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FORM 8-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
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Date of Report (Date of earliest event reported): April 28, 1997
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RDO EQUIPMENT CO.
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(Exact name of registrant as specified in its charter)
Delaware 1-12641 45-0306084
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(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
2829 South University Drive
Fargo, North Dakota 58103
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(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (701) 237-7363
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Not Applicable
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(Former name or former address, if changed since last report)
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Item 5. OTHER EVENTS.
CAUTIONARY STATEMENT REGARDING FUTURE RESULTS, FORWARD-LOOKING INFORMATION AND
CERTAIN IMPORTANT FACTORS
RDO Equipment Co. (the "Company") occasionally makes written or oral statements
regarding its business and prospects, such as projections of future performance,
statements of management's plans and objectives, forecasts of market trends, and
other matters which are forward-looking statements. Statements containing the
words or phrases "will likely result," "are expected to," "will continue," "is
anticipated," "estimate,", "project" or similar expressions identify
forward-looking statements, which may appear in documents, reports, filings with
the Securities and Exchange Commission, news releases, and written or oral
presentations made by officers or other representatives of the Company to
analysts, stockholders, investors, news organizations, and others. No assurance
can be given that the results reflected in any forward-looking statements will
be achieved. Any forward-looking statement made by or on behalf of the Company
speaks only as of the date on which such statement is made. The Company does
not undertake any obligation to update or keep current either (i) any
forward-looking statement to reflect events or circumstances arising after the
date of such statement, or (ii) the important factors that could cause the
Company's future results to differ materially from historical results or trends,
results anticipated or planned by the Company, or which are reflected from time
to time in any forward-looking statement which may be made by or on behalf of
the Company.
In addition to other matters identified or described by the Company from time to
time in filings with the Securities and Exchange Commission, there are several
important factors that could cause the Company's future results to differ
materially from historical results or trends, results anticipated or planned by
the Company, or results which are reflected from time to time in any
forward-looking statement which may be made by or on behalf of the Company.
Some of these important factors, but not necessarily all important factors,
include the following:
1. DEPENDENCE UPON DEERE & COMPANY. The Company is an authorized dealer of
Deere construction and agricultural equipment and parts in its Deere designated
areas of responsibility and store locations, and the Company's acquisition
strategy contemplates the acquisition of additional Deere areas of
responsibility and store locations. A substantial portion of the Company's new
equipment sales represent sales of new equipment supplied by Deere and a
substantial portion of the Company's sales from parts and service also are
directly related to Deere equipment. The Company depends on Deere for floor plan
financing to finance a substantial portion of its inventory. In addition, Deere
provides a significant percentage of the financing used by the Company's
customers to purchase Deere equipment from the Company. Deere also provides
incentive programs and discount programs from time to time which enable the
Company to price its products more competitively. In addition, Deere conducts
promotional and marketing activities on national, regional, and local levels.
Due to the Company's dependence on Deere, the Company believes that its success
depends, in significant part, on (i) the overall success of Deere, (ii) the
availability and terms of floor plan financing and customer financing from
Deere, (iii) the incentive and discount programs provided by Deere and its
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promotional and marketing efforts for its construction and agricultural
products, (iv) the goodwill associated with Deere trademarks, (v) the
introduction of new and innovative products by Deere, (vi) the manufacture and
delivery of competitively-priced, high quality equipment and parts by Deere in
quantities sufficient to meet the requirements of the Company's customers on a
timely basis, and (vii) the quality, consistency, and management of the overall
Deere dealership system. If Deere does not provide, maintain, or improve any of
the foregoing, there could be a material adverse effect on the Company's results
of operations.
2. DEERE TERMINATION RIGHTS. Under an agreement with Deere, Deere has the
right to terminate the Company's dealer appointments immediately if Ronald D.
Offutt, the Company's Chairman, Chief Executive Officer, and principal
stockholder, ceases to (i) own or control in excess of 50% of the outstanding
voting power, or whatever greater percentage is required to control corporate
actions that require a stockholder vote, and (ii) own at least 35% of the
outstanding Common Stock. Deere also has a right to terminate the Company's
dealer appointments in the event of Mr. Offutt's death; however, Deere cannot
exercise this right to terminate if at that time, (i) there is in place an
ownership succession plan approved by Deere, (ii) the Company and Deere have
identified events which would thereafter constitute changes of control of the
Company entitling Deere to terminate the dealer appointments, (iii) the Company
and each of its Deere stores are under continuing management acceptable to
Deere, (iv) there is no existing breach and no grounds for termination exist
with respect to any of the Company's agreements with Deere, including the
ownership requirements, and (v) Deere in its sole discretion has determined that
each of the Company's Deere areas of responsibility and store locations
justifies the continuation of the Deere appointment for such area or location.
In addition, Deere is entitled to terminate the Company's dealer appointments on
one year's notice if the equity-to-assets ratio of the Company's Deere dealer
operations is below 25% as calculated by Deere based on the Company's fiscal
year end audit, provided that the Company has not cured such deficiency within
180 days of such fiscal year end. A subsidiary of the Company which is not
engaged in Deere dealer operations can be included in this calculation if the
Company has guaranteed or otherwise become responsible for the financial
obligations of the subsidiary. In addition, without regard to any subsequent
attempts to cure, upon one year's notice Deere may terminate dealer appointments
for which the Company fails to meet certain performance criteria and market
share objectives for each of its agricultural stores, including developing and
achieving Deere-approved business plans. The Company's Deere construction
operations also must maintain overall and core product market share and product
support standards at a level greater than the level corresponding to the 50th
percentile of all of Deere's United States construction dealers and may be
terminated upon one year's prior written notice without regard to any subsequent
attempts to cure. Acquired operations that are performing below these levels at
the time the acquisition is completed have a three-year grace period to meet
these standards. In addition, Deere can terminate the Company's Deere
agricultural dealer appointments for cause or if Deere determines that there is
not sufficient market potential to support a dealership in a particular location
upon prior written notice to the Company of 180 days. The Company's dealer
appointments terminate immediately upon the commencement of the dissolution or
liquidation of the Company or a sale of a substantial part of the business,
change in the location of a dealership without Deere's prior written consent, or
a default under any security agreement with Deere. The
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appointments also may be terminated upon the revocation or discontinuance of any
guaranty of Mr. Offutt or the Company to Deere, unless replaced by a letter of
credit acceptable to Deere.
In the event of Mr. Offutt's death, Deere thereafter has the right to terminate
the Company's dealer appointments upon the occurrence of a "change of control."
A "change of control" is defined for these purposes as (i) the sale, lease,
exchange, or other transfer of substantially all of the Company's assets, (ii) a
merger, consolidation, reorganization, or similar transaction in which the
Company's stockholders do not own more than 50% of the voting power of the
surviving entity (provided that if they own more than 50% but less than 80% of
the voting power, the merger must be approved by a majority of the directors who
were directors at the time of Mr. Offutt's death or subsequent directors whose
election has been approved by existing directors ("Continuity Directors")),
(iii) a vote by the stockholders to approve a transaction set forth in (i) or
(ii), (iv) the acquisition by a person other than Mr. Offutt or his heirs of 50%
or more of the voting power of the Company (20% if such acquisition has not been
approved by a majority of the Continuity Directors), (v) a change in the
corporate executive officers without Deere's approval, or (vi) if Continuity
Directors cease to constitute a majority of the Company's Board of Directors.
Termination of certain or all of the Company's Deere dealer appointments would
have a material adverse effect on the results of operations and financial
condition of the Company.
3. DEERE DEALERSHIP AGREEMENTS-OTHER PROVISIONS. The Company operates its
Deere construction and agricultural stores pursuant to its agreements with
Deere, including Deere's customary construction or agricultural dealership
agreements for each of the Company's construction areas of responsibility and
agricultural store locations. These agreements impose a number of restrictions
and obligations on the Company with respect to its operations, including a
prohibition on carrying construction products which are competitive with Deere
products, and an obligation to maintain suitable facilities, provide competent
management, actively promote the sale of Deere equipment in the Company's
designated areas of responsibility, fulfill the warranty obligations of Deere,
provide service and maintain sufficient parts inventory to service the needs of
its customers, maintain inventory in proportion to the sales potential in each
of the Company's designated areas of responsibility, maintain adequate working
capital, and maintain stores only in authorized locations. The Company also
cannot engage in discussions to acquire other Deere dealerships without Deere's
prior written consent, which Deere may withhold in its sole discretion. In
addition, Deere has the right to have input into the selection of the Company's
management personnel, including store managers, and to have input with respect
to the selection of nominees to the Company's Board of Directors and the removal
of directors. The prior consent of Deere is required for the opening of any
store within the Company's designated areas of responsibility and for the
acquisition of any other Deere dealership. There can be no assurance that any
such consent will be given by Deere. In addition, the Company is prohibited
from making acquisitions, initiating new business activity, paying dividends,
repurchasing its capital stock, or making any other distributions to
stockholders if the Company's equity to assets ratio is below 30%, as calculated
under the Deere agreements, or if such ratio would fall below 30% as a result of
such action.
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The Company's Deere dealer appointments are not exclusive. Deere could appoint
other dealers in close proximity to the Company's existing stores. The areas of
responsibility assigned to the Company's construction dealerships can be reduced
by Deere upon 120 days' prior written notice. In addition, the dealer agreements
can be amended at any time without the Company's consent, so long as the same
amendment is made to the dealer agreements of all other Deere dealers. Deere
also has the right to sell directly to federal, state, and local governments, as
well as national accounts. To the extent Deere appoints other dealers in the
Company's markets, reduces the areas of responsibility relating to the Company's
construction stores, amends the dealer agreements, or sells substantial amounts
of equipment directly to government entities and national accounts, the
Company's results of operations and financial condition could be adversely
affected.
4. EFFECTS OF DOWNTURN IN GENERAL ECONOMIC CONDITIONS; CYCLICALITY,
SEASONALITY, AND WEATHER. The Company's business, and particularly the sale of
new equipment, is dependent on a number of factors relating to general economic
conditions, including agricultural industry cycles, construction spending,
federal, state, and local government spending on highways and other construction
projects, new housing starts, interest rate fluctuations, economic recessions,
customer business cycles, and customer confidence in the economy. Accordingly,
the Company's financial condition and results of operations may be materially
and adversely affected by any general downward economic pressures, or adverse
cyclical trends. The ability to finance affordable purchases, of which the
interest rate charged is a significant component, is an important part of a
customer's decision to purchase equipment. Interest rate increases may make
equipment purchases less affordable for customers and, as a result, the
Company's revenues and profitability may decrease. To the extent the Company
cannot pass on to its customers the increased costs of its own inventory
financing resulting from increased interest rates, its net income also may
decrease. As a result of all of the foregoing, the Company's results of
operations have in the past and in the future are expected to continue to
fluctuate from quarter to quarter and year to year.
The Company generally experiences lower levels of equipment sales during the
period from November through April, impacting the first and fourth quarters of
each fiscal year, due to the crop growing season and winter weather conditions
in the Midwest. Typically, farmers purchase agricultural equipment immediately
prior to planting or harvesting crops, which occurs during the Company's second
and third fiscal quarters. As a result, sales of agricultural equipment
generally are lower in the first and fourth fiscal quarters. Winter weather in
the Midwest also limits construction to some degree and, therefore, also
typically results in lower sales of construction equipment in the first and
fourth fiscal quarters.
The Company's results of operations have been and are expected to be affected by
weather. Severe weather, such as extreme cold and snowfall in the winter and
major flooding in the spring or summer, can adversely impact agricultural and
construction activity resulting in delayed delivery of wholegoods and servicing
of equipment or in decreased demand for the Company's products and services and
a corresponding delay or loss in revenues. To the extent severe weather occurs,
the Company's results of operations and financial condition could be adversely
affected.
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5. RISKS ASSOCIATED WITH EXPANSION. The Company believes a significant portion
of its future growth will depend on its ability to acquire additional
dealerships and to finance future acquisitions, new stores, and internal growth.
In pursuing its acquisition strategy, the Company will face risks commonly
encountered with growth through acquisitions. These risks include incurring
significantly higher than anticipated capital expenditures and operating
expenses, failing to assimilate the operations and personnel of acquired
dealerships, disrupting the Company's ongoing business, dissipating the
Company's management resources, failing to maintain uniform standards, controls,
and policies, and impairing relationships with employees and customers as a
result of changes in management. Realization of the full benefit of the
Company's strategies, operating model, and systems as to an acquired dealership
may take several years. There can be no assurance that the Company will be
successful in overcoming these risks or any other problems encountered with
acquisitions. To the extent the Company does not successfully avoid or overcome
the risks or problems related to acquisitions, the Company's results of
operations and financial condition could be adversely affected. Acquisitions
also will have a significant impact on the Company's financial position and
capital needs, and could cause substantial fluctuations in the Company's
quarterly and yearly results of operations. Acquisitions could include
significant goodwill and intangible assets, resulting in substantial
amortization charges to the Company that would reduce stated earnings.
Deere's consent is required for the acquisition of any Deere dealership or
the opening of a new store, and, consequently, any prospective acquisition or
new store opening requires Deere's consent. Deere typically evaluates
management, performance, and capitalization of a prospective acquiror or
existing Deere dealer, as the case may be, in determining whether to consent
to the purchase of a Deere dealership or approve the opening of a new store.
There can be no assurance that Deere will allow ownership concentration of
Deere dealerships beyond a certain level. Although the Company believes that
Deere wants fewer, better capitalized dealers to achieve higher sales and
better customer service, there can be no assurance that Deere will approve
any or all future acquisitions or the opening of new stores proposed by the
Company.
6. MANAGEMENT OF GROWTH. The Company has grown significantly in recent years
and its business plan is designed to continue growth through acquisitions,
opening new stores, and internal growth. Management has expended, and expects to
continue to expend, significant time and effort in evaluating, completing, and
integrating acquisitions, opening new stores, and supporting internal growth.
There can be no assurance that the Company's systems, procedures, and controls
will be adequate to support the Company's operations as they expand. Any future
growth also will impose significant added responsibilities on members of senior
management, including the need to identify, recruit, and integrate new senior
level managers and executives. There can be no assurance that such additional
management will be identified and retained by the Company. If the Company is
unable to manage its growth efficiently and effectively, or is unable to attract
and retain additional qualified management, there could be a material adverse
effect on the Company's financial condition and results of operations.
7. AVAILABILITY OF ACQUISITION CANDIDATES; NEED FOR ADDITIONAL CAPITAL. The
Company's ability to continue to grow through the acquisition of additional
Deere areas of responsibility and store locations or other businesses will be
dependent upon (i) the availability of suitable acquisition candidates at an
acceptable cost, (ii) receiving Deere's approval of acquisitions as required or
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appropriate, (iii) the Company's ability to compete effectively for available
acquisition candidates, and (iv) the availability of capital to complete the
acquisitions. Expansion of the Company through new store openings and internal
growth also will require significant capital expenditures. The Company intends
to finance growth with its current working capital, with cash generated from
operations, through the incurrence or assumption of indebtedness, and through
the issuance of Class A Common Stock, Preferred Stock, other forms of equity, or
debt securities. Using cash to finance acquisitions, new stores, and internal
growth could substantially limit the Company's financial flexibility, using debt
could result in financial covenants that limit the Company's operating and
financial flexibility, and using equity may result in significant dilution of
the interest in the Company of the stockholders at that time. The use of cash,
debt, or equity to finance acquisitions, new stores, and internal growth also
could be limited by provisions in its agreements with Deere, which give Deere
the right to terminate the Company's dealer appointments if Mr. Offutt ceases to
(i) own or control in excess of 50% of the outstanding voting power, or whatever
greater percentage is required to control corporate actions requiring a
stockholder vote, and (ii) own at least 35% of the outstanding Common Stock, and
which requires that the Company meet the required equity-to-asset ratio upon
completion of each acquisition. The Company also cannot engage in discussions
to acquire other Deere dealerships without Deere's prior written consent, which
Deere may withhold in its sole discretion. There can be no assurance that Deere
will consent to any future acquisition. In addition, there can be no assurance
that the Company will be able to obtain additional capital on acceptable terms.
To the extent the Company is limited in its ability to make acquisitions, open
new stores, or to grow internally for any reason, the Company's growth,
financial condition, and results of operations could be adversely affected.
8. SUBSTANTIAL INVENTORY FINANCING REQUIREMENTS. The sale of construction and
agricultural equipment requires substantial inventories of equipment and parts
to be maintained at each store in order to facilitate sales to customers on a
timely basis. The Company generally purchases its inventories of Deere equipment
with the assistance of floor plan financing programs through Deere. Inventories
of products from other suppliers generally are financed through Ag Capital
Company and Farmers Equipment Rental, Inc., financing institutions which are
controlled by Mr. Offutt, or through floor plan financing programs offered by
such suppliers. As the Company grows, whether through acquisitions, opening new
stores, or internal growth, its inventory requirements will increase and, as a
result, the Company's financing requirements also will increase. In the event
that the Company's available financing sources are not sufficient to satisfy its
future requirements, the Company would be required to obtain additional
financing from other sources. While the Company believes that it could obtain
additional financing or alternative financing if required, there can be no
assurance that such financing could be obtained on commercially reasonable
terms. To the extent such additional financing cannot be obtained on
commercially reasonable terms, the Company's growth and results of operations
could be adversely affected.
9. COMPETITION. The Company anticipates that both its construction and
agricultural operations will continue to face strong, and perhaps increasing,
competition. The Company's construction stores compete with distributors of
construction equipment from suppliers other than Deere such as Case Corporation
("Case"), Caterpillar Inc. ("Caterpillar"), and Komatsu Corporation. The
Company's agricultural stores compete with distributors of agricultural
equipment from suppliers
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such as Agco Corporation, Case, Caterpillar, and New Holland, N. V., a
subsidiary of Fiat. Some of these competitors may be larger and have
substantially greater capital resources than the Company. The Company's stores
also compete to a degree with other Deere dealerships. Competition among
distributors of equipment can be intense and is primarily based on the price,
value, reputation, quality, and design of the products offered by the dealer,
the customer service and equipment servicing provided by the dealer, and the
accessibility of stores. Although the Company believes that it is competitive in
all of these categories, there can be no assurance that the Company will remain
competitive in general or in any particular area in which the Company has
operations. To the extent Deere's competitors provide their distributors with
more innovative and/or higher quality products, better pricing, or more
favorable customer financing, or have more effective marketing efforts, the
Company's ability to compete and financial condition and results of operations
could be adversely affected. In addition, to the extent Deere's products are not
as competitive or in demand as those of suppliers not used by the Company, the
Company's results of operations could be adversely affected. With respect to
construction equipment rental operations, there are a number of significant
competitors, including Deere which participates in a rental joint venture with
operations in Arizona and California.
10. DEPENDENCE UPON KEY PERSONNEL. The Company believes its success depends,
in large part, upon the continued services of Mr. Offutt, Chairman and Chief
Executive Officer, Paul T. Horn, President and Chief Operating Officer, and
Allan F. Knoll, Chief Financial Officer. The loss of any of these individuals
could materially and adversely affect the Company. The Company does not maintain
key person life insurance on any of these individuals. Mr. Horn devotes his
full-time to the Company. Messrs. Offutt and Knoll spend approximately 25% of
their time on Company-related activities, with the balance of their time spent
on activities for R. D. Offutt Company ("Offutt Co.") and other entities wholly
or substantially owned, controlled, and/or managed by Mr. Offutt (collectively,
the "Offutt Entities"). Messrs. Horn and Knoll also are stockholders and serve
as officers and directors of Offutt Co. and many of the Offutt Entities.
THE FOREGOING FACTORS ARE NOT EXHAUSTIVE AND NEW FACTORS MAY EMERGE, OR CHANGES
TO THE FOREGOING FACTORS MAY OCCUR, WHICH WOULD IMPACT THE COMPANY'S BUSINESS.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
RDO EQUIPMENT CO.
(Registrant)
Dated: April 28, 1997 By: /s/ Allan F. Knoll
Allan F. Knoll
Chief Financial Officer
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