Case Corporation Announces Third Quarter Results
15 October 1998
Case Corporation Announces Third Quarter Results
Business Editors
RACINE, Wis.--Oct. 15, 1998--
-- Operating earnings of $106 million and net income of $63
million (EPS $.82)
-- Worldwide revenues up 6 percent to $1.5 billion on gains in
construction equipment, but sales decline in large
agricultural equipment impacts earnings
-- Worldwide retail unit sales down 3 percent, led by 12 percent
decline in agricultural equipment
-- Further production cuts and reduced spending measures
announced in response to declining agricultural equipment
market and worsening global economic outlook
Consistent with expectations, Case Corporation's
earnings for the third quarter were lower due to declining sales of
large agricultural equipment, unfavorable exchange rates and new
product launch costs. Operating earnings for the period were $106
million, and net income was $63 million, or $.82 per share. In the
prior year period, Case reported operating earnings of $123 million,
and net income of $78 million, or $.98 per share.
A weakening global economic picture is impacting many of the
markets for Case's products, particularly in key segments. Lower sales
of large agricultural equipment in North America and the Commonwealth
of Independent States resulted in an unfavorable sales mix, compared
to the third quarter of last year. Overall, revenues rose in the third
quarter to $1.5 billion, largely due to a continued strong North
American construction equipment business, solid gains in Latin America
and acquisitions, as well as increased revenues from Case Credit.
Lower operating earnings for the third quarter reflect the sales
declines in higher-margin agricultural equipment. Unfavorable foreign
exchange rates in Australia and Canada also contributed to lower
results, as did higher new product launch costs. These were partially
offset by higher pricing and ongoing cost reduction initiatives.
For the first nine months of 1998, net income was $258 million,
or $3.30 per share, compared with $280 million, or $3.54 per share,
for the same period last year. Revenues for the first nine months of
1998 were $4.6 billion, up from $4.3 billion in the prior year.
Operating earnings were $414 million for the first nine months of
1998, compared with $437 million last year. Results for the first nine
months were impacted by the factors detailed for the third quarter.
"Our business conditions have changed markedly from this time
last year. Economic difficulty has spread to many major regions of the
world at a time when historically low commodity prices have caused
retail sales of agricultural equipment to decline considerably," said
Jean-Pierre Rosso, Case chairman and chief executive officer. "As
expected, this impacted our results for the third quarter,
particularly in four-wheel drive tractors and combines. We believe
this will continue for the balance of 1998 and during 1999.
"Given this market outlook, and in anticipation of continued
economic deterioration, we are proactively managing our business,
matching production to retail demand. As a result, we are further
decreasing production in 1998 to keep product inventories in line with
our current four-to-five months of supply. In addition, we are
accelerating cost reduction initiatives and lowering growth-related
expenditures to maximize earnings in this environment."
Management Actions
Following the company's outlook statement issued on September 9,
global economic conditions have continued to erode in many parts of
the world, further decreasing the potential for farm commodity exports
from the major grain producing regions. Case now expects the worldwide
agricultural equipment market to decline by 7 to 8 percent in 1998,
compared to the previously expected 5 percent.
Consequently, Case is further reducing its production of
agricultural equipment in 1998 by 3 percent for a total reduction of
15 percent for the year. In addition, the company will initiate
further cost reductions through the elimination of contract and
temporary employees, as well as additional layoffs at its
manufacturing locations due to lower production volumes. The company
does not expect these actions to increase the previously announced
one-time charge of $70 to $80 million that the company is taking in
the fourth quarter. Further, the company will look to lower research
and development, capital expenditures and other selected
growth-related spending.
As a result of these actions, Case now expects its 1998 earnings,
excluding the one-time charge, to be approximately 40 percent below
those of 1997. Based on the current outlook, the company's 1999
results are expected to be lower than in 1998.
During the quarter, Case repurchased 2.2 million shares of the
company's common stock. Case has now completed its 4 million share
repurchase program, and has begun purchases under a new 8 million
share program authorized by the company's board of directors in July.
Equipment Sales
Case's worldwide retail unit sales were down 3 percent, as
double-digit gains in sales of construction equipment in North America
and Latin America were more than offset by lower agricultural
equipment sales in each region.
Construction Equipment -- Led by strong increases in retail unit
sales of loader/backhoes and skid steers, third quarter retail sales
of Case construction equipment rose by 17 percent in North America. A
14 percent increase in the company's Latin American retail sales was
fueled by a double-digit improvement in nearly every product category,
led by exceptionally strong sales in excavators and skid steers. Sales
of the Sumitomo-designed Case excavator continue to be very strong in
Latin America.
In Europe, retail unit sales of Case construction equipment were
up slightly on solid growth in sales of loader/backhoes and wheel
loaders, offset by a decline in excavators. The retail unit gains in
North America, Latin America and Europe were partially offset by a
sharp decline in retail sales in Case's Asia Pacific region.
Agricultural Equipment -- Retail unit sales of Case agricultural
equipment in the third quarter were lower in all regions of the world,
reflecting significantly weaker conditions in the global agricultural
equipment market. In North America, retail sales were lower in every
product category, particularly in high-horsepower tractors. In Europe,
retail sales of combines were significantly lower, reflecting a marked
decline in sales to the Commonwealth of Independent States, and
Eastern and Central Europe. Small horsepower tractors were also lower.
In Latin America, higher retail sales of combines and cotton pickers
were more than offset by lower tractor sales. And in the Asia Pacific
region, sales of combines and cotton pickers were higher, although
retail sales of row-crop tractors were significantly lower.
During the third quarter, Case launched the new MX Magnum tractor
and began shipping models in October. This tractor sets new industry
standards for power and fuel efficiency. Also, an imbedded
controller-area network allows for greater on-farm service capability
and, for the first time, enables a tractor to communicate with
attached implements and automate on-the-go input changes through a
single connection. In addition to providing farmers with the potential
to lower their operating costs, the MX Magnum is also more efficient
to manufacture, containing 30 percent fewer parts than the previous
model.
Also in the third quarter, Case announced that it had reached an
agreement to acquire the agricultural equipment business of DMI, Inc.,
the leading producer of soil management equipment in North America.
The acquisition will broaden Case's implement business, creating a
complete system of products for production agriculture farmers, and
add DMI's recognized knowledge in soil management to Case's growing
farm practice expertise, which includes use of Case's AFS technology
for precision farming.
Market Outlook
The market outlook for Case's agricultural and construction
equipment and financial services business is decidedly mixed
throughout the world.
Demand for agricultural equipment began to drop significantly
during the third quarter of 1998. This decline is the result of low
commodity prices, driven principally by a second consecutive year of
strong-to-record harvests in most major grain crops. In addition,
exports of farm commodities have dropped substantially 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 at least 15 percent, 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, sales of
agricultural equipment are projected to continue to decline in 1999 by
15 to 20 percent in North America and by 5 to 10 percent in Europe.
Worldwide, the company expects the agricultural equipment market to be
an additional 7 to 8 percent lower than in 1998.
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 weaken
for the balance of 1998, following a strong first half, resulting in
modest year-over-year growth. In the Asia Pacific region, any recovery
is dependent upon 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 markets are expected to be down in the fourth
quarter as a result of current, high interest rates.
Case is proactively managing under these less favorable business
conditions. The company has taken steps to keep production in line
with anticipated retail demand to maintain inventories at historically
low levels relative to the business cycle. These steps are expected to
lower earnings, while also decreasing the earnings volatility
traditionally experienced under these business conditions. In
addition, the company is aggressively reducing costs, while continuing
to execute its operating strategy of simultaneous revenue growth and
cost reduction. These measures are intended to maximize the company's
earnings and improve performance relative to past downturns.
The information included in this news release contains
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), changes in environmental laws, and employee and
labor relations. Further information concerning factors that could
significantly impact expected results is included in the following
sections of the company's Form 10-K Annual Report for 1997, as filed
with the Securities and Exchange Commission: Business -- Employees,
Business -- Environmental Matters, Business -- Significant
International Operations, Business -- Seasonality and Production
Schedules, Business -- Competition, Legal Proceedings, and
Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Case Corporation is a leading worldwide designer, manufacturer
and distributor of agricultural and construction equipment and offers
a broad array of financial products and services. Headquartered in
Racine, Wisconsin, Case had 1997 revenues of $6 billion and sells its
products in 150 countries through a network of approximately 4,900
independent dealers.---
The following is issued in conjunction with Case Corporation's
1998 third quarter results:
Case Capital Corporation Reports Record Portfolio and 9 Percent Income
Growth for Case Credit Corporation
-- Serviced portfolio grows to record $6.4 billion
-- Net income up 9 percent to $25 million
-- Originations increase 40 percent
-- Diversified financing business increases significantly
RACINE, Wis.--Oct. 15, 1998--Case Capital Corporation, the
financial services arm of Case Corporation, today announced that Case
Credit Corporation reported net income of $25 million for the third
quarter of 1998, up 9 percent from $23 million in the comparable
period last year. Revenues increased 44 percent over the prior year to
a record $108 million. These improvements are attributed to higher
financing income from strong growth in receivables and leases. In
addition, increases in net income were partially offset by a higher
tax rate.
For the first nine months of 1998, revenues increased 31 percent
over the prior year period to $264 million. Net income for the period
was $62 million, comparable to last year. Increases in financing
income were offset by the impact of Case Credit's asset-management
strategy and a higher tax rate during the first nine months of 1998.
Case Credit's serviced portfolio grew to a record $6.4 billion as
of September 30, 1998, a 30 percent increase year-over-year. Financing
originations increased 40 percent in the third quarter and 41 percent
for the first nine months, as compared to prior year periods. These
increases reflect the impact of Case Capital's strategy to grow and
diversify Case Credit's financial services business while continuing
to serve Case dealers and customers worldwide.
Diversified financing represented 29 percent of total retail
originations during the third quarter and 25 percent for the first
nine months. Year-over-year, diversified retail originations have
increased nearly 200 percent.
"Case Credit's outstanding performance once again demonstrates
the strength of our financial services business," stated Ted R.
French, Case Capital chairman and Case president, financial services,
and chief financial officer. "The continued growth in our balance
sheet and net income, despite weaker retail demand in the agricultural
sector, demonstrates that we are successfully executing our strategy.
We are well-positioned for leadership in the financial services
industry and remain confident in our ability to make a stable, growing
contribution to Case Corporation and its shareholders."
Case Credit announced in September that it has formed a strategic
marketing alliance with GMAC Commercial Mortgage Corporation to offer
agricultural real estate financing through the Case dealer network.
This strategic alliance was formed to provide Case customers with a
one-stop shopping source for their agricultural equipment and real
estate financing needs.
"We are continuing our efforts to expand the scope of our
financial services business and strengthen our non-cyclical earnings
base," said French. "The strength of our portfolio reflects our
success in managing growth and diversification. We will maintain our
superior portfolio quality as we pursue new business opportunities and
enter into strategic initiatives that support sustainable, long-term
earnings growth for Case Capital."
Case Capital Corporation, recently formed by Case Corporation to
provide broad-based financial services for the global marketplace,
will soon encompass Case Credit Corporation. Established in 1957, Case
Credit provides financial services to customers purchasing, leasing
and insuring equipment through established dealer networks located
primarily in North America, Australia and Europe. Based in Racine,
Wisconsin, Case Credit services a $6.4 billion portfolio of
receivables and leases.
CASE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Millions, except per share data)
(Unaudited)
CONSOLIDATED
Three Months Ended
September 30,
----------------------------------
1998 1997
---- ----
Revenues
Net sales $1,449 $1,380
Interest income and
other 85 64
-------------- --------------
Total 1,534 1,444
Costs and Expenses
Cost of goods sold 1,149 1,075
Selling, general and
administrative 146 144
Research, development
and engineering 58 49
Interest expense 66 47
Other, net 21 14
-------------- --------------
Total 1,440 1,329
Income before taxes 94 115
Income tax provision 31 37
-------------- --------------
63 78
Equity in income -
Case Credit
-------------- --------------
Net income $ 63 $ 78
============== ==============
Preferred stock dividends 2 2
-------------- --------------
Net income to common $ 61 $ 76
============== ==============
CASE INDUSTRIAL
Three Months Ended
September 30,
----------------------------------
1998 1997
---- ----
Revenues
Net sales $1,449 $1,380
Interest income
and other 11 7
-------------- --------------
Total 1,460 1,387
Costs and Expenses
Cost of goods sold 1,149 1,075
Selling, general and
administrative 165 155
Research, development
and engineering 58 49
Interest expense 26 19
Other, net 7 8
-------------- --------------
Total 1,405 1,306
Income before taxes 55 81
Income tax provision 17 26
-------------- --------------
38 55
Equity in income -
Case Credit 25 23
-------------- --------------
Net income $ 63 $ 78
============== ==============
CASE CREDIT
Three Months Ended
September 30,
----------------------------------
1998 1997
---- ----
Revenues
Net sales $ - $ -
Interest income
and other 108 75
-------------- --------------
Total 108 75
Costs and Expenses
Cost of goods sold
Selling, general
and administrative 12 7
Research, development
and engineering
Interest expense 43 28
Other, net 14 6
-------------- --------------
Total 69 41
Income before taxes 39 34
Income tax provision 14 11
-------------- --------------
25 23
Equity in income -
Case Credit
-------------- --------------
Net income $ 25 $ 23
============== ==============
Earnings per Common Share:
Basic earnings per
common share $ 0.84 $ 1.03
Diluted earnings per
common share $ 0.82 $ 0.98
See Notes to Interim Financial Statements.
CASE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Millions, except per share data)
(Unaudited)
CONSOLIDATED
Nine Months Ended
September 30,
----------------------------------
1998 1997
---- ----
Revenues
Net sales $ 4,433 $ 4,103
Interest income and
other 216 174
-------------- --------------
Total 4,649 4,277
Costs and Expenses
Cost of goods sold 3,442 3,138
Selling, general
and administrative 447 421
Research, development
and engineering 167 141
Interest expense 170 126
Other, net 45 39
-------------- --------------
Total 4,271 3,865
Income before taxes 378 412
Income tax provision 120 132
-------------- --------------
258 280
Equity in income - Case
Credit
-------------- --------------
Net income $ 258 $ 280
============== ==============
Preferred stock dividends 5 5
-------------- --------------
Net income to common $ 253 $ 275
============== ==============
CASE INDUSTRIAL
Nine Months Ended
September 30,
----------------------------------
1998 1997
---- ----
Revenues
Net sales $ 4,433 $ 4,103
Interest income and
other 27 25
-------------- --------------
Total 4,460 4,128
Costs and Expenses
Cost of goods sold 3,442 3,138
Selling, general
and administrative 486 451
Research, development
and engineering 167 141
Interest expense 70 54
Other, net 13 23
-------------- --------------
Total 4,178 3,807
Income before taxes 282 321
Income tax provision 86 103
-------------- --------------
196 218
Equity in income -
Case Credit 62 62
-------------- --------------
Net income $ 258 $ 280
============== ==============
CASE CREDIT
Nine Months Ended
September 30,
----------------------------------
1998 1997
---- ----
Revenues
Net sales $ - $ -
Interest income
and other 264 201
-------------- --------------
Total 264 201
Costs and Expenses
Cost of goods sold
Selling, general and
administrative 33 22
Research, development
and engineering
Interest expense 103 72
Other, net 32 16
-------------- --------------
Total 168 110
Income before taxes 96 91
Income tax provision 34 29
-------------- --------------
62 62
Equity in income -
Case Credit
-------------- --------------
Net income $ 62 $ 62
============== ==============
Earnings per Common Share:
Basic earnings
per common share $ 3.44 $ 3.72
Diluted earnings
per common share $ 3.30 $ 3.54
See Notes to Interim Financial Statements.
Case Corporation
Net Sales
September 30, 1998
(Millions)
Three Months Ended
------------------------------------------
1998 1997 % Change
-------- -------- -----------
Net sales:
Agricultural equipment $ 719 $ 728 -1%
Construction equipment 458 380 21%
Parts 272 272 -
-------- --------
Total net sales $ 1,449 $ 1,380 5%
======== ========
Net sales:
North America $ 799 $ 736 9%
Europe* 472 456 4%
Asia Pacific 78 108 -28%
Latin Americ 100 80 25%
-------- --------
Total net sales $ 1,449 $ 1,380 5%
======== ========
Nine Months Ended
------------------------------------------
1998 1997 % Change
-------- -------- ---------
Net sales:
Agricultural equipment $ 2,205 $ 2,110 5%
Construction equipment 1,473 1,241 19%
Parts 755 752 -
-------- --------
Total net sales $ 4,433 $ 4,103 8%
======== ========
Net sales:
North America $ 2,534 $ 2,254 12%
Europe* 1,412 1,350 5%
Asia Pacific 223 304 -27%
Latin America 264 195 35%
-------- --------
Total net sales $ 4,433 $ 4,103 8%
======== ========
* Includes Africa and Middle East
CASE CORPORATION
CONDENSED CONSOLIDATED
BALANCE SHEETS
(Millions)
(Unaudited)
CONSOLIDATED
September 30,
----------------------------------
1998 1997
---- ----
Assets
Cash and cash
equivalents $ 108 $ 167
Accounts, notes
receivable and
other - net 4,464 3,390
Inventories 1,445 1,155
Property, plant
and equipment - net 1,041 905
Investment in
Case Credit
Goodwill and
intangibles 325 304
Other assets 1,078 652
-------------- --------------
Total $8,461 $6,573
============== ==============
Liabilities and Equity
Current maturities
of long-term debt $ 5 $ 8
Short-term
debt 2,115 1,439
Accounts payable and
other accrued
liabilities 1,415 1,385
Long-term debt 2,020 1,100
Other liabilities 490 439
-------------- --------------
Total Liabilities 6,045 4,371
Equity 2,416 2,202
-------------- --------------
Total $8,461 $6,573
============== ==============
CASE INDUSTRIAL
September 30,
----------------------------------
1998 1997
---- ----
Assets
Cash and cash
equivalents $ 85 $ 122
Accounts, notes
receivable and
other - net 2,044 1,674
Inventories 1,445 1,155
Property, plant
and equipment - net 1,039 902
Investment in
Case Credit 411 318
Goodwill and
intangibles 325 304
Other assets 496 447
-------------- --------------
Total $5,845 $4,922
============== ==============
Liabilities and Equity
Current maturities
of long-term debt $ 5 $ 8
Short-term debt 920 240
Accounts payable
and other accrued
liabilities 1,373 1,346
Long-term debt 669 690
Other liabilities 462 436
-------------- --------------
Total Liabilities 3,429 2,720
Equity 2,416 2,202
-------------- --------------
Total $5,845 $4,922
============== ==============
CASE CREDIT
September 30,
----------------------------------
1998 1997
---- ----
Assets
Cash and cash
equivalents $ 23 $ 45
Accounts, notes
receivable and other
- net 2,411 1,723
Inventories
Property, plant and
equipment - net 2 3
Investment in Case
Credit
Goodwill and
intangibles
Other assets 598 219
-------------- --------------
Total $3,034 $1,990
============== ==============
Liabilities and Equity
Current maturities of
long-term debt $ - $ -
Short-term debt 1,195 1,199
Accounts payable and
other accrued
liabilities 49 60
Long-term debt 1,351 410
Other liabilities 28 3
-------------- --------------
Total Liabilities 2,623 1,672
Equity 411 318
-------------- --------------
Total $3,034 $1,990
============== ==============
See Notes to Interim Financial Statements.
CASE CORPORATION
Notes to Interim Financial Statements
(1) The accompanying financial statements reflect the
consolidated results of Case Corporation and consolidated
subsidiaries. The supplemental "Case Industrial"
consolidating data in each of the financial statements
includes Case Corporation's agricultural equipment,
construction equipment, parts and wholesale (dealer)
financing operations, with Case Credit reflected on the
equity basis. The supplemental "Case Credit" consolidating
data includes Case Corporation's retail credit operations.
Transactions between "Case Industrial" and "Case Credit" have
been eliminated to arrive at the "Consolidated" data.
(2) During the first nine months of 1998, limited-purpose
business trusts organized by Case Credit issued $1,379
million of asset-backed securities to outside investors. Case
Credit has sold $1,403 million of U.S. and Canadian retail
notes to the trusts in connection with these issuances.
During the first nine months of 1997, limited-purpose
business trusts organized by Case Credit issued $1,706
million of asset-backed securities to outside investors. Case
Credit had sold $1,301 million of U.S. and Canadian retail
notes to the trusts in connection with these issuances. The
proceeds from the sale of the retail notes were used to repay
outstanding debt and to finance additional receivables.
(3) During the third quarter of 1998, the Company announced an
agreement to acquire certain assets of DMI, Inc. ("DMI"). The
acquisition of DMI, the 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 second quarter of 1998, the Company acquired
certain assets of the Tyler Industries division ("Tyler") of
IBOCO, Inc., a privately owned company. 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. Tyler, with operations in Benson,
Minnesota, had sales of approximately $66 million in 1997.
(4) On a consolidated basis, the Company's effective income tax
rate of 32% for the first nine months of 1998 and 1997 was
lower than the U.S. statutory tax rate of 35% primarily due
to recognition of tax benefits associated with the Company's
foreign sales corporation, research and development tax
credits and a reduction in the tax valuation reserve in
certain foreign jurisdictions, partially offset by state
income taxes and foreign income taxed at different rates.
(5) Case defines operating earnings as industrial earnings before
interest, taxes, changes in accounting principles and
extraordinary items, including the income of Case Credit on
an equity basis. A reconciliation of the Company's industrial
net income to operating earnings is as follows (in millions):
Three Nine
Months Ended Months Ended
September 30, September 30,
---------------- ----------------
Case Industrial 1998 1997 1998 1997
------ ------ ------ ------
Net income $ 63 $ 78 $ 258 $ 280
Income tax provision 17 26 86 103
Interest expense 26 19 70 54
--- --- --- ---
Operating earnings $ 106 $ 123 $ 414 $ 437
=== === === ===
(6) Earnings Per Common Share:
Three Nine
Months Ended Months Ended
September 30, September 30,
----------------- ----------------
1998 1997 1998 1997
Basic ------ ------ ------ ------
Net earnings available
to common (millions) $ 61 $ 76 $ 253 $ 275
Average common shares
outstanding (millions) 72.6 74.3 73.4 73.8
Basic earnings per
common share $ .84 $ 1.03 $ 3.44 $ 3.72
Diluted
Net earnings
available to
common (millions) $ 63 $ 78 $ 258 $ 280
Average common shares
outstanding (millions) 76.7 79.3 78.0 78.9
Diluted earnings
per common share $ .82 $ .98 $ 3.30 $ 3.54
*T