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DRAFT
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(Mark
One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File No. 1-13098
Case Corporation
(Exact name of registrant as specified in its charter)
Delaware 76-0433811
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
53404
700 State Street, Racine, Wisconsin (Zip Code)
(Address of principal executive
offices)
Registrant's telephone number, including area code: (414) 636-6011
Securities registered pursuant to Section 12(b) of the Act:
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Name of Each Exchange
Title of Each Class on which Registered
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Common Stock, par value $0.01 per
share New York, Chicago and Paris, France
7 1/4% Notes due 2016 New York
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Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
State the aggregate market value of the voting stock held by non-affiliates
of the registrant. The aggregate market value shall be computed by reference
to the price at which the stock was sold, or the average bid and asked prices
of such stock, as of a specified date within 60 days prior to the date of
filing.
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Class of Voting Stock and Number
of Shares Market Value Held
Held by Non-affiliates at by Non-
January 29, 1999 affiliates(2)
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Common Stock, 73,523,279
shares(1) $1,406,132,711
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(1) Does not include 497,625 shares held by Case executive officers and
directors; however, this determination does not constitute an admission of
affiliate status for any of these stockholders.
(2) Based upon the closing sale price of $19.125 on the Composite Tape for the
Common Stock on January 29, 1999.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date. Common Stock, par
value $0.01 per share, 74,020,904 shares outstanding as of January 29, 1999.
Document Incorporated by Reference:
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<CAPTION>
Part of the Form
10-K into which
Document Incorporated
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Case Corporation's Definitive Proxy Statement for the
Annual
Meeting of Stockholders to be Held May 12, 1999 Part III
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TABLE OF CONTENTS
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Page
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PART I
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Item 1. Business................................................... 3
Item 2. Properties................................................. 13
Item 3. Legal Proceedings.......................................... 13
Item 4. Submission of Matters to a Vote of Security Holders........ 13
Item 4.1. Executive Officers of the Registrant....................... 14
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters....................................... 16
Item 6. Selected Financial Data.................................... 17
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 19
Item 8. Financial Statements and Supplementary Data................ 39
Index to Financial Statements of Case Corporation and
Consolidated Subsidiaries................................. 39
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................. 76
PART III
Item 10. Directors and Executive Officers of the Registrant......... 76
Item 11. Executive Compensation..................................... 76
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................ 76
Item 13. Certain Relationships and Related Transactions............. 76
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K....................................................... 76
Financial Statements Included in Item 8.................... 76
Index to Financial Statements and Schedule Included in Item
14........................................................ 76
Schedules Omitted as Not Required or Inapplicable.......... 76
Exhibits................................................... 77
Reports on Form 8-K........................................ 77
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PART I
Item 1. Business.
Case Corporation, a Delaware corporation (the "Company"), is a leading
worldwide designer, manufacturer, marketer and distributor of farm equipment
and light- to medium-sized construction equipment and offers a broad array of
financial products and services. As used herein, "Case" refers to the Company
and its consolidated subsidiaries.
The Company's industrial operations ("Case Industrial") manufacture, market
and distribute a full line of farm equipment and light- to medium-sized
construction equipment on a worldwide basis. The Company's market position is
particularly significant in several product categories, including
loader/backhoes, skid steer loaders, large, high-horsepower farm tractors and
self-propelled combines. To facilitate the sale of its products, Case
Industrial offers wholesale financing to its dealers. Wholesale financing
consists primarily of floorplan financing and allows dealers to maintain a
representative inventory of products.
In 1998, Case's sales of farm and construction equipment represented 93% of
total revenues, and financing operations accounted for 7% of total revenues.
In 1998, Case's sales of farm equipment represented 62% of revenues from
equipment sales, and sales of construction equipment represented 38% of
revenues from equipment sales. For information concerning the revenues,
operating results and assets attributable to each of the segments in which
Case operates, see Note 18 to the Financial Statements of Case Corporation and
Consolidated Subsidiaries (the "Case Financial Statements") included in Item 8
hereof.
Case's financial services business is provided through Case Capital
Corporation, including its wholly owned subsidiary Case Credit(R) Corporation
("Case Credit") and their subsidiaries and joint ventures (collectively, "Case
Capital"). Case Capital provides and administers financing for the retail
purchase or lease of new and used Case and other agricultural and construction
equipment. Case Capital offers various types of retail financing to end-use
customers to facilitate the sale or lease of Case products in the United
States, Canada, Australia, Europe and Uzbekistan. In addition, Case Capital
facilitates and finances the sale of insurance products to retail customers,
provides financing for Case dealers and rental equipment yards, and also
provides other retail financing programs in North America, including a
private-label credit card to purchase parts, service, rentals, implements and
attachments from Case dealers. Case Capital's retail financing alternatives
are intended to be competitive with financing available from third parties.
CASE INDUSTRIAL
Agricultural Equipment
Case manufactures and distributes a broad line of farm machinery and
implements, including two-wheel and four-wheel drive tractors ranging in size
from 40 to 440 horsepower, combines, cotton pickers, hay and forage equipment,
planting and seeding equipment, soil preparation and cultivation implements,
sugar cane harvesters and material handling equipment. In 1998, the Company
introduced 16 new agricultural equipment products.
Case's tractor line covers a broad range of requirements to serve widely
varying needs of customers in the global farming industry. Large tractors,
such as the MAGNUM(TM) two-wheel drive and STEIGER(R) four-wheel drive
tractors are primarily sold to large, high-volume agricultural producers. In
1998, the Company launched a new line of MX MAGNUM(TM) and MXC series two-
wheel drive tractors and the 440 horsepower Quadtrac,(TM) four-wheel drive
tracked tractor. In 1997, Case introduced a new line of small and medium-sized
tractors, including the MX series MAXXUM(R) and C/CX series of two-wheel drive
tractors. These tractors are sold worldwide across a broader range of
applications. Case Steyr Landmaschinentechnik AG produces tractors in Austria
and markets these products primarily in Europe. Case also distributes tractors
manufactured by AGRITALIA S.p.A. and Carraro S.p.A. to meet specialized
European market requirements.
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Harvesting equipment includes combines, cotton pickers and sugar cane
harvesters. AXIAL-FLOW(R) combines are used in a broad variety of grain
harvesting applications. In 1997, the Company launched the 2300 series of
combines, as well as the 2555 COTTON-EXPRESS(R) cotton picker. COTTON-
EXPRESS(R) cotton pickers are sold to customers who require highly productive,
multi-row cotton harvesting equipment. Case also manufactures sugar cane
harvesting equipment in Australia and Brazil and markets these products
worldwide. The Company also has exclusive development, manufacturing and
marketing rights to a combine-attachment design for "ultra-narrow" row farming
that has the potential to increase farmer productivity.
Case's "Ag Systems" comprises all the agricultural equipment and
attachments that allow farmers to assemble complete systems of products for
their unique applications. Soil management and sprayers play an important role
in crop production and are key components of site-specific farming. In 1998,
Case acquired the soil management business of DMI, Inc. ("DMI"), a leading
manufacturer of soil management equipment in North America. DMI broadens
Case's line of tillage equipment with an innovative line of tillage and
fertilizer applicator products designed to manage residue, reduce soil
compaction and optimize seed bed conditions. Through Gem Sprayers Limited
("Gem"), the Company manufactures self-propelled and trailed/mounted sprayers
that incorporate advanced features, including an innovative chemical delivery
system. In 1998, Case acquired the sprayer business of the Tyler Industries
division ("Tyler") of IBOCO, Inc. The acquisition of Tyler, a designer,
manufacturer and distributor of a complete line of chemical and fertilizer
sprayers and applicators, strengthens Case's equipment line for large-scale
production agriculture and provides another application for Case's Advanced
Farming Systems ("AFS"). In addition to Case's AFS services, the recent
acquisitions of Tyler and DMI will help Case provide growers with a complete
range of equipment and information needed to bring a crop from seed to sale,
while gaining the efficiencies of working with one primary equipment and
services provider.
In 1998, Case's "Ag Systems" launched several new products including large
square balers, round balers, mower conditioners, self-propelled windrowers,
planters and material handling products that are engineered to increase yield
and productivity. EARLY-RISER(R) planter equipment, CONCORD(R) air seeding
equipment, and a broad line of tillage and cultivation implements are sold for
a variety of row-crop and small grain farming requirements. Hay and Forage
Industries, a joint venture with AGCO Corporation ("AGCO"), manufactures a
broad range of products used primarily in livestock production. Case also
distributes some "Ag Systems" products manufactured by other companies for
specific needs in various regions of the world. In 1998, Case expanded its AFS
line of hardware and software, including new AFS software programs for yield
mapping, crop modeling and crop scouting.
Agricultural equipment net sales for the year ended December 31, 1998,
included the following components: tractors 58%, combines 25%, implements 10%,
hay and forage 4%, cotton pickers 2% and sugar cane harvesters 1%.
Construction Equipment
Case manufactures and distributes a broad line of construction machinery
that primarily serves the light- to medium-sized equipment market. Product
lines include loader/backhoes, crawler and wheel excavators, wheel loaders,
crawler dozers, skid steer loaders, trenchers and rough terrain forklifts. In
1998, the Company introduced eight new construction equipment products.
Loader/backhoes are used across a large number of construction industry
segments because of their multi-function versatility and their ability to add
attachments. Case manufactures a variety of loader/backhoe models based on a
single global product structure to serve specific regional markets, including
a four-wheel steer version, a segment of growing importance in Europe.
Loader/backhoes are manufactured in North America, Europe and Brazil for sale
to customers worldwide.
Case sells a number of excavator models in different regions of the world.
In North America, Case distributes several excavator models manufactured by
Sumitomo (S.H.I.) Construction Machinery Co., Ltd. ("Sumitomo"). In 1998, Case
and Sumitomo formed a global alliance to market and manufacture hydraulic
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crawler excavators. This alliance, covering both new and existing technology,
enables Case to increase its penetration of the global excavator market and
expand its participation in a number of regions around the world. In Europe,
Case manufactures and sells a broad range of crawler and wheel excavators.
This product line includes both standard and specially-configured models. Case
also manufactures mini-excavators in Europe under license from Kobelco
Construction Machinery.
Case offers a variety of other construction equipment products worldwide.
Wheel loaders are used in a wide variety of applications and are sold in
various configurations to meet the unique needs of construction, industrial,
utility and government customers. In Europe, Case distributes additional
smaller wheel loaders manufactured by Venieri S.p.A. Case's crawler dozer line
is used primarily in grading applications, with the majority of units sold in
North America. Case skid steer loaders, including the high-end XT line of skid
steers, are sold into a continuously growing range of worldwide applications.
Trenchers are primarily used in utility applications for installation of pipe
and cable and are sold equipped with a variety of tools including cable plows,
backhoes and rock saws. Case also manufactures and sells rough terrain
forklifts, primarily in North America. In 1998, Case and Ingersoll-Rand
Company ("Ingersoll-Rand") entered into a supply agreement under which
Ingersoll-Rand supplies three models of telescopic handlers for sale as Case-
branded equipment through Case dealers in North America. Telescopic handlers
are used for material handling applications in building construction and are
among the most frequently rented pieces of construction equipment in the
United States.
Construction equipment net sales for the year ended December 31, 1998,
included the following components: loader/backhoes 46%, excavators 17%, skid
steer loaders 13%, wheel loaders 12%, crawler dozers 6%, trenchers 2% and
other 4%.
Wholesale Financing
Case provides wholesale financing to dealers in the United States, Canada,
Europe and Australia for extended periods to enable dealers to carry
representative inventories of equipment. Down payments are not required and
interest is not charged for part of the finance period. Interest-free periods
vary from three to nine months, depending upon the type of equipment. Case
strives to obtain a first priority perfected security interest in dealers'
inventories obtained from or financed by Case, and periodic physical checks
are made of those inventories. Terms to dealers require full payment when the
equipment that secures the indebtedness is sold to retail customers. After the
interest-free periods, variable market rates of interest are charged on
balances outstanding. Case also finances used equipment accepted in trade,
repossessed equipment and certain equipment from other manufacturers. In all
instances, Case strives to obtain a security interest in such equipment.
Case's wholesale finance policies in Europe are similar to those adopted in
North America and Australia, although in Europe, interest-free floorplanning
periods are generally of shorter duration. The primary function of the credit
operations in international markets outside of Europe and Australia is to
facilitate the sale of Case products by coordinating sales finance packages
with third parties. These finance sales packages are diverse and are dependent
upon the customer, product, country and government involved, and are typically
funded without recourse to Case. In some instances, Case arranges wholesale
financing through local banks. In other instances, Case assists dealers in
establishing wholesale financing arrangements directly with local lenders.
CASE CAPITAL
Case Capital provides broad-based financial services for the global
marketplace. Case Capital provides and administers financing for the retail
purchase or lease of new and used Case and other agricultural and construction
equipment. Case Capital offers various types of retail financing to end-use
customers to facilitate the sale or lease of Case products in the United
States, Canada, Australia, Europe and Uzbekistan. Case Capital's business
principally involves purchasing retail installment sales contracts from Case
dealers. In addition, Case Capital facilitates and finances the sale of
insurance products to retail customers, provides financing for Case dealers
and rental equipment yards, and also provides other retail financing programs
in North America. In North
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America, Case Capital's private-label credit card is used by customers to
purchase parts, service, rentals, implements and attachments from Case
dealers. Case Capital also provides financing options to dealers for a variety
of purposes, including inventory, working capital, real estate acquisitions,
construction and remodeling, business acquisitions, dealers systems and
service and maintenance equipment.
Established in 1957, Case Credit markets its products through the Company's
established dealer networks in North America, Australia and Europe. In 1998,
Case Capital established a strategic marketing alliance with GMAC Commercial
Mortgage Corporation that offers agricultural real estate financing through
the Case dealer network. Through an agreement with Cummins Engine Company,
Inc. ("Cummins"), Case Capital offers financing to qualified North American
retail purchasers, dealers and manufacturers of industrial equipment powered
by Cummins engines.
Soris(TM) Financial ("Soris") was established in 1998 as a brand name to
serve Case Capital's diversified client base in the agricultural,
construction, industrial mobile and other equipment industries. Soris offers a
broad range of retail and wholesale financing products, including equipment
and commercial loans and leases for North American manufacturers, dealers,
distributors and their customers. Soris also facilitates and finances the sale
of insurance products to retail customers.
In 1998, Case Capital expanded its insurance business and announced that it
is offering business insurance for U.S. equipment dealers through an alliance
with Universal Underwriters Group, a subsidiary of Zurich Insurance Company,
and other insurance underwriters. These insurance packages include a
comprehensive insurance policy written exclusively for equipment dealers.
Coverage includes, but is not limited to, property, crime, garage liability
and automotive.
Case Capital finances retail sales of equipment under installment sales
contracts with terms generally from two to six years. Guidelines for minimum
down payments vary with the type of equipment purchased and the repayment
provision selected. Down payments are generally not less than 20% for new farm
equipment and 25% for new construction equipment, and 25% and 30%,
respectively, for used farm and construction equipment. Finance charges are
sometimes waived for specified periods or reduced on products sold in
connection with sales promotions. Installment sales contracts for financing
the retail sales of equipment typically provide for retention of a first
priority perfected security interest in the equipment financed.
The primary function of credit operations outside of North America and
Australia is to coordinate sales-financing packages with third parties and to
provide financing through joint ventures and other third-party arrangements.
These sales packages are diverse and are dependent upon the customer, product,
country and government, and are generally funded without recourse to Case. In
Europe, Case Credit Europe S.A.S., a joint venture with UFB LOCABAIL SA, a
subsidiary of Compagnie Bancaire, provides financing for Case's European
dealers and retail customers. Through UzCaseagroleasing, a joint venture with
The Association of Banks of Uzbekistan, Case Capital provides financing for
the retail acquisition of new and used Case agricultural equipment in
Uzbekistan. In Europe, Argentina and Brazil, retail financing is also offered
through third-party banking arrangements, with the banks having ultimate
responsibility for underwriting and administration. In the rest of the world,
Case conducts limited retail financing activities.
Case Capital, in conjunction with Case, Case dealers and other
manufacturers and their dealers, periodically offers, as part of its marketing
strategy, below-market interest rate and waived interest rate financing to
customers. When Case Capital acquires retail installment sales contracts and
finance leases subject to below-market interest rates and waived interest rate
financing, Case Capital is compensated for the difference between market rates
and the amounts received by Case Capital (collectively, "financing
subsidies"). The cost of these financing subsidies is currently borne by the
manufacturers (and not by Case Capital) and is settled monthly. The financing
subsidies received by Case Capital are recognized as income over the term of
the contracts. If a retail contract is later sold, the financing subsidy is
recognized as part of the gain on retail notes sold. Financing subsidies paid
by Case to Case Capital are accounted for as a deduction in arriving at net
sales by Case Industrial.
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Case Capital obtains funding for its operations from a variety of sources,
including the issuance of commercial paper, medium-term notes and public debt,
the issuance of securities in asset-backed securitization ("ABS")
transactions, bank revolving credit facilities, earnings retained in the
business, and advances and equity capital from Case.
Asset-Backed Securitization Program
Limited-purpose business trusts organized by Case Credit issue asset-backed
notes and certificates in both public and private transactions. These asset-
backed securities are secured by retail installment sales contracts generated
by Case from the sale of agricultural, construction and other equipment to
retail customers, which are sold by Case Credit and its subsidiaries to the
trusts. In 1998 and 1997, limited-purpose business trusts organized by Case
Credit issued $2.1 billion and $1.8 billion, respectively, of asset-backed
securities to outside investors. The proceeds from the securitizations were
used to repay outstanding debt and to fund Case Capital's growing portfolio of
receivables.
Case Capital anticipates that, depending upon continued market interest and
other economic factors, it will continue to securitize a percentage of its
retail receivables in both the U.S. and Canadian markets. Since early 1997,
Case Capital has been retaining a larger percentage of assets on balance sheet
as opposed to selling those assets through ABS transactions. The Company
believes that this asset management strategy will generate a more stable
earnings performance for Case Capital.
Restructuring
During the fourth quarter of 1998, the Company recorded a restructuring
charge of $132 million, $96 million after tax, related to the 1999 closure of
its Hamilton, Ontario, and Hugo, Minnesota, manufacturing facilities, as well
as other actions that include a worldwide workforce reduction of 2,600 people.
For additional information, see Item 7, "Management's Discussion and Analysis
of Financial Condition and Results of Operations," and Note 5 to the Case
Financial Statements included in Item 8 hereof.
Manufacturing
Case manufactures equipment and components in 12 facilities located in
North America and 13 facilities located in Brazil, France, Germany, Austria,
Australia and the United Kingdom. Similar manufacturing techniques are
employed in the production of components for both farm and construction
equipment, resulting in certain economies and efficiencies. In 1998, the
Company announced that it would close its Hamilton, Ontario, and Hugo,
Minnesota, manufacturing facilities in 1999. The Company will integrate the
related product lines into other existing manufacturing operations in the
United States or, in some instances, it will outsource production. See
"Restructuring" above. In addition to these facilities, Case also has, through
its various joint ventures, manufacturing facilities located in Rocky Mount,
North Carolina; Hesston, Kansas; Tashkent, Uzbekistan; and Piracicaba, Brazil.
The Company has a 50% interest in a joint venture with Cummins that
manufactures a line of diesel engines at a facility in Rocky Mount, North
Carolina. The joint venture, Consolidated Diesel Company ("CDC"), provides
Case with a source of technically advanced, low cost, efficient and reliable
diesel engines that have been incorporated into many of Case's product lines.
Case also has a 50% interest in Hay and Forage Industries, a joint venture
with AGCO that manufactures hay and forage equipment at a plant in Hesston,
Kansas. Each of the co-venturers markets and sells the equipment manufactured
by the joint venture under the "Case IH(R)" and "AGCO/Hesston" brand names,
respectively, through their respective distribution systems. As part of a
global alliance, Case has a 50% interest in a joint venture with Sumitomo to
market and manufacture hydraulic crawler excavators. The joint venture, LBX
Company LLC ("LBX"), was established in September 1998 and enables Case to
increase its penetration of the global excavator market and expand its
participation in a number of regions around the world. Case also owns a
majority interest in a joint venture in Tashkent, Uzbekistan, that produces
two-row cotton pickers for sale in Uzbekistan and surrounding countries. Case
also has a 50% interest in Brastoft, a joint venture in Piracicaba, Brazil,
that markets and sells sugar cane harvesters primarily in the Latin American
region.
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In addition to the equipment manufactured by Case and its joint ventures,
Case also purchases both agricultural and construction equipment from other
sources.
Suppliers
During 1998, Case purchased approximately $2.7 billion of material from
outside suppliers, including approximately $2.3 billion in material used to
produce products and $467 million in after-market parts and components
support. Thirty suppliers in the aggregate accounted for approximately 30% of
Case's 1998 annual purchase volume measured in dollars.
Over the years, Case has reduced the number of its North American and
European suppliers from approximately 7,000 in 1989 to approximately 3,000 at
the end of 1998. The Company believes that the reduction in the number of
suppliers has resulted in more cost-effective arrangements, reduced investment
requirements, provided greater access to technology developments and resulted
in lower per-unit costs. As a result, however, Case's dependence on its
remaining suppliers has increased, although in most instances, the products
purchased from Case's suppliers are available from other sources.
Distribution and Sales
Case sells and distributes its products through an extensive network of
independent dealers and distributors in more than 150 countries worldwide.
Dealers typically sell either farm equipment or construction equipment,
although some dealers sell both types of equipment.
In most established markets, the distribution of Case products is
accomplished through the dealer network. In other parts of the world, Case
products are sold initially to distributors and then to dealers (or initially
to dealers and then to sub-dealers), leveraging distributor expertise and
minimizing Case's marketing costs. Distributors generally have responsibility
for the marketing of goods in very large geographic regions, including entire
countries.
Dealer terminations, voluntary and involuntary, have historically averaged
between 6% and 7% annually, worldwide. In North America, Case is contractually
obligated to repurchase new equipment and related parts, business signs and
manuals from terminated dealers. The repurchase price for new equipment is the
net price paid by the dealer or the current net price offered to dealers,
whichever is lower, plus freight previously incurred by the dealer. Outside of
North America, repurchase obligations and practices vary by region.
In addition to the contractual repurchase obligation, various states and
countries have agricultural and construction equipment dealership laws that
require Case to repurchase new equipment and related parts at statutory
amounts. In many areas, the statutory repurchase amount for new equipment is
at net cost, and for related parts, the price varies from 85% to 100% of the
current dealer net price. The dealer may elect either the contractual
repurchase provision or the statutory repurchase provision. Case repurchases
new equipment and related parts whether the termination is voluntary or
involuntary. The dealer and Case generally negotiate an agreed-upon purchase
price for used equipment financed by Case, but if Case and the dealer cannot
agree, a sale is typically held and the proceeds are applied against any debt
owed by the dealer to Case.
Research, Development and Engineering
Case's research, development and engineering personnel design, engineer,
manufacture and test new products, components and systems. Case incurred $224
million, $196 million and $193 million of research, development and
engineering costs in the years ended December 31, 1998, 1997 and 1996,
respectively. Case also benefits from the research, development and
engineering expenditures of its joint ventures, CDC, Hay and Forage Industries
and LBX, which are not included in Case's research, development and
engineering expenditure figures, and from the continuing engineering efforts
of its suppliers.
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Patents and Trademarks
Case owns and licenses the rights under a number of domestic and foreign
patents and trademarks relating to its products and businesses. Case
manufactures and distributes equipment primarily under the names "Case," "Case
IH," "Steyr," "Austoft," "Concord," "Tyler," "DMI," "Fermec" and "Case
Poclain." While the Company considers the patents and trademarks, including
the Case and IH tradenames, important in the operation of its business, the
Company does not believe that its business is dependent on any single patent
or trademark or group of patents or trademarks.
Employees
At January 29, 1999, Case had approximately 17,700 employees, as compared
to 18,300 employees at February 28, 1998. The year-over-year headcount
reduction reflects restructuring-related headcount eliminations, partially
offset by additional employees from the 1998 acquisitions of DMI and Tyler. As
announced during the fourth quarter of 1998, the Company will realize
additional headcount reductions upon the 1999 closure of its Hamilton,
Ontario, and Hugo, Minnesota, manufacturing facilities. For additional
information, see Item 1, Restructuring. The Company has also announced that it
will further lower its worldwide headcount by an additional 800 people in
1999.
Most of Case's worldwide production and maintenance employees are
represented by unions. Case's collective bargaining agreement with the United
Automobile, Aerospace and Agricultural Implement Workers of America (the
"UAW"), which represents approximately 3,000 of Case's hourly production and
maintenance employees in North America, expired on March 29, 1998. In May,
UAW-represented employees ratified a new, six-year contract that will expire
on May 2, 2004. In December 1998, Case announced that it would cease
manufacturing operations at its Hamilton, Ontario, plant during 1999. Case
currently has a labor agreement with the United Steel Workers of America
("USWA") at the Hamilton facility that will expire in April 1999. It is the
Company's intention to enter into a final labor agreement with the union that
will dictate the terms of closing/termination benefits to which the employees
might be entitled. Union contracts covering Case's employees in France and the
United Kingdom expire annually and are renegotiated each year. There can be no
assurance that future contracts with the UAW, USWA or any of Case's other
union contracts will be renegotiated upon terms acceptable to Case.
Case's employees in Europe are also protected by various worker co-
determination and similar laws that afford employees, through local and
central works councils, certain rights of consultation with respect to matters
involving the business and operations of their employers, including the
downsizing or closure of facilities and the termination of employment. Over
the years, the Company has experienced various work slow-downs, stoppages and
other labor disruptions. While the Company incurred operating inefficiencies
related to the 1998 UAW negotiations, no other significant labor disruptions
occurred in the last three years.
Environmental Matters
Case's operations and products are subject to environmental regulation by
Federal, state and local authorities in the United States and regulatory
authorities with jurisdiction over its foreign operations. Case is a voluntary
participant in several government sponsored initiatives that benefit the
environment. Case has also instituted a Pollution Prevention Program to reduce
industrial waste, air emissions and water usage by incorporating adjustments
in business activity, recycling efforts and hazard assessments of raw
materials. Case has a program designed to implement environmental management
practices and compliance, to promote continuing environmental improvements and
to identify and evaluate environmental risks at manufacturing and other
facilities worldwide.
Case engines and equipment are subject to extensive statutory and
regulatory requirements that impose standards with respect to air emissions.
Case products comply with emissions standards that the U.S. Environmental
Protection Agency ("EPA") has established for non-road engines and equipment
produced through 1998. Further emissions reductions in the future from non-
road engines and equipment have been
9
<PAGE>
promulgated or are contemplated in the United States as well as by foreign
regulatory authorities in many jurisdictions throughout the world. The Company
will make significant capital and research expenditures to comply with these
standards now and in the future. Case anticipates that these costs are likely
to increase as emissions limits become more stringent. Failure to comply could
result in adverse effects on future financial results.
Case will incur capital expenditures in connection with matters relating to
environmental control and will also be required to spend additional amounts in
connection with ongoing compliance with current and future laws and
regulations. In particular, the Clean Air Act Amendments of 1990 will affect
directly the operations of all of Case's manufacturing facilities in the
United States. The manufacturing processes that will be affected include
painting, coating and foundry operations. Although capital expenditures for
environmental control equipment and compliance costs in future years will
depend on legislative, regulatory and technological developments that cannot
accurately be predicted at this time, Case anticipates that these costs are
likely to increase as environmental requirements become more stringent. Case
made capital expenditures applicable to environmental matters at its
facilities aggregating approximately $15 million in 1998. Capital expenditures
applicable to environmental matters for 1999 and 2000, not including product-
related costs, are estimated by the Company to approximate $8 million per
year. The preceding sentence is a forward-looking statement, and the actual
costs could differ materially from those currently anticipated by the Company
based on the factors discussed in this paragraph.
Pursuant to the Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA"), and other Federal and state laws that impose similar
liabilities, Case has received inquiries for information or notices of its
potential liability regarding 36 sites to which Case allegedly sent hazardous
substances for disposal ("Waste Sites"). Case has never owned or operated any
of the Waste Sites. Fifteen of the Waste Sites are on the National Priority
List promulgated pursuant to CERCLA. At 32 of the Waste Sites, the monetary
amount or extent of Case's liability has been resolved, Case has not been
named as a potentially responsible party ("PRP"), or Case's liability is
likely de minimis in comparison with other PRPs. Because estimates of
remediation costs are subject to revision as more information becomes
available about the extent and cost of remediation and because settlement
agreements can be reopened under certain circumstances, Case's potential
liability for remediation costs associated with the 36 Waste Sites could
change. Moreover, because liability under CERCLA and similar laws can be joint
and several, Case could be required to pay amounts in excess of its pro rata
share of remediation costs. However, when appropriate, Case's understanding of
the financial strength of other PRPs has been considered in the determination
of Case's potential liability. The Company believes that the costs associated
with the Waste Sites will not have a material adverse effect on the Company's
financial position or results of operations. The preceding sentence is a
forward-looking statement, and the actual costs could differ materially from
the costs currently anticipated by the Company based on the factors discussed
in this paragraph.
The Company has conducted environmental investigatory or remedial
activities at certain properties that are currently or were formerly owned
and/or operated or which are being decommissioned. The Company believes that
the outcome of these activities will not have a material adverse effect on the
Company's financial position or results of operations. The preceding sentence
is a forward-looking statement, and the actual costs could differ materially
from those costs currently anticipated due to the nature of the historical
disposal and release activities typical of manufacturing and related
operations that have occurred in the United States and other countries, and as
a result of U.S. and foreign laws which now and in the future may impose
liability for previously lawful disposal and release activities. As it has
done in the past, the Company intends to fund its costs of environmental
compliance from operating cash flows. Also see Note 15 to the Case Financial
Statements included in Item 8 hereof.
Significant International Operations
In addition to Case's U.S. manufacturing plants, Case operates
manufacturing plants in Canada, Europe, Australia, Uzbekistan and Brazil.
Approximately 54% of Case's 1998 sales were derived from the sale of its
products in countries outside of the United States. The Company has announced
that it will close its Hamilton, Ontario, manufacturing facility in 1999, and
will integrate the related product lines into other Case manufacturing
10
<PAGE>
facilities in the United States or, in some instances, it will outsource
production. For additional information, see Item 1, Restructuring.
International operations are generally subject to various risks that are not
present in domestic operations. Various foreign jurisdictions have laws
limiting the right and ability of foreign subsidiaries to pay dividends and
remit earnings to affiliated companies unless specified conditions precedent
are met. In addition, sales in foreign jurisdictions are typically made in
local currencies and transactions with foreign affiliates are customarily
accounted for in the local currency of the selling company. To the extent Case
does not take steps to mitigate the effect of changes in the relative value of
the U.S. dollar and foreign currencies, Case's results of operations and
financial condition (which are reported in U.S. dollars) could be adversely
affected by negative changes in these relative values. Also see Note 12 to the
Case Financial Statements included in Item 8 hereof, and Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Seasonality and Production Schedules
The seasonality of farm equipment retail sales by dealers to end-use
customers is directly affected by the timing of major crop activities:
tilling, planting and harvesting. The timing of these activities is impacted
by crop production and climate conditions. The second and fourth quarters are
generally the strongest demand periods for retail farm equipment sales,
normally representing approximately 31% and 27%, respectively, of sales by
Case's North American dealers. The weakest retail demand for Case farm
equipment in North America historically occurs in the first quarter,
accounting for approximately 19% of sales by Case's North American dealers.
Seasonal demand fluctuations for construction equipment are somewhat less
significant than those for farm equipment. Nevertheless, in North America,
housing construction slows down, especially in the Midwest and on the East
Coast, during the first quarter. North American retail demand for Case's
construction equipment is strongest in the second and fourth quarters, which
represent approximately 30% and 27%, respectively, of sales by Case's North
American dealers. European demand patterns are similar to those in North
America.
Sales to independent dealers closely correspond with Case's production
levels, which are based upon its estimates of the demand for its products,
taking into account the timing of dealer shipments (which are in advance of
retail demand), dealer inventory levels, the need to shut down production to
enable manufacturing facilities to be prepared for the manufacture of new or
different models, and the efficient use of manpower and facilities. Production
levels are adjusted to reflect changes in estimated demand, dealer inventory
levels, labor disruptions and other matters not within Case's control. The
Company has a multi-year supply chain management initiative that has a long-
term objective of matching production levels with retail demand. In response
to a sudden downturn in the agricultural equipment business, Case announced
major cuts to 1998 and 1999 agricultural equipment production plans in order
to align production relative to retail market demand. During 1999, Case will
produce significantly below forecasted demand in order to maintain inventories
at appropriate levels.
Competition
In the agricultural equipment industry, Case competes with four
international full-line suppliers: AGCO Corporation; Caterpillar Inc.; Deere &
Company; and New Holland N.V. In addition, there are several smaller
competitors with regional strengths. As the industry continues to consolidate,
many of the smaller regional or product niche players have been absorbed into
the bigger, full-line competitors.
In the construction equipment industry, Caterpillar Inc., Deere & Company
and New Holland N.V. are Case's major competitors within North America.
Outside of North America, competition is more diverse, varying from market to
market and depending on market segment as the construction equipment industry
has a broad spectrum of competitors that specialize in various product lines.
As with the agricultural equipment industry, the construction equipment
industry also continues to consolidate.
11
<PAGE>
Within both the agricultural and construction equipment industries, the
major competitors often form partnerships where there are mutual interests.
For example, Case and Ingersoll-Rand have a supply agreement under which
Ingersoll-Rand supplies Case with private-labeled telescopic handlers, and
Case and Sumitomo have a global alliance to market and manufacture hydraulic
crawler excavators.
The Company believes that multiple factors influence a buyer's choice of
equipment. These factors include product performance, availability of a full
product range, the strength and quality of a company's dealers, the quality
and pricing of products, brand loyalty, technological innovations, product
availability, financing terms, parts and warranty programs, resale value,
customer service and satisfaction, and timely delivery. The Company
continually seeks to improve in each of these areas but focuses primarily on
providing high-quality and high-value products and supporting those products
through its dealer network. In both the agricultural and construction
equipment industries, buyers tend to favor brands based on past experience
with the product and the dealer. Customer's perceptions of value in terms of
product productivity, reliability, resale value and dealer support are formed
over many years.
Because of the high level of investment that all of the competitors have
made to participate in our industry, competition in both the agricultural and
construction equipment industries is fierce. The principal factors affecting
competition are market share objectives, profit objectives, exchange rate
fluctuations, financial strength of supplier or retailer, technology and
quality advantages, unique product or service advantages, and product support
and distribution strength. Most of Case's competitors have certain regional or
product market share strengths that have been developed historically based on
a particular customer segment focus or distribution network depth. In some
markets, such as the North American agricultural equipment market, the nature
of competition appears to be changing. Companies that historically relied on
significant product discounting to keep manufacturing facilities fully
utilized, are now focusing more heavily on cash flow management and reducing
production levels as the retail market demand declines.
Service and Warranty
Case products are warranted to the end-user to ensure end-user confidence
in design, workmanship and material quality. Warranty lengths vary depending
on competitive standards established within individual markets. In general,
warranties tend to be for one to two years, with some at six months, and cover
all parts and labor for non-maintenance repairs and wear items, provided
operator abuse, improper use or negligence did not necessitate the repair.
Authorized independent Case dealers and distributors must perform warranty
work. Warranty on some products is limited by hours of use, and purchased
warranty is available on most products. Dealers submit claims for warranty
reimbursement to Case and are credited for the cost of repairs if the repairs
meet Case's prescribed standards. Warranty expense is accrued at the time of
sale. Purchased warranty is accrued and amortized over the life of the
warranty contract.
Case distributors and dealers provide service support outside of the
warranty period. Service personnel are trained in one of several Case training
facilities around the world or on location at the dealership by Case service
engineers or service training specialists.
Reorganization
The Company was incorporated on April 22, 1994, as a wholly owned
subsidiary of Tenneco Inc. for the purpose of acquiring Tenneco's farm and
construction equipment business (the "Case Business"). In June 1994, pursuant
to a reorganization, the Company and its subsidiaries acquired the business
and assets of the farm and construction equipment business (other than
approximately $1.1 billion of U.S. retail receivables) of Tenneco and its
subsidiaries.
12
<PAGE>
Item 2. Properties.
As of January 29, 1999, Case owns and operates 12 manufacturing facilities
with a collective floor space of approximately 8.6 million square feet in the
United States and Canada. Of these facilities, three are devoted primarily to
the manufacture of agricultural equipment and three are dedicated primarily to
the manufacture of construction equipment. The six remaining manufacturing
facilities produce both agricultural and construction equipment, including
related parts, assemblies and transmissions for Case agricultural and
construction equipment. In 1998, the Company announced that it would be
closing its Hamilton, Ontario, and Hugo, Minnesota, manufacturing facilities
in 1999. The Company will integrate the related product lines into other
existing Case facilities in the United States or, in some instances, it will
outsource production. Also see Item 1, Restructuring.
In Europe, Case owns and operates ten manufacturing facilities with a
collective floor space of approximately 0.4 million square feet. Of these
facilities, four are devoted primarily to the manufacture of agricultural
equipment and two are dedicated primarily to the manufacture of construction
equipment. The four remaining manufacturing facilities produce related parts,
assemblies and transmissions for Case agricultural and construction equipment.
The Company also has two manufacturing facilities located in Brazil for the
production of agricultural and construction equipment. The Company also has an
agricultural equipment manufacturing facility in Australia.
In addition to its manufacturing facilities, the Company has three
technology/research and development centers located in Illinois, Iowa and
North Dakota, that provide technology and research and development services to
all Case manufacturing facilities worldwide. The Company also leases various
sales offices throughout the world.
The corporate headquarters for the Company is located in Racine, Wisconsin.
In addition, Case also has, through its various joint ventures, manufacturing
facilities located in Rocky Mount, North Carolina; Hesston, Kansas; Tashkent,
Uzbekistan; and Piracicaba, Brazil. For additional information on Case's joint
ventures, see Item 1, Manufacturing.
Several of the Company's facilities are leased through operating lease
agreements. For information on operating leases, see Note 15 to the Case
Financial Statements included in Item 8 hereof. Case also owns other
facilities that are currently idle and available for sale. The Company's
Hamilton, Ontario, and Hugo, Minnesota, manufacturing facilities will be
available for sale upon the closure of these facilities in 1999.
The Company considers each of its facilities currently in use to be in good
operating condition and adequate for its present use. Management believes that
it has sufficient capacity to meet its current market demand. As a result of
the recent industry-wide downturn in the agricultural equipment market, the
Company is producing below forecasted demand in order to maintain inventories
at appropriate levels, resulting in temporary excess capacity in some of its
agricultural equipment manufacturing facilities until market conditions
improve. The Company believes that it has sufficient capacity to meet its
current construction equipment market demand.
Item 3. Legal Proceedings.
For information pertaining to legal proceedings, see Note 15 to the Case
Financial Statements included in Item 8 hereof, which is incorporated by
reference herein.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of security holders of the Company
during the fourth quarter of the fiscal year ended December 31, 1998.
13
<PAGE>
Item 4.1 Executive Officers of the Registrant.
The executive officers of the Company, their ages as of January 29, 1999,
and their present positions with the Company are set forth in the table below:
<TABLE>
<CAPTION>
Age at
January 29,
Name 1999 Office
---- ----------- ------
<C> <C> <S>
Jean-Pierre Rosso.... 58 Chairman and Chief Executive Officer, and
Director
Steven G. Lamb....... 42 President and Chief Operating Officer
Theodore R. French... 44 President, Financial Services, and Chief
Financial Officer
Richard M. Christman. 48 Senior Vice President
Richard S. Brennan... 60 General Counsel and Secretary
</TABLE>
As used in this Item 4.1, the "Company" or "Case" refers to Case
Corporation and its consolidated subsidiaries and to Tenneco Equipment
Corporation, the predecessor of Case Corporation.
Mr. Rosso has served as Chairman and Chief Executive Officer of Case since
October 1997. Prior thereto, he served as Chairman, President and Chief
Executive Officer since March 1996, and as its President and Chief Executive
Officer from April 1994, when he joined the Company. Prior to April 1994, Mr.
Rosso was President of the Home and Building Control business of Honeywell
Inc., a producer of advanced technology products, since 1992 and served as
President of that company's European operations from 1987 through 1991. Mr.
Rosso is also a director of ADC Telecommunications, Inc., Crown Cork & Seal
Company, Inc., Medtronic, Inc., and Inland Steel Industries, Inc. and its
subsidiaries, Inland Steel Company and Ryerson Tull, Inc. Mr. Rosso became a
Director of Case on April 22, 1994.
Mr. Lamb has served as President of Case since October 1997 and as its
Chief Operating Officer since March 1995. Prior to serving as President, he
served as Executive Vice President since April 1993. As Chief Operating
Officer, Mr. Lamb is responsible for worldwide industrial operations. He
previously directed the Company's business activities in Europe, Africa and
the Middle East. Prior to joining Case, he served as Executive Assistant to
the President and Chief Operating Officer of Tenneco. Previously, Mr. Lamb was
with International Paper Company from 1988 to 1992, where he served in several
key management and operational positions. Mr. Lamb is a director of Cordant
Technologies, Inc.
Mr. French has served as President, Financial Services of Case since
October 1997 and as its Chief Financial Officer since January 1992. Prior to
serving as President, Financial Services, he served as Senior Vice President
since January 1992 and as Treasurer from January 1992 until August 1994. Mr.
French also has operating responsibility for the Case finance subsidiaries and
has served as Chairman of Case Capital Corporation since its formation in
1998, and as Chairman of the Board of Case Credit Corporation since January
1996. He joined Case in 1989 as Vice President, Corporate Planning and
Development. Prior to joining Case, Mr. French spent 12 years with Rockwell
International. From 1987 to 1989, he was Director of Business Development for
Rockwell International's Automotive Operations.
Mr. Christman has served as a Senior Vice President of Case since July
1986. He leads Strategy and Corporate Development and is responsible for
strategic planning, corporate development and the management of the Company's
real estate assets. Mr. Christman joined Case in 1975 and has held various
sales and marketing positions. Beginning in 1986, Mr. Christman served for
three years as Senior Vice President, Europe Sales and Marketing, and returned
to Racine in 1989 as Senior Vice President, Parts Division.
Mr. Brennan was appointed General Counsel and Secretary of the Company in
February 1995. He has been a partner in the law firm of Mayer, Brown & Platt
since returning to that firm in 1991, and was the General Counsel of
Continental Bank Corporation from 1982 through August 1994.
14
<PAGE>
Each of the executive officers described in this Item 4.1 was elected by
the Board of Directors at its May 1998 meeting to hold office until the first
meeting of the Board of Directors following the 1999 annual meeting of
stockholders, and until his respective successor is duly elected and
qualified, unless any such executive officer is earlier removed or replaced by
the Board of Directors.
15
<PAGE>
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters.
The outstanding shares of common stock, par value $0.01 per share, of the
Company (the "Common Stock") are listed on the New York Stock Exchange, which
is the principal market for the common stock, under the symbol "CSE." The
Company's Common Stock is also listed on the Chicago Stock Exchange and the
Paris, France, Stock Exchange.
The following table sets forth the high and low sale prices of Case Common
Stock during the periods indicated on the New York Stock Exchange Composite
Transactions Tape and dividends declared per share of common stock during
these periods:
<TABLE>
<CAPTION>
Sale Prices
------------- Dividends
High Low Declared
------ ------ ---------
<S> <C> <C> <C>
1998
1st quarter..................................... $70.25 $55.44 $0.05
2nd quarter..................................... 70.31 47.13 0.05
3rd quarter..................................... 48.06 21.25 0.05
4th quarter..................................... 27.69 17.31 0.05
1997
1st quarter..................................... $59.25 $48.38 $0.05
2nd quarter..................................... 69.50 50.25 0.05
3rd quarter..................................... 71.50 61.00 0.05
4th quarter..................................... 72.94 57.25 0.05
</TABLE>
The number of holders of Case Common Stock of record as of January 29,
1999, was 5,973.
On May 14, 1997, the Company's Board of Directors authorized the purchase
from time to time of up to four million shares of the Company's Common Stock.
The purchase of Case Common Stock under this program was at the Company's
discretion, subject to prevailing financial and market conditions. This
program was completed during August 1998. During 1998 and 1997, the Company
repurchased 2.5 million shares and 1.5 million shares of common stock,
respectively, at a total cost of $130 million and $94 million, respectively,
under this program.
On July 10, 1998, the Company's Board of Director's authorized a second
share purchase program for the purchase from time to time of up to an
additional eight million shares of the Company's Common Stock. The purchase of
Case Common Stock under this program is at the Company's discretion, subject
to prevailing financial and market conditions. As of December 31, 1998, the
Company has repurchased approximately 900,000 shares of its common stock at a
cost of approximately $19 million under this program.
The declaration and payment of dividends to holders of each class of
capital stock of the Company will be at the discretion of the Board of
Directors of the Company and will depend upon many factors, including the
Company's competitive position, financial condition, earnings and capital
requirements. Accordingly, there is no requirement or assurance that dividends
will be declared or paid.
No dividends (other than dividends paid in stock ranking junior to the
Company's Preferred Stock, or rights or warrants to purchase such junior
stock) may be paid on the common stock unless all unpaid dividends payable on
the Company's Series A Cumulative Convertible Preferred Stock and its
Cumulative Convertible Second Preferred Stock have been declared and paid, or
set apart for payment, in full.
16
<PAGE>
Item 6. Selected Financial Data.
The following selected historical financial data as of and for each of the
five years ended December 31, 1998, has been derived from the audited
consolidated and combined financial statements of the Company and the Case
business of Tenneco, Inc. For all periods subsequent to June 24, 1994, the
financial data reflects the consolidated results of Case Corporation. For all
prior periods, the financial data reflects the combined results of the Case
Business. This information should be read in conjunction with Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and the Case Financial Statements and the notes thereto included
elsewhere herein. Certain reclassifications have been made to conform prior
years' financial statements to the 1998 presentation.
<TABLE>
<CAPTION>
Years ended December 31,
-------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
(dollars in millions, except per share
data)
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Net sales........................ $ 5,738 $ 5,718 $ 5,104 $ 4,824 $ 4,180
Interest income and other........ 411 306 305 281 225
Cost of goods sold............... (4,700) (4,447) (3,953) (3,779) (3,260)
Selling, general and
administrative expenses......... (655) (570) (544) (553) (576)
Research, development and
engineering expenses............ (224) (196) (193) (156) (127)
Restructuring charge (1)......... (132) -- -- -- --
Interest expense................. (240) (170) (160) (174) (160)
Other, net....................... (92) (47) (25) (16) (24)
------- ------- ------- ------- -------
Income before taxes and
cumulative effect of changes in
accounting principles and
extraordinary items............. 106 594 534 427 258
Income tax provision............. 42 191 185 81 93
------- ------- ------- ------- -------
Income before cumulative effect
of changes in accounting
principles and extraordinary
items........................... 64 403 349 346 165
Cumulative effect of changes in
accounting principles (2)....... -- -- -- (9) (29)
Extraordinary items (3).......... -- -- (33) -- (5)
------- ------- ------- ------- -------
Net income....................... $ 64 $ 403 $ 316 $ 337 $ 131
======= ======= ======= ======= =======
Basic earnings per share before
cumulative effect of changes in
accounting principles and
extraordinary items:
Basic earnings per share....... $ 0.78 $ 5.36 $ 4.73 $ 4.80 N.A.
Pro forma basic earnings per
share......................... N.A. N.A. N.A. N.A. $ 2.31
Diluted earnings per share before
cumulative effect of changes in
accounting principles and
extraordinary items:
Diluted earnings per share..... $ 0.76 $ 5.11 $ 4.49 $ 4.60 N.A.
Pro forma diluted earnings per
share......................... N.A. N.A. N.A. N.A. $ 2.24
Cash dividends declared per
common share.................... $ 0.20 $ 0.20 $ 0.20 $ 0.20 $ 0.10
Balance Sheet Data (at the end of
year):
<CAPTION>
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Working capital.................. $ 1,474 $ 730 $ 510 $ 386 $ 717
Total assets..................... 8,726 6,981 6,059 5,469 5,052
Long-term debt................... 3,080 1,404 1,119 889 1,443
Other long-term obligations and
redeemable preferred stock...... 633 508 492 594 603
Equity........................... 2,110 2,197 1,904 1,520 1,181
Ratio of earnings to fixed
charges and preferred stock
dividends....................... 1.33x 3.94x 3.73x 3.03x 2.38x
</TABLE>
17
<PAGE>
- --------
(1) During the fourth quarter of 1998, the Company recorded a restructuring
charge of $132 million, $96 million after tax, related to the 1999 closure
of its Hamilton, Ontario, and Hugo, Minnesota, manufacturing facilities,
as well as other actions that include a worldwide workforce reduction of
2,600 people. For additional information, see Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
and Note 5 to the Case Financial Statements included in Item 8 hereof.
(2) Effective January 1, 1995, Case adopted Statement of Financial Accounting
Standards ("SFAS") No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions" for its non-U.S. plans, which resulted in a
charge of $9 million on a pre-tax and after-tax basis to reflect the
cumulative effect of the accounting change. Effective January 1, 1994,
Case adopted SFAS No. 112, "Employers' Accounting for Postemployment
Benefits," which resulted in a charge of $29 million after tax to reflect
the cumulative effect of the accounting change.
(3) In 1996, the Company sold $300 million aggregate principal amount of its
7.25% unsecured and unsubordinated notes due 2016 pursuant to a shelf
registration statement filed with the Securities and Exchange Commission
in June 1995. The net proceeds from the offering, together with cash and
additional borrowings under the Company's credit facilities, were used to
exercise the Company's option to repurchase for cash all of the Company's
10.5% Senior Subordinated Notes and pay accrued interest thereon. As a
result of the repurchase, the Company recorded an extraordinary charge of
$22 million after tax.
As a result of establishing new credit facilities in 1996, the Company
recorded an $11 million extraordinary, after-tax charge for the write-off
of unamortized bank fees related to the original bank agreements
established at the time of the Company's initial public offering in June
1994. In 1994, the Company recorded an extraordinary loss of $5 million
after tax for the redemption premium resulting from the prepayment of
approximately $519 million of high interest-bearing debt.
18
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Summary of Revenues
Case Corporation ("Case" or the "Company") is a leading worldwide designer,
manufacturer, marketer and distributor of farm equipment and light- to medium-
sized construction equipment and offers a broad array of financial products
and services. As used herein, "Case Industrial" refers to the Company's
agricultural and construction equipment operations. Case's financial services
business is provided through Case Capital Corporation, including its wholly
owned subsidiary Case Credit(R) Corporation ("Case Credit") and their
subsidiaries and joint ventures (collectively, "Case Capital" or "Financial
Services"). Case Capital provides and administers financing for the retail
purchase or lease of new and used Case and other agricultural and construction
equipment and other products to end-use customers. In recent years, Case's
revenues were derived from the following sources (in millions):
<TABLE>
<CAPTION>
For the Years Ended
December 31,
--------------------
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Revenues:
Net sales
Agricultural equipment........................... $3,533 $3,685 $3,507
Construction equipment........................... 2,205 2,033 1,597
------ ------ ------
Total net sales................................ 5,738 5,718 5,104
Financial services................................. 377 272 244
Other revenues..................................... 34 34 61
------ ------ ------
Total revenues....................................... $6,149 $6,024 $5,409
====== ====== ======
</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." In recent years, net
sales of Case products were made into the following geographic regions (in
millions):
<TABLE>
<CAPTION>
For the Years Ended
December 31,
--------------------
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Net sales
North America...................................... $3,187 $3,140 $2,881
Europe*............................................ 1,885 1,891 1,682
Asia Pacific....................................... 290 393 367
Latin America...................................... 376 294 174
------ ------ ------
Total net sales.................................... $5,738 $5,718 $5,104
====== ====== ======
</TABLE>
- --------
*Includes Africa and Middle East
1998 Compared to 1997
Worldwide revenues were $6,149 million in 1998 versus $6,024 million in
1997. Net sales of farm and construction equipment were $5,738 million in
1998, up slightly from $5,718 million in 1997. The year-over-year improvement
in net sales is attributable to a 2% increase from acquisitions and a 1%
improvement in price realization, offset by a 2% decrease in base volumes and
a 1% deterioration from the impact of foreign exchange.
19
<PAGE>
Sales in North America were $3,187 million in 1998 versus $3,140 million in
1997. This year-over-year increase reflects a double-digit increase in sales
of Case construction equipment, largely offset by lower sales of agricultural
equipment, primarily four-wheel drive tractors, combines and cotton pickers.
In Europe, 1998 sales of Case equipment were $1,885 million, down slightly
from prior year levels, reflecting lower year-over-year sales of tractors and
combines. This decrease was largely offset by increased sales of Case
construction equipment in Europe, including higher year-over-year sales of
loader/backhoes, wheel loaders and excavators. In the Company's Asia Pacific
region, sales of Case agricultural and construction equipment were $290
million, down 26% from the $393 million reported in 1997, reflecting weaker
economic conditions in that region. In the Company's Latin American region,
sales of Case agricultural and construction equipment increased 28% from prior
year levels to $376 million, reflecting strong year-over-year increases in
most product categories.
Case Capital revenues increased 39% year-over-year to $377 million, as
compared with $272 million in 1997. Finance income earned on retail and other
notes and finance leases increased to $140 million in 1998, as compared to
$103 million for the same period in 1997, primarily due to increased levels of
on-balance-sheet receivables. Operating lease revenues increased $31 million
to $64 million for 1998, reflecting the growth in Case Capital's operating
lease portfolio. These revenue increases were compounded by increases in net
gains on retail notes sold, as well as higher securitization and servicing fee
income.
Acquisitions and Investments
The Company completed two strategic business acquisitions in 1998. In the
second quarter of 1998, the Company acquired the sprayer business of the Tyler
Industries division ("Tyler") of IBOCO, Inc. The acquisition of Tyler, a
designer, manufacturer and distributor of a complete line of chemical and
fertilizer sprayers and applicators, strengthens Case's equipment line for
large-scale production agriculture and provides another application for Case's
Advanced Farm Systems ("AFS") technology. Tyler, with operations in Benson,
Minnesota, had sales of approximately $66 million in 1997.
In the fourth quarter of 1998, the Company acquired the soil management
business of DMI, Inc. ("DMI"). The acquisition of DMI, a leading producer of
soil management equipment in North America, broadens Case's implement business
to include an innovative line of tillage and fertilizer applicator products
and adds DMI's recognized knowledge in soil management to Case's growing farm
practice expertise. DMI, with operations in Goodfield, Illinois, had sales of
approximately $77 million in 1997.
During the third quarter of 1998, the Company and Sumitomo (S.H.I.)
Construction Machinery Co., Ltd. ("Sumitomo"), formed a global alliance to
market and manufacture hydraulic crawler excavators. The formation of this
joint venture, LBX Company LLC ("LBX"), enables Case to increase its
penetration of the global excavator market and expand its participation in a
number of regions around the world. Case acquired a 50% interest in the LBX
joint venture.
Acquisitions and investments are integral to Case's long-term strategy of
increasing revenues and profitability. The Company reported combined net sales
of approximately $583 million and $586 million in 1998 and 1997, respectively,
as a result of its acquisition activities over the last three years.
Earnings
The Company recorded net income of $64 million in 1998, as compared to net
income of $403 million in 1997. Diluted earnings per share for 1998 was $0.76,
as compared to $5.11 in 1997. In the fourth quarter of 1998, the Company
recorded a $132 million restructuring charge, $96 million after tax, for
actions that it is taking in response to lower retail demand in the global
agricultural equipment market. Excluding the impact of restructuring, 1998 net
income was $160 million, with diluted earnings per share of $2.05. Basic
earnings per share, before restructuring, was $2.09 in 1998 versus $5.36 in
1997.
20
<PAGE>
In 1998, Case Industrial recorded a loss of $21 million, before equity
income of Case Capital, versus comparable income of $321 million in 1997. The
Company's 1998 performance includes the impact of aggressive actions initiated
by the Company in the face of an industry-wide downturn in the agricultural
equipment market. These actions include the 1999 closure of the Company's
Hamilton, Ontario, and Hugo, Minnesota, manufacturing facilities, and a
worldwide workforce reduction of 2,600 people. The Company recorded a $132
million restructuring charge in the fourth quarter of 1998 primarily for these
and other restructuring initiatives. In addition, throughout 1998, the Company
progressively lowered agricultural equipment production to address declining
retail demand. On a pretax basis, excluding restructuring, Case Industrial
recorded income of $107 million, as compared to income of $472 million in
1997.
Case's operating earnings for 1998 were $296 million versus $627 million in
1997. 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 $85 million in 1998, as compared to net
income of $82 million in 1997. A reconciliation of Case Industrial's income to
operating earnings is as follows (in millions):
<TABLE>
<CAPTION>
Case
Industrial
Years Ended
December
31,
------------
1998 1997
----- -----
<S> <C> <C>
Net income.................................................. $ 64 $ 403
Income tax provision (benefit).............................. (4) 151
Interest expense............................................ 104 73
Restructuring charge........................................ 132 --
----- -----
Operating earnings...................................... $ 296 $ 627
===== =====
</TABLE>
Consolidated interest expense was $240 million in 1998 as compared to $170
million in 1997. The year-over-year increase in consolidated interest expense
primarily reflects higher average debt levels for Case Capital, largely due to
the growth in Case Capital's on-balance-sheet receivables and increased
equipment on operating leases. In addition, interest expense for Case
Industrial increased from $73 million in 1997 to $104 million in 1998,
primarily due to increased levels of inventories and receivables as a result
of acquisitions and lower retail demand in the agricultural equipment
industry.
The consolidated income tax provision for 1998 was $42 million as compared
to $191 million in 1997. The Company's effective income tax rate of 40% for
1998 was higher than the U.S. statutory tax rate of 35% as the Company adopted
restructuring plans in certain foreign jurisdictions for which no immediate
tax benefit was recognizable. Excluding restructuring, the Company's
consolidated effective income tax rates of 33% in 1998 and 32% in 1997 were
lower than the U.S. statutory tax rate primarily due to the reduction in tax
valuation reserves in certain foreign jurisdictions and foreign gains and
losses taxed at different rates, partially offset by certain foreign losses
with no related tax benefits and state income taxes.
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. Also see Note 18 to the Case Financial
Statements included in Item 8 hereof.
Agricultural Equipment
Operating earnings for Case's worldwide agricultural equipment business
decreased from $379 million in 1997 to $35 million in 1998. The decrease in
operating earnings includes the impact of the Company's 1998
21
<PAGE>
production cuts in response to a global decline in the agricultural equipment
industry. The lower retail demand and resulting decrease in dealer orders were
due to the continued decline in the near-term fundamentals in the global
agricultural market and the ongoing overall economic uncertainties in several
emerging markets. Low commodity prices, driven principally by a third
consecutive year of strong-to-record harvests in most major grain crops,
adversely affected net farm income. In addition, exports of farm commodities
have dropped substantially year-over-year, affecting large-scale production
agriculture. Throughout 1998, the Company progressively lowered its
agricultural equipment production levels to align production relative to
declining retail demand.
Worldwide sales of Case agricultural equipment declined $152 million or 4%
in 1998 from 1997 levels. During the fourth quarter of 1998, sales of Case
agricultural equipment decreased 22% versus prior year levels. In addition to
the overall volume decline, 1998 operating earnings for Case's agricultural
equipment business were adversely impacted by variations in geographic and
product line sales mix, including significantly lower sales of high margin
products such as high-horsepower and four-wheel drive tractors, combines and
sugar cane harvesters. The Company also incurred charges for the writedown of
inventory and other related assets directly attributable to the announced
closure of its Hamilton, Ontario, manufacturing facility and other actions the
Company is taking in response to the downturn in the agricultural equipment
market, including the accelerated phase-out of selected tractor models. Case's
1998 operating earnings also reflect the impact of unfavorable foreign
currency exchange in Australia and Canada, higher year-over-year costs for
increased research and development expenses, and higher warranty and product
modification costs, including costs associated with new product introductions.
The Company also incurred operating inefficiencies associated with its 1998
negotiations with the United Automobile, Aerospace and Agricultural Implement
Workers of America (the "UAW"). Case's collective bargaining agreement with
the UAW, which represents approximately 3,000 of Case's hourly production and
maintenance employees in North America, expired on March 29, 1998. In May,
UAW-represented employees ratified a new, six-year contract that will expire
on May 2, 2004. These year-over-year decreases in operating earnings were
somewhat offset by improved pricing and contributions from cost improvement
initiatives.
Construction Equipment
Operating earnings for Case's worldwide construction equipment business
increased from $166 million in 1997 to $176 million in 1998. The higher 1998
operating earnings primarily reflects an 8% increase in year-over-year sales
of Case construction equipment, largely driven by strong retail demand in
North America. In addition to the volume increase, Case's 1998 operating
earnings also include the impact of favorable pricing and manufacturing
efficiencies. These improvements were partially offset by the impact of
unfavorable foreign currency exchange, primarily in Australia and Canada, and
operating inefficiencies associated with the 1998 UAW contract negotiations.
Construction equipment operating earnings for 1998 were also impacted by
higher product liability costs, as well as higher warranty and product
modification costs, including costs associated with new product introductions.
Financial Services
Case Capital recorded net income of $85 million in 1998, as compared to net
income of $82 million in 1997. The $3 million increase in year-over-year
income is primarily due to higher earnings as a result of increased levels of
on-balance-sheet receivables, and improved margins resulting from the
declining interest rate environment. Additionally, higher lease income from
operating leases and higher realized gains from the sale of retail notes under
asset-backed securitization ("ABS") transactions also improved earnings. These
amounts were partially offset by an increase in Case Capital's credit loss
provision as a result of a higher loss-to-liquidation ratio in 1998, combined
with the significant growth in Case Capital's serviced portfolio. In addition,
1998 operating results reflect increased interest expense as a result of
higher average debt levels, as well as increased depreciation of equipment on
operating leases and a higher year-over-year tax rate.
22
<PAGE>
1997 Compared to 1996
Worldwide revenues were $6,024 million in 1997 versus $5,409 million in
1996. Net sales of farm and construction equipment were $5,718 million in
1997, up $614 million or 12% from $5,104 million in 1996. The year-over-year
improvement in net sales is attributable to a 15% volume increase, including
7% as a result of acquisitions, and a 2% improvement in price realization.
This was partially offset by a 3% deterioration from the impact of foreign
exchange and a 2% decrease due to retail store divestitures. Strong worldwide
demand for the Company's agricultural and construction equipment products
contributed to the year-over-year sales increase.
Sales in North America were $3,140 million in 1997, up $259 million or 9%
versus the $2,881 million reported in 1996. The increase in sales of Case
agricultural equipment reflects the success of the new MX series MAXXUM(TM)
(mid-range) tractors, as well as strong increases in sales of MAGNUM(TM)
tractors, combines and implements. Sales of Case construction equipment in
North America increased in virtually all product lines, driven by significant
increases in sales of loader/backhoes, wheel loaders, crawlers, excavators and
skid steers. In Europe, 1997 sales of Case equipment were $1,891 million, up
$209 million or 12% versus $1,682 million in 1996. The increase in sales of
agricultural equipment in Europe reflects a significant increase in sales of
combines and high-horsepower tractors, including higher year-over-year sales
to the former Soviet Union, as well as increased sales of cotton pickers and
implements. Sales of Case construction equipment in Europe primarily reflects
increased sales of loader/backhoes and skid steers as a result of the 1996
acquisition of Fermec Holdings Limited ("Fermec"), as well as increased sales
of wheel loaders. Despite weakening economic conditions in the region, sales
in the Company's Asia Pacific region increased to $393 million in 1997, versus
$367 million in 1996. The increase in agricultural equipment sales reflects
strong customer demand for the new MX series tractors, as well as increased
sales of four-wheel drive tractors, cotton pickers and sugar cane harvesters.
The increase in sales of construction equipment includes strong increases in
sales of loader/backhoes, skid steers and excavators. In the Company's Latin
American region, sales increased $120 million to $294 million in 1997,
including significant increases in virtually all construction equipment
product lines. In Brazil, Case began assembling several lines of agricultural
equipment during the second half of 1997, as the Company continued to build
its market share in this region.
Case Capital's revenues increased 11% year-over-year to $272 million, as
compared with $244 million in 1996. Finance income earned on retail and other
notes and finance leases increased to $103 million in 1997, as compared to $64
million for the same period in 1996, primarily due to increased levels of on-
balance-sheet receivables. Operating lease revenues increased $17 million to
$33 million for 1997, reflecting the growth in Case Capital's operating lease
portfolio. These revenue increases were partially offset by decreases in net
gains on retail notes sold, as well as lower securitization and servicing fee
income.
Acquisitions and Investments
The Company completed six strategic business acquisitions in 1997. During
the first quarter, the Company acquired bor-mor Inc. ("bor-mor"), a North
American manufacturer of directional drilling equipment for the underground
cable and utility installation market, with 1996 revenues of approximately $9
million. Also during the first quarter, the Company acquired select assets of
Agri-Logic Inc., a leading developer of software for agricultural
applications. In the third quarter of 1997, Case acquired Gem Sprayers Limited
("Gem"), a U.K.-based manufacturer of self-propelled and trailed/mounted
sprayers for agricultural applications. In 1996, Gem had revenues of
approximately $12 million.
In the fourth quarter of 1997, the Company acquired the outstanding shares
of Fortschritt Erntemaschinen GmbH ("Fortschritt"). Based in Neustadt,
Germany, Fortschritt manufactures hay and forage equipment, including self-
propelled forage harvesters, large square balers and windrowers. Case also
acquired select assets of two other German companies, including intellectual
property, and production and distribution rights related to self-propelled
forage harvesters and combines. The combined sales of the Fortschritt and
other products acquired in the fourth quarter were approximately $110 million
in 1996. These acquisitions provided Case with a broad range of conventional
and rotary combines in Europe and significantly expanded the Company's line of
harvesting equipment for that region.
23
<PAGE>
During the third quarter of 1997, Case Credit and UFB LOCABAIL SA, a
subsidiary of Compagnie Bancaire ("UFB LOCABAIL SA"), announced a joint
venture to provide financing for Case's European dealers and retail customers.
This venture, Case Credit Europe S.A.S., is the first pan-European finance
organization to serve both the agricultural and construction equipment
markets. Also during the third quarter of 1997, Case Credit, through an
agreement established with Cummins Engine Company, Inc. ("Cummins"),
established Cummins-Case Credit Financial Services, which offers financing to
qualified North American retail purchasers, dealers and manufacturers of
industrial equipment powered by Cummins engines.
The Company reported combined net sales of approximately $586 million and
$190 million in 1997 and 1996, respectively, as a result of its acquisition
activities.
Earnings
The Company recorded net income of $403 million in 1997, as compared to net
income, before extraordinary items, of $349 million in 1996. Diluted earnings
per share, before extraordinary items, was $5.11 per share in 1997 as compared
to $4.49 per share in 1996. The 14% increase in diluted earnings per share
resulted from higher income levels, reflecting strong worldwide demand for the
Company's products, as well as the impact of the Company's cost-reduction
initiatives, partially offset by an increase in the number of average common
shares outstanding. Basic earnings per share, before extraordinary items, was
$5.36 in 1997 versus $4.73 in 1996.
In January 1996, the Company exercised its option to repurchase for cash
all of its 10.5% Senior Subordinated Notes. As a result of the repurchase, the
Company recorded an extraordinary charge of $22 million after tax. As a result
of establishing new credit facilities in August 1996, the Company recorded an
$11 million, extraordinary, after-tax charge for the write-off of unamortized
bank fees related to the original bank agreements established at the time of
the Company's initial public offering in June 1994. Also see Note 4,
"Reorganization and Public Offering," to the Case Financial Statements
included in Item 8 hereof.
In 1997, Case Industrial recorded income, before equity income of Case
Capital, of $321 million versus $261 million in 1996, an increase of $60
million or 23% year-over-year. On a pretax basis, Case Industrial's 1997
earnings increased 18% over the prior year to $472 million.
Case's operating earnings for 1997 were $627 million versus $579 million in
1996. 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 $82 million in 1997, as compared to net
income, before extraordinary items, of $88 million in 1996. A reconciliation
of Case Industrial's income to operating earnings is as follows (in millions):
<TABLE>
<CAPTION>
Case
Industrial
Years Ended
December
31,
-----------
1997 1996
----- -----
<S> <C> <C>
Net income.................................................... $ 403 $ 316
Income tax provision.......................................... 151 140
Interest expense.............................................. 73 90
Extraordinary items........................................... -- 33
----- -----
Operating earnings........................................ $ 627 $ 579
===== =====
</TABLE>
Consolidated interest expense was $170 million in 1997, as compared to $160
million in 1996. The year-over-year increase in consolidated interest expense
resulted from higher average debt levels for Case Capital, primarily due to
the growth in Case Capital's on-balance-sheet receivables and increased
equipment on operating leases. Interest expense for Case Industrial was $73
million in 1997 versus $90 million in 1996, primarily due to lower average
debt levels in 1997.
24
<PAGE>
The consolidated income tax provision for 1997 was $191 million, as
compared to $185 million in 1996. The Company's effective income tax rate of
32% for 1997 was lower than the U.S. statutory tax rate of 35%, primarily due
to recognition of the reduction in tax valuation reserves in certain foreign
jurisdictions, tax benefits associated with the Company's foreign sales
corporation and research and development tax credits, partially offset by
state income taxes, foreign losses with no related tax benefits, and foreign
gains and losses taxed at different rates. The Company's 1996 effective rate
of 35% was impacted by a reduction in tax valuation reserves in certain
foreign jurisdictions, recognition of research and development tax credits,
and tax savings related to the Company's foreign sales corporation offset by
state income taxes, foreign losses with no related tax benefits, and foreign
gains and losses taxed at different rates.
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. Also see Note 18 to the Case Financial
Statements included in Item 8 hereof.
Agricultural Equipment
Operating earnings for Case's worldwide agricultural equipment business
increased from $363 million in 1996 to $379 million in 1997. The year-over-
year increase in operating earnings reflects higher agricultural equipment
sales volumes in 1997, including the full-year impact of the Company's 1996
acquisition of Steyr Landmaschinentechnik AG ("Steyr"). In addition to the
volume increase, 1997 operating earnings were favorably impacted by improved
price realization and contributions from the Company's ongoing cost reduction
initiatives. These improvements were partially offset by the impact of
unfavorable foreign currency exchange in Europe, higher warranty and product
modification costs, increased research, development and engineering costs,
incremental selling, general and administrative expenses from acquisitions,
and new product launch costs.
Construction Equipment
Operating earnings for Case's worldwide construction equipment business
increased from $131 million in 1996 to $166 million in 1997. The increase in
year-over-year operating earnings was primarily driven by a 27% increase in
1997 sales volumes over prior year levels, including the full-year impact of
the Company's 1996 acquisition of Fermec. In addition to the volume increase,
Case's 1997 operating earnings also include the impact of favorable pricing
and manufacturing efficiencies. These improvements were partially offset by
the impact of unfavorable foreign currency exchange in Europe, higher warranty
and product modification costs, and incremental selling, general and
administrative expenses from acquisitions.
Financial Services
Case Capital recorded net income of $82 million in 1997, as compared to net
income, before extraordinary items, of $88 million in 1996. The $6 million
decrease in year-over-year income is primarily due to increased interest
expense, reduced margins on the sale of retail notes under ABS transactions,
lower securitization and servicing fee income, and increased depreciation of
equipment on operating leases, largely offset by higher earnings from
increased levels of on-balance-sheet receivables. In 1996, Case Capital
incurred a $3 million extraordinary, after-tax charge to write-off unamortized
bank fees in conjunction with the refinancing of the Company's credit
facilities. In 1996, Case Capital recorded net income of $85 million.
Restructuring
In the early 1990's, intense global competition and flat to declining
markets for farm and construction equipment characterized the worldwide farm
and construction equipment industry. In response to these market conditions,
Case embarked on a long-term 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 marketplace.
25
<PAGE>
As of December 31, 1992, the Company adopted a long-term, comprehensive
restructuring program (the "1992 Restructuring Program") that resulted in a
pre-tax restructuring charge of $920 million ($843 million after tax). The
actions contemplated under the 1992 Restructuring Program included costs
related to closing/selling/downsizing 11 plant locations (including Neuss,
Germany; St. Dizier, France; and Doncaster, United Kingdom) and six parts
distribution locations, the privatization of 250 company-owned retail stores,
as well as related employee termination payments to reduce personnel by 7,200.
At the time the 1992 Restructuring Program was adopted, the Company
contemplated limited additional actions. As facts and circumstances evolved,
including the results from facility sales, closures, downsizings and
consolidations that were dependent, among other things, on the satisfaction of
various legal, social, political and economic conditions where employment
reductions and facility closures would occur, the estimates for the 1992
Restructuring Program were revised. In 1993 and 1994, Case determined that it
had excess restructuring reserves of $20 million and $16 million,
respectively, and reversed these reserves to income in the applicable
reporting period.
The closure of the Neuss, Germany, facility was the single largest step
contemplated under the Company's long-term restructuring program. In 1997, the
Company ceased production and had substantially completed the closure of the
Neuss manufacturing facility, transferring production of its MX series tractor
from Neuss to other existing Case manufacturing facilities in Racine,
Wisconsin, and Doncaster, United Kingdom. Also in 1997, Case closed its
foundry operations at its Doncaster facility pursuant to a 1994 agreement with
the trade union for the eventual termination of approximately 900 employees at
this facility. In 1998, the Company closed the Neuss headquarters and
administrative operations, and began transferring the key processes to the
Company's Heidelberg, Germany, and Villepinte, France, facilities.
Upon adoption of the 1992 Restructuring Program, the Company believed that
the successful completion of this program would enhance pre-tax income and
pre-tax operating cash flow through cost reductions by year-end 1997 by
approximately $200 million annually over 1992 levels. As of December 31, 1997,
the 1992 Restructuring Program had been substantially completed and the
intended benefits, as originally contemplated under this program, had been
achieved.
In 1998, the worldwide retail demand for agricultural equipment declined
significantly from the strong levels of the past several years. The lower
retail demand and resulting decrease in dealer orders were due to a continued
decline in the near-term fundamentals in the global agricultural market and
the ongoing overall economic uncertainties in several emerging markets. Low
commodity prices, driven principally by a third consecutive year of strong-to-
record harvests in most major grain crops, adversely affected net farm income.
In addition, exports of farm commodities dropped substantially year-over-year,
affecting large-scale production agriculture. Recent events in emerging
markets and the Company's continued assessment of the global harvest outlook,
commodity prices and economic conditions, have increased the likelihood that
worldwide demand for agricultural equipment will continue to slow from the
strong levels of the past several years. To address the precipitous global
decline in the agricultural equipment industry, Case progressively lowered its
agricultural equipment production levels throughout 1998 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 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"). The
Company will integrate the related product lines from the Hamilton and Hugo
facilities into other existing Case manufacturing operations in the United
States or, in some instances, it will outsource production. The Company
believes that the closure of these facilities will not have a significant
impact on 1999 revenues.
The closure of the Hamilton and Hugo facilities, as well as the downsizing
of other Case agricultural equipment operations in the United States, Europe,
Australia and Brazil, largely reflects the consolidation and rationalization
of the Company's agricultural equipment product lines, including an
acceleration of integration plans for several recently acquired businesses.
The Company believes that these actions will help to maximize
26
<PAGE>
the Company's performance under current conditions and position it for rapid
improvement when the agricultural equipment market rebounds. The Company
believes that the successful completion of the 1998 Restructuring Program will
generate annual cost savings of $95 million to $100 million, and the Company
expects to realize nearly two-thirds of these savings in 1999.
In addition to the 1998 restructuring charge of $132 million, the Company
also incurred other charges of approximately $22 million for the writedown of
inventory and other related assets directly attributable to the announced
plant closures and other actions the Company is taking in response to the
downturn in the agricultural equipment market, including the accelerated
phase-out of selected tractor models. These costs are included in "Cost of
goods sold" in the accompanying Statements of Income.
The Company also announced that it expects to incur additional
restructuring charges in 1999 in the range of $30 million to $40 million for
further employment reductions, including 800 people by year-end 1999, and
pension settlement costs related to the closure of the Hamilton facility.
These restructuring costs will be recorded quarterly as all necessary
requirements under generally accepted accounting principles are met.
An analysis of Case's restructuring programs is summarized in the table
below (in millions):
<TABLE>
<CAPTION>
Activity
1993 - 1996 1997 Activity
-------------------------------- --------------------------------
1992 Changes Balance at Changes Balance at
Restructuring Reserves in December 31, Reserves in December 31,
Program Utilized* Estimates 1996 Utilized* Estimates 1997
------------- --------- --------- ------------ --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Employee termination
payments............... $250 $(106) $ 4 $148 $(120) $ 15 $43
Pension and OPRB costs.. 56 (42) (6) 8 (7) (1) --
Writedown of assets:
Property, plant and
equipment............ 340 (271) (45) 24 (28) 4 --
Provision for
environmental
liabilities.......... 25 (2) 2 25 (21) (4) --
Writedown of
inventories............ 55 (27) (19) 9 (7) (2) --
Costs related to
closing/selling/
downsizing existing
facilities............. 70 (41) 12 41 (16) (13) 12
Other costs............. 124 (106) 16 34 (31) 1 4
---- ----- ---- ---- ----- ---- ---
Total restructuring .... $920 $(595) $(36) $289 $(230) $-- $59
==== ===== ==== ==== ===== ==== ===
</TABLE>
- --------
*Includes currency translation
<TABLE>
<CAPTION>
1998 Activity
-------------------------------------------------
Balance at 1998 Balance at
December 31, Restructuring Reserves December 31,
1997 Program Utilized* 1998
------------ ------------- --------- ------------
<S> <C> <C> <C> <C>
Employee termination payments.. $43 $ 58 $(29) $ 72
Pension and OPRB costs......... -- 36 (36) --
Writedown of assets:
Property, plant and
equipment................... -- 24 -- 24
Provision for environmental
liabilities................. -- -- -- --
Writedown of inventories....... -- -- -- --
Costs related to
closing/selling/downsizing
existing facilities........... 12 13 (1) 24
Other costs.................... 4 1 -- 5
--- ---- ---- ----
Total restructuring ........... $59 $132 $(66) $125
=== ==== ==== ====
</TABLE>
- --------
*Includes currency translation
27
<PAGE>
The $58 million of employee termination payments under the 1998
Restructuring Program represents the cash severance costs to reduce personnel
as a result of closing and/or downsizing manufacturing facilities in the
United States, Canada, Europe, Australia and Brazil, including headcount
reductions in related support functions. 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, unemployment, and supplemental vacation and
retirement payments. As prescribed under generally accepted accounting
principles, the benefit arrangements under the 1998 Restructuring Program were
communicated to all affected Case employees worldwide prior to December 31,
1998.
The $72 million reserve balance for employee termination payments at
December 31, 1998, is comprised of $50 million for restructuring actions as
outlined under the 1998 Restructuring Program, and also includes $22 million
for other remaining European staff reductions as contemplated under the
Company's 1992 Restructuring Program. These remaining actions primarily
include: (1) the outsourcing of selected parts production and manufacturing
changes at the Company's component plants in France following the transfer of
the Neuss, Germany, tractor line to other Case manufacturing facilities in
Racine, Wisconsin, and Doncaster, United Kingdom; (2) the integration of the
Neuss administrative operations into other existing Case facilities; (3) the
rationalization of company-owned retail stores; and (4) the final severance,
outplacement and other benefit payments related to the closure of the Neuss
facilities. As of January 29, 1999, the Company had terminated approximately
2,000 people, including contract and temporary personnel, under the 1998
Restructuring Program. The Company anticipates that all employee terminations,
as outlined above, will be completed by December 1999.
The $36 million of pension and other postretirement benefit ("OPRB") costs
under the 1998 Restructuring Program represents curtailments as required by
SFAS No. 88 from the termination of employees primarily at the Hamilton,
Ontario, facility in 1999. In 1998, non-cash charges of $36 million were
recognized, primarily for previously unrecognized prior service costs relating
to the Hamilton pension plans. For information on the Company's pension and
postretirement benefits, see Note 14 to the Case Financial Statements included
in Item 8 hereof.
The $24 million writedown of assets under the 1998 Restructuring Program
represents estimated losses to be incurred upon the sale of the Hamilton and
Hugo manufacturing facilities. The estimated loss upon disposal was based on
management's prior experience in disposing of similar facilities and includes
estimated losses on land and buildings, as well as estimated losses for
machinery and equipment that will not be transferred to other existing Case
facilities. The assets at these facilities will be written down to estimated
net realizable value as manufacturing operations cease. It is currently
anticipated that the Hugo facility will close in May 1999, and that the
Hamilton facility will close in June 1999.
The $13 million of costs related to closing/selling/downsizing existing
facilities under the 1998 Restructuring Program primarily includes dealer
rationalization costs in Germany, Brazil and Argentina, and incremental costs
and contractual obligations for leasehold termination payments and other
facility exit costs incurred as a direct result of the closure of the Hamilton
and Hugo facilities. In addition to the $13 million for actions under the 1998
Restructuring Program, the $24 million reserve balance at December 31, 1998,
includes $11 million for the privatization of nine company-owned retail stores
in Europe, and final closure/sale costs for the Neuss headquarters and
administrative offices. The Company expects that all
closing/selling/downsizing actions, as outlined above, will be completed by
December 1999.
Other costs of $5 million at December 31, 1998, are primarily for
incremental legal and professional costs to support the various restructuring
actions.
The following restructuring actions occurred in 1998:
. The Company announced a restructuring charge of $132 million ($96
million after tax) related to the closure of its Hamilton, Ontario, and
Hugo, Minnesota, manufacturing facilities, as well as other actions that
include a worldwide workforce reduction of 2,600.
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. The Company closed the Neuss, Germany, headquarters and administrative
offices, and began transferring key processes to other European
administrative facilities.
. The sale of company-owned retail stores continues to progress, with two
additional store sales in Europe.
Management believes that the restructuring reserve balance of $125 million
at December 31, 1998, is adequate to carry out all activities as outlined
under the 1992 and 1998 Restructuring Programs, and the Company anticipates
that all actions will be completed by December 31, 1999. The Company expects
to fund the cash requirements of its restructuring activities 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.
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.
1998 Compared to 1997
In 1998, cash used by operating activities was $995 million. Cash used by
Case Industrial was $493 million in 1998, versus cash provided of $292 million
in 1997. The year-over-year decrease in cash provided from operating
activities primarily resulted from lower levels of net income and accounts
payable, partially offset by increased levels of depreciation and
amortization, and restructuring. Cash used by 1998 operating activities also
includes increased levels of wholesale receivables and inventories as a result
of lower retail demand in the agricultural equipment industry and
acquisitions. Cash used by Case Capital was $502 million in 1998, as compared
to $513 million in 1997. The net cash used by Case Capital activities in 1998
was primarily due to increased levels of retail receivables, reflecting the
Company's asset-management strategy of retaining a larger percentage of
receivables on balance sheet, as opposed to selling those receivables through
ABS transactions.
Cash used by investing activities was $670 million in 1998 versus $286
million in 1997. Proceeds from the sale of businesses and assets were $9
million and $58 million in 1998 and 1997, respectively. Case invested $222
million and $192 million in property, plant and equipment, during 1998 and
1997, respectively. Cash used by Case Capital included $333 million for the
purchase of equipment on operating leases, as compared to $100 million in
1997, reflecting the year-over-year growth in Case Capital's operating lease
portfolio.
During 1998, the Company expended $103 million to acquire the sprayer
business of the Tyler Industries division of IBOCO, Inc., and the soil
management business of DMI, Inc. Case also assumed additional debt and other
liabilities of approximately $36 million in conjunction with these
acquisitions. Also during 1998, Case expended $21 million to form a global
alliance with Sumitomo to market and manufacture hydraulic excavators. During
1997, the Company expended $36 million to acquire the businesses of bor-mor,
Gem and Fortschritt, as well as to acquire select assets of Agri-Logic Inc.
and select assets of two German companies. Case also assumed additional debt
and other liabilities of approximately $20 million in conjunction with these
acquisitions.
In 1997, Case Credit expended $16 million to establish a joint venture with
UFB LOCABAIL SA to provide financing for Case's European dealers and retail
customers. The formation of this joint venture, Case Credit Europe S.A.S.,
established the first pan-European finance organization to serve both the
agricultural and construction equipment markets in that region.
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During 1998, the Company received proceeds from the issuance of long-term
debt of $1,370 million. In 1998, Case Credit issued $645 million of fixed-rate
and $140 million of floating-rate, medium-term notes. These notes have
maturities that range from 18 to 36 months and bear interest based on three-
month LIBOR for the floating-rate notes, and interest rates ranging from 5.8%
to 6.2% for the fixed-rate notes. Case Credit also issued $100 million
principal amount of its 6.125% notes due October 2001, and $100 million
principal amount of floating-rate notes due January 21, 2000, with an initial
rate of 5.91%. These note issuances were offered pursuant to shelf
registration statements filed with the Securities and Exchange Commission in
May 1998 and September 1997. Also during 1998, Case Credit's Canadian
subsidiary, Case Credit Ltd., established a C$750 million medium-term note
program pursuant to a short-form prospectus and prospectus supplement filed
with the Canadian Securities Administrators. As of December 31, 1998, Case
Credit Ltd. issued C$125 million of its medium-term notes in Canada, with a
maturity of two years and an interest rate of 6.2%, pursuant to this
prospectus and prospectus supplement. The net proceeds from these collective
issuances will be used to fund Case Capital's growth initiatives and for other
corporate purposes, including the repayment of short-term indebtedness. In
1998, amounts outstanding under Case Capital's short-term debt and revolving
credit facilities decreased $291 million.
In December 1998, Case Industrial issued $300 million aggregate principal
amount of its 6.25% unsecured and unsubordinated notes due 2003. Amounts
outstanding under Case Industrial's short-term debt and revolving credit
facilities increased $568 million in 1998. The net proceeds from these
issuances were used to fund Case Industrial's working capital requirements and
for other corporate purposes, including the repayment of short-term
indebtedness.
In October 1997, Case Credit issued $150 million aggregate principal amount
of its 6.75% unsecured and unsubordinated notes due 2007, pursuant to a shelf
registration statement filed with the Securities and Exchange Commission in
September 1997. The net proceeds from the offering were used to repay
indebtedness and finance Case Capital's growing portfolio of receivables.
During 1998, the Company received proceeds of $70 million from the issuance
of its common stock in conjunction with various employee benefit plans and the
exercise of stock options, as compared to $84 million in 1997.
In 1997, the Company initiated a stock repurchase program to acquire up to
four million shares of the Company's Common Stock. The repurchase of Case
Common Stock under this program was completed during August 1998. During 1998
and 1997, the Company repurchased 2.5 million shares and 1.5 million shares of
common stock, respectively, at a total cost of $130 million and $94 million,
respectively, under this program.
During the third quarter of 1998, the Company initiated a second stock
repurchase program for the purchase from time to time of up to an additional
eight million shares of the Company's Common Stock. The purchase of Case
Common Stock under this program is at the Company's discretion, subject to
prevailing financial and market conditions. As of December 31, 1998, the
Company has repurchased approximately 900,000 shares of its common stock at a
cost of approximately $19 million under this program.
Total debt at December 31, 1998, was $4,399 million, of which $2,658
million related to Case Capital. The consolidated debt to capitalization
ratio, defined as total debt divided by the sum of total debt, stockholders'
equity and preferred stock with mandatory redemption provisions, was 66.8% at
December 31, 1998, and Case Industrial's debt to capitalization ratio was
44.4%. The consolidated and Case Industrial ratios at December 31, 1997, were
54.6% and 27.3%, respectively.
1997 Compared to 1996
In 1997, cash used by operating activities was $221 million. Cash provided
by Case Industrial was $292 million, versus $464 million in 1996. The year-
over-year decrease in cash provided from Case Industrial primarily resulted
from increased levels of wholesale receivables and inventories, reflecting
higher actual and
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projected sales volumes, and incremental receivables and inventories from
acquisitions. Net cash used by operating activities in 1997 was also impacted
by higher year-over-year expenditures for restructuring activities, including
expenditures related to the closure of the Neuss, Germany, plant, the single
largest step in the Company's long-term restructuring plan. These uses of cash
were partially offset by increased levels of net income, depreciation and
amortization, accounts payable and accrued liabilities. Cash used by Case
Capital was $513 million in 1997, as compared to $221 million in 1996. The net
cash used by Case Capital operating activities in 1997 was primarily due to
increased levels of retail receivables, reflecting the Company's asset-
management strategy of retaining a larger percentage of receivables on balance
sheet as opposed to selling those receivables through ABS transactions.
Cash used by investing activities was $286 million in 1997 versus $353
million in 1996. Proceeds from the sale of businesses and assets were $58
million and $27 million in 1997 and 1996, respectively. Case invested $192
million and $162 million in property, plant and equipment, during 1997 and
1996, respectively. Cash used by Case Capital included $100 million for the
purchase of equipment on operating leases, as compared to $71 million in 1996,
reflecting the year-over-year growth in Case Capital's operating lease
portfolio.
During 1997, the Company expended $36 million to acquire the businesses of
bor-mor, Gem and Fortschritt, as well as to acquire select assets of Agri-
Logic Inc. and select assets of two German companies. Case also assumed
additional debt and other liabilities of approximately $20 million in
conjunction with these acquisitions. During 1996, the Company invested $147
million of cash and an additional $27 million in non-cash consideration to
acquire the businesses of Concord, Inc. ("Concord"), Austoft Holdings Limited,
Steyr and Fermec. Case also assumed additional debt and other liabilities of
approximately $244 million in conjunction with these acquisitions.
In 1997, Case Credit expended $16 million to establish a joint venture with
UFB LOCABAIL SA to provide financing for Case's European dealers and retail
customers, establishing the first pan-European finance organization to serve
both the agricultural and construction equipment markets in that region.
In 1997, Case Credit issued $150 million aggregate principal amount of its
6.75% unsecured and unsubordinated notes due 2007, pursuant to a shelf
registration statement filed with the Securities and Exchange Commission in
September 1997. The net proceeds from the offering were used to repay
indebtedness and finance Case Capital's growing portfolio of receivables.
The Company received proceeds from the issuance of long-term debt of $500
million during the first quarter of 1996. In January 1996, the Company issued
$300 million aggregate principal amount of its 7.25% unsecured and
unsubordinated notes due 2016. In February 1996, Case Credit issued $200
million aggregate principal amount of its 6.125% unsecured and unsubordinated
notes due 2003. The net proceeds from the Case Credit offering were used to
finance Case Capital's growing portfolio of receivables and for other
corporate purposes, including the repayment of indebtedness. Amounts
outstanding under short-term debt and revolving credit facilities increased
$524 million in 1997, primarily in support of Case Capital's growing portfolio
of receivables.
During 1996, Case repaid $647 million of long-term debt. Of this $647
million, approximately $324 million related to the repayment in full of the
$1.0 billion term loan established at the time of the Company's initial public
offering in June 1994. The proceeds from the $300 million note offering in
January 1996, together with cash and additional borrowings under the Company's
credit facilities, were used to exercise the Company's option to repurchase
for cash all of the Company's 10.5% Senior Subordinated Notes and to pay
accrued interest thereon.
During 1997, the Company received proceeds of $84 million from the issuance
of its common stock in conjunction with various employee benefit plans and the
exercise of stock options, as compared to $45 million in 1996. In 1996, the
Company also received approximately $30 million in proceeds from the issuance
of 566,100 shares of its common stock in conjunction with an over-allotment
option exercised by the underwriters of a 15.2 million share offering of Case
shares held by Tenneco Inc. in the first quarter of 1996. The equity offering
fully divested Tenneco of its holdings in Case. During the first quarter of
1996, the Company issued 125,812 shares of its common stock in conjunction
with the acquisition of Concord.
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In 1997, the Company initiated a stock repurchase program to acquire up to
four million shares of the Company's Common Stock. As of December 31, 1997,
the Company had repurchased approximately 1.5 million shares of its common
stock at a cost of approximately $94 million under this program.
Total debt at December 31, 1997, was $2,738 million, $1,882 million of
which related to Case Capital. The consolidated debt to capitalization ratio,
defined as total debt divided by the sum of total debt, stockholders' equity
and preferred stock with mandatory redemption provisions, was 54.6% at
December 31, 1997, and Case Industrial's debt to capitalization ratio was
27.3%. The consolidated and Case Industrial ratios at December 31, 1996, were
51.8% and 30.9%, respectively.
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 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 following credit facilities were available to
the Company at December 31, 1998:
(1) a five-year, $1.1 billion revolving credit facility for Case
Industrial that expires in August 2001; and a 364-day, $500 million
revolving credit facility, with a combined availability of $1.2 billion;
(2) five-year, revolving credit facilities of A$150 million, A$20
million, and A$30 million for Case Corporation Pty Ltd (Australia) that
expire in August 2002, December 2002, and February 2003, respectively; and
a 364-day, A$50 million revolving credit facility; with a combined
availability of A$69;
(3) a five-year, $400 million private, revolving wholesale receivable
ABS facility for Case Industrial that expires in June 2002. The facility,
which was fully utilized at December 31, 1998, is comprised of a five-year
committed, $300 million non-renewable facility and a 364-day, $100 million
facility that is renewable annually at the sole discretion of the
purchasers;
(4) a five-year, $1.2 billion revolving credit facility for Case Credit
that expires in August 2001, with $710 million available at December 31,
1998;
(5) a three-year, $750 million U.S. asset-backed commercial paper
liquidity facility for Case Credit that expires in August 1999, with $691
million available at December 31, 1998;
(6) a five-year, C$500 million revolving credit facility for Case Credit
Ltd. (Canada) that expires in August 2001, with C$56 million available at
December 31, 1998; and
(7) a five-year, A$300 million revolving credit facility for Case Credit
Australia Pty Ltd that expires in October 2002; and a 364-day, A$100
million revolving credit facility, with a combined availability of $A27
million available at December 31, 1998.
In addition to the above availability, the Company has other sources of
future liquidity including the asset-backed securities markets in the United
States and Canada, public debt offerings, and other local lines of credit not
mentioned above. In the United States, Canada and Australia, the Company has
also established medium-term note programs. As of December 31, 1998, Case
Capital has issued $785 million of medium-term notes, as well as $550 million
of long-term notes, pursuant to its $1.6 billion U.S. shelf registration
statement; and has issued C$125 million of medium-term notes under its C$750
million Canadian medium-term note program. As of December 31, 1998, no
issuances have been made under Case Capital's A$600 million medium-term note
program.
In conjunction with a support agreement for Case Credit, the Company has
agreed to maintain a direct or indirect ownership in, and provide financial
backing for, Case Credit.
Case estimates that for 1999, capital expenditures and other investments
amounting to $26 million in the aggregate will be required to complete
projects authorized as of December 31, 1998, for which substantial
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commitments by the Company have been made. The Company expects that these
commitments will be funded with cash flows from operations and additional
borrowings under the Company's existing credit facilities.
As of December 31, 1998, the Company has repurchased approximately 900,000
shares of its common stock pursuant to an eight million share repurchase
program authorized by the Company's Board of Directors during the third
quarter of 1998. The purchase of Case Common Stock under this program is at
the Company's discretion, subject to prevailing financial and market
conditions.
Year 2000
In July 1996, the Emerging Issues Task Force ("EITF") of the Financial
Accounting Standards Board ("FASB") issued EITF 96-14, "Accounting for the
Costs Associated with Modifying Computer Software for the Year 2000," which
requires that costs associated with modifying computer software for the Year
2000 be expensed as incurred. Through Case's ongoing process of evaluating and
performing systems and software upgrades and enhancements, the Company has
been actively addressing Year 2000 issues since 1995.
Case Corporation understands that it is important to our customers and
stakeholders that Case's products, services and internal systems are not
adversely affected by the Year 2000. Case has implemented procedures that it
deems necessary to safeguard the Company from computer-related issues
associated with adverse effects as a result of improperly recognizing the
millennial date change. These procedures include, 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 $45 million to $50 million. As of December 31, 1998, the Company
has incurred approximately $22 million of costs for Year 2000 remediation, and
the Company currently anticipates that remaining Year 2000 remediation costs
will approximate $22 million in 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, which
are in the process of being developed, and also does not include any potential
litigation or warranty costs related to Year 2000 issues if the Company's
remediation efforts are not successful.
Case has also undertaken a program to alert its suppliers and dealers of
Year 2000 issues. Based on its contacts with suppliers and dealers, the
Company believes that a majority of our most important suppliers are Year 2000
compliant, and the Company anticipates that most of its dealers will be Year
2000 compliant by mid-1999. Case will continue to work with its remaining
suppliers and its dealers throughout 1999 to secure Year 2000 compliance by
December 31, 1999. Based on third-party representations and internal testing,
and subject to the Company's ongoing compliance efforts, the costs and
uncertainties relating to timely resolution of Year 2000 issues applicable to
the Company's business and operations are not reasonably expected by the
Company to have a material adverse effect on Case's financial position, cash
flows or results of operations. For those suppliers and dealers that have not
adequately responded to our Year 2000 concerns, we are following up to
ultimately achieve an acceptable level of compliance within our supply chain.
As there can be no assurance that an acceptable level of Year 2000 compliance
will be achieved, Case is in the process of developing contingency plans to
address potential issues.
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Case has completed all steps with regards to Year 2000 compliance that it
considers necessary regarding its agricultural and construction equipment and,
as a result, the Company has no information to suggest that its agricultural
and construction equipment is not Year 2000 compliant. The Company believes,
based on its review and testing, that products purchased from Case will
accurately determine chronological dates and accurately perform all
calculations and data manipulations based upon such dates.
Based upon Case's review and efforts to date, the Company currently
anticipates completion of critical Year 2000 compliance issues by mid-1999,
and the Company plans to continue integration testing throughout the balance
of 1999. If Case's Year 2000 compliance efforts, as well as the efforts of the
Company's suppliers and dealers, individually and in the aggregate, are not
successful, it could have a material adverse effect on the Company's financial
position, cash flows and results of operations. Factors that could cause
actual results to differ include unanticipated supplier or dealer failures,
disruption of utilities, transportation or telecommunications breakdowns,
foreign or domestic governmental failures, as well as unanticipated failures
on our part to address Year 2000 related issues. The Company's most reasonably
likely worst case scenario in light of these risks would involve a potential
loss in sales resulting from order, production and shipping delays throughout
the Company's supply chain caused by Year 2000 related disruptions. The degree
of sales loss impact would depend on the severity of the disruption, the time
required to correct it, whether the sales loss was temporary or permanent, and
the degree to which our primary competitors were also impacted by the
disruption. The Company is in the process of developing Year 2000 contingency
plans that will be designed to mitigate the impact on the Company if its Year
2000 compliance efforts are not successful. The targeted completion date for
the Company's contingency planning is mid-1999. Case's contingency plans may
include the use of alternative systems and non-computerized approaches to our
business including manual procedures for machine operation, collecting and
reporting of its business information, as well as alternative sources of
supply. At this time, the Company has not determined whether it will be
necessary to stockpile inventory or supplies as part of its contingency
planning.
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.
Euro
The Company has developed a phased approach to the introduction of a common
European currency (the "Euro"). The Company anticipates that the greatest
impact on Case brought about by the introduction of the Euro will be the
increased price transparency on European sales of European manufactured
products. Case has concentrated its efforts on making those changes that it
believes will limit the Company's risk following any price convergence.
Invoicing of all exported European product in Euro began on January 1, 1999.
With the possible exception of domestic sales in the United Kingdom, the
Company's European subsidiaries are expected to invoice both export and
domestic sales solely in Euro beginning January 1, 2000. Also by January 1,
2000, the Company expects to have a single European price list in place for
European sales.
Case has not found it necessary to make significant investments in systems
hardware or software to prepare for and operate in the Euro. As of January 1,
1999, Case has modified all applicable systems necessary for the Company's
phased transition to the Euro, and the Company expects that its remaining
systems will be modified by January 1, 2000. As part of the Company's phased
approach, the majority of Case's European subsidiaries will continue to keep
their 1999 financial records in the former local currency.
The Company is not in a position to quantify the possible long-term impact
of the Euro on its revenues or expenses. However, at this time, the Company
has no reason to believe that it is in a weak or unfavorable position relative
to the Euro introduction as compared to its competitors or other companies
dealing in Europe.
Outlook
The market outlook for Case's agricultural and construction equipment and
financial services business is decidedly mixed throughout the world.
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Demand for agricultural equipment continued to drop significantly during
the fourth quarter of 1998. This decline is the result of low commodity
prices, driven principally by a third consecutive year of strong-to-record
harvests in most major grain crops. In addition, exports of farm commodities
have dropped significantly year-over-year, affecting large-scale production
agriculture farmers. In the United States, net farm income for 1998 is
projected to be lower than the previous year by approximately 5%, and
significant declines are also anticipated in other parts of the world. In
addition, financing for equipment purchases in emerging markets is expected to
remain extremely difficult. As a result of these factors, worldwide sales of
agricultural equipment are projected to decline by approximately 8% to 10% in
1999.
The global outlook for the construction equipment market varies by region.
In North America, demand is stable due to a sustained level of housing starts
and a favorable interest rate environment. This outlook is supported by the
new U.S. highway bill that will increase infrastructure spending. In Europe,
the market is expected to decline moderately in 1999 as anticipated
improvements in Germany and France will be offset by lower sales in the United
Kingdom and the Africa / Middle East region. In Asia Pacific, any recovery in
business conditions is tied to Japan's ability to stimulate its economy and
resolve its banking crisis. Case is further affected by a weak Australian
dollar, impacting the overall economy and construction activity there. In
Latin America, the outlook has dampened considerably given Brazil's currency
devaluation and the prospect for implementation of new fiscal programs
required as part of the International Monetary Fund assistance plan. In total,
worldwide construction equipment sales in 1999 are expected to be down 2% to
5%.
Since December 31, 1998, Brazil's currency has devalued substantially.
While Case continues to monitor the impact this will have on the Company's
1999 business results, as of January 31, 1999, the translation of the
Brazilian financial statements resulted in a decrease in stockholders' equity
of approximately $90 million. The outlook in Brazil continues to be unstable,
and a worsening of the economic conditions in Brazil would have an adverse
impact on the Company's 1999 results.
The information included in the "Outlook" section represents forward-
looking statements and involves risks and uncertainties that could cause
actual results to differ materially from those in the forward-looking
statements. The Company's outlook is predominantly based on its interpretation
of what it considers key economic assumptions. Crop production and commodity
prices are strongly affected by weather and can fluctuate significantly.
Housing starts and other construction activity are sensitive to interest rates
and government spending. Some of the other significant factors for the Company
include general economic and capital market conditions, the cyclical nature of
its business, foreign currency movements, the Company's and its customers'
access to credit, political uncertainty and civil unrest in various areas of
the world, pricing, product initiatives and other actions taken by
competitors, disruptions in production capacity, excess inventory levels, the
effect of changes in laws and regulations (including government subsidies and
international trade regulations), the effect of conversion to the Euro,
technological difficulties (including Year 2000), changes in environmental
laws, and employee and labor relations. Further information concerning factors
that could significantly impact expected results is included in the following
sections of this Form 10-K: Business--Employees, Business--Environmental
Matters, Business--Significant International Operations, Business--Seasonality
and Production Schedules, Business--Competition, Legal Proceedings, and
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
Seasonality and Production Schedules
The seasonality of farm equipment retail sales is directly affected by the
timing of major crop activities: tilling, planting and harvesting. The timing
of these activities is impacted by crop production and climate conditions. The
second and fourth quarters are generally the strongest demand periods for
retail farm equipment sales, normally representing approximately 31% and 27%
of sales, respectively, by Case's North American dealers. The weakest retail
demand for Case farm equipment in North America typically occurs in the first
quarter, accounting for approximately 19% of sales by Case's North American
dealers.
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Seasonal demand fluctuations for construction equipment are somewhat less
significant than those for farm equipment. Nevertheless, in North America,
housing construction slows down, especially in the Midwest and on the East
Coast, during the first quarter. North American retail demand for Case's
construction equipment is strongest in the second and fourth quarters, which
represent approximately 30% and 27%, respectively, of sales by Case's North
American dealers. European demand patterns are similar to those in the United
States.
Sales to independent dealers closely correspond with Case's production
levels, which are based upon its estimates of the demand for its products,
taking into account the timing of dealer shipments (which are in advance of
retail demand), dealer inventory levels, the need to shut down production to
enable manufacturing facilities to be prepared for the manufacture of new or
different models, and the efficient use of manpower and facilities. Production
levels are adjusted to reflect changes in estimated demand, dealer inventory
levels, labor disruptions and other matters not within Case's control. The
Company has a multi-year supply chain management initiative that has a long-
term objective of matching production levels with retail demand. In response
to a sudden downturn in the agricultural equipment business, Case announced
major cuts to 1998 and 1999 agricultural equipment production plans in order
to align production relative to retail market demand. During 1999, Case will
produce significantly below forecasted demand in order to maintain inventories
at appropriate levels.
Inflation
Inflation impacts the Company's business in both the costs of production
and the demand for its products.
A significant portion of the cost of Case machinery is comprised of
material costs. Therefore, material price inflation could result in increased
manufacturing costs through supplier price increases to Case. Case's ability
to recover increased supplier costs would be dependent, in part, on its
competitors' responses to these economic conditions. Manufacturing cost
increases in excess of increased pricing in the market could have an adverse
effect on Case.
Increases in inflation tend to cause higher interest rates. The demand for
farm and, to a greater extent, construction equipment, is negatively impacted
by high interest rates. As interest rates on farm debt escalate, farmers tend
to delay equipment purchases. Case's construction equipment business is
heavily tied to the housing construction sector, and in the face of rising
mortgage rates, potential homeowners tend to delay purchases. Increases in the
level of worldwide inflation could have a negative effect on the level of
demand for farm and construction equipment.
Environmental Matters
The Company's operations are subject to stringent environmental regulation
by governmental authorities. Although the Company has a program designed to
implement environmental management practices and compliance and has reserved
for environmental liabilities, it is possible that developments, such as
increasingly strict environmental laws, regulations and enforcement policies
or claims for damages to property, employees, other persons and the
environment resulting from the Company's operations, could result in future
costs and liabilities that may exceed the range currently anticipated by the
Company. As it has done in the past, the Company intends to fund its cost of
environmental compliance from operating cash flows. Also see Note 15 to the
Case Financial Statements included in Item 8 hereof.
Foreign Currency Risk Management
The Company has significant international manufacturing operations. In most
instances, Case's products and components are only produced at a single
manufacturing facility. As a result, significant volumes of finished goods and
components are exported to other countries for sale into those markets. In
addition, the Company buys finished products from Germany, Italy and Japan for
sale through its distribution network. For goods purchased
36
<PAGE>
from other Case affiliates, the Company denominates the transaction in the
functional currency of the producing operation. Large volume purchase
agreements for products purchased from third parties normally contain currency
risk sharing clauses that limit the amount of exposure from currency
fluctuations.
The Company has adopted the following guidelines to manage its foreign
exchange exposures:
(1) increase the predictability of costs associated with goods whose
purchase price is not denominated in the functional currency of the
buyer;
(2) minimize the cost of hedging through the use of naturally offsetting
positions; and
(3) where possible, sell product in the functional currency of the
producing operation.
The Company's identifiable foreign exchange exposures result primarily from
the anticipated purchase of equipment and components from Case affiliates and
third-party suppliers, along with the repayment of intercompany loans to
foreign subsidiaries denominated in foreign currencies. The Company identifies
naturally offsetting positions and then purchases hedging instruments to
protect anticipated exposures. For further information regarding Case's
foreign currency risk management, see Note 12 to the Case Financial Statements
included in Item 8 hereof.
Derivative Financial Instruments
Derivative financial instruments are used by the Company to manage its
foreign currency and interest rate exposures. Case does not hold or issue
financial instruments for trading purposes.
Foreign Currency
The following foreign currency exchange contracts were held by the Company
to hedge certain currency exposures. All 1998 foreign currency contracts
mature in 1999. The notional amounts and fair value gains/(losses) at December
31, 1998 and 1997, are as follows (U.S. dollars, in millions):
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------------
1998 1997
---------------------------- ----------------------------
Average Fair Value Average Fair Value
Notional Contract Gains / Notional Contract Gains /
Amount Rate* (Losses) Amount Rate* (Losses)
-------- -------- ---------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Foreign Currency
Forward Exchange
Contracts:
Austrian Shilling..... $ 6 11.62 $-- $ 15 12.35 $--
Australian Dollar..... 135 0.61 -- 111 0.70 7
Belgian Franc......... 4 34.34 -- 10 36.29 --
British Pound
Sterling............. 212 1.68 (2) 170 1.65 (1)
Canadian Dollar....... 121 1.53 -- 106 1.41 2
China Yuan Renminbi... 4 9.59 (1) -- -- --
Danish Krone.......... 7 6.25 -- 4 6.74 --
Euro.................. 30 1.2 -- -- -- --
French Franc.......... 130 5.54 -- 151 5.88 (1)
German Mark........... 161 1.66 -- 87 1.75 2
Italian Lira.......... 7 1,640.63 -- 26 1,727.21 --
Japanese Yen.......... 33 121.01 2 36 124.74 (2)
New Zealand Dollar.... 2 0.52 -- -- -- --
Spanish Peseta........ 5 139.70 -- 20 148.00 --
---- --- ---- ---
$857 $(1) $736 $ 7
==== === ==== ===
Purchased Currency
Options:
Australian Dollar..... $ -- -- $-- $ 43 0.70 $ 3
==== === ==== ===
Sold Currency Options:
Australian Dollar..... $ -- -- $ $ 45 0.72 $--
==== === ==== ===
</TABLE>
- --------
*per U.S. dollar
37
<PAGE>
Interest Rates
The Company has implemented an interest rate risk management program with
respect to a portion of the credit facilities that carry a floating rate of
interest. The program is within guidelines of the policies approved by the
Board of Directors to limit exposure to rising interest rates. The exact
nature, timing and size of the program is based upon the amount of debt in
Case Industrial and Case Capital. For further information regarding Case's
interest rate risk management, see Note 12 to the Case Financial Statements
included in Item 8 hereof.
At December 31, 1998, the Company performed a sensitivity analysis for the
Company's derivatives and other financial instruments that have interest rate
risk. The Company calculated the pretax earnings effect on its interest
sensitive instruments, including accounts and notes receivable and fixed-rate,
long-term debt obligations. Based on this sensitivity analysis, the Company
has determined that an increase of 10% in the Company's weighted-average
interest rates at December 31, 1998, would have no material affect on the
consolidated financial position, results of operations or cash flows of the
Company.
38
<PAGE>
Item 8. Financial Statements and Supplementary Data.
INDEX TO FINANCIAL STATEMENTS OF CASE CORPORATION
AND CONSOLIDATED SUBSIDIARIES
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of independent public accountants.................................. 40
Statements of income for each of the three years in the period ended
December 31, 1998........................................................ 41
Balance sheets as of December 31, 1998 and 1997........................... 42
Statements of cash flows for each of the three years in the period ended
December 31, 1998........................................................ 43
Statements of changes in stockholders' equity for each of the three years
in the period ended December 31, 1998.................................... 44
Notes to financial statements............................................. 45
</TABLE>
39
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of Case Corporation:
We have audited the accompanying consolidated balance sheets of Case
Corporation (a Delaware Corporation) and subsidiaries as of December 31, 1998
and 1997, and the related statements of income, cash flows and changes in
stockholders' equity for each of the three years in the period ended December
31, 1998. These consolidated financial statements and the supplemental
financial statements and supplemental schedule referred to below are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements, the supplemental
financial statements and supplemental schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Case Corporation and
subsidiaries as of December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1998, in conformity with generally accepted accounting
principles.
Our audits were made for the purpose of forming an opinion on the
consolidated financial statements taken as a whole. The supplemental financial
statements of Case Industrial and Case Capital are presented for purposes of
additional analysis and are not a required part of the consolidated financial
statements. This information has been subjected to the auditing procedures
applied in our audits of the consolidated financial statements and, in our
opinion, is fairly stated in all material respects in relation to the
consolidated financial statements taken as a whole. Also, the supplemental
schedule listed in the index to Item 14 is presented for purposes of complying
with the Securities and Exchange Commission's rules and is not part of the
basic financial statements. The supplemental schedule has been subjected to
the auditing procedures applied in the audits of the basic financial
statements and, in our opinion, fairly states in all material respects the
financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.
Arthur Andersen LLP
Milwaukee, Wisconsin
January 21, 1999
40
<PAGE>
CASE CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(in millions, except per share data)
<TABLE>
<CAPTION>
Consolidated Case Industrial Case Capital
-------------------- --------------------- --------------
1998 1997 1996 1998 1997 1996 1998 1997 1996
------ ------ ------ ------ ------ ------ ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Net sales.............. $5,738 $5,718 $5,104 $5,738 $5,718 $5,104 $-- $-- $--
Interest income and
other................. 411 306 305 41 35 63 377 272 244
------ ------ ------ ------ ------ ------ ---- ---- ----
6,149 6,024 5,409 5,779 5,753 5,167 377 272 244
Costs and Expenses:
Cost of goods sold..... 4,700 4,447 3,953 4,700 4,447 3,953 -- -- --
Selling, general and
administrative........ 655 570 544 599 541 517 56 29 27
Research, development
and engineering....... 224 196 193 224 196 193 -- -- --
Restructuring charge... 132 -- -- 132 -- -- -- -- --
Interest expense....... 240 170 160 104 73 90 143 98 72
Other, net............. 92 47 25 45 24 13 47 23 12
------ ------ ------ ------ ------ ------ ---- ---- ----
6,043 5,430 4,875 5,804 5,281 4,766 246 150 111
Income (loss) before
taxes and extraordinary
items.................. 106 594 534 (25) 472 401 131 122 133
Income tax provision
(benefit).............. 42 191 185 (4) 151 140 46 40 45
------ ------ ------ ------ ------ ------ ---- ---- ----
64 403 349 (21) 321 261 85 82 88
Equity in income--Case
Capital................ -- -- -- 85 82 88 -- -- --
------ ------ ------ ------ ------ ------ ---- ---- ----
Income before
extraordinary items.... 64 403 349 64 403 349 85 82 88
Extraordinary items..... -- -- (33) -- -- (33) -- -- ( 3)
------ ------ ------ ------ ------ ------ ---- ---- ----
Net income........... $ 64 $ 403 $ 316 $ 64 $ 403 $ 316 $ 85 $ 82 $ 85
====== ====== ====== ====== ====== ====== ==== ==== ====
Preferred stock
dividends.............. 7 7 7
------ ------ ------
Net income to common. $ 57 $ 396 $ 309
====== ====== ======
Per share data:
Basic earnings per
share before
extraordinary items... $ 0.78 $ 5.36 $ 4.73
====== ====== ======
Basic earnings per
share................. $ 0.78 $ 5.36 $ 4.27
====== ====== ======
Diluted earnings per
share, before
extraordinary items... $ 0.76 $ 5.11 $ 4.49
====== ====== ======
Diluted earnings per
share................. $ 0.76 $ 5.11 $ 4.07
====== ====== ======
</TABLE>
The accompanying notes to financial statements are an integral part of these
Statements of Income. Reference is made to Note 2 for definitions of "Case
Industrial" and "Case Capital."
41
<PAGE>
CASE CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1998 AND 1997
(in millions, except share data)
<TABLE>
<CAPTION>
Case
Consolidated Industrial Case Capital
--------------- --------------- --------------
ASSETS 1998 1997 1998 1997 1998 1997
------ ------- ------ ------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Current Assets:
Cash and cash equivalents... $ 142 $ 252 $ 107 $ 185 $ 35 $ 67
Accounts and notes
receivable................. 2,476 2,053 1,594 1,459 934 705
Inventories................. 1,430 1,064 1,430 1,064 -- --
Deferred income taxes....... 272 191 252 175 20 16
Prepayments and other....... 50 40 48 40 2 --
------- ------ ------- ------ ------ ------
Total current assets...... 4,370 3,600 3,431 2,923 991 788
------- ------ ------- ------ ------ ------
Long-Term Receivables........ 1,938 1,605 326 252 1,593 1,340
Other Assets:
Investments in joint
ventures................... 98 82 83 66 15 16
Investment in Case Capital.. -- -- 459 357 -- --
Equipment on operating
leases, net................ 468 179 -- -- 468 179
Goodwill and intangibles.... 358 319 358 319 -- --
Other....................... 373 197 201 173 190 36
------- ------ ------- ------ ------ ------
Total other assets........ 1,297 777 1,101 915 673 231
------- ------ ------- ------ ------ ------
Property, Plant and
Equipment, at cost.......... 2,169 1,987 2,164 1,983 5 4
Accumulated depreciation..... (1,048) (988) (1,046) (987) (2) (1)
------- ------ ------- ------ ------ ------
Net property, plant and
equipment................ 1,121 999 1,118 996 3 3
------- ------ ------- ------ ------ ------
Total..................... $ 8,726 $6,981 $ 5,976 $5,086 $3,260 $2,362
======= ====== ======= ====== ====== ======
<CAPTION>
LIABILITIES AND EQUITY
----------------------
<S> <C> <C> <C> <C> <C> <C>
Current Liabilities:
Current maturities of long-
term debt.................. $ 9 $ 8 $ 9 $ 8 $ -- $ --
Short-term debt............. 1,310 1,326 766 179 550 1,147
Accounts payable............ 605 708 625 753 25 27
Restructuring liability..... 125 59 125 59 -- --
Other accrued liabilities... 847 769 785 740 62 67
------- ------ ------- ------ ------ ------
Total current liabilities. 2,896 2,870 2,310 1,739 637 1,241
------- ------ ------- ------ ------ ------
Long-Term Debt............... 3,080 1,404 972 669 2,108 735
Other Liabilities:
Pension benefits............ 205 109 205 109 -- --
Other postretirement
benefits................... 161 137 161 137 -- --
Other postemployment
benefits................... 37 38 37 38 -- --
Other....................... 153 147 99 120 54 27
------- ------ ------- ------ ------ ------
Total other liabilities... 556 431 502 404 54 27
------- ------ ------- ------ ------ ------
Commitments and Contingencies
(Note 15)
Minority Interest............ 7 2 5 -- 2 2
Preferred Stock with
Mandatory Redemption
Provisions.................. 77 77 77 77 -- --
Stockholders' Equity:
Common Stock, $0.01 par
value; authorized
200,000,000 shares, issued
78,923,145 shares in 1998
and 75,985,876 shares in
1997....................... 1 1 1 1 -- --
Paid-in capital............. 1,430 1,334 1,430 1,334 269 244
Retained earnings........... 1,116 1,074 1,116 1,074 214 129
Accumulated other
comprehensive income....... (159) (102) (159) (102) (24) (16)
Unearned compensation on
restricted stock........... (31) (14) (31) (14) -- --
Treasury stock, 5,007,110
shares in 1998 and
1,593,979 shares in 1997,
at cost.................... (247) (96) (247) (96) -- --
------- ------ ------- ------ ------ ------
Total stockholders'
equity................... 2,110 2,197 2,110 2,197 459 357
------- ------ ------- ------ ------ ------
Total..................... $ 8,726 $6,981 $ 5,976 $5,086 $3,260 $2,362
======= ====== ======= ====== ====== ======
</TABLE>
The accompanying notes to financial statements are an integral part of these
Balance Sheets.Reference is made to Note 2 for definitions of "Case Industrial"
and "Case Capital."
42
<PAGE>
CASE CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(in millions)
<TABLE>
<CAPTION>
Case
Consolidated Industrial Case Capital
----------------- ---------------- -----------------
1998 1997 1996 1998 1997 1996 1998 1997 1996
----- ---- ---- ---- ---- ---- ----- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Operating activities:
Net income............. $ 64 $403 $316 $ 64 $403 $316 $ 85 $ 82 $ 85
Adjustments to
reconcile net income
to net cash provided
(used) by operating
activities:
Depreciation and
amortization......... 213 157 138 168 133 126 45 24 12
Deferred income tax
expense (benefit).... (73) 7 16 (97) (11) 15 24 18 1
Loss on disposal of
fixed assets......... 6 -- 5 5 -- 5 1 -- --
Extraordinary items,
after tax............ -- -- 33 -- -- 33 -- -- 3
Restructuring charge.. 132 -- -- 132 -- -- -- -- --
Cash paid for
restructuring........ (30) (141) (73) (30) (141) (73) -- -- --
Undistributed
(earnings) loss of
unconsolidated
subsidiaries......... 3 (4) 7 (83) (86) (40) -- -- --
Changes in components
of working capital:
(Increase) decrease
in receivables....... (365) (479) (162) (86) (236) 86 (220) (337) (248)
(Increase) decrease
in inventories....... (321) (146) 10 (321) (146) 10 -- -- --
(Increase) decrease
in prepayments and
other current
assets............... (9) 21 -- (7) 21 (2) (2) -- 2
Increase (decrease)
in payables.......... (136) 188 (30) (155) 246 (45) (40) 36 15
Increase (decrease)
in accrued
liabilities.......... 15 30 (53) (24) 44 (59) 39 (14) 6
(Increase) decrease in
long-term receivables. (406) (343) (71) (92) 38 89 (309) (383) (158)
Increase (decrease) in
other liabilities..... 99 48 55 102 48 55 (3) -- --
Other, net............. (187) 38 12 (69) (21) (52) (122) 61 61
----- ---- ---- ---- ---- ---- ----- ---- ----
Net cash provided
(used) by operating
activities......... (995) (221) 203 (493) 292 464 (502) (513) (221)
Investing activities:
Proceeds from sale of
businesses and assets. 9 58 27 9 58 27 -- -- --
Expenditures for
property, plant and
equipment............. (222) (192) (162) (221) (191) (160) (1) (1) (2)
Expenditures for
equipment on operating
leases................ (333) (100) (71) -- -- -- (333) (100) (71)
Acquisitions and
investments........... (124) (52) (147) (124) (36) (147) -- (16) --
----- ---- ---- ---- ---- ---- ----- ---- ----
Net cash provided
(used) by investing
activities......... (670) (286) (353) (336) (169) (280) (334) (117) (73)
Financing activities:
Proceeds from issuance
of long-term debt.... 1,370 150 500 300 -- 300 1,070 150 200
Payment of long-term
debt................. (6) (3) (647) (6) (3) (647) -- -- --
Net increase
(decrease) in short-
term debt and
revolving credit
facilities........... 277 524 225 568 37 89 (291) 487 136
Capital contributions. -- -- -- (25) (45) -- 25 45 --
Proceeds from the
issuance of common
stock................ 70 84 75 70 84 75 -- -- --
Repurchases of common
stock................ (149) (94) -- (149) (94) -- -- -- --
Dividends paid (common
and preferred)....... (22) (21) (21) (22) (21) (21) -- -- (40)
Other, net............ 15 10 2 15 10 2 -- -- --
----- ---- ---- ---- ---- ---- ----- ---- ----
Net cash provided
(used) by financing
activities......... 1,555 650 134 751 (32) (202) 804 682 296
Effect of foreign
exchange rate changes
on cash and cash
equivalents........... -- (7) -- -- (5) -- -- (2) --
----- ---- ---- ---- ---- ---- ----- ---- ----
Increase (decrease) in
cash and cash
equivalents........... (110) 136 (16) (78) 86 (18) (32) 50 2
Cash and cash
equivalents, beginning
of year............... 252 116 132 185 99 117 67 17 15
----- ---- ---- ---- ---- ---- ----- ---- ----
Cash and cash
equivalents, end of
year.................. $ 142 $252 $116 $107 $185 $ 99 $ 35 $ 67 $ 17
===== ==== ==== ==== ==== ==== ===== ==== ====
Cash paid during the
year for interest..... $ 218 $174 $169 $ 99 $ 73 $ 98 $ 126 $101 $ 71
===== ==== ==== ==== ==== ==== ===== ==== ====
Cash paid during the
year for taxes........ $ 115 $166 $160 $ 89 $122 $113 $ 26 $ 44 $ 47
===== ==== ==== ==== ==== ==== ===== ==== ====
</TABLE>
The accompanying notes to financial statements are an integral part of these
Statements of Cash Flows.
Reference is made to Note 2 for definitions of "Case Industrial" and "Case
Capital."
43
<PAGE>
CASE CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(in millions)
<TABLE>
<CAPTION>
Accumulated
Other
Common Paid-in Unearned Retained Treasury Comprehensive Comprehensive
Stock Capital Compensation Earnings Stock Income Total Income
------ ------- ------------ -------- -------- ------------- ------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1995................... $ 1 $1,154 $(10) $ 399 $ (1) $ (23) $1,520
Comprehensive income:
Net income............. -- -- -- 316 -- -- 316 $316
Translation
adjustment............ -- -- -- -- -- 7 7 7
Pension liability
adjustment............ -- -- -- -- -- (2) (2) (2)
----
Total................ $321
====
Dividends declared...... -- -- -- (22) -- -- (22)
Capital contributions on
stock issuance......... -- 81 -- -- -- -- 81
Recognition of
compensation on
restricted stock....... -- -- 4 -- -- -- 4
Issuance of restricted
stock.................. -- 3 (3) -- -- -- --
--- ------ ---- ------ ----- ----- ------
Balance, December 31,
1996................... 1 1,238 (9) 693 (1) (18) 1,904
Comprehensive income:
Net income............. -- -- -- 403 -- -- 403 $403
Translation
adjustment............ -- -- -- -- -- (80) (80) (80)
Pension liability
adjustment............ -- -- -- -- -- (4) (4) (4)
----
Total................ $319
====
Dividends declared...... -- -- -- (22) -- -- (22)
Capital contributions on
stock issuance......... -- 84 -- -- -- -- 84
Recognition of
compensation on
restricted stock....... -- -- 6 -- -- -- 6
Issuance of restricted
stock, net of
forfeitures............ -- 12 (11) -- (1) -- --
Acquisition of treasury
stock.................. -- -- -- -- (94) -- (94)
--- ------ ---- ------ ----- ----- ------
Balance, December 31,
1997................... 1 1,334 (14) 1,074 (96) (102) 2,197
Comprehensive income:
Net income............. -- -- -- 64 -- -- 64 $ 64
Translation
adjustment............ -- -- -- -- -- (18) (18) (18)
Pension liability
adjustment, net of
$15 tax benefit....... -- -- -- -- -- (39) (39) (39)
----
Total................ $ 7
====
Dividends declared...... -- -- -- (22) -- -- (22)
Capital contributions on
stock issuance......... -- 70 -- -- -- -- 70
Recognition of
compensation on
restricted stock....... -- -- 8 -- -- -- 8
Issuance of restricted
stock, net of
forfeitures............ -- 26 (25) -- (2) -- (1)
Acquisition of treasury
stock.................. -- -- -- -- (149) -- (149)
--- ------ ---- ------ ----- ----- ------
Balance, December 31,
1998................... $ 1 $1,430 $(31) $1,116 $(247) $(159) $2,110
=== ====== ==== ====== ===== ===== ======
</TABLE>
The accompanying notes to financial statements are an integral part of these
Statements of Changes in Stockholders' Equity.
44
<PAGE>
CASE CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note 1: Nature of Operations
Case Corporation ("Case" or the "Company") engages in two types of
operations. The Company's industrial operations ("Case Industrial")
manufacture and distribute a full line of farm equipment and light- to medium-
sized construction equipment on a worldwide basis. Case's financial services
business is provided through Case Capital Corporation, including its wholly
owned subsidiary Case Credit(R) Corporation ("Case Credit") and their
subsidiaries and joint ventures (collectively, "Case Capital" or "Financial
Services"). Case Capital provides financing for retail installment sales
contracts and leases, commercial lending within the equipment industry,
multiple lines of insurance products and offers a private-label credit card.
Note 2: Summary of Significant Accounting Policies
Principles of Consolidation and Presentation
The accompanying financial statements reflect the consolidated results of
Case Corporation and also include, on a separate and supplemental basis, the
combination of Case's industrial companies and financial services companies as
follows:
Case Industrial--The financial information captioned "Case Industrial"
reflects the consolidation of all majority-owned subsidiaries except for Case
Capital, the Company's wholly owned retail credit subsidiary. Case Capital has
been included using the equity method of accounting whereby the net income and
net assets of Case Capital are reflected, respectively, in the income
statement caption, "Equity in income-Case Capital," and in the balance sheet
caption, "Investment in Case Capital."
Case Capital--The financial information captioned "Case Capital" reflects
the consolidation of Case's retail credit subsidiaries.
All significant intercompany transactions, including activity within and
between "Case Industrial" and "Case Capital" have been eliminated.
Certain reclassifications have been made to conform prior years' financial
statements to the 1998 presentation.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reported period. Actual results could differ from those estimates.
Revenue Recognition
Sales to independent dealers are recorded at the time of shipment to those
dealers. Case grants certain sales incentives to stimulate sales of Case
products to retail customers. The expense for such incentive programs is
recorded as a deduction in arriving at net sales at the time of sale to the
dealer. At December 31, 1998 and 1997, Case had accrued $218 million and $177
million, respectively, for these incentive programs and such amounts are
included in "Other accrued liabilities" in the accompanying Balance Sheets.
To facilitate the sale of its products, Case Industrial offers wholesale
financing to its dealers. Under terms of most dealer agreements, wholesale
notes receivable are generally interest free for periods ranging from three to
nine months, after which interest is based on market rates.
Case Capital records earned finance charges (interest income) on retail and
other notes receivables and finance leases using the effective interest
method.
45
<PAGE>
CASE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
Modification Programs and Warranty Costs
The costs of major programs to modify products in the customer's possession
are accrued when these costs can be identified and quantified. Normal warranty
costs are recorded at the time of sale. Reserves for modification programs and
warranty costs were $149 million and $90 million at December 31, 1998 and
1997, respectively, and are included in "Other accrued liabilities" in the
accompanying Balance Sheets.
Advertising
The Company expenses advertising costs as incurred. Advertising expense
totaled $48 million, $42 million and $37 million, for the years ended December
31, 1998, 1997 and 1996, respectively.
Foreign Currency Translation
The assets and liabilities of foreign affiliates are translated into U.S.
dollars using year-end exchange rates. Revenues and expenses are translated at
average rates during the year. Adjustments resulting from this translation are
deferred and included in "Accumulated other comprehensive income" in the
accompanying Balance Sheets.
As a result of changes in Brazil's three-year inflation index, the Company
ceased applying highly inflationary accounting for its Brazilian operations
effective January 1, 1998. Through 1997, the Company reported its Brazilian
operations as highly inflationary, and adjustments resulting from the
translation of Brazil's pre-1998 financial statements are reflected in the
accompanying Statements of Income.
Accounting Pronouncements
Effective January 1, 1997, Case adopted Statement of Financial Accounting
Standards ("SFAS") No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities." The adoption of this
statement did not have a material effect on the Company's financial position
or results of operations.
Effective December 31, 1997, Case adopted SFAS No. 128, "Earnings per
Share." SFAS No. 128 specifies the computation, presentation and disclosure
requirements for earnings per share ("EPS"), and replaces primary and fully
diluted EPS with basic and diluted EPS. The Company has restated all
previously reported per share amounts to conform to the new presentation. See
Note 16, "Earnings per Share."
Effective January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income." This statement establishes standards for the reporting
and display of comprehensive income and its components. Components of
comprehensive income are net income and all other non-owner changes in equity.
SFAS No. 130 requires that an enterprise classify items of other comprehensive
income by their nature in a financial statement for the period in which they
are recognized. The Company has chosen to disclose comprehensive income in the
accompanying Consolidated Statements of Changes in Stockholders' Equity. Also
see Note 10, "Stockholders' Equity and Preferred Stock with Mandatory
Redemption Provisions." The adoption of this statement did not have an effect
on the Company's financial position or results of operations.
Effective January 1, 1998, the Company adopted SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information." The adoption of this
statement did not have an effect on the Company's financial position or
results of operations. See Note 18, "Segment and Geographical Information."
Effective January 1, 1998, the Company adopted SFAS No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits." This statement
standardizes the disclosure requirements for pension and other postretirement
benefits. The adoption of this statement did not have an effect on the
Company's financial position or results of operations. See Note 14, "Employee
Benefit Plans and Postretirement Benefits."
46
<PAGE>
CASE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This statement
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. This statement must be adopted no later than January 1,
2000, although earlier application is permitted. The Company is currently
evaluating the impact of adopting SFAS No. 133.
Effective January 1, 1998, the Company adopted Statement of Position
("SOP") No. 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use." The Company's accounting for the costs of computer
software developed or obtained for internal use is consistent with the
guidelines established in the SOP and, as a result, the adoption of this
statement had no effect on the Company's financial position or results of
operations.
Case will adopt SOP No. 98-5, "Reporting on the Costs of Start-Up
Activities," effective January 1, 1999. 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 will have no effect on
the Company's financial position or results of operations.
Cash and Cash Equivalents
Cash equivalents are comprised of all highly liquid investments with an
original maturity of three months or less.
Inventories
Inventories are stated at the lower of cost or market, generally using the
first-in, first-out (FIFO) method. Inventory cost includes material, labor and
overhead. Inventories consist of the following (in millions):
<TABLE>
<CAPTION>
December 31,
-------------
1998 1997
------ ------
<S> <C> <C>
Raw materials............................................... $ 258 $ 207
Work-in-process............................................. 167 135
Finished goods.............................................. 1,005 722
------ ------
Total inventories....................................... $1,430 $1,064
====== ======
</TABLE>
Goodwill and Intangibles
Goodwill is being amortized on a straight-line basis over 15 to 40 years.
Case continually evaluates whether events and circumstances have occurred that
indicate the remaining estimated useful life of goodwill may warrant revision
or that the remaining balance of goodwill may not be recoverable. When factors
indicate that goodwill should be evaluated for possible impairment, Case uses
an estimate of the undiscounted cash flows over the remaining life of the
goodwill in measuring whether the goodwill is recoverable.
At December 31, 1998 and 1997, goodwill totaled $423 million and $353
million, respectively, while accumulated amortization of goodwill was $114
million and $96 million, at those respective dates. Amortization expense
totaled $18 million, $14 million and $9 million for the years ended December
31, 1998, 1997 and 1996, respectively.
Intangibles consist primarily of acquired dealer network, trademarks,
product drawings and patents, and are being amortized on a straight-line basis
over 3 to 17 years. At December 31, 1998 and 1997, intangibles totaled $230
million and $227 million, respectively, while accumulated amortization of
intangibles was $181 million
47
<PAGE>
CASE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
and $165 million, at those respective dates. Amortization expense totaled $16
million, $12 million and $13 million for the years ended December 31, 1998,
1997 and 1996, respectively.
Derivatives
Derivative financial instruments are used by the Company to manage its
foreign currency and interest rate exposures. Case does not hold or issue
financial instruments for trading purposes. Depending on the item being
hedged, gains and losses on foreign currency hedging instruments are either
recognized in the results of operations as they accrue or are deferred until
the hedged transaction occurs. Amounts to be received or paid under interest
rate swap contracts are recognized as interest income or expense in the
periods in which they accrue.
Reference is made to Note 12, "Financial Instruments," for further
information regarding the Company's use of derivative financial instruments.
Restructuring
During the fourth quarter of 1998, the Company recorded a restructuring
charge of $132 million, $96 million after tax, related to the 1999 closure of
its Hamilton, Ontario, and Hugo, Minnesota, manufacturing facilities, as well
as other actions that include a worldwide workforce reduction of 2,600 people.
See Note 5, "Restructuring," for further information.
Extraordinary Items
In 1996, the Company sold $300 million aggregate principal amount of its
7.25% unsecured and unsubordinated notes due 2016. The net proceeds from the
offering, together with cash and additional borrowings under the Company's
credit facilities, were used to exercise the Company's option to repurchase
for cash all of the Company's 10.5% Senior Subordinated Notes and pay accrued
interest thereon. As a result of the repurchase, the Company recorded an
extraordinary charge of $22 million after tax.
As a result of establishing new credit facilities in 1996, the Company
recorded an $11 million extraordinary, after-tax charge for the write-off of
unamortized bank fees related to the original bank agreements established at
the time of the Company's initial public offering in June 1994.
Note 3: Acquisitions of Businesses and Investments
The Company completed two strategic business acquisitions in 1998. On April
30, 1998, the Company acquired the sprayer business of the Tyler Industries
division of IBOCO, Inc., a designer, manufacturer and distributor of a
complete line of chemical and fertilizer sprayers and applicators. On November
2, 1998, the Company acquired the soil management business of DMI, Inc., a
leading producer of soil management equipment in North America.
The aggregate purchase price for these businesses included approximately
$103 million in cash, as well as the assumption of additional debt and other
liabilities of approximately $36 million. These acquisitions were accounted
for as purchases and, accordingly, the accompanying consolidated financial
statements include the results of operations of these businesses as of their
respective acquisition dates. In total, the purchase price paid plus the
liabilities assumed exceeded the fair value of the tangible and intangible
assets purchased by approximately $54 million, on a preliminary basis. The
goodwill associated with these acquisitions is being amortized on a straight-
line basis over 15 years.
48
<PAGE>
CASE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
During the third quarter of 1998, the Company also invested $21 million in
a 50% joint venture with Sumitomo (S.H.I.) Construction Machinery Co., Ltd.,
to market and manufacture hydraulic crawler excavators. The formation of this
joint venture, LBX Company LLC, enables Case to increase its penetration of
the global excavator market and expand its participation in a number of
regions around the world.
The impact of these acquisitions and investments on the Company's results
of operations for the year ended December 31, 1998, as compared to the prior
year, is not material.
The Company completed six strategic business acquisitions in 1997. On
January 13, 1997, the Company acquired bor-mor Inc., a North American
manufacturer of directional drills for the underground cable and utility
installation market. On January 24, 1997, the Company acquired select assets
of Agri-Logic Inc., a leading developer of software for agricultural
applications. On July 17, 1997, the Company acquired Gem Sprayers Limited, a
U.K.-based manufacturer of sprayers for agricultural applications. On December
8, 1997, the Company acquired the outstanding shares of Fortschritt
Erntemaschinen GmbH. During the fourth quarter, the Company also acquired
select assets of Karl Mengele & Sohne, Maschinenfabriken GmbH and MDW
Mahdrescherwerke GmbH, including intellectual property, and production and
distribution rights related to self-propelled forage harvesters and combines.
The aggregate purchase price for these businesses included approximately
$36 million in cash, as well as the assumption of additional debt and other
liabilities of approximately $20 million. These acquisitions were accounted
for as purchases and, accordingly, the accompanying consolidated financial
statements include the results of operations of these businesses as of their
respective acquisition dates. In total, the purchase price paid plus the
liabilities assumed exceeded the fair value of the tangible and intangible
assets purchased by approximately $14 million. The goodwill associated with
these acquisitions is being amortized on a straight-line basis over 15 to 20
years.
During the third quarter of 1997, Case Credit invested $16 million in a
joint venture with UFB LOCABAIL SA, a subsidiary of Compagnie Bancaire, to
provide financing for Case's European dealers and retail customers. The
formation of this joint venture, Case Credit Europe S.A.S., established the
first pan-European finance organization to serve both the agricultural and
construction equipment markets in that region.
The impact of these acquisitions and investments on the Company's results
of operations for the year ended December 31, 1997, as compared to the prior
year, is not material.
Note 4: Reorganization and Public Offering
The Company was incorporated on April 22, 1994, as a wholly owned
subsidiary of Tenneco Inc. for the purpose of acquiring Tenneco's farm and
construction equipment business. In June 1994, the Company and its
subsidiaries acquired the business and assets of the farm and construction
equipment business (other than approximately $1.1 billion of U.S. retail
receivables) of Tenneco and its subsidiaries (the "Reorganization").
Note 5: Restructuring
In response to depressed market conditions during the early 1990's, Case
embarked on a long-term 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 marketplace.
49
<PAGE>
CASE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
As of December 31, 1992, the Company adopted a long-term, comprehensive
restructuring program (the "1992 Restructuring Program") that resulted in a
pre-tax restructuring charge of $920 million ($843 million after tax). The
$920 million pre-tax charge was recorded as a $340 million reduction of net
property, plant and equipment, a $55 million reduction of inventory, a $63
million reduction of intangibles and other assets and a $462 million reserve
for the future cost of implementing the various actions. As of December 31,
1997, the 1992 Restructuring Program had been substantially completed and the
intended benefits, as originally contemplated under this program, had been
achieved.
In 1998, the worldwide retail demand for agricultural equipment declined
significantly from the strong levels of the past several years. To address the
precipitous global decline in the agricultural equipment industry, Case
progressively lowered its agricultural equipment production levels throughout
1998 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 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"). The
Company will integrate the related product lines from the Hamilton and Hugo
facilities into other existing Case manufacturing operations in the United
States or, in some instances, it will outsource production. The Company
believes that the closure of these facilities will not have a significant
impact on 1999 revenues.
An analysis of Case's restructuring programs is summarized in the table
below (in millions):
<TABLE>
<CAPTION>
Activity
1993 - 1996 1997 Activity
-------------------------------- --------------------------------
1992 Changes Balance at Changes Balance at
Restructuring Reserves in December 31, Reserves in December 31,
Program Utilized* Estimates 1996 Utilized* Estimates 1997
------------- --------- --------- ------------ --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Employee termination
payments............... $250 $(106) $ 4 $148 $(120) $ 15 $43
Pension and OPRB costs.. 56 (42) (6) 8 (7) (1) --
Writedown of assets:
Property, plant and
equipment............ 340 (271) (45) 24 (28) 4 --
Provision for
environmental
liabilities.......... 25 (2) 2 25 (21) (4) --
Writedown of
inventories............ 55 (27) (19) 9 (7) (2) --
Costs related to
closing/selling/
downsizing existing
facilities............. 70 (41) 12 41 (16) (13) 12
Other costs............. 124 (106) 16 34 (31) 1 4
---- ----- ---- ---- ----- ---- ---
Total restructuring .... $920 $(595) $(36) $289 $(230) $-- $59
==== ===== ==== ==== ===== ==== ===
</TABLE>
- --------
*Includes currency translation
50
<PAGE>
CASE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
1998 Activity
-------------------------------------------------
Balance at 1998 Balance at
December 31, Restructuring Reserves December 31,
1997 Program Utilized* 1998
(in millions) ------------ ------------- --------- ------------
<S> <C> <C> <C> <C>
Employee termination payments.. $43 $ 58 $(29) $ 72
Pension and OPRB costs......... -- 36 (36) --
Writedown of assets:
Property, plant and
equipment................... -- 24 -- 24
Provision for environmental
liabilities................. -- -- -- --
Writedown of inventories....... -- -- -- --
Costs related to
closing/selling/downsizing
existing facilities........... 12 13 (1) 24
Other costs.................... 4 1 -- 5
--- ---- ---- ----
Total restructuring ........... $59 $132 $(66) $125
=== ==== ==== ====
</TABLE>
- --------
*Includes currency translation
The $58 million of employee termination payments under the 1998
Restructuring Program represents the cash severance costs to reduce personnel
as a result of closing and/or downsizing manufacturing facilities in the
United States, Canada, Europe, Australia and Brazil, including headcount
reductions in related support functions. 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, unemployment, and supplemental vacation and
retirement payments. As prescribed under generally accepted accounting
principles, the benefit arrangements under the 1998 Restructuring Program were
communicated to all affected Case employees worldwide prior to December 31,
1998.
The $72 million reserve balance for employee termination payments at
December 31, 1998, is comprised of $50 million for restructuring actions as
outlined under the 1998 Restructuring Program, and also includes $22 million
for remaining European staff reductions as contemplated under the Company's
1992 Restructuring Program. The remaining actions under the 1992 Restructuring
Program primarily include: (1) the outsourcing of selected parts production
and manufacturing changes at the Company's component plants in France
following the transfer of the Neuss, Germany, tractor line to other Case
manufacturing facilities in Racine, Wisconsin, and Doncaster, United Kingdom;
(2) the integration of the Neuss administrative operations into other existing
Case facilities; (3) the rationalization of company-owned retail stores; and
(4) the final severance, outplacement and other benefit payments related to
the closure of the Neuss facilities. As of January 29, 1999, the Company had
terminated approximately 2,000 people, including contract and temporary
personnel, under the 1998 Restructuring Program. The Company anticipates that
all employee terminations, as outlined above, will be completed by December
1999.
The $36 million of pension and other postretirement benefit ("OPRB") costs
under the 1998 Restructuring Program represents curtailments as required by
SFAS No. 88 from the termination of employees primarily at the Hamilton,
Ontario, facility in 1999. In 1998, non-cash charges of $36 million were
recognized, primarily for previously unrecognized prior service costs relating
to the Hamilton pension plans. See Note 14, "Employee Benefit Plans and
Postretirement Benefits" for information on the Company's pension and other
postretirement benefits.
The $24 million writedown of assets under the 1998 Restructuring Program
represents estimated losses to be incurred upon the sale of the Hamilton and
Hugo manufacturing facilities. The estimated loss upon disposal
51
<PAGE>
CASE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
was based on management's prior experience in disposing of similar facilities
and includes estimated losses on land and buildings, as well as estimated
losses for machinery and equipment that will not be transferred to other
existing Case facilities. The assets at these facilities will be written down
to estimated net realizable value as manufacturing operations cease. It is
currently anticipated that the Hugo facility will close in May 1999, and that
the Hamilton facility will close in June 1999.
The $13 million of costs related to closing/selling/downsizing existing
facilities under the 1998 Restructuring Program primarily includes dealer
rationalization costs in Germany, Brazil and Argentina, and incremental costs
and contractual obligations for leasehold termination payments and other
facility exit costs incurred as a direct result of the closure of the Hamilton
and Hugo facilities. In addition to the $13 million under the 1998
Restructuring Program, the $24 million reserve balance at December 31, 1998,
includes $11 million for the privatization of nine company-owned retail stores
in Europe, and final closure/sale costs for the Neuss headquarters and
administrative offices. The Company expects that all
closing/selling/downsizing actions, as outlined above, will be completed by
December 1999.
Other costs of $5 million at December 31, 1998, are primarily for
incremental legal and professional costs to support the various restructuring
actions.
Management believes that the restructuring reserve balance of $125 million
at December 31, 1998, is adequate to carry out all activities as outlined
under the 1992 and 1998 Restructuring Programs, and the Company anticipates
that all actions will be completed by December 31, 1999. The Company expects
to fund the cash requirements of its restructuring activities 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.
Note 6: Property, Plant and Equipment
A summary of property, plant and equipment, is as follows (in millions):
<TABLE>
<CAPTION>
December 31,
--------------
1998 1997
------- -----
<S> <C> <C>
Land and improvements..................................... $ 44 $ 44
Buildings and improvements................................ 472 454
Machinery and equipment................................... 1,450 1,308
Construction in progress.................................. 203 181
------- -----
2,169 1,987
Accumulated depreciation.................................. (1,048) (988)
------- -----
Net property, plant and equipment..................... $ 1,121 $ 999
======= =====
</TABLE>
Depreciation of Case properties and equipment is provided on a straight-
line basis over their estimated useful lives. Useful lives range from 10 to 50
years for buildings and improvements and from 3 to 16 years for machinery and
equipment. Depreciation expense totaled $134 million, $107 million and $102
million for the years ended December 31, 1998, 1997 and 1996, respectively.
Expenditures for maintenance and repairs are charged to expense as incurred.
52
<PAGE>
CASE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
Note 7: Equipment on Operating Leases
A summary of equipment on operating leases, is as follows (in millions):
<TABLE>
<CAPTION>
December
31,
----------
1998 1997
---- ----
<S> <C> <C>
Equipment on operating leases................................. $531 $209
Accumulated depreciation...................................... (63) (30)
---- ----
Net equipment on operating leases......................... $468 $179
==== ====
</TABLE>
Lease payments owed to Case Capital for equipment under non-cancelable
operating leases as of December 31, 1998, are as follows (in millions):
<TABLE>
<S> <C>
1999................................. $81
2000................................. 66
2001................................. 29
2002................................. 16
2003................................. 4
2004 and thereafter.................. 1
</TABLE>
Case Capital purchases equipment that is leased to retail customers under
operating leases from dealers. Income from operating leases is recognized over
the term of the lease. Case Capital's investment in operating leases is based
on estimated residual values of the leased equipment, which are calculated at
the lease inception date. Realization of the residual values is dependent on
Case Capital's future ability to market the equipment under the then
prevailing market conditions. Although realization is not assured, management
believes that it is more likely than not that the estimated residual values
will be realized. Each of these assets is depreciated on a straight-line basis
over a period of time consistent with the term of the lease. Depreciation
expense totaled $43 million, $22 million and $10 million for the years ended
December 31, 1998, 1997 and 1996, respectively. Expenditures for maintenance
and repairs are the responsibility of the lessee.
Note 8: Short-Term Debt
The Company has various lines of credit and liquidity facilities that
include borrowings under both committed credit facilities and uncommitted
lines of credit and similar arrangements. The Company also has the ability to
issue commercial paper in the United States, Canada 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.
Case Industrial's credit facilities consist of a five-year, $1.1 billion
revolving credit facility that was established in August 1996; and a 364-day,
$500 million revolving credit facility. Case Industrial's Australian
subsidiary, Case Corporation Pty Ltd, has a five-year, A$150 million revolving
credit facility that expires in August 2002; a five-year, A$20 million
revolving credit facility that expires in December 2002; a five-year A$30
million revolving credit facility that expires in February 2003; and a 364-
day, A$50 million revolving credit facility.
Case Credit established the following credit facilities in August 1996: (1)
a five-year, $1.2 billion revolving credit facility; (2) a three-year, $750
million U.S. asset-backed commercial paper liquidity facility; and (3) a five-
year, C$500 million revolving credit facility. In October 1997, Case Credit's
Australian subsidiary, Case Credit Australia Pty Ltd, established a A$400
million revolving credit facility comprised of a five-year, A$300 million
revolving credit facility and a 364-day, A$100 million revolving credit
facility.
53
<PAGE>
CASE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
The Company has other lines of credit available for working capital
expenditures and other general purposes, including lines of credit for its
various foreign operations.
A summary of short-term debt is set forth in the following table (in
millions):
<TABLE>
<CAPTION>
December 31,
--------------
1998 1997
------ ------
<S> <C> <C>
Case Industrial
Credit agreements*...................................... $ 294 $ 179
Commercial paper........................................ 466 --
Affiliated short-term debt.............................. 6 --
------ ------
Total short-term debt--Case Industrial................ 766 179
------ ------
Case Capital
Credit agreements*...................................... 88 --
Commercial paper........................................ 389 1,112
Commercial paper liquidity facility..................... 73 35
------ ------
Total short-term debt--Case Capital................... 550 1,147
Less affiliated short-term debt........................... (6) --
------ ------
Total short-term debt................................. $1,310 $1,326
====== ======
</TABLE>
- --------
*The credit agreements for both Case Industrial and Case Capital include
borrowings under both committed credit facilities and uncommitted lines of
credit and similar arrangements.
The weighted-average interest rates on consolidated short-term debt at
December 31, 1998 and 1997, were 6.1% and 6.0%, respectively. At December 31,
1998, the unused portion of the combined committed credit facilities and the
Case Credit commercial paper programs was $2.1 billion, and the unused portion
of the asset-backed commercial paper liquidity facility was $691 million. At
December 31, 1997, the unused portion of the combined committed credit
facilities and the Case Credit commercial paper programs was $1.6 billion, and
the unused portion of the asset-backed commercial paper liquidity facility was
$715 million.
At the option of the Company, borrowings under the revolving credit
facilities bear interest at: (1) prime rate; (2) LIBOR, plus an applicable
margin; or (3) banker's bills of acceptance rates, plus an applicable margin.
Borrowings may be obtained in U.S. dollars and certain other foreign
currencies. Case Credit's revolving credit facilities (other than the
commercial paper liquidity facility) contain restrictive covenants that
require that Case Credit maintain certain financial conditions, including a
maximum ratio of debt to net worth and a minimum fixed-charge coverage ratio.
Pursuant to a support agreement for Case Credit, the Company has agreed to
maintain a direct or indirect ownership in, and provide financial backing for,
Case Credit. Case's revolving credit facilities contain restrictive covenants
that require that Case maintain certain financial conditions, including a
maximum debt to capitalization ratio and a minimum net worth, and also impose
restrictions on certain indebtedness, liens on Company assets and ownership of
certain subsidiaries. At December 31, 1998, the Company was in compliance with
all debt covenants.
Due to the availability of financing under the Company's credit facilities,
the Company has classified $341 million, $105 million and $245 million of
borrowings under the commercial paper facilities of Case Credit Corporation,
Case Credit Australia Pty Ltd, and Case Credit Ltd., respectively, as long
term at December 31, 1998.
The credit facilities generally provide for facility fees on the total
commitment, whether used or unused, and also provide for annual agency fees to
the administrative agents for the facilities.
54
<PAGE>
CASE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
Note 9: Long-Term Debt
A summary of long-term debt is set forth in the following table (in
millions):
<TABLE>
<CAPTION>
December 31,
--------------
1998 1997
------ ------
<S> <C> <C>
Case Industrial
Case Corporation
Notes, payable in 2003, interest rate of 6.25%............... $ 299 $ --
Notes, payable in 2005, interest rate of 7.25%............... 298 298
Notes, payable in 2016, interest rate of 7.25%............... 300 300
Case Corporation Pty Ltd (Australia)
Long-term portion of borrowings under revolving credit
facilities, average interest rate of 5.1% in both years..... 52 55
Other debt..................................................... 32 24
------ ------
981 677
Less-current maturities........................................ (9) (8)
------ ------
Total long-term debt--Case Industrial...................... 972 669
------ ------
Case Capital
Case Credit Corporation
Notes, payable in 2000, floating interest rate of 5.91%...... 100 --
Notes, payable in 2001, interest rate of 6.125%.............. 100 --
Notes, payable in 2003, interest rate of 6.125%.............. 200 200
Notes, payable in 2007, interest rate of 6.75%............... 150 150
Fixed-rate, medium-term notes, net of $3 discount, maturities
through 2001, weighted-average interest rate of 6.04%....... 645 --
Floating-rate, medium-term notes, maturities through 2001,
weighted-average interest rate of 5.48%..................... 140 --
Long-term portion of borrowings under commercial paper
facilities, average interest rate of 6.0% and 6.4%.......... 341 250
Case Credit Australia Pty Ltd
Long-term portion of borrowings under commercial paper
facilities, average interest rate of 5.1% in both years..... 105 65
Case Credit Ltd. (Canada)
Medium-term notes, payable in 2000, interest rate of 6.2%.... 82 --
Long-term portion of borrowings under commercial paper
facilities, average interest rate of 5.4% and 4.3%.......... 245 70
------ ------
Total long-term debt--Case Capital......................... 2,108 735
------ ------
Total long-term debt....................................... $3,080 $1,404
====== ======
</TABLE>
In December 1998, Case Industrial issued $300 million aggregate principal
amount of its 6.25% unsecured and unsubordinated notes due 2003. The net
proceeds from this issuance were used to repay indebtedness.
In 1998, Case Credit issued $785 million, net of $3 million discount, of
floating- and fixed-rate, medium-term notes in the United States. The floating-
rate notes have maturities that range between 18 and 36 months and bear
interest based on three-month LIBOR; the fixed-rate notes have maturities of
two to three years and interest rates ranging from 5.8% to 6.2%. Case Credit
also issued $100 million principal amount of its 6.125% notes due
55
<PAGE>
CASE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
October 15, 2001, and $100 million principal amount of its floating-rate notes
due January 21, 2000, with an initial rate of 5.91%. These note issuances were
offered pursuant to Case Credit's shelf registration statements as filed with
the Securities and Exchange Commission in May 1998 and September 1997. 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.
In the fourth quarter of 1998, Case Credit's Canadian subsidiary, Case
Credit Ltd., established a C$750 million medium-term note program pursuant to
a short-form prospectus and prospectus supplement filed with the Canadian
Securities Administrators. In the fourth quarter, Case Credit Ltd. issued
C$125 million of its medium-term notes in Canada, with a maturity of two years
and an interest rate of 6.2%, pursuant to this prospectus and prospectus
supplement. The net proceeds from this issuance were used to fund Case Credit
Ltd.'s growth initiatives and for other corporate purposes, including the
repayment of short-term indebtedness. Case Credit Australia Pty Ltd has a
A$600 million medium-term note program that was established in October 1997;
no amounts were outstanding under this program at December 31, 1998.
A summary of the minimum annual repayments of long-term debt as of December
31, 1998, is as follows (in millions):
<TABLE>
<S> <C>
2000.............................. $ 495
2001.............................. 581
2002.............................. 1
2003.............................. 510
2004 and thereafter............... 1,493
------
Total............................. $3,080
======
</TABLE>
Note 10: Stockholders' Equity and Preferred Stock with Mandatory Redemption
Provisions
As of December 31, 1998, Case has 210 million shares of authorized capital
stock itemized by class and series as follows:
(1) 200 million shares of Common Stock, par value $0.01 per share, with
approximately 79 million shares issued and approximately 74 million
shares outstanding;
(2) 10 million shares of Preferred Stock, par value $0.01 per share,
divided into the following series:
(a) 5 million shares of Series A Cumulative Convertible Preferred
Stock, par value $0.01 per share, with 1.5 million shares issued
and outstanding; and
(b) 5 million shares of Cumulative Convertible Second Preferred
Stock, par value $0.01 per share, with 40,000 shares issued and
37,500 shares outstanding.
Holders of the Series A Cumulative Convertible Preferred Stock are entitled
to receive cumulative cash dividends equal to $4.50 per annum, payable
quarterly, and are entitled to receive $50 per share in the event of a
liquidation, dissolution, or winding up of the Company. The holders have the
right to convert each share of the Series A Cumulative Convertible Preferred
Stock into 2.2686 shares of Case's Common Stock (subject to adjustment as set
forth in the Certificate of Designation for such series of stock). The Series
A Cumulative Convertible Preferred Stock shall be redeemed by Case no later
than June 30, 2002, and Case may call the outstanding shares at any time on or
after July 1, 1999, at a premium. Holders of the Series A Cumulative
Convertible Preferred Stock are not entitled to vote except as set forth in
the Certificate of Designation for such series of stock or as required by law.
56
<PAGE>
CASE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
Holders of the Cumulative Convertible Second Preferred Stock are entitled
to receive cumulative cash dividends equal to $4.25 per annum, payable
quarterly, and are entitled to receive $50 per share in the event of a
liquidation, dissolution, or winding up of the Company. The holders have the
right to convert each share of the Cumulative Convertible Second Preferred
Stock into 2.2883 shares of Case's Common Stock (subject to adjustment as set
forth in the Certificate of Designation for such series of stock). The
Cumulative Convertible Second Preferred Stock shall be redeemed by Case no
later than June 30, 2007, and Case may call the outstanding shares at any time
following July 1, 2000, at a premium. Holders of the Cumulative Convertible
Second Preferred Stock are not entitled to vote except as set forth in the
Certificate of Designation for such series of stock or as required by law.
A summary of preferred stock with mandatory redemption provisions is as
follows (in millions):
<TABLE>
<CAPTION>
Series A Cumulative
Cumulative Convertible
Convertible Second
Preferred Preferred
Stock Stock Total
----------- ----------- -----
<S> <C> <C> <C>
Issuance of Series A Cumulative Convertible
Preferred Stock, June 1994................ $75 $-- $75
Issuance of Cumulative Convertible Second
Preferred Stock, June 1994................ -- 2 2
--- --- ---
Balance, December 31, 1998 and 1997...... $75 $ 2 $77
=== === ===
</TABLE>
During the last three years, changes in Case Common Stock issued were as
follows (shares issued, in millions):
<TABLE>
<CAPTION>
For the Years
Ended December
31,
--------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Issued as of beginning of year............................. 71.5 73.7 76.0
Issuances of Case Common Stock:
Employee Stock Purchase Plan............................. 0.2 0.2 0.6
Case Equity Incentive Plan............................... 1.1 1.6 1.2
Employee Benefit Plans................................... 0.2 0.3 1.0
Public offering.......................................... 0.6 -- --
Other.................................................... 0.1 0.2 0.1
---- ---- ----
Issued as of end of year................................... 73.7 76.0 78.9
==== ==== ====
</TABLE>
Common stock dividends of $0.05 per share were declared quarterly in each
year, and totaled $15 million for each of the years ended December 31, 1996,
1997 and 1998.
Accumulated Other Comprehensive Income
The components of accumulated other comprehensive income as of December 31,
1998 and 1997, are as follows (in millions):
<TABLE>
<CAPTION>
December
31,
------------
1998 1997
----- -----
<S> <C> <C>
Cumulative translation adjustment.......................... $(112) $ (94)
Pension liability adjustment............................... (47) (8)
----- -----
Total accumulated other comprehensive income............. $(159) $(102)
===== =====
</TABLE>
57
<PAGE>
CASE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
Stock Repurchase Program
On May 14, 1997, the Company's Board of Directors authorized the purchase
from time to time of up to four million shares of the Company's Common Stock.
The purchase of Case Common Stock under this program was at the Company's
discretion, subject to prevailing financial and market conditions. This
program was completed during August 1998. During 1998 and 1997, the Company
repurchased 2.5 million shares and 1.5 million shares of its common stock,
respectively, at a cost of $130 million and $94 million, respectively, under
this program.
On July 10, 1998, the Company's Board of Directors authorized a second
share repurchase program for the purchase from time to time of up to an
additional eight million shares of the Company's Common Stock. The purchase of
Case Common Stock under this program is at the Company's discretion, subject
to prevailing financial and market conditions. As of December 31, 1998, the
Company has repurchased approximately 900,000 shares of its common stock at a
cost of approximately $19 million under this program.
Employee Stock Purchase Plan
Case's Employee Stock Purchase Plan was initiated on February 1, 1995, and
the plan allows for certain North American and Australian/New Zealand
employees to purchase Case's Common Stock at a price per share equal to 85% of
the lower of (1) the fair market value of the Company's Common Stock as of the
first business day of the plan year, or (2) the fair market value on the last
business day of the calendar quarter. Case has reserved 1.4 million shares of
common stock for issuance under this plan. For the years ended December 31,
1998, 1997 and 1996, the Company issued 581,628 shares, 247,018 shares and
229,192 shares, respectively, at weighted-average fair market values of
$26.58, $45.21 and $45.56, respectively. As of December 31, 1998, there are
44,979 shares of common stock available for issuance under this program. At
the Company's Annual Meeting of Stockholders in May 1999, the stockholders
will vote on whether to increase the amount of shares of common stock to be
available under this program.
Case Equity Incentive Plan
The Case Equity Incentive Plan provides for grants of various types of
awards to employees of the Company and its subsidiaries. There are 12.1
million shares of common stock, 2.6 million of which must be issued shares of
the Company's Common Stock that have been reacquired by the Company and are
being held as treasury shares, and 40,000 shares of Cumulative Convertible
Second Preferred Stock reserved for issuance under this plan (subject to
certain adjustments) that are available for grant by 2003. In general, no
award may vest in less than six months from the award date.
Stock options awarded under this plan were granted at the average market
price on the date of the award and become exercisable between two and seven
years from the award date. All options awarded in 1996, 1997 and 1998 expire
ten years after issuance.
The Company has retained the intrinsic value method of accounting for
stock-based compensation in accordance with Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees," and, as a result,
no compensation expense for stock options was recognized. For disclosure
purposes only under SFAS No. 123, "Accounting for Stock-Based Compensation,"
the Black Scholes pricing model was used to calculate the "fair value" of
stock options and Case Common Stock purchased through Case's Employee Stock
Purchase Plan. Based on this model, the weighted-average fair values of stock
options awarded during 1998, 1997 and 1996 were $9.47, $22.71 and $19.27 per
option, respectively, and the weighted-average fair values of Case Common
Stock purchased through the Company's Employee Stock Purchase Plan during
1998, 1997 and 1996 were $7.83, $10.85 and $11.61 per share, respectively.
58
<PAGE>
CASE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
Pro forma net income and earnings per share, and the assumptions used
therein, assuming the fair value of accounting for stock-based compensation as
prescribed under SFAS No. 123, are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Net income to common (in millions):
As reported...................................... $ 57 $ 396 $ 309
Pro forma........................................ 44 387 303
Net income to common assuming dilution* (in
millions):
As reported...................................... $ 57 $ 403 $ 316
Pro forma........................................ 44 394 310
Basic earnings per share:
As reported...................................... $0.78 $5.36 $4.27
Pro forma........................................ 0.60 5.23 4.19
Diluted earnings per share:
As reported...................................... $0.76 $5.11 $4.07
Pro forma........................................ 0.59 4.99 3.99
Weighted-average assumptions under Black Scholes:
Risk-free interest rate.......................... 4.7% 5.7% 6.7%
Dividend yield................................... 0.72% 0.36% 0.41%
Stock price volatility........................... 35.0% 30.0% 35.0%
Option life (years).............................. 4.8 5.7 4.6
</TABLE>
- --------
*No effect in 1998 as impact is antidilutive.
The pro forma compensation expense included in net income and earnings per
share above may not be representative of future years as only stock options
issued after January 1, 1995, have been included in accordance with the
disclosure provisions of SFAS No. 123.
During the last three years, changes in shares subject to issuance under
stock options were as follows:
Stock options with exercise price less than $30:
<TABLE>
<CAPTION>
For the Years Ended December 31,
-------------------------------------------------------------
1996 1997 1998
-------------------- -------------------- -------------------
Exercise Exercise Exercise
Shares Price* Shares Price* Shares Price*
---------- -------- ---------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year................ 5,089,328 $19.92 3,705,059 $20.05 2,190,302 $20.30
Granted............... -- -- -- -- 2,084,500 19.85
Exercised............. (1,092,226) 19.66 (1,404,975) 19.67 (342,334) 19.54
Forfeited............. (292,043) 19.25 (109,782) 19.90 (15,092) 19.75
---------- ---------- ---------
Outstanding at end of
year................... 3,705,059 $20.05 2,190,302 $20.30 3,917,376 $20.14
========== ========== =========
Exercisable at end of
year................... 900,127 $19.98 1,971,312 $19.76 1,832,876 $20.47
========== ========== =========
</TABLE>
- --------
* Weighted-average
59
<PAGE>
CASE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
Stock options with exercise price greater than or equal to $30:
<TABLE>
<CAPTION>
For the Years Ended December 31,
---------------------------------------------------------
1996 1997 1998
----------------- ------------------- -------------------
Exercise Exercise Exercise
Shares Price* Shares Price* Shares Price*
------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year................ 670,417 $41.15 929,108 $43.75 1,996,619 $52.54
Granted................. 274,603 50.05 1,138,052 59.21 567,904 56.32
Exercised............... (6,845) 42.88 (47,879) 42.88 (33,349) 47.22
Forfeited............... (9,067) 42.89 (22,662) 47.41 (141,203) 54.05
------- --------- ---------
Outstanding at end of
year................... 929,108 $43.75 1,996,619 $52.54 2,389,971 $53.50
======= ========= =========
Exercisable at end of
year................... 162,782 $42.88 322,685 $44.38 762,274 $45.30
======= ========= =========
</TABLE>
- --------
* Weighted-average
Exercise prices for options outstanding at December 31, 1998, ranged from
$19.125 to $68.78. The weighted-average remaining contractual life of those
options is approximately eight years.
Under the Case Equity Incentive Plan, shares may also be granted as
restricted stock. The Company establishes the period of restriction for each
award and holds the stock during the restriction period, which ranges from six
months to five years. For the years ended December 31, 1998, 1997 and 1996,
restricted shares of 909,799 shares, 256,399 shares and 53,200 shares,
respectively, were awarded at no cost to employees, at weighted-average fair
market values of $21.27, $56.85 and $52.95, respectively. At December 31,
1998, restricted common stock outstanding totaled 1,238,833 shares.
Under the Case Equity Incentive Plan, awards may also be granted as stock
equivalent units that vest upon the achievement of specific performance
measures ("performance share units"). At December 31, 1998, there were 509,112
performance share units outstanding. These performance share units vest upon
attainment of specified increases in the market price of the Company's Common
Stock, plus dividends, expressed in the form of a compound annual growth rate,
as compared to its closing price as of May 13, 1997. Except as described
below, 385,000 of the performance share units cannot vest until May 2000,
after which these performance share units may vest on a quarterly basis until
May 2004, at which time all unvested performance share units shall be
forfeited. The remaining 124,112 performance share units cannot vest until
January 2001, after which these performance share units may vest on a
quarterly basis until January 2002, at which time all unforfeited and unvested
performance share units will vest. An employee becomes fully vested in all
performance share units upon death, retirement at age 65 or older, or total
disability, if such event occurs at least six months after the grant date.
Under certain circumstances, an employee may vest in the performance share
units upon a change in control of the Company. Upon vesting, the performance
share units are converted into an equal number of shares of the Company's
Common Stock.
Stockholder Rights Plan
On December 8, 1995, the Board of Directors adopted a Stockholder Rights
Plan that is designed to strengthen its ability to act for common stockholders
in the event of an unsolicited bid to acquire control of the Company. To
implement this plan, the Board of Directors declared a dividend payable on
December 29, 1995, of one preferred share purchase right on each outstanding
share of the Company's Common Stock. The rights will cause substantial
dilution to a person or entity attempting to acquire the Company without
conditioning the offer on the rights being redeemed or a substantial number of
rights being acquired.
60
<PAGE>
CASE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
Each outstanding share of common stock is entitled to one right under the
plan. Each right, when exercisable, entitles the holder to purchase one one-
thousandth of a share of Series A Junior Participating Preferred Stock, $.01
par value, for $170, subject to adjustment. If a person or entity becomes a
15% owner of the Company's Common Stock, each holder of a right (other than
the 15% owner) would be entitled to receive for the exercise price, subject to
adjustment, in lieu of the Series A Junior Participating Preferred Stock,
common stock having a value equal to two times the exercise price of the
right. If, at any time after a person or entity has acquired 15% or more of
the Company's Common Stock, the Company is acquired in a merger or other
business combination, or 50% or more of the Company's assets or earning power
are sold, proper provision will be made so that each holder of a right would
be entitled to receive, at the then current exercise price of the right,
common stock of the acquiring company having a value equal to two times the
exercise price of the right. The rights, which are not entitled to vote,
expire on December 29, 2005. The rights may be redeemed by the Company at a
price of $.01 per right at any time until a person or entity becomes a 15%
owner of the Company's Common Stock. The Company has reserved 100,000 shares
of Series A Junior Participating Preferred Stock for issuance in the event of
exercise of the rights.
Note 11: Accounts and Notes Receivable
A summary of receivables is as follows (in millions):
<TABLE>
<CAPTION>
December 31,
----------------
1998 1997
------- -------
<S> <C> <C>
Wholesale notes and accounts............................ $ 2,018 $ 1,558
Retail and other notes and finance leases............... 2,346 1,971
Other................................................... 371 354
------- -------
Gross receivables................................... 4,735 3,883
------- -------
Less-Total unearned finance charges..................... (237) (162)
Less-Allowance for doubtful accounts.................... (84) (63)
Less-Current portion.................................... (2,476) (2,053)
------- -------
Total long-term receivables, net.................... $ 1,938 $ 1,605
======= =======
</TABLE>
In accordance with the standard terms of the wholesale receivable
agreements, repayment is required when wholesale equipment is sold.
Classification of wholesale receivables for financial statement presentation
is based on interest-bearing dates. The terms of retail and other notes and
finance leases generally range from two to six years, and interest rates on
retail and other notes and finance leases vary depending on prevailing market
interest rates and certain incentive programs offered by the Company.
At December 31, 1998 and 1997, the Company had $74 million and $56 million,
respectively, of retail notes that secure the asset-backed commercial paper
liquidity facility.
Maturities of receivables as of December 31, 1998, are estimated as follows
(in millions):
<TABLE>
<S> <C>
2000.............................................................. $ 887
2001.............................................................. 454
2002.............................................................. 280
2003.............................................................. 246
2004 and thereafter............................................... 237
------
2,104
Less-Unearned finance charges..................................... (166)
------
Total long-term receivables, net.............................. $1,938
======
</TABLE>
61
<PAGE>
CASE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
Wholesale and retail notes receivable have significant concentrations of
credit risk in the farm and construction business sectors. Case typically
retains, as collateral, a security interest in the equipment associated with
wholesale and retail notes receivable.
Wholesale Receivables Securitizations
In June 1995, the Company consummated a transaction whereby it sold (with
limited recourse), on a revolving basis, a fractional undivided interest in
certain of its wholesale receivables pursuant to a privately structured
facility. The counterparties to this facility are two special-purpose entities
administered by a major financial institution. Under this facility, the
maximum amount of proceeds that may be accessed at any one time is $400
million and is subject to change based on the level of eligible wholesale
receivables. The facility consists of a five-year committed, $300 million non-
renewable facility that expires in June 2002, and a 364-day, $100 million
facility that is renewable annually at the sole discretion of the purchasers.
At December 31, 1997 and 1998, the undivided interest of the purchasers under
the facility represented $521 million of wholesale receivables. The excess of
$521 million over the $400 million of proceeds received from the transaction
represents overcollateralization included in the transaction to cover yield to
the purchasers and certain other costs aggregating $10 million, with the
remainder available to cover losses on receivables. The Company has reserved
for expected losses as part of the allowance for doubtful accounts. The
Company also maintains a security interest in the equipment financed by
wholesale receivables such that in the event of non-performance by the dealer,
Case can repossess the related equipment to minimize losses.
Under this program, Case records a loss each time receivables are sold to
the counterparties to the facility. This loss, which reflects the difference
between the current and future value of the receivables sold along with
related transaction expenses, is computed at the then prevailing market rates
as stated in the sale agreement. During 1998, 1997 and 1996, Case incurred
charges of $27 million, $25 million and $28 million, respectively, relating to
such sales of receivables. These charges are included in "Other, net" in the
accompanying Statements of Income. The proceeds from the initial sale of the
wholesale receivables were used by the Company to repay a portion of its five-
year, $1.0 billion bank term loan facility by $300 million and its revolving
bank credit facility by $100 million.
Retail Receivables Securitizations
Case Credit sold $2.1 billion and $1.8 billion of retail notes (net of
unearned finance charges) in 1998 and 1997, respectively, to limited-purpose
business trusts ("Trusts") in the United States and Canada. The Trusts were
formed for the purpose of purchasing Case receivables and the receivables were
used as collateral for the issuance of asset-backed securities (asset-backed
securitizations) to outside investors. The proceeds received from the sales of
notes were reduced by $56 million and $55 million in 1998 and 1997,
respectively, pursuant to certain recourse provisions in the sale agreements.
These reductions in cash proceeds are held in escrow by the Trusts to provide
security in the event of uncollectible notes and are released to Case when the
notes are collected. Escrow amounts held by the Trusts of $170 million and
$154 million at December 31, 1998 and 1997, respectively, are recorded in
"Accounts and notes receivable" on the accompanying Balance Sheets. Case has
established reserves for the estimated losses on amounts held in escrow, and
these reserves are also included in "Accounts and notes receivable" on the
accompanying Balance Sheets. A security interest in the equipment financed by
the retail note is maintained such that in the event of non-performance, the
related equipment can be repossessed to minimize losses. As these Trusts are
controlled by third parties and meet minimum equity capitalization standards,
the assets of the Trusts are not included in the financial statements of the
Company.
62
<PAGE>
CASE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
Case Capital's portfolio of managed receivables, including receivables
owned and receivables serviced for others, has grown from $5.2 billion at
December 31, 1997, to $6.8 billion at December 31, 1998. Case's serviced
portfolio at December 31, 1998, included $5.6 billion of retail and other
notes (net of unearned financed charges), of which $3.1 billion (net of
unearned finance charges) were owned by Trusts in the United States and
Canada. At December 31, 1997, Case Capital managed a portfolio of $4.6 billion
of managed receivables (net of unearned finance charges), including retail
notes amounting to $2.7 billion (net of unearned finance charges) that were
owned by Trusts in the United States and Canada. Case Capital also serviced
$18 million and $88 million of retail notes (net of unearned finance charges)
at December 31, 1998 and 1997, respectively, that were owned by an
unaffiliated third party. At December 31, 1998 and 1997, approximately $74
million and $56 million, respectively, of retail notes receivable (net of
unearned finance charges) have been pledged as collateral under Case Credit's
three-year, $750 million, U.S. asset-backed commercial paper liquidity
facility.
Note 12: Financial Instruments
Fair Market Value of Financial Instruments
The estimated fair market values of financial instruments that do not
approximate the carrying values in the financial statements are as follows (in
millions):
<TABLE>
<CAPTION>
December 31,
-------------------------------
1998 1997
--------------- ---------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- ------ -------- ------
<S> <C> <C> <C> <C>
Accounts and notes receivable............ $4,414 $4,432 $3,658 $3,655
Long-term debt (including current
maturities)............................. 3,089 3,097 1,412 1,434
</TABLE>
The fair value of accounts and notes receivable was based on discounting
the estimated future payments at prevailing market rates. The fair value of
the interest only strip component of Case's accounts and notes receivables was
based on loss, prepayment and interest rate assumptions approximating those
currently experienced by the Company. The fair value of fixed-rate, long-term
debt was based on the market value of debt with similar maturities and
interest rates; the carrying amount of floating-rate, long-term debt was
assumed to approximate its fair value. The fair values and carrying values of
the Company's foreign exchange forward contracts, currency options, interest
rate swaps and treasury rate locks were not material.
Derivatives
The Company uses derivative financial instruments to manage its interest
rate and foreign currency exposures. Case does not hold or issue financial
instruments for trading purposes. The notional amounts of these contracts do
not represent amounts exchanged by the parties and, thus, are not a measure of
the Company's risk. The net amounts exchanged are calculated on the basis of
the notional amounts and other terms of the contracts, such as interest rates
or exchange rates, and only represent a small portion of the notional amounts.
The credit and market risk under these agreements is minimized through
diversification among counterparties with high credit ratings.
Depending on the item being hedged, gains and losses on derivative
financial instruments are either recognized in the results of operations as
they accrue or are deferred until the hedged transaction occurs. Derivatives
used as hedges are effective at reducing the risk associated with the exposure
being hedged and are designated as a hedge at the inception of the derivative
contract. Accordingly, changes in the market value of the derivative are
highly correlated with changes in the market value of the underlying hedged
item at the inception of the hedge and over the life of the hedge contract.
63
<PAGE>
CASE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
Foreign Exchange Contracts
Case enters into foreign exchange hedging contracts to hedge certain
purchase commitments and loans made to foreign subsidiaries denominated in
foreign currencies. The term of these contracts is generally one year or less.
The purpose of the Company's foreign currency hedging activities is to protect
the Company from the risk that the eventual cash flows resulting from loan
repayments and inventory purchases will be adversely affected by changes in
exchange rates.
The recognition of gains and losses on contracts entered into to hedge
intercompany debt are deferred and included in net income as an adjustment to
"Interest income and other" on the date the forward contract matures. The
recognition of gains or losses on contracts entered into to hedge purchase and
sale commitments are included in net income as an adjustment to "Cost of goods
sold" as foreign exchange rates change. Gains and losses resulting from the
termination of foreign exchange contracts prior to maturity are also included
in net income.
At December 31, 1998, Case had foreign exchange forward contracts with a
notional value of $857 million. At December 31, 1997, Case had foreign
exchange forward contracts with a notional value of $736 million, purchased
currency options with a notional value of $43 million, and sold currency
options with a notional value of $45 million.
Interest Rate Swaps
Case enters into interest rate swaps to stabilize funding costs by
minimizing the effect of potential interest rate increases on floating-rate
debt in a rising interest rate environment. Under these agreements, the
Company contracts with a counterparty to exchange the difference between a
fixed rate and a floating rate applied to the notional amount of the swap.
Swap contracts are principally between one and four years in duration. The
differential to be paid or received on interest rate swap agreements is
accrued as interest rates change and is recognized in net income as an
adjustment to interest expense.
Gains and losses resulting from terminated interest rate swap agreements
are deferred and recognized in net income over the shorter term of the
remaining contractual life of the swap agreement or the remaining term of the
debt underlying the swap agreement. If swap agreements are terminated due to
the underlying debt being extinguished in conjunction with an asset-backed
securitization transaction, any resulting gain or loss is recognized in net
income as an adjustment to interest expense at the time of the termination.
The weighted-average pay and receive rates for the swaps outstanding at
December 31, 1998, were 5.54% and 5.06%, respectively, at a notional amount of
approximately $400 million. The weighted-average pay and receive rates for the
swaps outstanding at December 31, 1997, were 6.17% and 4.87%, respectively.
Back-to-Back Interest Rate Caps
The asset-backed commercial paper liquidity facility (the "Liquidity
Facility") requires a subsidiary of Case Capital to have interest rate cap
agreements in place. Due to the relatively high expense of obtaining such an
instrument, Case Capital sells an identical cap, concurrent with the cap
purchase, to the same counterparty. This effectively minimizes the overall
expense to Case Capital, meets the requirements of the Liquidity Facility and
eliminates any risk of financial loss on the purchased cap. The defined term
of the cap is approximately 48 months.
Premiums paid for interest rate cap agreements purchased and sold are
included in "Other assets" and "Other liabilities," respectively, in the
accompanying Balance Sheets, and are amortized to interest expense over the
terms of the agreements. Amounts receivable or payable under cap agreements
are recognized in net income
64
<PAGE>
CASE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
as adjustments to interest expense over the term of the related debt. If
interest rate cap agreements are terminated due to the underlying debt being
extinguished, any resulting gain or loss is recognized in net income as an
adjustment to "Interest income and other" at the time of the termination.
At December 31, 1998 and 1997, Case Credit had a back-to-back cap at a rate
of 7.00%, at a notional amount of approximately $55 million and $57 million,
respectively.
Treasury Rate Lock Agreements
A Treasury rate lock is a commitment to either purchase or sell the
designated financial instrument at a future date (the determination date) for
a specified price (the reference yield). The purpose of this instrument is to
protect fixed-rate debt from fluctuations in the yield of the Treasury Note
that forms the basis of pricing the debt. As of December 31, 1998, Case Credit
had entered into $125 million of Treasury rate locks based on two-year
Treasury notes at a weighted-average yield of 4.59%. As of December 31, 1997,
Case Credit had entered into $150 million of Treasury rate locks based on two-
and three-year Treasury Notes at a weighted-average yield of 5.75%.
Guarantees
At December 31, 1998, Case had guaranteed payment and performance of
approximately $15 million, primarily related to performance bonds and letters
of credit.
Note 13: Income Taxes
The sources of income before taxes and cumulative effect of changes in
accounting principles and extraordinary items were as follows (in millions):
<TABLE>
<CAPTION>
Years Ended
December 31,
--------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
U.S. sources.............................................. $ 99 $471 $389
Foreign sources........................................... 7 123 145
---- ---- ----
Income before taxes and extraordinary items............... $106 $594 $534
==== ==== ====
</TABLE>
The provision for income taxes consisted of the following (in millions):
<TABLE>
<CAPTION>
Years Ended
December 31,
----------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Current:
United States.......................................... $83 $136 $124
Foreign................................................ 20 25 29
State.................................................. 12 23 16
--- ---- ----
Total current........................................ 115 184 169
--- ---- ----
Deferred:
United States.......................................... (28) 5 27
Foreign................................................ (39) 3 (15)
State.................................................. (6) (1) 4
--- ---- ----
Total deferred....................................... (73) 7 16
--- ---- ----
Total tax provision.................................. $42 $191 $185
=== ==== ====
</TABLE>
65
<PAGE>
CASE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
Following is a reconciliation of income taxes computed at the U.S. Federal
income tax rate to the tax provision reflected in the accompanying Statements
of Income (in millions):
<TABLE>
<CAPTION>
Years Ended
December 31,
----------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Tax provision at U.S. Federal income tax rate........... $ 37 $208 $187
Foreign losses with no tax benefit...................... 23 4 10
Reduction in valuation allowance........................ (16) (24) (49)
State taxes, net of Federal benefit..................... 2 15 15
Foreign income taxed at different rates................. (6) 3 6
Other................................................... 2 (15) 16
---- ---- ----
Total tax provision................................. $ 42 $191 $185
==== ==== ====
</TABLE>
During 1998 and 1997, the Company generated income in certain jurisdictions
that supported reductions in the valuation reserve and recognized losses in
certain jurisdictions that supported increases in the valuation reserve.
The components of the net deferred tax asset are as follows (in millions):
<TABLE>
<CAPTION>
December
31,
------------
1998 1997
----- -----
<S> <C> <C>
Deferred tax assets:
Net income tax operating loss carryforwards............... $ 433 $ 377
Restructuring costs....................................... 56 20
Postretirement and postemployment benefits................ 81 70
Sales returns and allowance reserves...................... 89 78
Warranty reserve.......................................... 54 30
Other..................................................... 218 218
Valuation reserve......................................... (416) (409)
----- -----
Total deferred tax assets............................... 515 384
----- -----
Deferred tax liabilities:
Fixed assets--basis difference/depreciation............... 147 119
Pension costs............................................. 13 25
Purchase discounts........................................ 28 27
Other..................................................... 91 45
----- -----
Total deferred tax liabilities.......................... 279 216
----- -----
Net deferred tax asset.................................. $ 236 $ 168
===== =====
</TABLE>
The valuation allowance for deferred tax assets increased $7 million from
December 31, 1997 to December 31, 1998. In 1998, the Company generated income
in certain tax jurisdictions that supported a decrease in the valuation
allowance of $16 million. This reduction was offset by an increase in the
valuation allowance of $23 million for certain foreign losses for which
management believes it is not more likely than not that such benefits will be
realized.
66
<PAGE>
CASE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
The classification of the net deferred tax asset is as follows (in
millions):
<TABLE>
<CAPTION>
December
31,
----------
1998 1997
---- ----
<S> <C> <C>
Current deferred tax asset.................................... $272 $191
Long-term deferred tax asset.................................. 42 24
Current deferred tax liability................................ (12) (10)
Long-term deferred tax liability.............................. (66) (37)
---- ----
Net deferred tax asset.................................... $236 $168
==== ====
</TABLE>
The tax benefits of significant foreign net tax operating loss
carryforwards as of December 31, 1998, are as follows (in millions):
<TABLE>
<S> <C>
Case France S.A.
Indefinite carryforward............................................ $174
Case United Kingdom Limited
Indefinite carryforward............................................ 159
Case Harvesting GmbH
Indefinite carryforward............................................ 29
Case Spain S.A.
Expires 2002 through 2005.......................................... 20
Case Brasil & Cia (Brazil)
Indefinite carryforward............................................ 19
Other................................................................ 32
----
Total tax benefits of net tax operating loss carryforwards....... $433
====
</TABLE>
Case has recorded deferred tax assets in tax jurisdictions where the
Company has been profitable as management believes it is more likely than not
that such assets will be realizable. The Company continues to have valuation
reserves in certain tax jurisdictions where net operating losses exist
(particularly in the United Kingdom, France, Spain and Brazil). Realization of
these deferred tax assets is dependent on generating future income; however,
with the exception of France and Spain, these entities have not displayed a
consistent earnings trend. The amount of the deferred tax assets considered
realizable could increase in the near term if future estimates of income are
experienced.
Note 14: Employee Benefit Plans and Postretirement Benefits
Defined Benefit and Postretirement Benefit Plans
Case has various defined benefit plans that cover substantially all of its
U.S. union and foreign employees. Benefits are based on years of service and,
for most salaried employees, on final average compensation. Case's funding
policies are to contribute to the plans amounts necessary to satisfy the
funding requirements as prescribed by the laws and regulations of each
country. Plan assets consist principally of listed equity and fixed income
securities. Effective December 31, 1998, Case adopted SFAS No. 132, "Employers
Disclosures about Pensions and Other Postretirement Benefits."
Case has postretirement health and life insurance plans that cover
substantially all of its U.S. and Canadian employees. For U.S. salaried
employees, the plans cover employees retiring from Case on or after attaining
age 55 who have had at least 10 years of service with Case after attaining age
45. Canadian salaried employees with
67
<PAGE>
CASE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
seven or more years of consecutive service are covered under the plans upon
retirement. For U.S. and Canadian hourly employees, the plans generally cover
employees who retire pursuant to their respective hourly plans. These benefits
may be subject to deductibles, copayment provisions and other limitations, and
Case has reserved the right to change these benefits, subject to the
provisions of any collective bargaining agreement.
In connection with the Reorganization, Tenneco retained the accumulated
pension benefit obligation and assets relating to all existing U.S. employees,
deferred, vested, terminated employees and retirees as of June 23, 1994.
Tenneco also retained the accumulated postretirement health and life insurance
benefit obligations relating to all U.S. employees who retired on or before
July 1, 1994, and their dependents.
The following assumptions were utilized in determining the funded status of
Case's defined benefit pension plans:
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------
1998 1997 1996
-------------- -------------- --------------
U.S. Foreign U.S. Foreign U.S. Foreign
Plans Plans Plans Plans Plans Plans
----- ------- ----- ------- ----- -------
<S> <C> <C> <C> <C> <C> <C>
Weighted-average discount rates...... 6.75% 6.26% 7.25% 7.30% 7.75% 8.10%
Rate of increase in future
compensation........................ N.A. 4.42% N.A. 5.10% N.A. 5.70%
Weighted-average, long-term rates of
return on plan assets............... 9.00% 9.39% 9.00% 8.70% 9.00% 9.40%
</TABLE>
The following assumptions were utilized in determining the accumulated
postretirement benefit obligation of Case's postretirement health and life
insurance plans:
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------
1998 1997 1996
-------------- -------------- --------------
U.S. Foreign U.S. Foreign U.S. Foreign
Plans Plans Plans Plans Plans Plans
----- ------- ----- ------- ----- -------
<S> <C> <C> <C> <C> <C> <C>
Weighted-average discount rates..... 6.75% 6.75% 7.25% 8.00% 7.75% 8.50%
Rate of increase in future
compensation....................... 3.00% 3.00% 3.00% 3.00% 3.00% 3.00%
Weighted-average, assumed health
care cost trend rate............... 5.50% 8.00% 6.00% 12.00% 12.00% 12.00%
</TABLE>
68
<PAGE>
CASE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
The measurement period for Case's defined benefit pension plans and
postretirement health and life insurance plans is October 1 through September
30.
The following depicts (in millions):
<TABLE>
<CAPTION>
Other
Pension Postretirement
Benefits Benefits
------------ ----------------
1998 1997 1998 1997
----- ----- ------- -------
<S> <C> <C> <C> <C>
Change in benefit obligations:
Actuarial present value of benefit
obligation at beginning of
measurement period......................... $ 532 $ 511 $238 $192
Service cost................................ 20 15 7 6
Interest cost............................... 37 38 18 15
Plan participants' contributions............ 1 1 1 --
Gross benefits paid......................... (31) (28) (5) (3)
Plan amendments............................. 35 6 (9) --
Actuarial loss.............................. 66 20 37 28
Currency fluctuations....................... 11 (31) (1) --
----- ----- ------- -------
Actuarial present value of benefit
obligation at end of
measurement period......................... 671 532 286 238
----- ----- ------- -------
Change in plan assets:
Plan assets at fair value at beginning of
measurement period......................... 517 477 -- --
Actual return on plan assets................ 23 62 -- --
Employer contributions...................... 27 24 4 3
Plan participants' contributions............ 1 1 1 --
Gross benefits paid......................... (31) (28) (5) (3)
Currency fluctuations....................... 5 (19) -- --
----- ----- ------- -------
Plan assets at fair value at end of
measurement period......................... 542 517 -- --
----- ----- ------- -------
Plan assets less than total benefit obligation
at measurement date: (129) (15) (286) (238)
Unrecognized prior service cost............. 68 36 135 103
Unrecognized net loss (gain) resulting from
plan experience
and changes in actuarial assumptions....... 73 (9) (9) (2)
Remaining unrecognized net asset at initial
application................................ (2) (3) -- --
Contributions after measurement date but
before reporting date...................... 5 4 1 --
----- ----- ------- -------
Net amount recognized at end of year........ $ 15 $ 13 $ (159) $ (137)
===== ===== ======= =======
Amounts recognized in the statement of
financial position consist of:
Prepaid benefit cost........................ $ 139 $ 127 $ -- $ --
Accrued benefit liability................... (233) (134) (159) (137)
Intangible asset............................ 47 12 -- --
Accumulated other comprehensive income...... 47 8 -- --
Deferred tax assets......................... 15 -- -- --
----- ----- ------- -------
Net amount recognized at end of year........ $ 15 $ 13 $ (159) $ (137)
===== ===== ======= =======
</TABLE>
69
<PAGE>
CASE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
Other
Pension Postretirement
Benefits Benefits
---------------- ----------------
1998 1997 1996 1998 1997 1996
(in millions) ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Components of net periodic benefit cost:
Service cost............................. $ 20 $ 15 $ 15 $ 7 $ 6 $ 6
Interest cost............................ 37 38 37 18 15 11
Expected return on assets................ (46) (41) (37) -- -- --
Amortization of:
Transition asset....................... (1) (1) (1) -- -- --
Prior service cost..................... 6 6 11 (1) (1) (1)
Actuarial loss......................... 1 1 1 6 5 2
Plan participants' contributions......... (1) -- -- -- -- --
---- ---- ---- --- --- ---
Net periodic benefit cost................ $ 16 $ 18 $ 26 $30 $25 $18
==== ==== ==== === === ===
</TABLE>
The aggregate benefit obligation, aggregate accumulated benefit obligation
and aggregate fair value of plan assets for pension plans with benefit
obligations in excess of plan assets were $364 million, $354 million and $168
million, respectively, as of December 31, 1998, and $157 million, $152 million
and $40 million, respectively, as of December 31, 1997.
The weighted-average assumed health care cost trend rate used in
determining the 1997 and 1998 accumulated postretirement benefit obligation
covering U.S. employees was 6% in 1997, declining to 5.5% in 1998 and
remaining at that level thereafter. The weighted-average assumed health care
cost trend rate used in determining the 1998 and 1997 accumulated
postretirement benefit obligation related to Canadian employees was 8% and
12%, respectively, declining to 5.5% in 2003 and remaining at that level
thereafter.
Increasing the assumed health care cost trend rate by one percentage point
would increase the total accumulated postretirement benefit obligation as of
September 30, 1998, by approximately $47 million, and would increase the
aggregate of the service cost and interest cost components of the net
postretirement benefit cost by approximately $3 million in 1998. Decreasing
the assumed health care cost trend rate by one percentage point would decrease
the total accumulated postretirement benefit obligation as of September 30,
1998, by approximately $40 million, and would decrease the aggregate of the
service cost and interest cost components of the net postretirement benefit
cost by approximately $3 million in 1998.
Defined Contribution Plans
Case has various defined contribution plans that cover certain U.S. and
foreign employees. The Company has a money purchase pension plan and a profit
sharing plan pursuant to the Internal Revenue Code for its U.S. salaried
employees. Annually, the Company contributes to the money purchase pension
plan an amount equal to 4% of each participant's eligible compensation, which
amounted to $7 million in 1998, 1997, and 1996. Effective December 31, 1996,
the Company merged the money purchase pension plan into the profit sharing
plan. The Company intends to continue the 4% contribution previously made
under the money purchase pension plan as a profit sharing contribution under
the profit sharing plan. Under the profit sharing plan, certain salaried
participants may make pre-tax contributions of up to 10% of base compensation.
The Company will match 100% of the first 8% of a participant's contribution.
This matching contribution may be made in Case Common Stock, and the Company
has reserved 4.7 million shares of common stock for this purpose. During 1998,
1997 and 1996, the Company contributed $14 million, $12 million and $11
million, respectively, of Case Common Stock to the profit sharing plan.
Subject to the Company's operating results, the Company may make additional
contributions to the profit sharing plan.
70
<PAGE>
CASE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
Note 15: Commitments and Contingencies
Environmental
Case has received and from time to time receives inquiries and/or notices
of potential liability at multiple sites ("Waste Sites") that are the subject
of remedial activities under Federal or state environmental laws and Case may
be required to share in the cost of clean-up. Case is also involved in
remediating a number of other sites, including certain of its currently and
formerly operated facilities or those assumed through corporate acquisitions.
Expenditures for ongoing compliance with environmental regulations that relate
to current operations are expensed or capitalized as appropriate. Expenditures
that relate to an existing condition caused by past operations and which do
not contribute to current or future revenue generation are expensed.
Liabilities are recorded when environmental assessments indicate that remedial
efforts are probable and the costs can be reasonably estimated. Estimates of
the liability are based upon currently available facts, existing technology
and presently enacted laws and regulations. All available evidence is
considered, including prior experience in remediation of contaminated sites,
other parties' share of liability at the Waste Sites and their ability to pay
and data concerning the Waste Sites released by the U.S. Environmental
Protection Agency or other organizations. These liabilities are included in
the accompanying Balance Sheets at their undiscounted amounts. Recoveries are
evaluated separately from the liability and, if appropriate, are recorded
separately from the associated liability in the accompanying Balance Sheets.
Based upon information currently available, management estimates potential
environmental remediation, decommissioning, restoration, monitoring and other
closure costs associated with current or formerly owned or operated facilities
to be in the range of $14 million to $32 million, including Case's estimated
share at the Waste Sites. As of December 31, 1998, environmental reserves of
approximately $30 million had been established to address these specific
estimated potential liabilities. After considering these reserves, management
is of the opinion that the outcome of these matters will not have a material
adverse effect on Case's financial position or results of operations.
Product liability
Product liability claims against Case arise from time to time in the
ordinary course of business. There is an inherent uncertainty as to the
eventual resolution of unsettled claims. However, in the opinion of
management, any losses with respect to existing claims will not have a
material adverse effect on Case's financial position or results of operations.
Other
Case is the subject of various other legal claims arising from its
operations, including product warranty, dealer disputes, workmen's
compensation and employment matters. Management is of the opinion that the
resolution of these claims, individually and in the aggregate, will not have a
material adverse effect on Case's financial position or results of operations.
Commitments
Minimum rental commitments at December 31, 1998, under non-cancelable
operating leases with lease terms in excess of one year are as follows (in
millions):
<TABLE>
<S> <C>
1999................................. $13
2000................................. 10
2001................................. 8
2002................................. 6
2003................................. 5
2004 and thereafter.................. 42
---
Total minimum rental commitments. $84
===
</TABLE>
71
<PAGE>
CASE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
Total rental expense for all operating leases was $37 million for the years
ended December 31, 1998 and 1997, and $36 million in 1996.
In connection with a supply agreement with Consolidated Diesel Company, a
joint venture that is 50% owned by Case, the Company is required to purchase
engine products in amounts to provide for the recovery of specified fixed and
variable costs of the joint venture. Under this agreement, Case purchased
engine products totaling $193 million, $208 million and $154 million in 1998,
1997 and 1996, respectively, with future minimum purchases (representing only
fixed costs) of $13 million in 1999, $14 million in 2000, $12 million in 2001,
$12 million in 2002, $11 million in 2003, and $59 million in the aggregate, in
subsequent years.
Note 16: Earnings per Share
The following reconciles the numerators and denominators of the basic and
diluted earnings per share computations for income from continuing operations
(in millions, except per share data):
<TABLE>
<CAPTION>
For the Year
Ended December
31,
-------------------
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Basic
Income before extraordinary items......................... $ 64 $ 403 $ 349
Less: Preferred stock dividends........................... (7) (7) (7)
----- ----- -----
Income after preferred stock dividends and before
extraordinary items...................................... $ 57 $ 396 $ 342
===== ===== =====
Weighted-average shares outstanding....................... 73.2 73.9 72.2
===== ===== =====
Basic earnings per share before extraordinary items....... $0.78 $5.36 $4.73
===== ===== =====
Diluted
Income before extraordinary items......................... $ 64 $ 403 $ 349
Less: Antidilutive preferred stock dividends.............. (7) N/A N/A
----- ----- -----
Income after antidilutive preferred stock dividends and
before extraordinary items............................... $ 57 $ 403 $ 349
===== ===== =====
Weighted-average shares outstanding--Basic................ 73.2 73.9 72.2
Effect of Dilutive Securities:
Convertible preferred stock, when dilutive.............. -- 3.5 3.5
Stock options........................................... 1.0 1.3 1.6
Restricted stock........................................ 0.2 0.2 0.2
----- ----- -----
Weighted-average shares outstanding--Diluted.............. 74.4 78.9 77.5
===== ===== =====
Diluted earnings per share before extraordinary items..... $0.76 $5.11 $4.49
===== ===== =====
</TABLE>
72
<PAGE>
CASE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
Note 17: Quarterly Financial Data (unaudited)
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
(in millions, except per share
data)
<S> <C> <C> <C> <C>
1998
Revenues..................................... $1,381 $1,734 $1,534 $1,500
Gross profit*................................ 226 315 211 62
Income (loss) before restructuring charge,
net of tax.................................. 69 126 63 (98)
Net income (loss)............................ 69 126 63 (194)
Basic earnings (loss) per share before
restructuring charge, net of tax............ $ 0.91 $ 1.68 $ 0.84 $(1.37)
Basic earnings (loss) per share.............. $ 0.91 $ 1.68 $ 0.84 $(2.70)
Diluted earnings (loss) per share before
restructuring charge, net of tax............ $ 0.88 $ 1.61 $ 0.82 $(1.37)
Diluted earnings (loss) per share............ $ 0.88 $ 1.61 $ 0.82 $(2.70)
1997
Revenues..................................... $1,232 $1,601 $1,444 $1,747
Gross profit*................................ 201 333 238 303
Net income................................... 64 138 78 123
Basic earnings per share..................... $ 0.85 $ 1.86 $ 1.03 $ 1.64
Diluted earnings per share................... $ 0.82 $ 1.75 $ 0.98 $ 1.56
</TABLE>
- --------
* Gross profit is defined as net sales less cost of goods sold and
research, development and engineering expenses.
Note 18: Segment and Geographical Information
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 440 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 steers loaders,
trenchers and rough terrain forklifts.
Financial Services
The financial services segment reflects the operations of Case Capital, the
wholly owned finance subsidiary of Case. The financial services segment
provides financing for retail installment sales contracts and leases,
commercial lending within the equipment industry, multiple lines of insurance
products and private-label credit cards. 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.
The accounting policies of the segments are described in Note 2, "Summary
of Significant Accounting Policies." Case evaluates segment performance based
on operating earnings. Case defines operating earnings as
73
<PAGE>
CASE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
the income of Case Industrial before interest, taxes, restructuring charges
and extraordinary items, including the income of Case Capital on an equity
basis. Transfers between segments are accounted for at market value.
Case's reportable segments are strategic business units that offer
different products and services. Each segment is managed separately as they
require different technology and marketing strategies.
A summary of Case's reportable segment information is set forth in the
following table (in millions):
<TABLE>
<CAPTION>
Years Ended December
31,
----------------------
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Revenues:
Net sales
Agricultural equipment................................ $3,533 $3,685 $3,507
Construction equipment................................ 2,205 2,033 1,597
------ ------ ------
Total net sales..................................... 5,738 5,718 5,104
Financial services...................................... 377 272 244
Other revenues.......................................... 34 34 61
------ ------ ------
Total............................................... $6,149 $6,024 $5,409
====== ====== ======
Segment profit:
Agricultural equipment.................................. $ 35 $ 379 $ 363
Construction equipment.................................. 176 166 131
Financial services...................................... 85 82 85
------ ------ ------
Total............................................... $ 296 $ 627 $ 579
====== ====== ======
Reconciliation of segment profit to consolidated net income:
Segment profit.......................................... $ 296 $ 627 $ 579
Case Industrial:
Income tax (provision) benefit........................ 4 (151) (140)
Interest expense...................................... (104) (73) (90)
Restructuring charge.................................. (132) -- --
Extraordinary items................................... -- -- (33)
------ ------ ------
Net income.......................................... $ 64 $ 403 $ 316
====== ====== ======
Depreciation and amortization:
Agricultural equipment.................................. $ 124 $ 91 $ 84
Construction equipment.................................. 44 42 42
Financial services...................................... 45 24 12
------ ------ ------
Total............................................... $ 213 $ 157 $ 138
====== ====== ======
Segment assets (at the end of year):
Agricultural equipment.................................. $3,400 $2,713 $2,495
Construction equipment.................................. 1,396 1,156 1,113
Financial services...................................... 3,209 2,296 1,544
Corporate............................................... 721 816 907
------ ------ ------
Total............................................... $8,726 $6,981 $6,059
====== ====== ======
Expenditures for additions to long-lived assets*:
Agricultural equipment.................................. $ 177 $ 128 $ 112
Construction equipment.................................. 24 25 25
Financial services...................................... 334 101 73
Corporate............................................... 20 38 23
------ ------ ------
Total............................................... $ 555 $ 292 $ 233
====== ====== ======
</TABLE>
- --------
* Includes equipment on operating leases and property, plant and equipment.
74
<PAGE>
CASE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Concluded)
Geographical Information
Case is engaged in the sale of products for export from the United States.
Such sales are reflected in the table below (in millions):
<TABLE>
<CAPTION>
Years Ended
December 31,
------------------
1998 1997 1996
------ ------ ----
<S> <C> <C> <C>
Canada....................................................... $ 331 $ 412 $336
European Community........................................... 203 222 193
Other Foreign................................................ 569 571 378
------ ------ ----
Total export sales....................................... $1,103 $1,205 $907
====== ====== ====
</TABLE>
The following highlights the results of Case's operations on a legal entity
basis by geographic area (in millions):
<TABLE>
<CAPTION>
Reclasses
United United Other and
States Canada France Kingdom Foreign Eliminations Total
------ ------ ------ ------- ------- ------------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
At December 31, 1998, and for
the year then ended:
Net sales:
External.............. $3,101 $383 $ 596 $406 $1,252 $ -- $5,738
Intergeographical
area(s).............. 830 88 474 425 115 (1,932) --
------ ---- ------ ---- ------ ------- ------
Total net sales..... 3,931 471 1,070 831 1,367 (1,932) 5,738
Interest income and
other.................. 367 45 1 -- 31 (33) 411
------ ---- ------ ---- ------ ------- ------
Total revenues...... $4,298 $516 $1,071 $831 $1,398 $(1,965) $6,149
====== ==== ====== ==== ====== ======= ======
Long-lived assets*...... $1,141 $ 70 $ 137 $118 $ 123 $ -- $1,589
====== ==== ====== ==== ====== ======= ======
At December 31, 1997,
and for the year then
ended:
Net sales:
External.............. $3,091 $454 $ 538 $435 $1,200 $ -- $5,718
Intergeographical
area(s).............. 880 128 428 265 206 (1,907) --
------ ---- ------ ---- ------ ------- ------
Total net sales..... 3,971 582 966 700 1,406 (1,907) 5,718
Interest income and
other.................. 196 28 1 -- 26 55 306
------ ---- ------ ---- ------ ------- ------
Total revenues...... $4,167 $610 $ 967 $700 $1,432 $(1,852) $6,024
====== ==== ====== ==== ====== ======= ======
Long-lived assets*...... $ 799 $ 64 $ 137 $106 $ 72 $ -- $1,178
====== ==== ====== ==== ====== ======= ======
At December 31, 1996, and for
the year then ended:
Net sales:
External.............. $2,704 $433 $ 555 $372 $1,040 $ -- $5,104
Intergeographical
area(s).............. 719 115 408 144 366 (1,752) --
------ ---- ------ ---- ------ ------- ------
Total net sales..... 3,423 548 963 516 1,406 (1,752) 5,104
Interest income and
other.................. 194 33 2 1 18 57 305
------ ---- ------ ---- ------ ------- ------
Total revenues...... $3,617 $581 $ 965 $517 $1,424 $(1,695) $5,409
====== ==== ====== ==== ====== ======= ======
Long-lived assets*...... $ 669 $ 61 $ 157 $103 $ 114 $ -- $1,104
====== ==== ====== ==== ====== ======= ======
</TABLE>
- --------
* Includes equipment on operating leases and property, plant and equipment.
75
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
PART III
Item 10, "Directors and Executive Officers of the Registrant," Item 11,
"Executive Compensation," Item 12, "Security Ownership of Certain Beneficial
Owners and Management," and Item 13, "Certain Relationships and Related
Transactions," have been omitted from this report inasmuch as the Company will
file with the Securities and Exchange Commission pursuant to Regulation 14A
within 120 days after the end of the fiscal year covered by this report a
definitive Proxy Statement for the Annual Meeting of Stockholders of the
Company to be held on May 12, 1999, at which meeting the stockholders will
vote upon the election of directors. The information under the captions
"Election of Directors," "Stock Ownership," "Executive Officer Compensation"
(other than the subsection titled "Compensation Committee Report on Executive
Officer Compensation"), and "Certain Relationships and Transactions" in such
definitive Proxy Statement are incorporated herein by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
FINANCIAL STATEMENTS INCLUDED IN ITEM 8
See "Index to Financial Statements of Case Corporation and Consolidated
Subsidiaries" set forth in Item 8, "Financial Statements and Supplementary
Data."
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE INCLUDED IN ITEM 14
Schedule of the Company and Consolidated Subsidiaries
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
Valuation and qualifying accounts for the three years
Schedule II ended December 31, 1998...................................
SCHEDULES OMITTED AS NOT REQUIRED OR INAPPLICABLE
Schedule I --Condensed financial information of registrant
Schedule III --Real estate and accumulated depreciation
Schedule IV --Mortgage loans on real estate
--Supplemental Information Concerning Property--Casualty
Schedule V Insurance Operations
</TABLE>
76
<PAGE>
SCHEDULE II
CASE CORPORATION AND CONSOLIDATED SUBSIDIARIES
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
(in millions)
<TABLE>
<CAPTION>
Additions
-----------------
Balance Charged
at to Costs Charged Balance
Beginning and to Other at End
Description of Year Expenses Accounts of Year Deductions
----------- --------- -------- -------- ------- ----------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful
accounts receivable:
Year ended December 31,
1998....................... $(63) $(34) $-- $13 (a) $(84)
==== ==== ==== ====== ====
Year ended December 31,
1997....................... $(70) $ (1) $-- $ 8 (b) $(63)
==== ==== ==== ====== ====
Year ended December 31,
1996....................... $(67) $ (3) $-- $ -- $(70)
==== ==== ==== ====== ====
</TABLE>
- --------
(a) Reflects $13 million for write-offs.
(b) Reflects $5 million for write-offs and $3 million for the impact of
exchange rate changes.
EXHIBITS
A list of the exhibits included as part of this Form 10-K is set forth in
the Index to Exhibits that immediately precedes such exhibits, which is
incorporated herein by reference.
REPORTS ON FORM 8-K
In a Current Report filed on Form 8-K dated December 1, 1998, the Company
reported the issuance of a press release disclosing, among other things, the
Corporation's earnings for the third quarter of 1998 and its earnings
expectations for the full-years 1998 and 1999.
In a Current Report filed on Form 8-K dated December 16, 1998, the Company
reported the By-Laws of the Company, as amended and restated as of December 9,
1998.
In a Current Report filed on Form 8-K dated December 21, 1998, the Company
reported the issuance of a press release disclosing, among other things,
additional actions the Corporation is taking in response to lower than
previously anticipated demand for agricultural equipment.
77
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Case Corporation
By __________________________________
Chairman and Chief Executive
Officer
Date: March 1, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
Principal Executive Officer March 1, 1999
____________________________________ and Director
Jean-Pierre Rosso
Principal Financial and March 1, 1999
____________________________________ Accounting Officer
Theodore R. French
Pei-Yuan Chia, Ronald E. Goldsberry,
Jeffery T. Grade, Thomas R. Hodgson,
Katherine M. Hudson, Gerald
Rosenfeld, Theodore R. Tetzlaff
Directors
</TABLE>
March 1,
By: ___________________________ 1999
Attorney-in-fact
78
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Description of Exhibits Pages
------- ------------------------------------------------------ ------------
<C> <S> <C>
2 Reorganization Agreement dated as of June 23, 1994,
among Case Equipment Corporation, Case Corporation and
Tenneco Inc. (Filed as Exhibit 2 to the Company's
Quarterly Report on Form 10-Q for the quarter ended
June 30, 1995, and incorporated herein by reference.)
3(a)(1) Certificate of Incorporation of Case Equipment
Corporation. (Filed as Exhibit (3)(a)(1) to Amendment
No. 4 to the Company's Registration Statement No. 33-
78148 and incorporated herein by reference.)
3(a)(2) Certificate of Designation, Preferences and Rights of
Series A Cumulative Con- vertible Preferred Stock.
(Filed as Exhibit (3)(a)(2) to the Company's
Registration Statement No. 33-78148 and incorporated
herein by reference.)
3(a)(3) Certificate of Designation, Preferences and Rights of
Cumulative Convertible Second Preferred Stock. (Filed
as Exhibit (3)(a)(3) to the Company's Registration
Statement No. 33-78148 and incorporated herein by
reference.)
3(a)(4) Certificate of Amendment of Certificate of
Incorporation of Case Equipment Corporation. (Filed as
Exhibit (3)(a)(4) to the Company's Registration
Statement No. 33-82158 and incorporated herein by
reference.)
3(a)(5) Certificate of Designation, Preferences and Rights of
Series A Junior Participating Preferred Stock. (Filed
as Exhibit 1 to the Company's Current Report on Form
8-K dated December 12, 1995, and incorporated herein
by reference.)
3(b) By-Laws of Case Corporation, as amended and restated
on December 9, 1998. (Filed as Exhibit 99 to the
Company's Current Report on Form 8-K dated December
16, 1998, and incorporated herein by reference.)
4(a) Form of Certificate of Cumulative Convertible Second
Preferred Stock. (Filed as Exhibit 4(c) to the
Company's Annual Report on Form 10-K for the year
ended December 31, 1994, as amended on Form 10-K/A
dated April 6, 1995, and incorporated herein by
reference.)
4(b) Indenture, dated as of July 31, 1995, between Case
Corporation and The Bank of New York. (Filed as
Exhibit 4(c) to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1995, and
incorporated herein by reference.)
4(c) The Company hereby agrees to furnish to the Securities
and Exchange Commission, upon its request, the
instruments with respect to certain indebtedness
issued by it and its subsidiaries, which indebtedness
does not exceed 10% of the Company's total
consolidated assets.
10(a)(1) Revolving Credit and Guarantee Agreement dated as of
August 23, 1996, among Case Corporation, Case Canada
Corporation/Corporation Case Canada, certain Foreign
Subsidiary Borrowers from time to time parties
thereto, the Lenders parties thereto, the Co-Agents
and Lead Managers named therein, The Chase Manhattan
Bank, as General Administrative Agent, and The Bank of
Nova Scotia, as Canadian Administrative Agent. (Filed
as Exhibit 10(a) to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1996,
and incorporated herein by reference.)
</TABLE>
79
<PAGE>
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Description of Exhibits Pages
------- ------------------------------------------------------ ------------
<C> <S> <C>
10(a)(2) First Amendment, dated as of November 22, 1996, to the
Revolving Credit and Guarantee Agreement dated as of
August 23, 1996, among Case Corporation, Case Canada
Corporation/Corporation Case Canada, certain Foreign
Subsidiary Borrowers from time to time parties
thereto, the Lenders parties thereto, the Co-Agents
and Lead Managers named therein, The Chase Manhattan
Bank, as General Administrative Agent, and The Bank of
Nova Scotia, as Canadian Administrative Agent. (Filed
as Exhibit 10(a)(2) to the Company's Annual Report for
the year ended December 31, 1996 and incorporated
herein by reference.)
10(a)(3) Second Amendment, dated as of August 25, 1997, to the
Revolving Credit and Guarantee Agreement, dated as of
August 23, 1996, among Case Corporation, Case Canada
Corporation/Corporation Case Canada, certain foreign
Subsidiaries from time to time parties thereto, the
Lenders parties thereto, the Co-Agents Lead Managers
named therein, The Chase Manhattan Bank, as
Administrative Agent, and The Bank of Nova Scotia, as
Canadian Administrative Agent. (Filed as Exhibit 10(a)
to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1997.)
10(b)(1) Revolving Credit and Guarantee Agreement, dated as of
August 23, 1996, among Case Credit Corporation, and
certain foreign Subsidiaries from time to time parties
thereto, the Lenders parties thereto, the Co-Agents
and Lead Managers named therein, and The Chase
Manhattan Bank, as Administrative Agent. (Filed as
Exhibit 10(b) to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1996,
and incorporated herein by reference.)
10(b)(2) First Amendment, dated as of November 21, 1996, to the
Revolving Credit and Guarantee Agreement dated as of
August 23, 1996, among Case Credit Corporation,
certain Foreign Subsidiary Borrowers from time to time
parties thereto, the Lenders parties thereto, the Co-
Agents and Lead Managers named therein, and The Chase
Manhattan Bank, as Administrative Agent. (Filed as
Exhibit 10(b)(2) to the Company's Annual Report for
the year ended December 31, 1996, and incorporated
herein by reference.)
10(b)(3) Second Amendment, dated as of August 25, 1997, to the
Revolving Credit and Guarantee Agreement, dated as of
August 23, 1996, among Case Credit Corporation,
certain foreign Subsidiaries from time to time parties
thereto, the Lenders parties thereto, the Co-Agents
and Lead Managers named therein, and The Chase
Manhattan Bank, as Administrative Agent. (Filed as
Exhibit 10(b) to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1997,
and incorporated herein by reference.)
10(c)(1) Liquidity Agreement dated as of June 23, 1994, among
Case Equipment Loan Trust 1994-B, the Lenders named
therein, the Co-Agents named therein, and Chemical
Bank, as U.S. Administrative Agent. (Filed as Exhibit
10(a)(3) to Registration Statement No. 33-78148, and
incorporated herein by reference.)
10(c)(2) Second Agreement and Consent, dated as of August 28,
1996, among Case Equipment Loan Trust 1994-B, the
Lenders parties thereto, the Co-Agents named therein
and The Chase Manhattan Bank, as Administrative Agent,
to the Liquidity Agreement, dated as of June 23, 1994,
as previously amended, among Case Equipment Loan Trust
1994-B, the Lenders parties thereto, and The Chase
Manhattan Bank, as Administrative Agent. (Filed as
Exhibit 10(d) to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1996,
and incorporated herein by reference.)
</TABLE>
80
<PAGE>
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Description of Exhibits Pages
------- ---------------------------------------------------- ------------
<C> <S> <C>
10(d)(1) Rights Agreement between Case Corporation and First
Chicago Trust Company of New York, dated as of
December 8, 1995. (Filed as Exhibit 1 to the
Company's Form 8-A filed December 18, 1995, and
incorporated herein by reference.)
10(d)(2) Amendment to Rights Agreement, dated as of December
9, 1998, between Case Corporation and First Chicago
Trust Company of New York.
*10(e)(1) Agreement dated March 20, 1997, between Jean-Pierre
Rosso and Case Corporation. (Filed as Exhibit 10(a)
to the Company's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1997, and incorporated
herein by reference.)
*10(e)(2) Restructuring Retention Agreement dated June 7,
1993, between Case Corporation and Steven G. Lamb.
(Filed as Exhibit 10(c)(1) to the Company's
Registration Statement No. 33-78148 and incorporated
herein by reference.)
*10(e)(3) Restructuring Retention Agreement dated June 2,
1993, between Case Corporation and Richard M.
Christman. (Filed as Exhibit 10(c)(2) to the
Company's Registration Statement No. 33-78148 and
incorporated herein by reference.)
*10(e)(4) Restructuring Retention Agreement dated June 1,
1993, between Case Corporation and Theodore R.
French. (Filed as Exhibit 10(c)(3) to the Company's
Registration Statement No. 33-78148 and incorporated
herein by reference.)
*10(e)(5) Agreement dated February 3, 1995, between Case
Corporation and Richard S. Brennan. (Filed as
Exhibit 10(h)(5) to the Company's Annual Report on
Form 10-K for the year ended December 31, 1995, and
incorporated herein by reference.)
*10(e)(6) Agreement Regarding Change in Control, dated April
8, 1996, between Jean-Pierre Rosso and Case
Corporation. (Filed as Exhibit 10(b)(1) to the
Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1997, and incorporated
herein by reference.)
*10(e)(7) Agreement Regarding Change in Control, dated April
18, 1996, between Theodore R. French and Case
Corporation. (Filed as Exhibit 10(b)(1) to the
Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1997, and incorporated
herein by reference.)
*10(e)(8) Agreement Regarding Change in Control, dated April
8, 1996, between Steven G. Lamb and Case
Corporation. (Filed as Exhibit 10(b)(3) to the
Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1997, and incorporated
herein by reference.)
*10(e)(9) Form of Confidentiality and Non-Competition
Agreement dated as of May 14, 1997, between Case
Corporation and each of Jean-Pierre Rosso, Steven G.
Lamb, Theodore R. French and Richard M. Christman.
(Filed as Exhibit 10(a)(1) to the Company's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998, and incorporated herein by
reference.)
*10(e)(10) Form of Confidentiality and Non-Competition
Agreement dated as of January 26, 1998, between Case
Corporation and Richard S. Brennan. (Filed as
Exhibit 10(a)(2) to the Company's Quarterly Report
on Form 10-Q for the quarter ended September 30,
1998, and incorporated herein by reference.)
*10(e)(11) Form of Agreement Regarding Change in Control, dated
December 3, 1998, between Richard M. Christman and
Case Corporation.
</TABLE>
81
<PAGE>
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Description of Exhibits Pages
------- ------------------------------------------------------- ------------
<C> <S> <C>
*10(f) Case Corporation Equity Incentive Plan. (Filed as
Exhibit 10(i) to the Company's Annual Report for the
year ended December 31, 1996, and incorporated herein
by reference.)
*10(g) Case Corporation Deferred Compensation Plan. (Filed as
Exhibit 10(j) to the Company's Annual Report on Form
10-K for the year ended December 31, 1995, and
incorporated herein by reference.)
10(h) Amended and Restated Case Corporation Outside
Directors' Equity Compensation Plan, effective as of
January 1, 1999.
10(i) Employee Benefits and Compensation Allocation Agreement
dated as of June 23, 1994, among Case Equipment
Corporation, Case Corporation and Tenneco Inc. (Filed
as Exhibit 10(f) to the Company's Registration
Statement No. 33-82158, and incorporated herein by
reference.)
10(j) Tax Sharing Agreement dated as of June 23, 1994,
between Case Equipment Corporation and Tenneco Inc.
(Filed as Exhibit 10(g) to the Company's Registration
Statement No. 33-82158, and incorporated herein by
reference.)
10(k) Receivables Servicing Agreement dated as of June 23,
1994, between Case Credit Corporation and Tenneco
Credit Corporation. (Filed as Exhibit 10(h) to the
Company's Registration Statement No. 33-82158, and
incorporated herein by reference.)
**10(l) Amended and Restated Sponsors' Agreement, dated as of
April 21, 1998, between the Company, Cummins Engine
Company, Inc., Cummins Engine Holding Company, Inc. and
Case CDC Holdings, Inc. (Filed as Exhibit 10 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1998, and incorporated herein by
reference.)
**10(m) Amended and Restated Contract Manufacturing Agreement
dated as of March 7, 1995, among Case Corporation,
Link-Belt Construction Equipment Corporation and
Sumitomo (S.H.I.) Construction Machinery Co., Ltd.
(Filed as Exhibit 4(c) to the Company's Annual Report
on Form 10-K for the year ended December 31, 1994, as
amended on Form 10-K/A dated April 6, 1995, and
incorporated herein by reference.)
10(n) Sponsors' Agreement dated as of October 21, 1987, by
and between Hesston Corporation and J.I. Case Company
(now Case Corporation), together with the General
Partnership Agreement dated as of October 21, 1987 by
and between Hesston Ventures Corporation and Case
Ventures Corporation. (Filed as Exhibit 10(g) to
Amendment No. 3 to the Company's Registration Statement
No. 33-78148, and incorporated herein by reference.)
11 Computation of Earnings Per Share of Common Stock.
12 Computation of Ratio of Earnings to Fixed Charges and
Preferred Dividends.
21 Subsidiaries of Case Corporation.
23 The consent of Arthur Andersen LLP, Independent Public
Accountants for Case Corporation (Milwaukee,
Wisconsin.)
24(a) Power of attorney, executed on March 1, 1999, by Pei-
yuan Chia, Director.
24(b) Power of attorney, executed on March 1, 1999, by Ronald
E. Goldsberry, Director.
24(c) Power of attorney, executed on March 1, 1999, by
Jeffery T. Grade, Director.
24(d) Power of attorney, executed on March 1, 1999, by Thomas
R. Hodgson, Director.
24(e) Power of attorney, executed on March 1, 1999, by
Katherine M. Hudson, Director.
</TABLE>
82
<PAGE>
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Description of Exhibits Pages
------- ------------------------------------------------------- ------------
<C> <S> <C>
24(f) Power of attorney, executed on March 1, 1999, by Gerald
Rosenfeld, Director.
24(g) Power of attorney, executed on March 1, 1999, by
Theodore R. Tetzlaff, Director.
27 Financial Data Schedule
</TABLE>
- --------
*Management contract or compensatory plan or arrangement.
**Confidential information contained in this agreement has been omitted from
this filing and has been filed separately with the Securities and Exchange
Commission.
83
<PAGE>
EXHIBIT 10(d)(2)
AMENDMENT TO RIGHTS AGREEMENT
-----------------------------
AMENDMENT, dated as of December 9, 1998, between CASE CORPORATION, a
Delaware corporation (the "Company"), and FIRST CHICAGO TRUST COMPANY OF NEW
YORK, a Delaware corporation (the "Rights Agent"), to the Rights Agreement,
dated as of December 8, 1995 (the "Rights Agreement").
WHEREAS, the Company wishes to exercise its right to amend the Rights
Agreement pursuant to Section 27 thereof.
Accordingly, the parties hereby agree as follows:
1. Definitions. Each capitalized term defined in the Rights Agreement
shall have the same meaning in this Amendment as in the Rights Agreement, unless
otherwise provided herein.
2. Amendment. The last sentence of the definition of "Acquiring Person"
in Section 1(a) is amended to read in its entirety as follows:
"Notwithstanding the foregoing, if the Board of Directors of the
Company determines in good faith that a Person who would otherwise be
an "Acquiring Person," as defined pursuant to the foregoing provisions
of this paragraph, has become such inadvertently, and such Person
divests as promptly as practicable a sufficient number of Common
Shares so that such Person would no longer be an Acquiring Person, as
defined pursuant to the foregoing provisions of this paragraph, then
such Person shall not be deemed to be an "Acquiring Person" for any
purposes of this Agreement."
3. Rights Agreement. Except as amended hereby, the Rights Agreement
shall remain in full force and effect.
4. Governing Law. This Amendment shall be deemed to be a contract made
under the laws of the State of Delaware and for all purposes shall be governed
by and construed in accordance with the laws of Delaware applicable to contracts
made and to be performed entirely within such State.
5. Counterparts. This Amendment may be executed in any number of
counterparts and each such counterpart shall for all purposes be deemed to an
original, and all such counterparts shall together constitute but one and the
same instrument.
<PAGE>
6. Descriptive Headings. Descriptive headings of the Sections of this
Amendment are inserted for convenience only and shall not control or affect the
meaning or construction of any of the provisions hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and attested, all as of the day and year first above written.
ATTEST: CASE CORPORATION
____________________________________ _____________________________________
Name: Richard S. Brennan Name: Jean-Pierre Rosso
Title: General Counsel and Secretary Title: Chairman and Chief Executive
Officer
ATTEST: FIRST CHICAGO TRUST COMPANY OF
NEW YORK
_________________________________ _________________________________
Name: ___________________________ Name: ___________________________
Title: __________________________ Title: __________________________
<PAGE>
EXHIBIT 10(e)(ii)
AGREEMENT REGARDING
CHANGE IN CONTROL
This Agreement entered into as of the __________ day of ___________, 1998 by
and between Case Corporation, a Delaware corporation (the "Company"), and
__________________ (the "Executive"),
WITNESSETH THAT:
WHEREAS, the Company wishes to assure itself of the continuity of the
Executive's services in the event of any actual or threatened change in control
of the Company; and
WHEREAS, the Company and the Executive accordingly desire to enter into this
Agreement on the terms and conditions set forth below;
NOW, THEREFORE, in consideration of the premises and mutual covenants set
forth herein, it is hereby agreed by and between the parties as follows:
1. Term of Agreement. The "Term" of this Agreement shall commence on the date
hereof and shall continue through December 31, 1999; provided, however, that on
such date and on each December 31 thereafter, the Term of this Agreement shall
automatically be extended for one additional year unless, not later than the
preceding January 1 either party shall have given notice that such party does
not wish to extend the Term; and provided, further, that if a Change in Control
(as defined in paragraph 3 below) shall have occurred during the original or any
extended Term of this Agreement, the Term of this Agreement shall continue for a
period of twenty-four calendar months beyond the calendar month in which such
Change in Control occurs.
2. Employment After a Change or Potential Change in Control. If the Executive
is in the employ of the Company on the date of a Change in Control, the Company
hereby agrees to continue the Executive in its employ for the period commencing
on the date of the Change in Control and ending on the last day of the Term of
this Agreement. If the Executive is in the employ of the Company on the first
day of a Potential Change in Control (as defined in paragraph 4 below), the
Company hereby agrees to continue the Executive in its employ for the twelve-
month period commencing on such date and, if a Change in Control occurs during
such period agrees to continue the Executive in its employ until the last day of
the Term of this Agreement. During the period of employment described in the
foregoing provisions of this paragraph 2 (the "Employment Period"), the
Executive shall hold such position with the Company and exercise such authority
and perform such executive duties as are commensurate with his position,
authority and duties immediately prior to the Change in Control or Potential
Change in Control, as the case may be. The Executive agrees that during the
Employment Period he shall devote his full business time exclusively to the
executive duties described herein and perform such duties faithfully and
efficiently; provided, however, that nothing in this Agreement shall prevent the
Executive from voluntarily resigning from employment upon 90 days' written
notice to the Company under circumstances which do not constitute a Termination
(as defined below in paragraph 6); provided, further, however, that the
Executive agrees to remain in the employ of the Company from the date on which a
Potential Change in Control (as defined in paragraph 4 below) occurs through the
earlier of six months thereafter, or the last day of the Term of this Agreement.
<PAGE>
3. Change in Control. For purposes of this Agreement, the term "Change in
Control" means a change in the beneficial ownership of the Company's voting
stock or a change in the composition of the Company's Board of Directors which
occurs as follows:
(a) any "person" (as such term is used in Section 13(d) and 14(d) (2) of the
Securities Exchange Act of 1934) other than:
(i) a trustee or other fiduciary of securities held under an employee
benefit plan of the Company;
(ii) a corporation owned, directly or indirectly, by the stockholders of
the Company in substantially the same proportions as their
ownership of the Company; or
(iii) any person in which the Executive has a substantial equity interest
is or becomes a beneficial owner (as defined in Rule 13d-3 under the
Securities Exchange Act of 1934), directly or indirectly, of stock of the
Company representing 25% or more of the total voting power of the
Company's then outstanding stock;
(b) a tender offer is made for the stock of the Company by a person other than
a person described in subparagraph (a)(i), (ii) or (iii), and one of the
following occurs:
(i) the person making the offer owns or has accepted for payment stock of
the Company representing 25% or more of the total voting power of the
Company's stock; or
(ii) three business days before the offer is to terminate (unless the
offer is withdrawn first) such person could own, by the terms of the
offer plus any shares owned by such person, stock representing 50% or
more of the total voting power of the Company's outstanding stock
when the offer terminates;
(c) during any period of two consecutive years there shall cease to be a
majority of the Company's Board of Directors comprised as follows:
individuals who at the beginning of such period constitute the Board of
Directors and any new director(s) whose election by the Board of Directors
or nomination for election by the Company's stockholders was approved by a
vote of at least two-thirds (2/3) of the directors then still in office
who either were directors at the beginning of the period or whose election
or nomination for election was previously so approved; or
(d) the stockholders of the Company approve a merger or consolidation of the
Company with any other company other than:
(i) such a merger or consolidation which would result in the Company's
voting stock outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted into
voting stock of the surviving entity) more than 70% of the combined
voting power of the Company's or such surviving entity's outstanding
voting stock immediately after such merger or consolidation; or
(ii) such a merger or consolidation which would result in the directors of
the Company who were directors immediately prior thereto continuing
to constitute at least 50% of the directors of the surviving entity
immediately after such merger or consolidation.
2
<PAGE>
For purposes of this paragraph (d), "surviving entity" shall mean
only an entity in which all of the Company's stockholders become
stockholders by the terms of such merger or consolidation, and the
phrase "directors of the Company who were directors immediately prior
thereto" shall not include:
(A) any director of the Company who was designated by a person who
has entered into an agreement with the Company to effect a
transaction described in this paragraph or in paragraph (a)
above; or
(B) any director who was not a director at the beginning of the
24-consecutive-month period preceding the date of such merger
or consolidation
unless his election by the Board of Directors or nomination for
election by the Company's stockholders, was approved by a vote of at
least two-thirds (2/3) of the directors then still in office who were
directors before the beginning of such period.
4. Potential Change in Control. For purposes of this Agreement, a "Potential
Change in Control" shall be deemed to occur if (i) any person who is or becomes
the beneficial owner, directly or indirectly, of securities of the Company
representing 9.5% or more of the combined voting power of the Company's then
outstanding securities increases his beneficial ownership of such securities by
5% or more of the combined voting power of the Company's then outstanding
securities over the percentage so owned by such person on the date hereof; (ii)
a tender offer is made for stock of the Company representing 25% or more of the
total voting power of the Company's stock; (iii) any person makes a solicitation
of proxies for the election of directors who have not been recommended by the
Company; (iv) the Company enters into negotiations with respect to a transaction
which would upon consummation constitute a Change in Control; or (v) the Board
adopts a resolution to the effect that, for the purposes of this Agreement, a
Potential Change in Control has occurred.
5. Compensation During the Employment Period. During the Employment Period,
the Executive shall be compensated as follows:
(a) he shall receive an annual salary which is not less than his annual salary
immediately prior to the Employment Period, with an increase as of each
January 1 which is not less than the increase, if any, in the cost of
living, as measured by the Consumer Price Index for All Urban Consumers
(CPI-U), for the 12-month period ending on the preceding December 31;
(b) he shall be entitled to participate in short-term and long-term cash-based
incentive compensation plans which, in the aggregate, provide bonus
opportunities which are not materially less favorable to the Executive
than the greater of (i) the opportunities provided by the Company for
executives with comparable duties; and (ii) the opportunities provided to
the Executive under all such plans in which he was participating prior to
the Employment Period;
(c) he shall be eligible to participate in stock option, stock appreciation
rights, performance awards, restricted stock and other equity-based
incentive compensation plans on a basis not materially less favorable to
the Executive than that applicable (i) to the Executive immediately prior
to the Employment Period or (ii) to other executives of the Company with
comparable duties; and
3
<PAGE>
(d) he shall be entitled to receive employee benefits (including, but not
limited to, tax-qualified and nonqualified pension and savings plan
benefits, medical insurance, disability income protection, life insurance
coverage and death benefits) and perquisites which are not materially less
favorable to the Executive than (i) the employee benefits and perquisites
provided by the Company to executives with comparable duties or (ii) the
employee benefits and perquisites to which the Executive would be entitled
under the Company's employee benefit plans and perquisites as in effect
immediately prior to the Employment Period.
In the event of a termination of the Executive's employment for any reason
during the Employment Period, he shall be entitled to his accrued vacation as of
the date of termination, plus long-term and short-term bonuses based on the
targeted bonus amounts for the bonus period which includes his date of
termination pro rated based on the number of days elapsed in the bonus period.
6. Termination. For purposes of this Agreement, the term "Termination" shall
mean:
(a) Termination of the employment of the Executive during the Employment
Period by the Company, for any reason other than death, Disability (as
defined below), or Cause (as described below).
(b) Termination of employment of the Executive during the Employment Period by
reason of the Executive's resignation upon the occurrence of one of the
following events:
(i) a significant change in the nature or scope of the Executive's
authorities or duties from those described in paragraph 2 above, a
breach of any of the subparagraphs of paragraph 5 above, or the
breach by the Company of any other provision of this Agreement;
(ii) the relocation of the Executive's office to a location more than
fifty miles from the location of his office immediately prior to the
Employment Period;
(iii) a reasonable determination by the Executive that, as a result of a
Change in Control and a change in circumstances thereafter
significantly affecting his position, he is unable to exercise the
authorities, powers, functions or duties associated with his
position and contemplated by paragraph 2 above; or
(iv) the failure of the Company to obtain a satisfactory agreement from
any successor to assume and agree to perform this Agreement as
contemplated in paragraph 18 below.
The date of the Executive's Termination under this paragraph 6 shall be the date
specified by the Executive or the Company, as the case may be, in a written
notice to the other party complying with the requirements of paragraph 14 below.
For purposes of this Agreement, the term "Disability" means an incapacity, due
to physical injury or illness or mental illness, causing the Executive to be
unable to perform his duties with the Company on a full-time basis for a period
of at least six consecutive calendar months. For purposes of this Agreement,
the term "Cause" means a willful and material breach of this Agreement by the
Executive resulting in material injury to the Company or a willful and continued
failure of the Executive to substantially perform his duties (other than any
such failure resulting from the Executive's incapacity due to physical or mental
illness) which failure has not been corrected by the Executive within 30 days
after the Board of Directors of the Company has given the Executive written
notice of such failure. No
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act, or failure to act, on the Executive's part shall be deemed "willful" unless
done, or omitted to be done, by him not in good faith and without reasonable
belief that the action or omission was in the best interest of the Company.
7. Severance Payments. Subject to the provisions of paragraphs 8 and 9 below,
in the event of a Termination described in paragraph 6 above, in lieu of the
amount otherwise payable under paragraph 5, the Executive shall continue to
receive medical insurance, disability income protection, life insurance coverage
and death benefits and perquisites in accordance with subparagraph 5(d) above
for a period of 24 months after the date of Termination, and shall be entitled
to a lump sum payment in cash no later than ten business days after the date of
Termination equal to the sum of:
(a) an amount equal to two times the Executive's annual salary rate in effect
under subparagraph 5(a) above immediately prior to the date of
Termination;
(b) an amount equal to two times the greatest of (i) the Executive's
short-term incentive award and other bonuses payable for the calendar year
preceding the date of Termination, or (ii) the estimated amount of the
short-term incentive award and other bonuses which would otherwise be
payable to the Executive in accordance with subparagraph 5(b) above for
the year of Termination, or (iii) the targeted bonus amounts under the
short-term incentive award and other bonuses which would otherwise be
payable to the Executive in accordance with subparagraph 5(b) above for
the year of Termination;
(c) an amount equal to two times the amount of the Company's contribution to
the Case Corporation Retirement Savings Plan allocated to the Executive's
account under that plan for the calendar year preceding the year of
Termination.
8. Make-Whole Payments. If any amount payable to the Executive by the Company
or any subsidiary or affiliate thereof, whether under this Agreement or
otherwise (a "Payment"), is subject to any tax under section 4999 of the
Internal Revenue Code of 1986, as amended (the "Code"), or any similar federal
or state law (an "Excise Tax"), the Company shall pay to the Executive an
additional amount (the "Make-Whole Amount") which is equal to (i) the amount of
the Excise Tax, plus (ii) the aggregate amount of any interest, penalties, fines
or additions to any tax which are imposed in connection with the imposition of
such Excise Tax, plus (iii) all income, excise and other applicable taxes
imposed on the Executive under the laws of any federal, state or local
government or taxing authority by reason of the payments required under clause
(i) and clause (ii) and this clause (iii).
(a) For purposes of determining the Make-Whole Amount, the Executive shall be
deemed to be taxed at the highest marginal rate under all applicable
local, state, federal and foreign income tax laws for the year in which
the Make-Whole Amount is paid. The Make-Whole Amount payable with respect
to an Excise Tax shall be paid by the Company coincident with the Payment
with respect to which such Excise Tax relates.
(b) All calculations under this paragraph 8 shall be made initially by the
Company and the Company shall provide prompt written notice thereof to the
Executive to enable the Executive to timely file all applicable tax
returns. Upon request of the Executive, the Company shall provide the
Executive with sufficient tax and compensation data to enable the
Executive or his tax advisor to independently make the calculations
described in subparagraph (a) above and the Company shall reimburse the
Executive for reasonable fees and expenses incurred for any such
verification.
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(c) If the Executive gives written notice to the Company of any objection to
the results of the Company's calculations within 60 days of the
Executive's receipt of written notice thereof, the dispute shall be
referred for determination to tax counsel selected by the independent
auditors of the Company ("Tax Counsel"). The Company shall pay all fees
and expenses of such Tax Counsel. Pending such determination by Tax
Counsel, the Company shall pay the Executive the Make-Whole Amount as
determined by it in good faith. The Company shall pay the Executive any
additional amount determined by Tax Counsel to be due under this paragraph
8 (together with interest thereon at a rate equal to 120% of the Federal
short-term rate determined under section 1274(d) of the Code) promptly
after such determination.
(d) The determination by Tax Counsel shall be conclusive and binding upon all
parties unless the Internal Revenue Service, a court of competent
jurisdiction, or such other duly empowered governmental body or agency (a
"Tax Authority") determines that the Executive owes a greater or lesser
amount of Excise Tax with respect to any Payment than the amount
determined by Tax Counsel.
(e) If a Taxing Authority makes a claim against the Executive which, if
successful, would require the Company to make a payment under this
paragraph 8, the Executive agrees to contest the claim on request of the
Company subject to the following conditions:
(i) The Executive shall notify the Company of any such claim within 10
days of becoming aware thereof. In the event that the Company desires
the claim to be contested, it shall promptly (but in no event more
than 30 days after the notice from the Executive or such shorter time
as the Taxing Authority may specify for responding to such claim)
request the Executive to contest the claim. The Executive shall not
make any payment of any tax which is the subject of the claim before
the Executive has given the notice or during the 30-day period
thereafter unless the Executive receives written instructions from
the Company to make such payment together with an advance of funds
sufficient to make the requested payment plus any amounts payable
under this paragraph 8 determined as if such advance were an Excise
Tax, in which case the Executive will act promptly in accordance with
such instructions.
(ii) If the Company so requests, the Executive will contest the claim by
either paying the tax claimed and suing for a refund in the
appropriate court or contesting the claim in the United States Tax
Court or other appropriate court, as directed by the Company;
provided, however, that any request by the Company for the Executive
to pay the tax shall be accompanied by an advance from the Company to
the Executive of funds sufficient to make the requested payment plus
any amounts payable under this paragraph 8 determined as if such
advance were an Excise Tax. If directed by the Company in writing the
Executive will take all action necessary to compromise or settle the
claim, but in no event will the Executive compromise or settle the
claim or cease to contest the claim without the written consent of
the Company; provided, however, that the Executive may take any such
action if the Executive waives in writing his right to a payment
under this paragraph 8 for any amounts payable in connection with
such claim. The Executive agrees to cooperate in good faith with the
Company in contesting the claim and to comply with any reasonable
request from the Company concerning the contest of the claim,
including the pursuit of administrative remedies, the appropriate
forum for any judicial proceedings, and the legal basis for
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contesting the claim. Upon request of the Company, the Executive
shall take appropriate appeals of any judgment or decision that would
require the Company to make a payment under this paragraph 8.
Provided that the Executive is in compliance with the provisions of
this section, the Company shall be liable for and indemnify the
Executive against any loss in connection with, and all costs and
expenses, including attorneys' fees, which may be incurred as a
result of contesting the claim, and shall provide to the Executive
within 30 days after each written request therefor by the Executive
cash advances or reimbursement for all such costs and expenses
actually incurred or reasonably expected to be incurred by the
Executive as a result of contesting the claim.
(f) Should a Tax Authority finally determine that an additional Excise Tax is
owed, then the Company shall pay an additional Make-Whole Amount to the
Executive in a manner consistent with this paragraph 8 with respect to any
additional Excise Tax and any assessed interest, fines, or penalties. If
any Excise Tax as calculated by the Company or Tax Counsel, as the case
may be, is finally determined by a Tax Authority to exceed the amount
required to be paid under applicable law, then the Executive shall repay
such excess to the Company within 30 days of such determination; provided
that such repayment shall be reduced by the amount of any taxes paid by
the Executive on such excess which is not offset by the tax benefit
attributable to the repayment.
9. Accelerated Vesting of Stock Awards. As of the date of a Change in
Control, all stock option and restricted stock awards held by the Executive
shall become vested and nonforfeitble, to the extent that such vesting is
permitted under the terms of the plans pursuant to which such awards were
granted. If such vesting is not permitted under the terms of the plans, and on
or after the date of the Change in Control the Executive forfeits unvested
options or restricted stock awarded prior to the date of the Change in Control,
the Executive shall be entitled to a cash payment equal to (i) in the case of
options, the excess of the fair market value of the option shares forfeited over
the exercise price thereof, and (ii) in the case of restricted stock, the fair
market value of such stock, with fair market value in either case determined as
of the forfeiture date in accordance with the terms of the plan pursuant to
which the award was made. Such cash payment shall be made as soon as
practicable after the date of forfeiture.
10. Withholding. All payments to the Executive under this Agreement will be
subject to all applicable withholding of state and federal taxes.
11. Non-Competition and Confidentiality. The Executive agrees that:
(a) for a period of one year after the termination of the Executive's
employment with the Company, the Executive shall not be employed by, or
otherwise engage or be interested in, any business which is competitive
with any business of the Company or of any of its subsidiaries in which
the Executive was engaged during his employment prior to his termination,
but this restriction shall apply only if such employment or activity is
likely to cause, or causes, serious damage to the Company or any of its
subsidiaries; and
(b) during and after the Executive's employment by the Company, he will not
divulge or appropriate to his own use, or the use of others, any secret or
confidential information or knowledge pertaining to the business of the
Company, or any of its subsidiaries, obtained during his employment by the
Company or any of its subsidiaries.
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12. Arbitration of All Disputes. Any controversy or claim arising out of or
relating to this Agreement or the breach thereof shall be settled by arbitration
in the City of Chicago, in accordance with the laws of the State of Illinois, by
three arbitrators appointed by the parties. If the parties cannot agree on the
appointment of the arbitrators, one shall be appointed by the Company and one by
the Executive and the third shall be appointed by the first two arbitrators. If
the first two arbitrators cannot agree on the appointment of a third arbitrator,
then the third arbitrator shall be appointed by the Chief Judge of the United
States Court of Appeals for the Seventh Circuit. The arbitration shall be
conducted in accordance with the rules of the American Arbitration Association,
except with respect to the selection of arbitrators which shall be as provided
in this paragraph 12. Judgment upon the award rendered by the arbitrators may
be entered in any court having jurisdiction thereof. In the event that it shall
be necessary or desirable for the Executive to retain legal counsel or incur
other costs and expenses in connection with enforcement of his rights under this
Agreement, the Company shall pay (or the Executive shall be entitled to recover
from the Company, as the case may be) his reasonable attorneys' fees and costs
and expenses in connection with enforcement of his rights (including the
enforcement of any arbitration award in court). Payments shall be made to the
Executive at the time such fees, costs and expenses are incurred. If, however,
the arbitrators shall determine that, under the circumstances, payment by the
Company of all or a part of any such fees and costs and expenses would be
unjust, the Executive shall repay such amounts to the Company in accordance with
the order of the arbitrators.
13. Mitigation and Set-Off. The Executive shall not be required to mitigate
the amount of any payment provided for in this Agreement by seeking other
employment or otherwise. The Company shall not be entitled to set off against
the amounts payable to the Executive under this Agreement any amounts owed to
the Company by the Executive, any amounts earned by the Executive in other
employment after termination of his employment with the Company, or any amounts
which might have been earned by the Executive in other employment had he sought
such other employment.
14. Notices. Any notice of Termination of the Executive's employment by the
Company or the Executive for any reason shall be upon no less than 15 days' and
no greater than 45 days' advance written notice to the other party. Any
notices, requests, demand and other communications provided for by this
Agreement shall be sufficient if in writing and if sent by registered or
certified mail to the Executive at the last address he has filed in writing with
the Company or, in the case of the Company, to the attention of the Secretary of
the Company, at its principal executive offices.
15. Non-Alienation. The Executive shall not have any right to pledge,
hypothecate, anticipate or in any way create a lien upon any amounts provided
under this Agreement; and no benefits payable hereunder shall be assignable in
anticipation of payment either by voluntary or involuntary acts, or by operation
of law. Nothing in this paragraph shall limit the Executive's rights or powers
to dispose of his property by will or limit any rights or powers which his
executor or administrator would otherwise have.
16. Governing Law. The provisions of this Agreement shall be construed in
accordance with the laws of the State of Illinois, without application of
conflict of laws provisions thereunder.
17. Amendment. This Agreement may be amended or canceled by mutual agreement
of the parties in writing without the consent of any other person and, so long
as the Executive lives, no person, other than the parties hereto, shall have any
rights under or interest in this Agreement or the subject matter hereof.
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18. Successors to the Company. This Agreement shall be binding upon and
inure to the benefit of the Company and any successor of the Company. The
Company will require any successor (whether direct or indirect, by purchase,
merger, consolidation or otherwise) to all or substantially all of the business
and/or assets of the Company to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform it if no succession had taken place.
19. Severability. In the event that any provision or portion of this
Agreement shall be determined to be invalid or unenforceable for any reason, the
remaining provisions of this Agreement shall be unaffected thereby and shall
remain in full force and effect.
20. Counterparts. This Agreement may be executed in two or more
counterparts, any one of which shall be deemed the original without reference to
the others.
IN WITNESS WHEREOF, the Executive has hereunto set his hand and, pursuant to
the authorization from its Board of Directors, the Company has caused these
presents to be executed in its name and on its behalf, and its corporate seal to
be hereunto affixed and attested by its Secretary, all as of the day and year
first above written.
________________________________
Executive
CASE CORPORATION
By _____________________________
Its ____________________________
ATTEST:
________________________________
Secretary
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EXHIBIT 10(h)
Case Corporation
Outside Directors' Equity Compensation Plan
(As Amended and Restated Effective as of January 1, 1999)
This Outside Directors' Equity Compensation Plan (the "Plan") was
established by action of the Case Corporation (the "Corporation") Board of
Directors (the "Board") effective as of January 1, 1995. This amendment and
restatement of the Plan shall be effective as of January 1, 1999.
1. Introduction. The Plan is established to provide non-employee
directors of the Corporation with (i) grants of Corporation common stock
representing directors' retainer fees and board committee chair fees
(collectively, the "Fees"); (ii) an annual grant of options to purchase shares
("Shares") of common stock of the Corporation ("Common Stock"); (iii) an
opportunity to defer all or a portion of their Fees otherwise payable in Common
Stock; and (iv) an opportunity to convert all or a portion of their Fees into
stock options.
2. Eligibility. Each individual who is a member of the Board and is
not a salaried officer of the Corporation or of any of its subsidiaries (an
"Outside Director" or a "Participant") shall be eligible to receive grants of
awards under the Plan and to defer all or a portion of his or her Fees, all as
described below.
3. Stock Grants. Subject to the terms and conditions of the Plan,
as of the last day of each Plan Year Quarter (as described below), each Outside
Director shall be granted automatically a number of Shares of Common Stock equal
in value to 25% of the annual retainer fee, and if he or she is a committee
chair 25% of the annual committee chair fee, each as listed in Appendix A,
attached hereto, as amended from time to time in accordance with the amendment
procedures of the Plan. The value of each Share (the "Fair Market Value") shall
be determined as of the last business day of the Plan Year Quarter for which it
is granted and shall be equal to the average of the highest and lowest sales
price of one Share of Common Stock as reported on the New York Stock Exchange
Composite Transactions tape for such date. If the Outside Director is not a
member of the Board or a committee chair during an entire Plan Year Quarter, the
retainer and committee chair fees to which he or she is entitled as well as his
or her award of Shares for that Quarter shall be reduced, pro rata, to reflect
the portion of the Quarter in which he or she was not an Outside Director or
committee chair, as the case may be. An Outside Director shall be entitled to a
whole Share for any fractional Share to which he or she would otherwise be
entitled for any Plan Year Quarter under the foregoing provisions of this
Section 3. For purposes of the Plan, the term "Plan Year" means the period
beginning on the date of the Corporation's annual meeting of stockholders and
ending on the day immediately prior to the first day of the following
<PAGE>
Plan Year. For any Plan Year, the first Plan Year Quarter shall begin on the
first day of the Plan Year, and shall end on the 90th day of the Plan Year; the
second Plan Year Quarter shall begin on the 91st day of the Plan year, and shall
end on the 180th day of the Plan Year; the third Plan Year Quarter shall begin
on the 181st day of the Plan Year, and shall end on the 270th day of the Plan
Year; and the fourth Plan Year Quarter shall begin on the 271st day of the Plan
Year, and shall end on the last day of the Plan Year.
4. Cash Election. Subject to the terms and conditions of the Plan, at
any time prior to the first day of a Plan Year, an Outside Director may
irrevocably elect, by filing a form with the Secretary of the Corporation (the
"Secretary"), to receive a portion of the Fees for such Plan Year in cash,
provided that an Outside Director may not elect to receive more than 50% of the
Fees for such Plan Year in cash. Notwithstanding the foregoing provisions of
this Section 4, an individual who becomes an Outside Director after the first
day of a Plan Year may irrevocably elect, by filing a form with the Secretary
prior to the date on which he or she first becomes an Outside Director, to
receive a portion of the Fees for the remainder of the Plan Year in which he
first becomes an Outside Director in cash, up to a maximum of 50% of such Fees
for the remainder of the Plan Year.
5. Options. Subject to the terms and conditions of the Plan, each
Outside Director will be awarded stock options under the Plan in accordance with
the following:
(a) Automatic Option Grants. Each individual who is an Outside Director
on the date of the annual meeting of the Corporation's stockholders
shall be granted automatically as of that date an option to purchase
that number of Shares of Common Stock listed in Appendix A (the
"Automatic Option Grant"), attached hereto as amended from time to
time in accordance with the amendment procedures of the Plan. Each
individual who becomes an Outside Director other than on the date of
an annual meeting of Corporation's stockholders shall receive an
Automatic Option Grant reduced pro rata to reflect the portion of the
Plan Year elapsed prior to the date on which the individual first
became an Outside Director, provided that any fractional Share
resulting from such reduction shall be rounded up to a whole Share.
(b) Elective Option Grants. For the period beginning on January 1, 1999
and ending on the last day of the 1998 Plan Year and for any Plan Year
beginning thereafter, each Outside Director, by filing a written
"Option Election" with the Secretary in such form as the Secretary may
from time to time require, may elect to forego payment of all or any
portion of the Fees otherwise payable to him or her during such period
or for any such Plan Year, as applicable, and to instead receive, as
of each date on which such Fees would otherwise have been paid to him
or her (each an "Elective Grant Date"), an option to purchase that
number of
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Shares of Common Stock equal to the quotient (rounded to the nearest
whole number of Shares) of (1) divided by (2) where:
(1) is the product of the amount of the Fees that would otherwise
have been paid to the Outside Director on the applicable Elective
Grant Date which are subject to his or her Option Election,
multiplied by four; and
(2) is the Fair Market Value of a Share of Common Stock on the
applicable Elective Grant Date.
Each option granted pursuant to this paragraph (b) shall be referred to
herein as an "Elective Option Grant" and, where appropriate, will be
referred to collectively with an Automatic Option Grant as an "Option
Grant". An Outside Director's Option Election shall be effective with
respect to Fees otherwise payable to him or her for services rendered after
the last day of the Plan Year in which such election is filed with the
Secretary; provided, however, that:
(A) each Outside Director may make an Option Election with respect to
Fees payable during the period beginning on January 1, 1999 and
ending on the last day of the 1998 Plan Year in accordance with
such uniform and nondiscriminatory rules established by the
Committee;
(B) if an individual becomes an Outside Director on or after the
first day of a Plan Year and files an Option Election with the
Secretary prior to the date on which he or she first becomes an
Outside Director, his or her Option Election shall be effective
with respect to Fees otherwise payable to him or her for services
rendered on and after the day on which he or she first becomes an
Outside Director; and
(C) by notice filed with the Secretary, an Outside Director may
terminate or modify any Option Election as to Fees payable for
services rendered after the last day of the Plan Year in which
such notice is filed with the Secretary.
(c) Reload Stock Options. "Reload Stock Options" shall be awarded to an
Outside Director when and if he or she pays the Option Price under an
Option Grant, described above, by delivery of Shares of Common Stock
on the Settlement date for such exercise. A Reload Stock Option
entitles its holder to purchase the number of Shares so delivered for
an Option Price equal to the Fair Market Value of a Share of Common
Stock on such settlement date. No more than one Reload Stock Option
shall be granted to an Outside Director in any twelve-month period,
the maximum number of Reload Stock Options that may be granted to an
Outside
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Director with respect to any Option Grant is five, and no Reload Stock
Options will be issued within six months prior to the scheduled
expiration date of the Option Grant to which it relates.
Notwithstanding the above, no Reload Stock Option shall be granted
unless the recipient is an Outside Director of the Corporation at the
time of delivery of Shares. Notwithstanding any other provision
hereof, a Reload Stock Option shall not become exercisable until six
months after its award date and its maximum term will terminate at the
time specified hereunder for the Option Grant to which it relates.
For purposes of the Plan, Automatic Option Grants, Elective Option Grants and
Reload Stock Options are sometimes referred to herein collectively as "Stock
Options".
6. Terms of Option Grants.
(a) Option Agreement. Each Stock Option shall be evidenced by a written
stock option agreement which shall be executed by the Outside Director
and the Corporation and which shall contain such terms and conditions
as are consistent with this Plan.
(b) Exercise price. The exercise price of the Shares under an Option
Grant shall be 100% of the Fair Market Value of such Shares on the
date the Option Grant is made.
(c) Commencement of Exercisability. Each Automatic Option Grant made
under the Plan shall become exercisable on the third anniversary of
the grant date or, if earlier, with respect to Automatic Option Grants
that have been outstanding at least six months, the date the
individual ceases to be an Outside Director for any reason other than
removal for cause by the Corporation's stockholders pursuant to
Section 141(k) of the Delaware General Corporation Law. Each Elective
Option Grant shall be immediately exercisable upon grant but Shares
purchased upon an Elective Option Grant may not be sold until the date
which is at least six months after the date such Elective Option Grant
is made.
(d) Term. Each Option Grant shall terminate upon the earlier of (i) ten
years after the date of grant or (ii) six months after the date an
individual ceases to be an Outside Director.
(e) Death of Outside Director. Notwithstanding paragraph 6(c) above, the
Automatic Option Grants and Reload Stock Options that have been
awarded to an Outside Director whose Board membership is terminated
due to death shall be immediately exercisable. Notwithstanding
paragraph (d) above, the Outside Director's designated beneficiary or
estate if no beneficiary has been designated
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may exercise any Stock Options within the six-month period following
the death of the Outside Director.
(f) Total Disability of Outside Director. Notwithstanding paragraphs 6(c)
or 6(d) above, the Automatic Option Grants and Reload Stock Options
that have been awarded to an Outside Director whose Board membership
is terminated due to Total Disability shall be immediately exercisable
and all Stock Options shall remain exercisable within the six-month
period following the Outside Director's termination for Total
Disability. For purposes of this provision, "Total Disability" means
the permanent inability (as determined by the Outside Director's
medical doctor) of the Outside Director which is a result of accident
or sickness, to perform the duties of a director of the Corporation.
(g) Change of Control. Notwithstanding paragraphs 6(c) or 6(d) above, the
Automatic Option Grants and Reload Stock Options that have been
awarded to an Outside Director shall be immediately exercisable and
all Stock Options shall remain exercisable for a six-month period if a
Change of Control occurs. Notwithstanding the above, Stock Options
that are awarded within six months of the date the Change of Control
occurs shall not be subject to this provision. For purposes of this
provision, "Change of Control" means a change in the beneficial
ownership of the Corporation's voting stock or a change in the
composition of the Board which occurs as follows:
(1) any "person" (as such term is used in Section 13(d) and 14(d)(2)
of the Securities Exchange Act of 1934) other than:
(i) a trustee or other fiduciary of securities held under an
employee benefit plan of the Corporation;
(ii) a corporation owned, directly or indirectly, by the
stockholders of the Corporation in substantially the same
proportions as their ownership of the Corporation; or
(iii) with respect to any Participant, any person in which such
Participant has a substantial equity interest;
is or becomes a beneficial owner (as defined in Rule 13d-3 under
the Securities Exchange Act of 1934), directly or indirectly, of
stock of the Corporation representing 25% or more of the total
voting power of the Corporation's then outstanding stock;
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(2) a tender offer is made for the stock of the Corporation by a
person other than a person described in subparagraph 6(g)(1), and
one of the following occurs:
(i) the person making the offer owns or has accepted for payment
stock of the Corporation representing 25% or more of the
total voting power of the Corporation's stock; or
(ii) three business days before the offer is to terminate (unless
the offer is withdrawn first) such person could own, by the
terms of the offer plus any Shares owned by such person,
stock representing 50% or more of the total voting power of
the Corporation's outstanding stock when the offer
terminates;
(3) during any period of two consecutive years there shall cease to
be a majority of the Board comprised as follows: individuals who
at the beginning of such period constitute the Board and any new
director(s) whose election by the Board or nomination for
election by the Corporation's stockholders was approved by a vote
of at least two-thirds (2/3) of the directors then still in
office who either were directors at the beginning of the period
or whose election or nomination for election was previously so
approved; or
(4) the stockholders of the Corporation approve a merger or
consolidation of the Corporation with any other company other
than:
(i) such a merger or consolidation which would result in the
Corporation's voting stock outstanding immediately prior
thereto continuing to represent (either by remaining
outstanding or by being converted into voting stock of the
surviving entity) more than 70% of the combined voting power
of the Corporation's or such surviving entity's outstanding
voting stock immediately after such merger or consolidation;
or
(ii) such a merger or consolidation which would result in the
directors of the Corporation who were directors immediately
prior thereto continuing to constitute at least 50% of the
directors of the surviving entity immediately after such
merger or consolidation.
For purposes of this subparagraph 6(g)(4), "surviving entity"
shall mean only an entity in which all of the Corporation's
stockholders become stockholders by the terms of such merger or
consolidation, and the phrase
-6-
<PAGE>
"directors of the Corporation who were directors immediately
prior thereto" shall not include:
(A) any director of the Corporation who was designated by a
person who has entered into an agreement with the
Corporation to effect a transaction described in this
subparagraph 6(g)(4) or in subparagraph 6(g)(1) next above;
or
(B) any director who was not a director at the beginning of the
24-consecutive-month period preceding the date of such
merger or consolidation;
unless his or her election by the Board or nomination for
election by the Corporation's stockholders was approved by a
vote of at least two-thirds (2/3) of the directors then
still in office who were directors before the beginning of
such period;
provided, however, that in the event an Outside Director arranges or
solicits any of the transactions listed in subparagraphs 6(g)(1), (2),
(3), (4) or (5), any such transaction shall not, for purposes of this
Plan, constitute a Change in Control as to such Outside Director.
7. Manner of Payment of Option Price. The Option Price shall be paid in
full at the time of the exercise of any Stock Option and may be paid in any of
the following methods or combinations thereof:
(a) in United States dollars, in cash, check, bank draft or money order
payable to the order of the Corporation;
(b) by the delivery of Shares of Common Stock having an aggregate Fair
Market Value on the date of such exercise equal to the Option Price;
or
(c) in any other manner that the Board shall approve, including without
limitation any arrangement that the Board may establish to enable
Participants to simultaneously exercise Stock Options and sell the
Shares of Common Stock acquired thereby and apply the proceeds to the
payment of the Option Price therefor.
8. Deferred Compensation.
(a) Deferral of Compensation. Subject to the terms and conditions of the
Plan, each Outside Director, by filing a written "Deferral Election"
with the Secretary in such form as the Secretary may from time to time
require, may elect to defer until
-7-
<PAGE>
the Distribution Date (as defined below) the receipt of all or any
portion of the Fees that are otherwise payable to him or her in the
form of Common Stock ("Eligible Deferral Amounts"). For purposes of
the Plan, an Outside Director's "Distribution Date" shall be the date
on which the Outside Director ceases to be a director of the
Corporation for any reason. An Outside Director's Deferral Election
shall be effective with respect to Eligible Deferral Amounts otherwise
payable to him or her for services rendered after the last day of the
Plan Year in which such election is filed with the Secretary;
provided, however, that:
(1) if an individual becomes an Outside Director on or after the
first day of a Plan Year and files a Deferral Election with the
Secretary prior to the date on which he or she first becomes an
Outside Director, his or her Deferral Election shall be effective
with respect to Eligible Deferral Amounts otherwise payable to
him or her for services rendered on and after the day on which he
or she first becomes an Outside Director; and
(2) by notice filed with the Secretary and subject to the provisions
of paragraph 5(b)(A), an Outside Director may terminate or modify
any Deferral Election as to Eligible Deferral Amounts payable for
services rendered after the last day of the Plan Year in which
such notice is filed with the Secretary.
(b) Crediting and Adjustment of Deferred Amounts. The amount of any
Eligible Deferral Amounts deferred pursuant to an Outside Director's
Deferral Election in accordance with paragraph 8(a) ("Deferred
Compensation") shall be credited to a bookkeeping account maintained
by the Corporation in the name of the Outside Director (the "Deferred
Compensation Account"). An Outside Director's Deferred Compensation
Account shall be adjusted as follows:
(1) as of any date on which Eligible Deferral Amounts would have been
payable to the Outside Director in Common Stock but for his or
her Deferral Election, the Outside Director's Deferred
Compensation Account shall be credited with that number of stock
units ("Stock Units") equal to the number of Shares of Common
Stock to which he or she would have been entitled as of the
applicable date;
(2) as of the date on which Shares of Common Stock are distributed in
accordance with paragraph 8(c) or 8(d) below, the Outside
Director's Deferred Compensation Account shall be charged with an
equal number of Stock Units;
(3) as of January 1, 1999, the Outside Director's Deferred
Compensation Account shall be credited with that number of
additional Stock Units which is equal to the sum of the numbers
obtained by (i) multiplying the
-8-
<PAGE>
number of Stock Units credited to the Outside Director's Deferred
Compensation Account as of each record date for any dividend paid
on Common Stock during the period commencing on the first day of
the Plan Year beginning in 1998 and ending on December 31, 1998,
by (ii) the amount of the cash dividend or the fair market value
(as determined by the Committee) of any dividend in kind payable
on a share of Common Stock as of the applicable record date, and
(iii) dividing that product by the Fair Market Value of a share
of Common Stock on the applicable record date; and
(3) as of the record date for any dividend paid on Common Stock on or
after January 1, 1999, the Outside Director's Deferred
Compensation Account shall be credited with that number of
additional Stock Units which is equal to the number obtained by
(i) multiplying the number of Stock Units then credited to the
Outside Director's Deferred Compensation Account by (ii) the
amount of the cash dividend or the fair market value (as
determined by the Committee) of any dividend in kind payable on a
share of Common Stock, and (iii) dividing that product by the
then Fair Market Value of a share of Common Stock.
(c) Payment of Deferred Compensation Account. Except as otherwise
provided in paragraph 8(d), as soon as practicable after an Outside
Director's Distribution Date, the balance then credited to his or her
Deferred Compensation Account shall be distributed to the Outside
Director in a single sum in whole Shares of Common Stock, with the
number of Shares of Common Stock to be distributed equal to the number
of Stock Units credited to the Outside Director's Deferred
Compensation Account as of the Distribution Date.
(d) Payments in the Event of Death. If an Outside Director's Distribution
Date occurs on account of his or her death, the balance then credited
to his or her Deferred Compensation Account shall be distributed to
the Outside Director's Beneficiary (as described below), as soon as
practicable after his or her death, in a single sum in whole Shares of
Common Stock, with the number of Shares of Common Stock to be
distributed equal to the number of Stock Units credited to the Outside
Director's Deferred Compensation Account as of the date of his or her
death. For purposes of this Section 8, an Outside Director's
"Beneficiary" is the person or persons the Outside Director
designates, which designation shall be in writing, signed by the
Outside Director and filed with the Secretary prior to the Outside
Director's death. A Beneficiary designation shall be effective when
filed with the Secretary in accordance with the preceding sentence. If
more than one Beneficiary has been designated, the balance in the
Outside Director's Deferred Compensation Account shall be distributed
to each such Beneficiary per capita
-9-
<PAGE>
unless the Outside Director specifies otherwise. In the absence of a
Beneficiary designation or if no Beneficiary survives the Outside
Director, the Beneficiary shall be the Outside Director's estate.
9. Plan Administration. The Plan shall be administered by the
Compensation Committee of the Board (the "Committee").
10. Shares Subject to Plan. Subject to the provisions of Section 11, the
number of Shares of Common Stock for which Shares and Options may be awarded
under the Plan shall not exceed 100,000 Shares. Shares issued under the Plan
may be authorized but unissued Shares or treasury Shares. If any Shares are
subject to an award under the Plan that expires, is cancelled or is forfeited,
such Shares shall again become available for issuance under the Plan.
11. Adjustments and Reorganizations. In the event of any merger,
reorganization, consolidation, recapitalization, separation. liquidation, stock
dividend, extraordinary dividend, spin-off, split-up, Share combination, or
other change in the corporate structure of the Corporation affecting the Common
Stock, the number and kind of Shares that may be delivered under the Plan shall
be subject to such equitable adjustment as the Committee, in its sole
discretion, may deem appropriate in order to preserve the benefits or potential
benefits to be made available under the Plan, and the number and kind and price
of Shares subject to outstanding Stock Options, the option price and any other
terms of outstanding Stock Options or Stock Grants and the number of Stock Units
held under any Deferred Compensation Account shall be subject to such equitable
adjustment as the Committee, in its sole discretion, may deem appropriate in
order to prevent dilution or enlargement of outstanding Stock Options or Stock
Grants or the balance of any Deferred Compensation Account.
12. Transferability of Awards. No awards under the Plan shall be
assignable, alienable, saleable or otherwise transferable other than by will or
the laws of descent and distribution or pursuant to a qualified domestic
relations order (as defined by the Code) or Title 1 of ERISA or the rules
thereunder.
13. No Right of Continued Service. Participation in the Plan does not
give any Participant the right to be retained as a director of the Corporation
or any right or claim to any benefit under the Plan unless such right or claim
has specifically accrued under the terms of the Plan.
14. Governing Law. The validity, construction and effect of the Plan, and
any actions taken or relating to the Plan, shall be determined in accordance
with the laws of the State of Delaware and applicable federal law.
15. Successors and Assigns. The Plan shall be binding on all successors
and assigns of a Participant, including, without limitation, the estate of such
Participant and the executor,
-10-
<PAGE>
administrator or trustee of such estate, or any receiver or trustee in
bankruptcy or representative of the Participant's creditors.
16. Rights as a Shareholder. Except as otherwise provided in any Award
Agreement, a Participant shall have no rights as a stockholder of the
Corporation until he or she becomes the holder of record of Common Stock.
17. Amendment. The Plan and any attachments thereto may be amended by
action of the Board.
-11-
<PAGE>
Appendix A
(Effective for Plan Years commencing after January 1, 1999)
Annual Retainer fee $28,000
Annual Committee chair fee (except for Public Issues Committee): $ 4,000
Automatic Option Grant: 3,000 Shares
<PAGE>
EXHIBIT 11
CASE CORPORATION AND CONSOLIDATED SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE OF COMMON STOCK
(in millions, except per share amounts)
<TABLE>
<CAPTION>
Year Ended
December 31,
-------------------
1998 1997 1996
----- ----- ------
<S> <C> <C> <C>
Computations for Statements of Income
Basic earnings per share:
Income before extraordinary items..................... $ 64 $ 403 $ 349
Extraordinary items................................... -- -- (33)
----- ----- ------
Net income............................................ 64 403 316
Preferred stock dividends............................. 7 7 7
----- ----- ------
Net income to common.................................. $ 57 $ 396 $ 309
===== ===== ======
Average shares of common stock outstanding............ 73.2 73.9 72.2
----- ----- ------
Basic earnings per share:
Net income, before extraordinary items.............. $0.78 $5.36 $ 4.73
Extraordinary items................................. -- -- (0.46)
----- ----- ------
Basic earnings per share............................ $0.78 $5.36 $ 4.27
===== ===== ======
Diluted earnings per share:
Income before extraordinary items..................... $ 64 $ 403 $ 349
Antidilutive preferred stock dividends................ (7) -- --
----- ----- ------
Income after antidilutive preferred stock dividends
and
before extraordinary items........................... 57 403 349
Extraordinary items................................... -- -- (33)
----- ----- ------
Net income, after antidilutive preferred stock
dividends............................................ $ 57 $ 403 $ 316
===== ===== ======
Average shares of common stock outstanding............ 73.2 73.9 72.2
Incremental common shares applicable to restricted
common
stock based on the average market price during the
period............................................... 0.2 0.2 0.2
Incremental common shares applicable to common stock
options
based on the average market price during the period.. 1.0 1.3 1.6
Average common shares issuable assuming conversion of
the Series A Cumulative Convertible Preferred Stock
and the Cumulative Convertible Second Preferred
Stock, when dilutive................................. -- 3.5 3.5
----- ----- ------
Average common shares assuming full dilution.......... 74.4 78.9 77.5
----- ----- ------
Diluted earnings per share, assuming conversion of all
applicable securities:
Net income before extraordinary items............... $0.76 $5.11 $ 4.49
Extraordinary items................................. -- -- (0.42)
----- ----- ------
Diluted earnings per share.......................... $0.76 $5.11 $ 4.07
===== ===== ======
</TABLE>
<PAGE>
EXHIBIT 12
CASE CORPORATION AND CONSOLIDATED SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
AND PREFERRED DIVIDENDS
(dollars in millions)
<TABLE>
<CAPTION>
Years Ended
December 31,
-----------------
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Net Income................................................... $ 64 $ 403 $ 316
Add:
Interest................................................... 240 170 160
Amortization of capitalized debt expense................... 3 1 4
Portion of rentals representative of interest factor....... 12 12 12
Income tax expense and other taxes on income............... 42 191 185
Fixed charges of unconsolidated subsidiaries............... 5 3 3
Extraordinary items (net of taxes)......................... -- -- 33
----- ----- -----
Earnings as defined...................................... $ 366 $ 780 $ 713
===== ===== =====
Interest..................................................... $ 240 $ 170 $ 160
Interest capitalized......................................... 3 2 1
Amortization of capitalized debt expense..................... 3 1 4
Portion of rentals representative of interest factor......... 12 12 12
Fixed charges of unconsolidated subsidiaries................. 5 3 3
----- ----- -----
Fixed charges as defined................................. $ 263 $ 188 $ 180
===== ===== =====
Preferred dividends:
Amount declared............................................ $ 7 $ 7 $ 7
Gross-up to pre-tax based on 40%, 32% and 35% effective
rates, respectively....................................... $ 12 $ 10 $ 11
Ratio of earnings to fixed charges and preferred dividends... 1.33x 3.94x 3.73x
===== ===== =====
</TABLE>
<PAGE>
Exhibit 21
SUBSIDIARIES OF CASE CORPORATION
As of December 31, 1998
<TABLE>
<CAPTION>
STATE OR OTHER OTHER NAME(S)
JURISDICTION OF UNDER WHICH
INCORPORATION OR SUBSIDIARY DOES
NAME OF SUBSIDIARY ORGANIZATION BUSINESS
- ------------------ ------------ --------
<S> <C> <C>
A. M. Exports Limited United Kingdom None
*Amity Environmental Equipment L.L.C. Minnesota None
*Amity Technology, L.L.C. Minnesota None
Austoft Holdings Limited Australia None
Austoft Inc. Florida None
Austoft Industries Limited Australia None
*Brahma Steyr Tractors Limited India None
Brascor Corretora de Seguros, Brazil None
Participacoes e Servicos S.A.
*Brastoft Maquinas E Sistemas Brazil None
Agro-Industriais S.A.
C. W., Inc. North Dakota None
Case (Barbados) FSC, Ltd. Barbados None
Case Belgium N.V. Belgium None
Case Bodenverdichtungsgerate Germany None
Verwaltungs GmbH
Case bor-mor Holdings, Inc. Minnesota None
Case Brasil & Cia Brazil None
Case Brazil Holdings, Inc. Delaware None
Case Canada Corporation Ontario Case Canada,
Case Power &
Equipment
Case Canada Equipment Corporation Delaware None
</TABLE>
1
<PAGE>
SUBSIDIARIES OF CASE CORPORATION
As of December 31, 1998
<TABLE>
<CAPTION>
STATE OR OTHER OTHER NAME(S)
JURISDICTION OF UNDER WHICH
INCORPORATION OR SUBSIDIARY DOES
NAME OF SUBSIDIARY ORGANIZATION BUSINESS
- ------------------ ------------ --------
<S> <C> <C>
Case Canada Investments, Ltd. Alberta None
Case Canada Receivables, Inc. Alberta None
Case Capital Corporation Delaware None
Case CDC Holdings, Inc. Delaware None
Case Corporation Pty. Ltd. Australia None
Case Credit Australia Investments Pty. Ltd. Australia None
Case Credit Australia Pty., Ltd. Australia None
Case Credit Corporation Delaware None
Case Credit Europe S.A.S. France (50% ownership) None
Case Credit Global Investments Ltd. Bermuda None
Case Credit Holdings Limited Delaware None
Case Credit Insurance Agency Inc. Delaware None
Case Credit Limited United Kingdom None
Case Credit Ltd. Alberta None
Case Credit UK Limited United Kingdom None
(50% ownership)
Case Credit Wholesale Pty. Limited Australia None
Case Credits Limited United Kingdom None
Case Currency Management, Inc. Delaware None
Case Equipment Baumaschinen GmbH Germany None
Case Equipment Holdings Limited Delaware None
Case Equipment International Delaware None
Corporation
</TABLE>
2
<PAGE>
SUBSIDIARIES OF CASE CORPORATION
As of December 31, 1998
<TABLE>
<CAPTION>
STATE OR OTHER OTHER NAME(S)
JURISDICTION OF UNDER WHICH
INCORPORATION OR SUBSIDIARY DOES
NAME OF SUBSIDIARY ORGANIZATION BUSINESS
- ------------------ ------------ --------
<S> <C> <C>
Case Equipment International Delaware None
Marketing, Inc.
Case Europe S.A.R.L. France None
Case France S.A. France None
Case Germany GmbH Germany None
Case Harvesting Systems GmbH Germany None
Case India Limited Delaware None
Case Information Technology Company LLC Delaware Limited None
Liability Company
Case International France SARL France None
Case International Marketing, Inc. Delaware None
Case International United Kingdom Limited United Kingdom None
Case Irrigation Company Delaware None
Case Italy SpA Italy None
Case LBX Holdings, Inc. Delaware None
Case Leasing Asset Securitization Inc. Delaware None
Case Leasing GmbH Germany (50% ownership) None
Case Licensing/Lending Company Delaware None
Case Melbourne Pty. Ltd. Australia None
Case Mexico, S.A. Mexico None
Case Receivables II Inc. Delaware None
</TABLE>
3
<PAGE>
SUBSIDIARIES OF CASE CORPORATION
As of December 31, 1998
<TABLE>
<CAPTION>
STATE OR OTHER OTHER NAME(S)
JURISDICTION OF UNDER WHICH
INCORPORATION OR SUBSIDIARY DOES
NAME OF SUBSIDIARY ORGANIZATION BUSINESS
- ------------------ ------------ --------
<S> <C> <C>
Case Receivables, Inc. Delaware None
Case Spain S.A. Spain None
Case Sprayers Limited United Kingdom None
Case Steyr Landmaschinentechnik AG Austria None
Case United Kingdom Limited United Kingdom None
Case Wholesale Receivables Inc. Delaware None
Case-Poclain Limited United Kingdom None
Concord, Inc. North Dakota None
Consolidated Diesel Company North Carolina General None
Partnership (50% ownership)
Consolidated Diesel of North North Carolina (50% ownership) None
Carolina, Inc.
Consolidated Diesel, Inc. Delaware (50% ownership) None
David Brown Tractors (Belfast) Ltd. United Kingdom None
David Brown Tractors (Ireland) Ltd. Ireland None
David Brown Tractors (Retail) Ltd. United Kingdom None
David Brown Tractors Limited United Kingdom None
Eagle Global Insurance Co., Ltd. Bermuda None
Farm One AgServices, Inc. Delaware None
Fermec Holdings Limited United Kingdom None
Fermec International Limited United Kingdom None
Fermec Manufacturing Limited United Kingdom None
Fermec North America Limited United Kingdom None
</TABLE>
4
<PAGE>
SUBSIDIARIES OF CASE CORPORATION
As of December 31, 1998
<TABLE>
<CAPTION>
STATE OR OTHER OTHER NAME(S)
JURISDICTION OF UNDER WHICH
INCORPORATION OR SUBSIDIARY DOES
NAME OF SUBSIDIARY ORGANIZATION BUSINESS
- ------------------ ------------ --------
<S> <C> <C>
Fermec S.A. France None
Fermec Trustee Limited United Kingdom None
Grand Detour Plow Company Wisconsin None
Hay & Forage Industries Kansas General None
Partnership (50% ownership)
HFI Holdings, Inc. Delaware None
International Harvester Company Delaware None
International Harvester Co. Belgium None
of Belgium N.V.
International Harvester Co. of United Kingdom None
Great Britain Limited
J. I. Case Argentina, S.A. Argentina None
J. I. Case Company Limited United Kingdom None
J. I. Case Germany Holdings, Inc. Delaware None
J. I. Case International, S.A. Venezuela None
J. I. Case Leasing Corporation Wisconsin None
J. I. Case Property Company Delaware None
J. I. Case Threshing Machine Company Wisconsin None
Kase, S.A. De C. V. Mexico None
Kestrin Pty. Ltd. Australia None
Lake Hull Pty. Ltd. Australia None
LBX Company LLC Delaware Limited None
Liability Company
(50% ownership)
</TABLE>
5
<PAGE>
SUBSIDIARIES OF CASE CORPORATION
As of December 31, 1998
<TABLE>
<CAPTION>
STATE OR OTHER OTHER NAME(S)
JURISDICTION OF UNDER WHICH
INCORPORATION OR SUBSIDIARY DOES
NAME OF SUBSIDIARY ORGANIZATION BUSINESS
- ------------------ ------------ --------
<S> <C> <C>
Liuzhou Case Liugong Construction China (70% ownership) None
Equipment Company Limited
Masstock (Zambia) Limited Zambia (12.5% ownership) None
Megavolt L.P., L.L.L.P. Delaware Limited Liability None
Limited Partnership
(40% ownership)
Poclain do Brasil S.A. Brazil None
Poclain Limited United Kingdom None
Poclain Services North America Inc. Delaware None
PPM do Brasil Ltda. Brazil None
Pryor Foundry, Inc. Oklahoma None
Receivables Credit Corporation Alberta None
Receivables Credit II Corporation Alberta None
Receivables Credit III Corporation Alberta None
Servicios Case Mexicana, S.A. de C.V. Mexico None
Steiger Credit Company North Dakota None
Steiger International, Ltd. Guam None
Tiede Landtechnik GmbH Germany None
Tractorwork, Limited United Kingdom None
Ukrainian Agricultural Development Co. Delaware (20.22% ownership) None
Universaltrac Beteiligungs GmbH. Germany None
UzCaseagroleasing Uzbekistan None
UzCaseMash L.L.C. Uzbekistan None
</TABLE>
6
<PAGE>
SUBSIDIARIES OF CASE CORPORATION
As of December 31, 1998
<TABLE>
<CAPTION>
STATE OR OTHER OTHER NAME(S)
JURISDICTION OF UNDER WHICH
INCORPORATION OR SUBSIDIARY DOES
NAME OF SUBSIDIARY ORGANIZATION BUSINESS
- ------------------ ------------ --------
<S> <C> <C>
UzCaseService L.L.C. Uzbekistan None
UzCaseTractor L.L.C. Uzbekistan None
Versatile Credit Pty. Ltd. Australia None
Versatile Farm Equipment Pty. Ltd. Australia None
Warchalowski GmbH Austria None
Warchalowski GmbH & Co. KG Austria None
</TABLE>
- ------------------------
* Indicates less than 10% equity ownership interest.
7
<PAGE>
ARTHUR ANDERSEN LLP
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report included in this Form 10-K, into the Company's previously filed
Registration Statement File Nos. 33-82158, 333-04995, 333-04959, 333-04963, 333-
04965, 333-52775, 333-71443 and 333-35815.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin,
February 26, 1999.
<PAGE>
Exhibit 24(a)
CASE CORPORATION
POWER OF ATTORNEY
CASE CORPORATION ANNUAL REPORT ON FORM 10-K
The undersigned, in his capacity as a Director of Case Corporation, does
hereby appoint Theodore R. French, Richard S. Brennan and Kevin J. Hallagan, and
each of them, severally, his true and lawful attorneys, or attorney, to execute
in his name, place and stead, in his capacity as a Director of said Corporation,
an Annual Report on Form 10-K for the fiscal year ended December 31, 1998, and
any and all amendments to said Annual Report and to the Annual Report on Form
10-K for the fiscal year ended December 31, 1997, and all instruments necessary
or incidental in connection therewith, and to file the same with the Securities
and Exchange Commission. Each of such attorneys shall have the power to act
hereunder with or without the other of such attorneys and shall have full power
and authority to do and perform, in the name and on behalf of the undersigned,
in any and all capacities, every act whatsoever requisite or necessary to be
done in the premises, as fully and to all intents and purposes as the
undersigned might or could do in person, the undersigned hereby ratifying and
approving the acts of said attorneys and each of them.
IN TESTIMONY WHEREOF, the undersigned has executed this instrument on this
1st day of March, 1999.
/s/ PEI-YUAN CHIA
-------------------
Pei-yuan Chia
<PAGE>
Exhibit 24(b)
CASE CORPORATION
POWER OF ATTORNEY
CASE CORPORATION ANNUAL REPORT ON FORM 10-K
The undersigned, in his capacity as a Director of Case Corporation, does
hereby appoint Theodore R. French, Richard S. Brennan and Kevin J. Hallagan, and
each of them, severally, his true and lawful attorneys, or attorney, to execute
in his name, place and stead, in his capacity as a Director of said Corporation,
an Annual Report on Form 10-K for the fiscal year ended December 31, 1998, and
any and all amendments to said Annual Report and to the Annual Report on Form
10-K for the fiscal year ended December 31, 1997, and all instruments necessary
or incidental in connection therewith, and to file the same with the Securities
and Exchange Commission. Each of such attorneys shall have the power to act
hereunder with or without the other of such attorneys and shall have full power
and authority to do and perform, in the name and on behalf of the undersigned,
in any and all capacities, every act whatsoever requisite or necessary to be
done in the premises, as fully and to all intents and purposes as the
undersigned might or could do in person, the undersigned hereby ratifying and
approving the acts of said attorneys and each of them.
IN TESTIMONY WHEREOF, the undersigned has executed this instrument on this
1st day of March, 1999.
/s/ RONALD E. GOLDSBERRY
--------------------------
Ronald E. Goldsberry
<PAGE>
Exhibit 24(c)
CASE CORPORATION
POWER OF ATTORNEY
CASE CORPORATION ANNUAL REPORT ON FORM 10-K
The undersigned, in his capacity as a Director of Case Corporation, does
hereby appoint Theodore R. French, Richard S. Brennan and Kevin J. Hallagan, and
each of them, severally, his true and lawful attorneys, or attorney, to execute
in his name, place and stead, in his capacity as a Director of said Corporation,
an Annual Report on Form 10-K for the fiscal year ended December 31, 1998, and
any and all amendments to said Annual Report and to the Annual Report on Form
10-K for the fiscal year ended December 31, 1997, and all instruments necessary
or incidental in connection therewith, and to file the same with the Securities
and Exchange Commission. Each of such attorneys shall have the power to act
hereunder with or without the other of such attorneys and shall have full power
and authority to do and perform, in the name and on behalf of the undersigned,
in any and all capacities, every act whatsoever requisite or necessary to be
done in the premises, as fully and to all intents and purposes as the
undersigned might or could do in person, the undersigned hereby ratifying and
approving the acts of said attorneys and each of them.
IN TESTIMONY WHEREOF, the undersigned has executed this instrument on this
1st day of March, 1999.
/s/ JEFFERY T. GRADE
----------------------
Jeffery T. Grade
<PAGE>
Exhibit 24(d)
CASE CORPORATION
POWER OF ATTORNEY
CASE CORPORATION ANNUAL REPORT ON FORM 10-K
The undersigned, in his capacity as a Director of Case Corporation, does
hereby appoint Theodore R. French, Richard S. Brennan and Kevin J. Hallagan, and
each of them, severally, his true and lawful attorneys, or attorney, to execute
in his name, place and stead, in his capacity as a Director of said Corporation,
an Annual Report on Form 10-K for the fiscal year ended December 31, 1998, and
any and all amendments to said Annual Report and to the Annual Report on Form
10-K for the fiscal year ended December 31, 1997, and all instruments necessary
or incidental in connection therewith, and to file the same with the Securities
and Exchange Commission. Each of such attorneys shall have the power to act
hereunder with or without the other of such attorneys and shall have full power
and authority to do and perform, in the name and on behalf of the undersigned,
in any and all capacities, every act whatsoever requisite or necessary to be
done in the premises, as fully and to all intents and purposes as the
undersigned might or could do in person, the undersigned hereby ratifying and
approving the acts of said attorneys and each of them.
IN TESTIMONY WHEREOF, the undersigned has executed this instrument on this
1st day of March, 1999.
/s/ THOMAS R. HODGSON
-----------------------
Thomas R. Hodgson
<PAGE>
Exhibit 24(e)
CASE CORPORATION
POWER OF ATTORNEY
CASE CORPORATION ANNUAL REPORT ON FORM 10-K
The undersigned, in her capacity as a Director of Case Corporation, does
hereby appoint Theodore R. French, Richard S. Brennan and Kevin J. Hallagan, and
each of them, severally, her true and lawful attorneys, or attorney, to execute
in her name, place and stead, in her capacity as a Director of said Corporation,
an Annual Report on Form 10-K for the fiscal year ended December 31, 1998, and
any and all amendments to said Annual Report and to the Annual Report on Form
10-K for the fiscal year ended December 31, 1997, and all instruments necessary
or incidental in connection therewith, and to file the same with the Securities
and Exchange Commission. Each of such attorneys shall have the power to act
hereunder with or without the other of such attorneys and shall have full power
and authority to do and perform, in the name and on behalf of the undersigned,
in any and all capacities, every act whatsoever requisite or necessary to be
done in the premises, as fully and to all intents and purposes as the
undersigned might or could do in person, the undersigned hereby ratifying and
approving the acts of said attorneys and each of them.
IN TESTIMONY WHEREOF, the undersigned has executed this instrument on this
1st day of March, 1999.
/s/ KATHERINE M. HUDSON
-------------------------
Katherine M. Hudson
<PAGE>
Exhibit 24(f)
CASE CORPORATION
POWER OF ATTORNEY
CASE CORPORATION ANNUAL REPORT ON FORM 10-K
The undersigned, in his capacity as a Director of Case Corporation, does
hereby appoint Theodore R. French, Richard S. Brennan and Kevin J. Hallagan, and
each of them, severally, his true and lawful attorneys, or attorney, to execute
in his name, place and stead, in his capacity as a Director of said Corporation,
an Annual Report on Form 10-K for the fiscal year ended December 31, 1998, and
any and all amendments to said Annual Report and to the Annual Report on Form
10-K for the fiscal year ended December 31, 1997, and all instruments necessary
or incidental in connection therewith, and to file the same with the Securities
and Exchange Commission. Each of such attorneys shall have the power to act
hereunder with or without the other of such attorneys and shall have full power
and authority to do and perform, in the name and on behalf of the undersigned,
in any and all capacities, every act whatsoever requisite or necessary to be
done in the premises, as fully and to all intents and purposes as the
undersigned might or could do in person, the undersigned hereby ratifying and
approving the acts of said attorneys and each of them.
IN TESTIMONY WHEREOF, the undersigned has executed this instrument on this
1st day of March, 1999.
/s/ GERALD ROSENFELD
----------------------
Gerald Rosenfeld
<PAGE>
Exhibit 24(g)
CASE CORPORATION
POWER OF ATTORNEY
CASE CORPORATION ANNUAL REPORT ON FORM 10-K
The undersigned, in his capacity as a Director of Case Corporation, does
hereby appoint Theodore R. French, Richard S. Brennan and Kevin J. Hallagan, and
each of them, severally, his true and lawful attorneys, or attorney, to execute
in his name, place and stead, in his capacity as a Director of said Corporation,
an Annual Report on Form 10-K for the fiscal year ended December 31, 1998, and
any and all amendments to said Annual Report and to the Annual Report on Form
10-K for the fiscal year ended December 31, 1997, and all instruments necessary
or incidental in connection therewith, and to file the same with the Securities
and Exchange Commission. Each of such attorneys shall have the power to act
hereunder with or without the other of such attorneys and shall have full power
and authority to do and perform, in the name and on behalf of the undersigned,
in any and all capacities, every act whatsoever requisite or necessary to be
done in the premises, as fully and to all intents and purposes as the
undersigned might or could do in person, the undersigned hereby ratifying and
approving the acts of said attorneys and each of them.
IN TESTIMONY WHEREOF, the undersigned has executed this instrument on this
1st day of March, 1999.
/s/ THEODORE R. TETZLAFF
--------------------------
Theodore R. Tetzlaff
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from the
Company's 10-K and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 142
<SECURITIES> 0
<RECEIVABLES> 2,476
<ALLOWANCES> 0
<INVENTORY> 1,430
<CURRENT-ASSETS> 4,370
<PP&E> 2,169
<DEPRECIATION> 1,048
<TOTAL-ASSETS> 8,726
<CURRENT-LIABILITIES> 2,896
<BONDS> 3,080
77
0
<COMMON> 1
<OTHER-SE> 2,109
<TOTAL-LIABILITY-AND-EQUITY> 8,726
<SALES> 5,738
<TOTAL-REVENUES> 6,149
<CGS> 4,700
<TOTAL-COSTS> 5,579
<OTHER-EXPENSES> 224
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 240
<INCOME-PRETAX> 106
<INCOME-TAX> 0
<INCOME-CONTINUING> 64
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 64
<EPS-PRIMARY> 0.78
<EPS-DILUTED> 0.76
</TABLE>
