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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): April 23, 1999
RDO EQUIPMENT CO.
(Exact name of registrant as specified in its charter)
DELAWARE 1-12641 45-0306084
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
2829 SOUTH UNIVERSITY DRIVE
FARGO, NORTH DAKOTA 58103
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (701) 297-4288
NOT APPLICABLE
(Former name or former address, if changed since last report)
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This Current Report on Form 8-K is prepared by RDO Equipment Co.
(the "Company") in conjunction with the preparation of its Annual Report on Form
10-K for the fiscal year ended January 31, 1999.
ITEM 5. OTHER EVENTS.
CAUTIONARY STATEMENT REGARDING FUTURE RESULTS, FORWARD-LOOKING INFORMATION AND
CERTAIN IMPORTANT FACTORS
The Company makes written and oral statements from time to time
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 within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934. Statements containing the words or phrases "will likely result," "are
expected to," "will continue," "is anticipated," "estimates," "projects,"
"believes," "expects," "anticipates," "intends," "target," "goal," "plans,"
"objective," "should" or similar expressions identify forward-looking
statements, which may appear in documents, reports, filings with the Securities
and Exchange Commission (the "SEC"), news releases, written or oral
presentations made by officers or other representatives of the Company to
analysts, stockholders, investors, news organizations and others, and
discussions with management and other representatives of the Company. For such
statements, the Company claims the protection of the safe harbor for
forward-looking statements contained in the Private Securities Litigation Reform
Act of 1995.
The future results of the Company, including results related to
forward-looking statements, involve a number of risks and uncertainties. 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's forward-looking statements are based upon assumptions which are
sometimes based upon estimates, data, communications and other information from
suppliers, government agencies and other sources which may be subject to
revision. 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 SEC, 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. EFFECTS OF DOWNTURN IN GENERAL ECONOMIC CONDITIONS; CYCLICALITY,
SEASONALITY AND WEATHER.
The Company's business, and particularly the sale of new equipment
and trucks, is dependent on a number of factors relating to general economic
conditions worldwide and locally, including agricultural industry cycles,
construction spending, federal, state, and local government spending on highways
and other construction projects, housing starts, interest rate fluctuations,
fuel prices, 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
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charged is a significant component, is an important part of a customer's
decision to purchase equipment or a truck. Interest rate increases may make
equipment and truck 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 the foregoing, the Company's results of operations have
fluctuated in the past and are expected to fluctuate in the future.
The Company generally experiences lower revenue levels during the
first and fourth quarters of each fiscal year due to the crop growing season,
winter weather conditions in the Midwest, and a general slowdown in construction
activity at the end of the calendar year. Typically, farmers purchase
agricultural equipment immediately prior to planting or harvesting crops, which
occurs during the Company's second and third fiscal quarters, especially in the
Midwest. 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. Climatic phenomena such as La Nina and El Nino, and 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 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 adverse weather occurs, the Company's
results of operations and financial condition could be adversely affected.
2. DEPENDENCE UPON DEERE & COMPANY ("DEERE").
The Company is an authorized dealer of Deere construction and
agricultural equipment, consumer products and parts in its Deere designated
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
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.
3. 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 percent of the outstanding voting power,
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or whatever greater percentage is required to control corporate actions that
require a stockholder vote, and (ii) own at least 35 percent 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 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 percent of the voting
power of the surviving entity (provided that if they own more than 50 percent
but less than 80 percent 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 percent or more of the voting power of the
Company (20 percent 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.
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 percent 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.
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 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.
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. From time to
time, the Company has been advised by Deere that one or more of the Company's
construction dealerships is not meeting these standards.
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
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share objectives for each of its agricultural stores, including developing and
achieving Deere-approved business plans. Deere can also 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.
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.
4. 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, without the consent of Deere, 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
equity-to-assets ratio of the Company's Deere dealerships is below 30 percent,
as calculated under the Deere agreements, or if such ratio would fall below 30
percent as a result of such action.
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.
5. ACQUISITION AND OPENING OF DEERE DEALERSHIPS.
As discussed above, the Company 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, the acquisition of a
Deere dealership or the opening of a new Deere store requires Deere's consent.
From time to time since the Company's formation in 1968, Deere has withheld its
consent to acquisitions proposed by
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the Company or by other Deere dealers expressing an interest in being acquired
by the Company. Since the Company's initial public offering in January 1997, the
percentage of proposed acquisitions rejected by Deere has increased. 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 future acquisitions or store openings proposed by the
Company.
Deere has informed the Company that there are limits as to
acceptable ownership concentration of Deere dealerships. The Company believes
that Deere's current restriction for consolidation by any one dealer of Deere
construction dealerships is ten percent of Deere's market potential in North
America. Market potential is determined by Deere and represents potential sales
for construction equipment products sold by Deere. Deere has informed the
Company that the market potential for the Deere areas of responsibility being
served by the Company's construction dealerships is approximately seven to eight
percent of Deere's market potential in North America. The Company believes that
Deere's current restriction for consolidation by any one dealer of Deere
agricultural dealerships is two to three percent of Deere's market potential in
North America. Deere has informed the Company that the market potential for the
Company's Deere agricultural dealerships is approximately one to two percent of
Deere's market potential in North America. Accordingly, there can be no
assurance that Deere will allow ownership concentration of Deere dealerships
beyond a certain level or that Deere will consent to any future acquisition or
store opening.
Deere has advised the Company that it intends to condition its
consent to the acquisition by the Company of any Deere dealership upon the
Company agreeing to indemnify Deere and its directors, officers, employees and
agents from and against various claims, including liabilities arising under
securities laws, whether or not Deere or another indemnified person engaged in
conduct for which Deere or such person was liable. Deere has also informed the
Company that it intends to condition its consent upon the Company and Mr. Offutt
agreeing to release, and covenanting not to sue, Deere and its directors,
officers, employees, agents and servants from various claims pertaining to any
past or future conduct by Deere and these persons, including any disapproval,
withholding of approval or conditioning of approval by Deere of any acquisition
or other transaction involving the Company and another Deere dealer.
Accordingly, there can be no assurance that Deere will not impose these
conditions or any other conditions in connection with giving its consent to
acquisitions of Deere dealerships by the Company.
6. 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.
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Acquisitions could include significant goodwill and intangible assets, resulting
in substantial amortization charges to the Company that would reduce stated
earnings.
Generally, the acquisition of an equipment or truck dealership or
the opening of a new dealership store requires the manufacturer's consent. The
manufacturer typically evaluates management, performance and capitalization of a
prospective acquiror or existing dealer, as the case may be, in determining
whether to consent to the purchase of a dealership or approve the opening of a
new store. The positions of the manufacturer with respect to publicly traded
dealers and to dealer consolidation are also important. There can be no
assurance that a manufacturer will consent to any future acquisitions or store
openings proposed by the Company.
7. 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.
8. AVAILABILITY OF ACQUISITION CANDIDATES; NEED FOR ADDITIONAL CAPITAL.
The Company's ability to continue to grow through the acquisition of
additional dealerships, stores or other businesses will be dependent upon (i)
the availability of suitable acquisition candidates at an acceptable cost, (ii)
receiving the manufacturer's approval of acquisitions as required or
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 expects
that its growth strategy will affect short-term cash flow and net income as the
Company increases the amount of its indebtedness and incurs expenses to make
acquisitions, open new stores, expand its rental fleet and increase its
inventory. 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. Using
equity may result in significant dilution of the interest in the Company of the
stockholders at that time. 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.
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 percent of the
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outstanding voting power, or whatever greater percentage is required to control
corporate actions requiring a stockholder vote, and (ii) own at least 35 percent
of the outstanding Common Stock, and which requires that the Company meet the
required equity-to-asset ratio upon completion of each acquisition.
9. SUBSTANTIAL INVENTORY FINANCING REQUIREMENTS.
The sale of equipment, trucks and parts requires substantial
inventories to be maintained in order to facilitate sales to customers on a
timely basis. 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.
10. AVAILABLE FINANCING FOR CUSTOMERS
The sale of equipment, trucks and parts requires the availability of
financing for customers. The Company has established multiple sources of
financing for the customer, including the Company's finance subsidiary, RDO
Financial Services Co., manufacturer-sponsored finance companies (e.g., Deere
Credit Services, Inc., and Volvo Commercial Finance LLC The Americas) and major
independent finance companies (e.g., Associates Commercial Corporation). To the
extent such financing cannot be obtained on reasonable terms, the Company's
revenues and results of operations could be adversely affected.
11. COMPETITION.
The Company anticipates that its operations will continue to face
strong, and perhaps increasing, competition. Some of these competitors may be
larger and have substantially greater capital resources than the Company. The
Company's Deere stores also compete to a degree with other Deere dealerships.
Competition among distributors 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 product support 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 competitors of the Company's suppliers 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 its financial condition and results of
operations could be adversely affected. In addition, to the extent products sold
by the Company 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.
Economic conditions worldwide can impact competition in the
geographic areas where the Company does business. For example, a downturn in the
economies of foreign countries could result in an increased supply of equipment
in U.S. markets with a corresponding increase in competitive pressures such as
lower equipment prices. To the extent the Company experiences increased
competition, the Company's results of operations and financial condition could
be adversely affected.
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12. DEPENDENCE UPON KEY PERSONNEL.
The Company believes its success depends, in large part, upon the
continued services of Mr. Offutt, Paul T. Horn and Allan F. Knoll. 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.
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.
THE COMPANY MAKES NO COMMITMENT TO REVISE FORWARD-LOOKING STATEMENTS, OR TO
DISCLOSE SUBSEQUENT FACTS, EVENTS OR CIRCUMSTANCES THAT MAY BEAR UPON
FORWARD-LOOKING STATEMENTS.
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 23, 1999 By: /s/ Thomas K. Espel
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Thomas K. Espel
Chief Financial Officer
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