (130) 726 (198) 48
Proceeds from the issuance
of common stock.......... 70 52 70 52 -- --
Repurchases of common
stock.................... -- (145) -- (145) -- --
Dividends paid (common and
preferred)............... (15) (16) (15) (16) -- --
Other, net................ 8 12 8 12 -- --
----- ------- ------- ------- ------ ------
Net cash provided
(used) by financing
activities.......... 359 1,303 (61) 626 420 677
----- ------- ------- ------- ------ ------
Effect of foreign exchange
rate changes on cash and
cash equivalents.......... (1) (1) (3) -- 2 (1)
----- ------- ------- ------- ------ ------
Increase (decrease) in cash
and cash equivalents...... $ 42 $ (144) $ 38 $ (100) $ 4 $ (44)
Cash and cash equivalents,
beginning of period....... 142 252 107 185 35 67
----- ------- ------- ------- ------ ------
Cash and cash equivalents,
end of period............. $ 184 $ 108 $ 145 $ 85 $ 39 $ 23
===== ======= ======= ======= ====== ======
Cash paid during the period
for interest.............. $ 236 $ 165 $ 117 $ 76 $ 129 $ 89
===== ======= ======= ======= ====== ======
Cash paid during the period
for taxes................. $ 47 $ 106 $ 29 $ 78 $ 18 $ 28
===== ======= ======= ======= ====== ======
</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
Stock Capital Compensation Earnings Stock Income Total
------ ------- ------------ -------- -------- ------------- ------
<CAPTION>
Comprehensive
Income
-------------
<S> <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
Translation adjustment................. -- -- -- -- -- (18) (18)
Pension liability adjustment, net of
$15 tax benefit....................... -- -- -- -- -- (39) (39)
Total................................
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)...................... -- -- -- (15) -- -- (15)
Translation adjustment................. -- -- -- -- -- (88) (88)
Total................................
Dividends declared...................... -- -- -- (15) -- -- (15)
Capital contributions on stock issuance. -- 70 -- -- -- -- 70
Conversion of Series A Cumulative
Convertible Preferred Stock............ -- 75 -- -- -- -- 75
Recognition of compensation on
restricted stock....................... -- -- 8 -- -- -- 8
Issuance of restricted stock, net of
forfeitures............................ -- 3 -- -- (5) -- (2)
--- ------ ---- ------ ----- ----- ------
Balance, September 30, 1999............. $ 1 $1,578 $(23) $1,086 $(252) $(247) $2,143
- --------------------------------------------------
=== ====== ==== ====== ===== ===== ======
<S> <C>
Balance, December 31, 1997..............
Comprehensive income:
Net income............................. $ 64
Translation adjustment................. (18)
Pension liability adjustment, net of
$15 tax benefit....................... (39)
-------------
Total................................ $ 7
=============
Dividends declared......................
Capital contributions on stock issuance.
Recognition of compensation on
restricted stock.......................
Issuance of restricted stock, net of
forfeitures............................
Acquisition of treasury stock...........
Balance, December 31, 1998..............
Comprehensive income:
Net income (loss)...................... $ (15)
Translation adjustment................. (88)
-------------
Total................................ $(103)
=============
Dividends declared......................
Capital contributions on stock issuance.
Conversion of Series A Cumulative
Convertible Preferred Stock............
Recognition of compensation on
restricted stock.......................
Issuance of restricted stock, net of
forfeitures............................
Balance, September 30, 1999.............
- --------------------------------------------------
</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 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 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 September 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
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>
September 30, December 31,
1999 1998
------------- ------------
<S> <C> <C>
Raw materials.................................. $ 227 $ 258
Work-in-process................................ 97 167
Finished goods................................. 952 1,005
------ ------
Total inventories............................ $1,276 $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 September 30,
1998 Utilized* 1999
------------ --------- -------------
<S> <C> <C> <C>
Employee termination payments....... $22 $ (6) $16
Cost related to
closing/selling/downsizing existing
facilities......................... 11 (3) 8
Other costs......................... 4 (2) 2
--- ---- ---
Total restructuring................. $37 $(11) $26
=== ==== ===
</TABLE>
- --------
*Includes currency translation.
During the first nine 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 Company also expended $2 million for employee termination
payments related to the outsourcing and rationalization of manufacturing at
the Company's component plants in France. The remaining reserve balance of $16
million for employee termination payments at September 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 nine months of 1999, the Company expended $3 million to
complete the closure of the Neuss headquarters and administrative offices. All
administrative operations at Neuss have now been integrated into other
existing Case facilities. The September 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.
During the first nine 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 the remaining legal and professional fees for
the rationalization of the nine company-owned retail stores in Europe.
Management believes that the reserve balance of $26 million at September
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.
10
<PAGE>
CASE CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(Continued)
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 September 30,
Program Utilized* 1998 Utilized* 1999
------------- --------- ------------ --------- -------------
<S> <C> <C> <C> <C> <C>
Employee termination
payments.................. $ 58 $ (8) $50 $(44) $ 6
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 (9) 2
Other costs................ 1 -- 1 -- 1
---- ---- --- ---- ---
Total restructuring........ $132 $(70) $62 $(53) $ 9
==== ==== === ==== ===
</TABLE>
- --------
*Includes currency translation.
During the third quarter of 1999, the Company completed the closure of its
Hamilton, Ontario, manufacturing facility. During the second quarter, the
Company 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 $6 million for employee termination payments at
September 30, 1999, represents the remaining cash severance costs to be paid
to 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. The Company has terminated approximately
2,500 people under the 1998 Restructuring Program as of September 30, 1999.
The reserve balance of $2 million at September 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 and related legal and
professional expenses. During the first nine months of 1999, the Company
expended $9 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 September 30, 1999, are primarily for
incremental legal and professional costs to support the 1998 Restructuring
Program.
Management believes that the restructuring reserve balance of $9 million at
September 30, 1999, is adequate to carry out the remaining actions 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
11
<PAGE>
CASE CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(Continued)
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 plus an applicable margin. 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 39% for the first nine
months of 1999 was higher than the U.S. statutory rate of 35% primarily due to
the reversal of previously recorded global tax reserves, state tax benefits,
recognition of tax benefits from the Company's foreign sales corporation and
research and development tax credits, partially offset by foreign income taxed
at different rates and losses in certain foreign jurisdictions for which no
immediate tax benefit was recognizable. Case Industrial's effective tax rate
of 30% for the first nine 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 36% for the first nine months
of 1999 was higher than the U.S. statutory tax rate of 35%, primarily due to
foreign income taxed at different rates and state income taxes. For the first
nine months of 1998, Case Capital's effective tax rate of 35% was equal to the
U.S. statutory rate.
(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
12
<PAGE>
CASE CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(Continued)
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, workers' 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.
(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 Ended Nine Months Ended
September 30, September 30,
-------------------- -------------------
1999 1998 1999 1998
--------- --------- --------- --------
<S> <C> <C> <C> <C>
Basic
Net income (loss).................. $ (3) $ 63 $ (15) $ 258
Less: Preferred stock dividends.... -- (2) (3) (5)
--------- -------- --------- --------
Net income (loss) after preferred
stock dividends................... $ (3) $ 61 $ (18) $ 253
========= ======== ========= ========
Weighted-average shares
outstanding....................... 77.4 72.6 74.5 73.4
========= ======== ========= ========
Basic earnings (loss) per share.... $ (0.04) $ 0.84 $ (0.24) $ 3.44
========= ======== ========= ========
Diluted
Net income (loss).................. $ (3) $ 63 $ (15) $ 258
Less: Antidilutive preferred stock
dividends......................... -- N/A (3) N/A
--------- -------- --------- --------
Net income (loss) after
antidilutive preferred stock
dividends......................... $ (3) $ 63 $ (18) $ 258
========= ======== ========= ========
Weighted-average shares
outstanding--Basic................ 77.4 72.6 74.5 73.4
Effect of Dilutive Securities (when
dilutive):
Convertible preferred stock...... -- 3.5 -- 3.5
Stock options.................... -- 0.5 -- 0.9
Restricted stock................. -- 0.1 -- 0.2
--------- -------- --------- --------
Weighted-average shares outstanding--
Diluted............................. 77.4 76.7 74.5 78.0
========= ======== ========= ========
Diluted earnings (loss) per share.... $ (0.04) $ 0.82 $ (0.24) $ 3.30
========= ======== ========= ========
</TABLE>
13
<PAGE>
CASE CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(Continued)
(9) Accumulated Other Comprehensive Income
The components of accumulated other comprehensive income as of September
30, 1999 and December 31, 1998, are as follows (in millions):
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
<S> <C> <C>
Cumulative translation adjustment............. $(200) $(112)
Pension liability adjustment.................. (47) (47)
----- -----
Total accumulated other comprehensive
income..................................... $(247) $(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.
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 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.
14
<PAGE>
CASE CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(Continued)
A summary of Case's reportable segment information is set forth in the
following table (in millions):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- ------------------
1999 1998 1999 1998
--------- --------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Net sales
Agricultural equipment.............. $ 709 $ 888 $ 2,014 $ 2,687
Construction equipment.............. 430 530 1,555 1,674
--------- --------- -------- --------
Total net sales................... 1,139 1,418 3,569 4,361
Financial services.................... 120 108 346 264
Other revenues........................ 7 8 22 24
--------- --------- -------- --------
Total revenues.................... $ 1,266 $ 1,534 $ 3,937 $ 4,649
========= ========= ======== ========
Segment profit (loss):
Agricultural equipment................ $ (57) $ 31 $ (161) $ 185
Construction equipment................ 22 50 130 167
Financial services.................... 23 25 64 62
--------- --------- -------- --------
Total............................. $ (12) $ 106 $ 33 $ 414
========= ========= ======== ========
</TABLE>
(11) 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.
(12) 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 ("New Holland"), 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 was held on August 17, 1999, for the
purpose of considering and voting on a proposal to approve and adopt the
Merger Agreement. The Stockholders of Case Corporation approved the proposal
to approve and adopt the Merger Agreement. Also see Item 4. "Submission of
Matters to a Vote of Security Holders."
(13) Subsequent Event
As of November 4, 1999, both the European Commission and the U.S.
Department of Justice had approved the merger of Case and New Holland as
described in footnote 12 above. In approving the merger, the European
Commission and the U.S. Department of Justice identified a number of
competitive concerns related to the
15
<PAGE>
CASE CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(Concluded)
combined operations of Case and New Holland in specified product lines and
markets. These competitive concerns have been addressed and Case and New
Holland have committed to a number of actions, including divestiture of the
following product lines and facilities:
a)Case's CX and MXC product lines and the Doncaster, United Kingdom, plant
in which they are assembled;
b)New Holland's Laverda combine harvester product line (excluding hillside
models) and the Breganze, Italy, facility in which they are made;
c)Case's large square balers assembled in Neustadt, Germany;
d)Case's Fermec brand loader/backhoe and industrial tractor product lines
and the Fermec manufacturing plant in Manchester, United Kingdom;
e)Case's ownership interest in Hay & Forage Industries in Hesston, Kansas,
a 50/50 joint venture with Agco Corporation that produces hay and forage
implements; and
f)New Holland's Versatile four-wheel drive tractor line and Genesis two-
wheel drive tractor line, along with the Winnepeg, Canada, plant in which they
are made.
In addition, to address specific market issues in Austria, the parties have
agreed to license or build the Steyr model M-948 and M-958 (and equivalent
Case IH models) for sale by a third party.
The impact of the above-mentioned divestitures represents, on a pro forma
basis, approximately 6% of the combined 1998 revenues of Case and New Holland.
As all conditions of the Merger Agreement have been met, Case and New
Holland have announced that the closing date of the merger is anticipated to
be Friday, November 12, 1999. Also see footnote 12, "Agreement and Plan of
Merger."
16
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Three Months Ended September 30, 1999 vs. Three Months Ended September 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 Corporation ("Case Credit") and their
subsidiaries and joint ventures (collectively, "Case Capital" or "Financial
Services"). Case Capital provides financing for installment sales contracts
and leases, commercial lending within the equipment industry, multiple lines
of insurance products and offers a private-label credit card. Case's revenues
for the third quarter of 1999 and 1998 were derived from the following sources
(in millions):
<TABLE>
<CAPTION>
For the Three Months
Ended September 30,
---------------------
1999 1998
---------- ----------
<S> <C> <C>
Revenues:
Net sales:
Agricultural equipment.......................... $ 709 $ 888
Construction equipment.......................... 430 530
---------- ----------
Total net sales............................... 1,139 1,418
Financial services................................ 120 108
Other revenues.................................... 7 8
---------- ----------
Total revenues................................ $ 1,266 $ 1,534
========== ==========
</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 third
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 September 30,
---------------------
1999 1998
---------- ----------
<S> <C> <C>
Net sales:
North America..................................... $ 461 $ 769
Europe*........................................... 520 472
Asia Pacific...................................... 88 77
Latin America..................................... 70 100
---------- ----------
Total net sales................................. $ 1,139 $ 1,418
========== ==========
</TABLE>
- --------
*Includes Africa and the Middle East.
Revenues
On a consolidated basis, worldwide revenues decreased $268 million or 17%
in the third quarter of 1999 to $1,266 million. Net sales of farm and
construction equipment decreased $279 million or 20% to $1,139 million. The
decrease in year-over-year third quarter net sales primarily reflects the
significant decline in sales of large-scale production agriculture equipment
in North America. During the third quarter, the Company reduced production
and, therefore, wholesale sales of higher margin agricultural equipment in
North America in an effort to keep inventories more closely aligned with lower
retail demand.
17
<PAGE>
In the third quarter of 1999, the Company experienced a substantial change
in its geographic sales mix. Sales in North America, traditionally the
Company's strongest market, were $461 million in the third quarter of 1999,
down 40% from the $769 million reported for the same period in 1998. The
dramatic year-over-year decrease primarily reflects lower sales of tractors,
combines, loader/backhoes and crawler dozers, partially offset by increased
sales of wheel loaders and skid steers. In the Company's Latin American
region, sales of Case agricultural and construction equipment were $70
million, down 30% from the $100 million reported during the same period in
1998, primarily due to ongoing unfavorable economic conditions in Brazil.
The significant declines in third quarter sales in the North American and
Latin American markets were partially offset by higher sales in the Company's
European and Asia Pacific markets. In Europe, 1999 third quarter sales were
$520 million, up 10% from the $472 million reported in the same period in
1998, primarily reflecting increased sales of combines, cotton pickers and
excavators, partially offset by lower sales of large row-crop tractors and
loader/backhoes. The increase in year-over-year sales in Europe, coupled with
a 40% decrease in sales in North America, resulted in European sales
accounting for 46% of total third quarter net sales. And in the Company's Asia
Pacific region, sales were $88 million, up 14% from the $77 million reported
during the third quarter of 1998, primarily reflecting increased sales of
tractors, combines and loader/backhoes, partially offset by lower sales of
sugar cane harvesters.
In the third quarter of 1999, Case Capital revenues increased 11% to $120
million, as compared to $108 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 a net loss of $(3) million in the third quarter of
1999, as compared to net income of $63 million in 1998. On a diluted basis,
the Company reported a per share loss of $(0.04) in the third quarter of 1999,
as compared to diluted earnings per share of $0.82 in the same period of 1998.
The Company's industrial operations recorded a loss, before equity income
of Case Capital, of $(26) million in the third quarter of 1999 as compared to
income of $38 million in the third quarter of 1998. The Company's third
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 the impact of unfavorable economics and higher
bad debt provisions. 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 in North America.
Case's operating loss for the third quarter of 1999 was $(12) million, as
compared to operating earnings of $106 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 $23 million in the third quarter of 1999, as compared
to net income of $25 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
September 30,
----------------
1999 1998
------- -------
<S> <C> <C>
Net income (loss)....................................... $ (3) $ 63
Income tax provision (benefit).......................... (42) 17
Interest expense........................................ 33 26
------- -------
Operating earnings (loss)............................. $ (12) $ 106
======= =======
</TABLE>
18
<PAGE>
Consolidated interest expense was $79 million in the third quarter of 1999
as compared to $66 million in the third quarter of 1998. The year-over-year
increase in consolidated interest expense 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.
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 $31 million in the third quarter of 1998 to an operating loss
of $(57) million during the third 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, as well as
unfavorable economics and higher bad debt provisions. This decrease in
operating earnings was partially offset by lower research, development and
engineering expenses due to project reprioritization and reductions in
discretionary spending, favorable manufacturing performance, savings from
restructuring actions and improved pricing. Agricultural equipment sales
decreased $179 million or 20% in the third quarter of 1999 to $709 million,
reflecting the year-over-year global decline in the agricultural equipment
industry. Worldwide sales of high horsepower and four-wheel drive tractors
decreased 59% while worldwide sales of combines decreased 22% 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 $22 million in the third quarter of 1999 as compared to $50 million in
the third quarter of 1998. The decrease in operating earnings is primarily due
to lower construction equipment sales and unfavorable economics, partially
offset by lower research, development and engineering expenses due to project
reprioritization and reductions in discretionary spending, favorable
manufacturing performance and savings from restructuring actions. Construction
equipment sales decreased $100 million or 19% in the third quarter of 1999 to
$430 million, driven by decreased sales of loader/backhoes, crawler dozers and
trenchers, partially offset by increased sales of excavators and skid steers.
During the third quarter, the Company began to reduce production of
construction equipment as part of its ongoing supply chain management
initiative to achieve lower inventory levels.
Financial Services
Net income for the third quarter of 1999 was $23 million as compared to $25
million for the third quarter of 1998. Revenues increased from $108 million in
the third quarter of 1998 to $120 million in the third quarter of 1999,
reflecting higher finance income earned on retail and other notes and finance
leases and increased operating lease income. The year-over-year decrease in
net income is attributed to lower margins on receivables and lower gains on
asset-backed securitizations due to a rising interest rate environment and
competitive market conditions, and additional provisions for loan losses. The
increased loan loss provisions support the significant growth in Case
Capital's serviced portfolio, as well as higher losses resulting from the
weakening agricultural market. In addition, operating results for the third
quarter 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.
19
<PAGE>
Nine Months Ended September 30, 1999 vs. Nine Months Ended September 30, 1998
Analysis of Results of Operations
Summary of Revenues
Case's revenues for the first nine months of 1999 and 1998 were derived
from the following sources (in millions):
<TABLE>
<CAPTION>
For the Nine
Months
Ended
September 30,
-------------
1999 1998
------ ------
<S> <C> <C>
Revenues:
Net sales:
Agricultural equipment.................................. $2,014 $2,687
Construction equipment.................................. 1,555 1,674
------ ------
Total net sales....................................... 3,569 4,361
Financial services........................................ 346 264
Other revenues............................................ 22 24
------ ------
Total revenues........................................ $3,937 $4,649
====== ======
</TABLE>
During the fist nine months of 1999 and 1998, net sales of Case products
were made into the following geographic regions (in millions):
<TABLE>
<CAPTION>
For the Nine
Months
Ended
September 30,
-------------
1999 1998
------ ------
<S> <C> <C>
Net sales:
North America............................................. $1,830 $2,463
Europe*................................................... 1,341 1,412
Asia Pacific.............................................. 227 222
Latin America............................................. 171 264
------ ------
Total net sales......................................... $3,569 $4,361
====== ======
</TABLE>
- --------
*Includes Africa and the Middle East.
Revenues
On a consolidated basis, worldwide revenues decreased $712 million or 15%
in the first nine months of 1999 to $3,937 million. Net sales of farm
equipment and construction equipment decreased $792 million or 18% to $3,569
million. The decrease in net sales consists of a 19% volume decrease,
partially offset by a 1% increase resulting from the impact of acquisitions.
Sales in North America were $1,830 million in the first nine months of
1999, down 26% versus the $2,463 million reported for the same period in 1998.
The year-over-year decrease primarily reflects lower sales of tractors,
combines, loader/backhoes, crawler dozers and excavators, partially offset by
increased sales of skid steers and cotton pickers. In Europe, sales for the
first nine months of 1999 were $1,341 million, down 5% from the $1,412 million
reported in the same period in 1998, primarily reflecting decreased sales of
loader/backhoes, low horsepower tractors and combines, partially offset by
increased sales of excavators, cotton pickers and large row-crop tractors. In
the Company's Asia Pacific region, sales were $227 million, up slightly from
the $222 million reported during the first nine months of 1998. In the
Company's Latin American region, sales of Case agricultural and construction
equipment were $171 million, down 35% from the $264 million reported during
the same period in 1998, reflecting ongoing unfavorable economic conditions in
Brazil.
In the first nine months of 1999, Case Capital revenues increased 31% to
$346 million, as compared to $264 million during the same period in 1998,
primarily driven by increased finance revenues earned on retail and other
notes and finance leases.
20
<PAGE>
Earnings
The Company recorded a net loss of $(15) million in the first nine months
of 1999, as compared to net income of $258 million in 1998. On a diluted
basis, the Company reported a per share loss of $(0.24) in the first nine
months of 1999, as compared to diluted earnings per share of $3.30 in the same
period of 1998.
The Company's industrial operations recorded a loss, before equity income
of Case Capital, of $(79) million in the first nine months of 1999, as
compared to income of $196 million in the same period of 1998. The Company's
nine 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, as well as the impact of unfavorable economics
and higher bad debt provisions. This decrease in operating earnings was
partially offset by favorable manufacturing performance, savings from
restructuring actions and improved pricing. 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 25% decrease in agricultural equipment sales, as
well as currency depreciation in Brazil.
Case's operating earnings for the first nine months of 1999 were $33
million, as compared to $414 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 $64 million in the first nine months of 1999, as compared to net
income of $62 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
Nine Months
Ended
September 30,
----------------
1999 1998
------- -------
<S> <C> <C>
Net income (loss)....................................... $ (15) $ 258
Income tax provision (benefit).......................... (50) 86
Interest expense........................................ 98 70
------- -------
Operating earnings.................................... $ 33 $ 414
======= =======
</TABLE>
Consolidated interest expense was $230 million in the first nine months of
1999, as compared to $170 million in the first nine months of 1998. The year-
over-year increase in consolidated interest expense primarily reflects higher
average debt levels, largely due to the growth in Case Capital's on-balance-
sheet receivables and increased equipment on operating leases.
Case Industrial's effective income tax rate of 39% for the first nine
months of 1999 was higher than the U.S. statutory rate of 35% primarily due to
the reversal of previously recorded global tax reserves, state tax benefits,
recognition of tax benefits from the Company's foreign sales corporation and
research and development tax credits, partially offset by foreign income taxed
at different rates and losses in certain foreign jurisdictions for which no
immediate tax benefit was recognizable. Case Industrial's effective tax rate
of 30% for the first nine 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 36% for the first nine months
of 1999 was higher than the U.S. statutory tax rate of 35%, primarily due to
foreign income taxed at different rates and state income taxes. For the first
nine 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.
21
<PAGE>
Agricultural Equipment
Operating earnings for Case's worldwide agricultural equipment business
decreased from $185 million in the first nine months of 1998 to an operating
loss of $(161) 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 higher margin, large
equipment, and increased selling, general and administrative expenses.
Agricultural equipment sales decreased $673 million or 25% in the first nine
months of 1999 to $2,014 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 48% while worldwide sales
of combines decreased 40% 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 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 nine 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, favorable manufacturing performance, improved pricing,
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 $167 million in the first nine months of 1998 to $130 million
in 1999. The decrease in operating earnings is primarily due to increased
selling, general and administrative expenses and other expenses. Selling,
general and administrative expenses increased primarily due to higher year-
over-year trade show costs. Research, development and engineering expenses
increased largely due to expenditures for new product development.
Construction equipment sales decreased $119 million or 7% in the first nine
months of 1999 to $1,555 million, primarily due to decreased sales of
loader/backhoes, wheel loaders and crawler dozers, partially offset by
increased sales of skid steers and excavators. These decreases in operating
earnings were partially offset by favorable manufacturing performance, savings
from the Company's restructuring actions and ongoing cost improvement
initiatives and improved pricing.
Financial Services
Net income for the first nine months of 1999 was $64 million, up slightly
as compared to $62 million for the first nine months of 1998. The improvement
in net income is attributed to higher finance income from strong growth in
receivables and finance leases, as well as increased operating lease income.
These increases were partially offset by higher operating expenses, lower
gains on asset-backed securitizations due to a rising interest rate
environment and competitive market conditions, and additional provisions for
loan losses. The increased loan loss provisions support the significant growth
in Case Capital's serviced portfolio, as well as higher losses resulting from
the weakening agricultural market. In addition, operating results for the
first nine months of 1999 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.
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 nine months of 1999, cash used by operating activities was
$141 million. Cash provided by Case Industrial during the first nine months
was $167 million and cash used by Case Capital was $308 million. Net
22
<PAGE>
cash provided by Case Industrial's operating activities was primarily due to
lower production levels which resulted in lower receivables and inventory,
partially offset 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. Cash used by
Case Capital's operating activities was $308 million, reflecting the continued
growth of Case Capital's on-balance-sheet portfolio. In the first nine months
of 1998, cash used by operating activities was $1,011 million. Cash used by
Case Industrial and Case Capital during the first nine months of 1998 was $564
million and $447 million, respectively. The net cash used by operating
activities primarily resulted from increased levels of wholesale and retail
receivables and inventory, partially offset by net income and depreciation and
amortization. The increase in wholesale and retail receivables reflects higher
levels of actual sales volumes, as well as 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 anticipated third
quarter shipments to Eastern Europe and the Commonwealth of Independent States
that, as a result of deteriorating economic conditions in these regions, did
not materialize in 1998.
Net cash used by investing activities was $175 million and $435 million for
the first nine months of 1999 and 1998, respectively. Case invested $89
million and $108 million in property, plant and equipment during the first
nine months of 1999 and 1998, respectively. Cash used by Case Capital included
$108 million and $273 million for the purchase of equipment on operating
leases during the first nine months of 1999 and 1998, respectively.
Net cash provided by financing activities was $359 million for the first
nine months of 1999, primarily due to the issuance of $618 million of medium-
term notes by Case Credit to repay outstanding debt and fund its growing
portfolio. Net cash provided by financing activities was $1,303 million for
the first nine months of 1998 and was primarily used to support increased
levels of receivables and inventories, as well as increased equipment on
operating leases. In addition, the Company used $145 million of cash to
repurchase shares of its Common Stock under its previously announced share
repurchase programs. During the first nine months of 1998, Case Credit issued
an aggregate of $629 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
23
<PAGE>
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 September 30,
1998 Utilized* 1999
------------ --------- -------------
<S> <C> <C> <C>
Employee termination payments....... $22 $ (6) $16
Cost related to
closing/selling/downsizing existing
facilities......................... 11 (3) 8
Other costs......................... 4 (2) 2
--- ---- ---
Total restructuring................. $37 $(11) $26
=== ==== ===
</TABLE>
- --------
*Includes currency translation
During the first nine 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 Company also expended $2 million for employee termination
payments related to the outsourcing and rationalization of manufacturing at
the Company's component plants in France. The remaining reserve balance of $16
million for employee termination payments at September 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 nine months of 1999, the Company expended $3 million to
complete the closure of the Neuss headquarters and administrative offices. All
administrative operations at Neuss have now been integrated into other
existing Case facilities. The September 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.
During the first nine 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 the remaining legal and professional fees for
the rationalization of the nine company-owned retail stores in Europe.
Management believes that the reserve balance of $26 million at September
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").
24
<PAGE>
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 September 30,
Program Utilized* 1998 Utilized* 1999
------------- --------- ------------ --------- -------------
<S> <C> <C> <C> <C> <C>
Employee termination
payments.................. $ 58 $ (8) $50 $(44) $ 6
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 (9) 2
Other costs................ 1 -- 1 -- 1
---- ---- --- ---- ---
Total restructuring.... $132 $(70) $62 $(53) $ 9
==== ==== === ==== ===
</TABLE>
- --------
*Includes currency translation.
During the third quarter of 1999, the Company completed the closure of its
Hamilton, Ontario, manufacturing facility. During the second quarter, the
Company 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 $6 million for employee termination payments at
September 30, 1999, represents the remaining cash severance costs to be paid
to 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. The Company has terminated approximately
2,500 people under the 1998 Restructuring Program as of September 30, 1999.
The reserve balance of $2 million at September 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 and related legal and
professional expenses. During the first nine months of 1999, the Company
expended $9 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 September 30, 1999, are primarily for
incremental legal and professional costs to support the 1998 Restructuring
Program.
Management believes that the restructuring reserve balance of $9 million at
September 30, 1999, is adequate to carry out the remaining actions 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
25
<PAGE>
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 September 30, 1999, the Company
has incurred approximately $34 million in costs for Year 2000 remediation, and
the Company currently anticipates that remaining Year 2000 remediation costs
will approximate $6 million for the balance of 1999 and $3 million in 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 or 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 its dealers and suppliers are Year 2000
compliant. 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's initial contingency plans will 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 has
completed a majority of its critical Year 2000 compliance issues, 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. As of September 30, 1999, the Company
26
<PAGE>
has completed its initial Year 2000 contingency plans that are designed to
mitigate the impact on the Company if its Year 2000 compliance efforts are not
successful. The Company will continue, throughout the remaining months in
1999, to work on developing and implementing Rapid Response Teams along with
implementing plan preparation activities and plan testing. Case's contingency
plans 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 does not plan 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.
Outlook
The market conditions for Case's agricultural and construction equipment
and financial services businesses vary by regions of the world.
Industry demand for agricultural equipment continued to decline during the
third quarter of 1999, principally in combines and row-crop tractors in North
America. This decline was driven by sustained low commodity prices, resulting
from continued high grain stock levels and historically lower exports of farm
commodities to Asia and other markets. The decline in exports has particularly
affected large-scale, production agriculture farmers. While prospects for
exports have improved, a strong 1999 harvest has kept commodity prices at low
levels. 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 industry unit sales of higher-margin, production
agricultural equipment in North America to decline by approximately 35 to 40
percent in 1999. However, due to stronger sales in Europe and Asia, worldwide
unit sales of agricultural equipment are still expected to be approximately 8
to 10 percent lower than the previous year.
The global outlook for the construction equipment market continues to be
stable, with the exception of Latin America. In North America, demand for the
balance of 1999 is expected to remain strong, supported by sustained levels of
construction activity and a healthy economy. Overall conditions remain
favorable for construction activity, even though interest rates have risen
recently. In Europe, the sales outlook continues to improve as a result of
stronger market conditions in France and the United Kingdom. In the Asia
Pacific region, business conditions have improved and the company expects
construction equipment sales to rise slightly from low 1998 levels. In Latin
America, weaker economic conditions have resulted in declines in government
spending and commercial privatization, principally in Brazil. This is driving
1999 construction activity to be significantly lower than prior year. In
total, worldwide industry unit sales of construction equipment in 1999 are
expected to remain unchanged from 1998 levels.
For the balance of 1999, the Company now expects further declines in unit
sales of Case agricultural equipment, particularly in combines and row-crop
tractors and, as a result, the Company will continue to reduce its production
to maintain inventory levels in this period of lower demand. In addition,
fourth quarter production of Case construction equipment will be lower as part
of the Company's ongoing supply chain management initiative to achieve lower
inventory levels. These actions will adversely impact Case's fourth quarter
1999 results, and the Company expects that it will be unprofitable for this
period.
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
27
<PAGE>
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.
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.
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 ("New Holland"), 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 was held on August 17, 1999, for the
purpose of considering and voting on a proposal to approve and adopt the
Merger Agreement. The Stockholders of Case Corporation approved the proposal
to approve and adopt the Merger Agreement. Also see Item 4. "Submission of
Matters to a Vote of Security Holders."
Subsequent Event
As of November 4, 1999, both the European Commission and the U.S.
Department of Justice had approved the merger of Case and New Holland as
described in "Agreement and Plan of Merger." In approving the merger, the
European Commission and the U.S. Department of Justice identified a number of
competitive concerns related to the combined operations of Case and New
Holland in specified product lines and markets. These
28
<PAGE>
competitive concerns have been addressed and Case and New Holland have
committed to a number of actions, including divestiture of the following
product lines and facilities:
(a) Case's CX and MXC product lines and the Doncaster, United Kingdom,
plant in which they are assembled;
(b) New Holland's Laverda combine harvester product line (excluding
hillside models) and the Breganze, Italy, facility in which they are
made;
(c) Case's large square balers assembled in Neustadt, Germany;
(d) Case's Fermec brand loader/backhoe and industrial tractor product lines
and the Fermec manufacturing plant in Manchester, United Kingdom;
(e) Case's ownership interest in Hay & Forage Industries in Hesston,
Kansas, a 50/50 joint venture with Agco Corporation that produces hay
and forage implements; and
(f) New Holland's Versatile four-wheel drive tractor line and Genesis two-
wheel drive tractor line, along with the Winnepeg, Canada, plant in
which they are made.
In addition, to address specific market issues in Austria, the parties have
agreed to license or build the Steyr model M-948 and M-958 (and equivalent
Case IH models) for sale by a third party.
The impact of the above-mentioned divestitures represents, on a pro forma
basis, approximately 6% of the combined 1998 revenues of Case and New Holland.
As all conditions of the Merger Agreement have been met, Case and New
Holland have announced that the closing date of the merger is anticipated to
be Friday, November 12, 1999. Also see "Agreement and Plan of Merger."
29
<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
A Special Meeting of Stockholders of the Company was held on August 17,
1999. At the meeting, stockholders voted upon a proposal for the approval and
adoption of the Agreement and Plan of Merger dated as of May 15, 1999 by and
among Fiat S.p.A., New Holland N.V., Case Corporation and Fiat Acquisition
Corporation and the transactions contemplated thereby. Proxies for the meeting
were solicited pursuant to Regulation 14 under the Securities Exchange Act of
1934. There were 55,978,346 shares of common stock present at the meeting in
person or by proxy, each such share being entitled to one vote on the matter
being voted upon.
The Agreement and Plan of Merger and the transactions contemplated thereby
was approved and adopted by the following vote, such vote representing more
than 71% of the total number of shares of common stock outstanding on the
record date for the meeting and entitled to vote:
<TABLE>
<CAPTION>
Votes For Votes Against Abstentions
--------- ------------- -----------
<S> <C> <C>
55,637,241 183,640 157,465
</TABLE>
There were no broker non-votes on the aforementioned matter 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 July 20, 1999, the Company reported
the issuance of a press release disclosing, among other things, its unaudited
financial results for the quarter ended June 30, 1999.
In a Current Report on Form 8-K dated August 17, 1999, the Company reported
the issuance of a press release disclosing, among other things, the approval
by its stockholders of the Agreement and Plan of Merger, dated as of May 15,
1999, by and among the registrant, Fiat S.p.A., New Holland N.V., and Fiat
Acquisition Corporation, and the transactions contemplated by that agreement.
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: November 10, 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>
<PAGE>
EXHIBIT 11
CASE CORPORATION AND CONSOLIDATED SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE OF COMMON STOCK
(in millions, except share amounts)
<TABLE>
<CAPTION>
Nine Months
Three Months Ended
Ended September
September 30, 30,
-------------- -------------
1999 1998 1999 1998
------- ----- ------ -----
<S> <C> <C> <C> <C>
Computations for Statements of Income
Basic
Net income (loss)............................... $ (3) $ 63 $ (15) $ 258
Less: Preferred stock dividends................. -- (2) (3) (5)
------- ----- ------ -----
Net income (loss) after preferred stock
dividends...................................... $ (3) $ 61 $ (18) $ 253
======= ===== ====== =====
Weighted--average shares outstanding............ 77.4 72.6 74.5 73.4
======= ===== ====== =====
Basic earnings (loss) per share................. $ (0.04) $0.84 $(0.24) $3.44
======= ===== ====== =====
Diluted
Net income (loss)............................... $ (3) $ 63 $ (15) $ 258
Less: Antidilutive preferred stock dividends.... -- N/A (3) N/A
------- ----- ------ -----
Net income (loss) after antidilutive preferred
stock dividends................................ $ (3) $ 63 $ (18) $ 258
======= ===== ====== =====
Weighted--average shares outstanding--Basic..... 77.4 72.6 74.5 73.4
Effect of Dilutive Securities (when dilutive):
Convertible preferred stock................... -- 3.5 -- 3.5
Stock options................................. -- 0.5 -- 0.9
Restricted stock.............................. -- 0.1 -- 0.2
------- ----- ------ -----
Weighted--average shares outstanding--Diluted... 77.4 76.7 74.5 78.0
======= ===== ====== =====
Diluted earnings (loss) per share............... $ (0.04) $0.82 $(0.24) $3.30
======= ===== ====== =====
</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>
Nine
Months
Ended
September
30,
-----------
1999 1998
---- -----
<S> <C> <C>
Net income (loss).................................................. $(15) $ 258
Add:
Interest......................................................... 230 170
Interest capitalized............................................. 4 --
Amortization of capitalized debt expense......................... 2 1
Portion of rentals representative of interest factor............. 9 9
Income tax expense (benefit) and other taxes on income........... (14) 120
Fixed charges of unconsolidated subsidiaries..................... 6 3
---- -----
Earnings as defined............................................ $222 $ 561
==== =====
Interest........................................................... $230 $ 170
Interest capitalized............................................... 4 --
Amortization of capitalized debt expense........................... 2 1
Portion of rentals representative of interest factor............... 9 9
Fixed charges of unconsolidated subsidiaries....................... 6 3
---- -----
Fixed charges as defined....................................... $251 $ 183
==== =====
Preferred Dividends:
Amount declared.................................................. $ 3 $ 5
Gross-up to pre-tax based on effective rates of 48% and 32%,
respectively ...................................................
$ 7 $ 7
Ratio of earnings to fixed charges and preferred dividends......... 2.95x
=====
Deficiency of earnings to fixed charges and preferred dividends.... $(36)
====
</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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 184
<SECURITIES> 0
<RECEIVABLES> 2,680
<ALLOWANCES> 0
<INVENTORY> 1,276
<CURRENT-ASSETS> 4,462
<PP&E> 2,159
<DEPRECIATION> 1,117
<TOTAL-ASSETS> 8,770
<CURRENT-LIABILITIES> 2,316
<BONDS> 3,671
2
0
<COMMON> 1
<OTHER-SE> 2,142
<TOTAL-LIABILITY-AND-EQUITY> 8,770
<SALES> 3,569
<TOTAL-REVENUES> 3,937
<CGS> 3,020
<TOTAL-COSTS> 3,651
<OTHER-EXPENSES> 85
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 230
<INCOME-PRETAX> (29)
<INCOME-TAX> 0
<INCOME-CONTINUING> (15)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (15)
<EPS-BASIC> (0.24)
<EPS-DILUTED> (0.24)
</TABLE>
