<PAGE> 1
Filed Pursuant to Rule 424(b)(3)
Registration No. 333-3812
PROSPECTUS
OFFER TO EXCHANGE
ALL OUTSTANDING
8 1/2% SENIOR SUBORDINATED NOTES DUE 2006
($250,000,000 PRINCIPAL AMOUNT OUTSTANDING)
FOR
8 1/2% SENIOR SUBORDINATED NOTES DUE 2006
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT
OF
AGCO CORPORATION
---------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON AUGUST 14, 1996, UNLESS EXTENDED.
---------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 12 FOR A DISCUSSION OF CERTAIN FACTORS
WHICH INVESTORS SHOULD CONSIDER IN CONNECTION WITH THE EXCHANGE OFFER AND AN
INVESTMENT IN THE NEW NOTES OFFERED HEREBY.
---------------------
AGCO Corporation, a Delaware corporation (the "Company" or "AGCO"), hereby
offers (the "Exchange Offer"), upon the terms and subject to the conditions set
forth in this Prospectus and the accompanying Letter of Transmittal relating to
the Exchange Offer (the "Letter of Transmittal"), to exchange $1,000 principal
amount of its 8 1/2% Senior Subordinated Notes Due 2006 (the "New Notes"), which
will be registered under the Securities Act of 1933, as amended (the "Securities
Act"), pursuant to a
(cover continued on next page)
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The Company will accept for exchange any and all validly tendered Old Notes
on or prior to 5:00 p.m., New York City time, on August 14, 1996 (if and as
extended, the "Expiration Date"). Tenders of Old Notes may be withdrawn at any
time prior to 5:00 p.m., New York City time, on the Expiration Date. See "The
Exchange Offer." Interest on the New Notes will be paid in cash at a rate of
8 1/2% per annum on each March 15 and September 15 commencing September 15,
1996. The New Notes may be redeemed at the option of the Company in whole or in
part, at any time on or after March 15, 2001 at 104.250% of their principal
amount, plus accrued interest, declining ratably to 100% of their principal
amount, plus accrued interest, on or after March 15, 2003. See "Description of
the Notes."
This Prospectus, together with the Letter of Transmittal, is being sent to
all registered holders of Old Notes as of July 17, 1996. As of such date, there
were two registered holders of the Old Notes.
The Company will not receive any proceeds from this Exchange Offer. No
dealer-manager is being used in connection with this Exchange Offer. See "Use of
Proceeds" and "Plan of Distribution."
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A
PROXY.
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF OLD NOTES IN ANY JURISDICTION IN WHICH
THIS EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH
THE SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
THE DATE OF THIS PROSPECTUS IS JULY 17, 1996.
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(cover continued from previous page)
Registration Statement of which this Prospectus is a part, for each $1,000
principal amount of its outstanding 8 1/2% Senior Subordinated Notes Due 2006
(the "Old Notes"), of which an aggregate of $250,000,000 in principal amount is
outstanding as of June 30, 1996. The New Notes will be obligations of the
Company entitled to the benefits of the Indenture (as defined herein). The form
and terms of the New Notes are identical in all material respects to the form
and terms of the Old Notes except that the New Notes have been registered under
the Securities Act. Any Old Notes not tendered and accepted in the Exchange
Offer will remain outstanding and will be entitled to all the rights and
preferences and will be subject to the limitations applicable thereto under the
Indenture. Following consummation of the Exchange Offer, the holders of the Old
Notes will continue to be subject to the existing restrictions upon transfer
thereof and the Company will have no further obligation to such holders to
provide for the registration under the Securities Act of the Old Notes held by
them. Following the completion of the Exchange Offer, none of the Notes will be
entitled to the contingent increase in interest rate provided pursuant to the
Old Notes. The Exchange Offer is being made pursuant to the terms of the
registration rights agreement (the "Registration Rights Agreement") entered into
between the Company and Morgan Stanley & Co. Incorporated, Donaldson Lufkin &
Jenrette Securities Corporation and Merrill Lynch, Pierce, Fenner & Smith
Incorporated (the "Placement Agents") pursuant to the terms of the Placement
Agreement dated March 15, 1996 among the Company and the Placement Agents. The
New Notes and the Old Notes are collectively referred to herein as the "Notes."
See "The Exchange Offer -- Purpose and Effect of the Exchange Offer."
Based on interpretations by the staff of the Securities and Exchange
Commission (the "Commission") set forth in no-action letters issued to third
parties, the Company believes the New Notes issued pursuant to the Exchange
Offer in exchange for Old Notes may be offered for resale, resold and otherwise
transferred by any holder thereof (other than broker-dealers, as set forth
below, and any such holder that is an "affiliate" of the Company within the
meaning of Rule 405 under the Securities Act) without compliance with the
registration and prospectus delivery provisions of the Securities Act, provided
that such New Notes are acquired in the ordinary course of such holder's
business and that such holder has no arrangement or understanding with any
person to participate in the distribution of such New Notes. Any holder who
tenders in the Exchange Offer with the intention to participate, or for the
purpose of participating, in a distribution of the New Notes or who is an
affiliate of the Company may not rely upon such interpretations by the staff of
the Commission and, in the absence of an exemption therefrom, must comply with
the registration and prospectus delivery requirements of the Securities Act in
connection with any secondary resale transaction. Holders of Old Notes wishing
to accept the Exchange Offer must represent to the Company in the Letter of
Transmittal (as defined herein) that such conditions have been met.
Each broker-dealer (other than an affiliate of the Company) that receives
New Notes for its own account pursuant to the Exchange Offer must acknowledge
that it will deliver a prospectus in connection with any resale of such New
Notes. The Letter of Transmittal states that by so acknowledging and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act. This Prospectus, as
it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of New Notes received in exchange for
Old Notes where such Old Notes were acquired by such broker-dealer as a result
of market-making activities or other trading activities. The Company has agreed
that, for a period of 90 days after the Expiration Date (as defined herein), it
will make this Prospectus available to any broker-dealer for use in connection
with any such resale. See "Plan of Distribution." Any broker-dealer who is an
affiliate of the Company may not rely on such no-action letters and must comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with a secondary resale transaction.
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE UPON REQUEST FROM
AGCO CORPORATION, 4830 RIVER GREEN PARKWAY, DULUTH, GEORGIA 30136 (TELEPHONE
(770) 813-9200) ATTENTION: MICHAEL F. SWICK, VICE PRESIDENT -- GENERAL COUNSEL.
IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE
BY JULY 31, 1996.
NO PERSON IS AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS OR THE ACCOMPANYING LETTER
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OF TRANSMITTAL, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION NOT
CONTAINED OR INCORPORATED HEREIN MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY. NEITHER THIS PROSPECTUS NOR THE ACCOMPANYING LETTER
OF TRANSMITTAL NOR ALL OF THEM TOGETHER CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OFFERED HEREBY TO ANY PERSON IN
ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION TO
SUCH PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR THE ACCOMPANYING LETTER
OF TRANSMITTAL OR ALL OF THEM TOGETHER, NOR ANY SALE MADE HEREUNDER SHALL UNDER
ANY CIRCUMSTANCES IMPLY THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY DATE
SUBSEQUENT TO THE DATE HEREOF.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Summary............................................................................... 1
Risk Factors.......................................................................... 12
The Exchange Offer.................................................................... 16
The Company........................................................................... 24
Use of Proceeds....................................................................... 29
Capitalization........................................................................ 30
Pro Forma Financial Information....................................................... 31
Selected Financial Data............................................................... 36
Management's Discussion and Analysis of Financial Condition and Results of
Operations.......................................................................... 40
Management............................................................................ 56
Description of the Notes.............................................................. 60
Description of Certain Indebtedness................................................... 86
Certain Federal Income Tax Considerations............................................. 86
Plan of Distribution.................................................................. 88
Legal Matters......................................................................... 89
Independent Auditors.................................................................. 89
Available Information................................................................. 89
Incorporation of Certain Documents by Reference....................................... 90
Index to Consolidated Financial Statements............................................ F-1
</TABLE>
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SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and the financial statements,
including the notes thereto, appearing elsewhere or incorporated by reference in
this Prospectus. Unless otherwise indicated, (i) the share and per share
information in this Prospectus has been adjusted to reflect the Company's
three-for-two common stock split (the "December 1994 Stock Split") paid as a
stock dividend on December 15, 1994 to common stockholders of record on December
1, 1994 and the Company's two-for-one common stock split (the "January 1996
Stock Split") paid as a stock dividend on January 31, 1996 to common
stockholders of record on January 15, 1996 and (ii) all references in this
Prospectus to "AGCO" or the "Company" include the Company's subsidiaries and its
predecessors.
THE COMPANY
AGCO Corporation is one of the largest manufacturers and distributors of
agricultural equipment in the world. The Company sells a full range of
agricultural equipment and related replacement parts, including tractors,
combines, hay tools and forage equipment and implements. The Company's products
are widely recognized in the agricultural equipment industry and are marketed
under the following brand names: AGCO(R) Allis, Massey Ferguson(R), GLEANER(R),
Hesston(R), White, SAME, Landini, White-New(R) Idea, Black Machine, AGCOSTAR(R),
Glencoe(R), Tye(R), Farmhand(R), Maxion and IDEAL. The Company distributes its
products through a combination of over 7,000 independent dealers, wholly owned
distribution companies, associates and licensees. In addition, the Company
provides retail financing in North America through Agricredit Acceptance Company
("Agricredit") and in the United Kingdom, France and Germany through its Massey
Ferguson finance joint ventures.
AGCO was organized in June 1990 by an investment group formed by management
to acquire the successor to the agricultural equipment business of
Allis-Chalmers Corporation ("Allis-Chalmers"), a company which began
manufacturing and distributing agricultural equipment in the early 1900s. From
its formation in June 1990 through December 31, 1995, AGCO has grown
substantially through a series of acquisitions for consideration aggregating
approximately $597.4 million. These acquisitions broadened the Company's product
line, expanded its dealer network and increased its geographic presence in North
America, Western Europe and the rest of the world. In addition, the Company has
achieved significant cost savings and efficiencies from its acquisitions by
eliminating duplicative administrative, sales and marketing functions,
rationalizing its dealer network, increasing manufacturing capacity utilization
and expanding its ability to source certain products and components from third
party manufacturers. For the fiscal year ended December 31, 1995, the Company's
net sales and EBITDA were approximately $2.1 billion and $263.5 million,
respectively. For the period from 1991 to 1995, the Company's net sales and
EBITDA (as defined herein) had compound annual growth rates of 66% and 115%,
respectively.
In June 1994, the Company completed the acquisition of Massey Ferguson
Group Limited ("Massey"), a producer of one of the top selling brands of
tractors worldwide, and certain related assets for consideration aggregating
approximately $328.6 million (the "Massey Acquisition"). The Company believes
the Massey Acquisition has provided, and will continue to provide, the Company
with growth opportunities, including international expansion. As a result of the
Massey Acquisition, the Company's net sales in markets outside North America
increased from approximately 2% of net sales in 1993 to approximately 62% of net
sales in 1995. Massey's manufacturing operations and its practice of outsourcing
certain products and major components fit well with the Company's strategies of
minimizing manufacturing costs and utilizing third party manufacturers. AGCO has
a substantially lower investment in fixed assets per dollar of revenue generated
than its competitors, leaving it in a more flexible position to manage its
business.
In addition to acquisitions, the Company has increased its sales by
entering into a substantial number of crossover contracts with its dealers
whereby a dealer carrying one of the Company's brands also contracts to sell
additional AGCO brands or products. Since January 1992, the Company has signed
over 1,900 new dealer contracts, the majority of which represent crossover
contracts. Additionally, approximately 2,000 of the Company's approximately
3,000 dealers in North America carry two or more AGCO brands.
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The Company has also grown through successful expansion of its product
offerings and new product introductions. The Company has completed acquisitions
which expanded the Company's product offerings into segments of the agricultural
equipment market in which the Company did not previously compete and enhanced
the competitiveness of the Company's products within existing segments. In
addition, the Company has introduced a number of product improvements including
water-cooled engines for the GLEANER combine, the 18-speed powershift
transmission for the higher horsepower AGCO Allis 9600 Series and the White 6100
Series tractors, and the redesign of the Massey Ferguson high horsepower
6100/8100 Series tractors. The Company continues to invest in new product
technology and innovation in order to remain competitive in the market.
The Company's business strategy focuses on strengthening its relationship
with its dealers and increasing the focus of each dealer on the Company's
products. Key elements of the Company's business strategy are: (i) marketing
multiple brands through multiple dealer networks; (ii) expanding and
strengthening the Company's worldwide organization of independent dealers and
distributors; (iii) cross-selling complementary products through its
international distribution channel; (iv) expanding the international replacement
parts business; (v) introducing competitive new products in all markets which
meet the needs of customers and provide reasonable margins; (vi) focusing on
increasing margins through controlling product costs and operating expenses; and
(vii) pursuing strategic acquisitions focusing on new products and distribution
in new markets.
The Company was incorporated in Delaware in April 1991. The Company's
executive offices are located at 4830 River Green Parkway, Duluth, Georgia
30136, and its telephone number is (770) 813-9200.
THE REFINANCING
On March 15, 1996, the Company consummated an offering (the "March
Offering") of the Old Notes. The March Offering is part of a refinancing (the
"Refinancing") designed to better balance the Company's capital structure and to
enhance the Company's financial flexibility. As part of the Refinancing, the
Company replaced its $550.0 million secured revolving credit facilities (the
"Old Credit Facility") with a new five-year $650.0 million unsecured
multi-currency revolving credit facility (the "New Credit Facility"). See
"Description of Certain Indebtedness." All of the net proceeds from the March
Offering, approximately $241.1 million, were used to reduce borrowings
outstanding under the Old Credit Facility.
THE MAXION ACQUISITION
On June 28, 1996, the Company acquired certain assets and liabilities of
the agricultural and industrial equipment business of Iochpe-Maxion S.A. (the
"Maxion Agricultural Equipment Business") for approximately $260 million (the
"Maxion Acquisition"). The Maxion Agricultural Equipment Business was AGCO's
Massey Ferguson licensee in Brazil, manufacturing and distributing agricultural
tractors and combines under the Massey Ferguson brand name, industrial
loader-backhoes under the Massey Ferguson and Maxion brand names and combines
under the IDEAL brand name. The Maxion Agricultural Equipment Business' average
annual sales volume for the last three fiscal years has been approximately $400
million. The Maxion Acquisition establishes AGCO with market leadership in the
significant Brazilian agricultural equipment market. See "Pro Forma Financial
Information."
AGRICREDIT JOINT VENTURE
The Company has entered into an agreement with Cooperatieve Centrale
Raiffeisen-Boerenleenbank B.A., "Rabobank Nederland" ("Rabobank"), regarding a
possible sale of a 51% interest in Agricredit, the Company's wholly owned North
American finance subsidiary, to a wholly owned subsidiary of Rabobank (the
"Agricredit Joint Venture"). The Agricredit Joint Venture would continue the
current business of Agricredit and seek to build a broader asset-based finance
business. The Company has similar joint venture arrangements with Rabobank and
its affiliates with respect to its retail finance companies located in the
United Kingdom, France and Germany. See "The Company -- Retail Financing."
Consummation of the transaction is subject to regulatory approval and other
customary closing conditions, and there can be no assurance that the transaction
will be consummated.
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THE EXCHANGE OFFER
The Exchange Offer......... Pursuant to the Exchange Offer, $1,000 principal
amount of New Notes will be issued in exchange for
each $1,000 principal amount of Old Notes that are
validly tendered and not withdrawn. As of June 30,
1996, there are two registered holders of Old Notes
and $250,000,000 aggregate principal amount of Old
Notes are outstanding. See "The Exchange Offer."
Holders of Old Notes whose Old Notes are not
tendered and accepted in the Exchange Offer will
continue to hold such Old Notes and will be
entitled to all the rights and preferences and will
be subject to the limitations applicable thereto
under the Indenture governing the Old Notes and the
New Notes. Following consummation of the Exchange
Offer, the holders of Old Notes will continue to be
subject to the existing restrictions upon transfer
thereof and the Company will have no further
obligation to such holders to provide for the
registration under the Securities Act of the Old
Notes held by them. Following the completion of the
Exchange Offer, none of the Notes will be entitled
to the contingent increase in interest rate
provided pursuant to the Old Notes.
Resale..................... Based on interpretations by the staff of the
Securities and Exchange Commission (the
"Commission") set forth in no-action letters issued
to third parties, the Company believes the New
Notes issued pursuant to the Exchange Offer in
exchange for Old Notes may be offered for resale,
resold and otherwise transferred by any holder
thereof (other than broker-dealers, as set forth
below, and any such holder that is an "affiliate"
of the Company within the meaning of Rule 405 under
the Securities Act) without compliance with the
registration and prospectus delivery provisions of
the Securities Act, provided that such New Notes
are acquired in the ordinary course of such
holder's business and that such holder has no
arrangement or understanding with any person to
participate in the distribution of such New Notes.
Any holder who tenders in the Exchange Offer with
the intention to participate, or for the purpose of
participating, in a distribution of the New Notes
or who is an affiliate of the Company may not rely
upon such interpretations by the staff of the
Commission and, in the absence of an exemption
therefrom, must comply with the registration and
prospectus delivery requirements of the Securities
Act in connection with any secondary resale
transaction. Failure to comply with such
requirements in such instance may result in such
holder incurring liabilities under the Securities
Act for which the holder is not indemnified by the
Company. Each broker-dealer (other than an
affiliate of the Company) that receives New Notes
for its own account pursuant to the Exchange Offer
must acknowledge that it will deliver a prospectus
in connection with any resale of such New Notes.
The Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the
Securities Act. The Company has agreed that, for a
period of 90 days after the Expiration Date (as
defined herein), it will make this Prospectus
available to any broker-dealer for use in
connection with any such resale. See "Plan of
Distribution."
The Exchange Offer is not being made to, nor will
the Company accept surrenders for exchange from,
holders of Old Notes in any jurisdiction in
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<PAGE> 7
which this Exchange Offer or the acceptance thereof
would not be in compliance with the securities or
blue sky laws of such jurisdiction.
Expiration Date............ The Exchange Offer will expire at 5:00 p.m., New
York City time, on August 14, 1996, unless
extended, in which case the term "Expiration Date"
shall mean the latest date and time to which the
Exchange Offer is extended. Any extension, if made,
will be publicly announced through a release to the
Dow Jones News Service and as otherwise required by
applicable law or regulations.
Conditions to the Exchange
Offer.................... The Exchange Offer is subject to certain
conditions, which may be waived by the Company. See
"The Exchange Offer -- Conditions of the Exchange
Offer." The Exchange Offer is not conditioned upon
any minimum principal amount of Old Notes being
tendered.
Procedures for Tendering
Old Notes.................. Each holder of Old Notes wishing to accept the
Exchange Offer must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, in
accordance with the instructions contained herein
and therein, and mail or otherwise deliver such
Letter of Transmittal, or a facsimile thereof,
together with such Old Notes and any other required
documentation to SunTrust Bank, Atlanta, the
Exchange Agent, at the address set forth herein and
therein. By executing the Letter of Transmittal,
each holder will represent to the Company that,
among other things, the New Notes acquired pursuant
to the Exchange Offer are being obtained in the
ordinary course of business of the person receiving
such New Notes, whether or not such person is the
holder, that neither the holder nor any such other
person has an arrangement or understanding with any
person to participate in the distribution of such
New Notes and that neither the holder nor any such
other person is an "affiliate" of the Company
within the meaning of Rule 405 under the Securities
Act. See "The Exchange Offer -- Terms of the
Exchange Offer -- Procedures for Tendering Old
Notes" and "The Exchange Offer -- Terms of the
Exchange Offer -- Guaranteed Delivery Procedures."
Special Procedures for
Beneficial Owners.......... Any beneficial owner whose Old Notes are registered
in the name of a broker, dealer, commercial bank,
trust company or other nominee and who wishes to
tender such Old Notes in the Exchange Offer should
contact such registered holder promptly and
instruct such registered holder to tender on such
beneficial owner's behalf. If such beneficial owner
wishes to tender on his own behalf, such owner
must, prior to completing and executing the Letter
of Transmittal and delivering his Old Notes, either
make appropriate arrangements to register ownership
of the Old Notes in such owner's name or obtain a
properly completed bond power from the registered
holder. The transfer of registered ownership may
take considerable time and may not be able to be
completed prior to the Expiration Date. See "The
Exchange Offer -- Terms of the Exchange
Offer -- Procedures for Tendering Old Notes."
Guaranteed Delivery
Procedures............... Holders of Old Notes who wish to tender their Old
Notes and whose Old Notes are not immediately
available or who cannot deliver their Old Notes,
the Letter of Transmittal or any other documents
required by the
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<PAGE> 8
Letter of Transmittal to the Exchange Agent prior
to the Expiration Date, must tender their Old Notes
according to the guaranteed delivery procedures set
forth in "The Exchange Offer -- Terms of the
Exchange Offer -- Guaranteed Delivery Procedures."
Acceptance of Old Notes and
Delivery of New Notes.... Subject to certain conditions (as described more
fully in "The Exchange Offer -- Conditions of the
Exchange Offer"), the Company will accept for
exchange any and all Old Notes which are properly
tendered in the Exchange Offer and not withdrawn,
prior to 5:00 p.m., New York City time, on the
Expiration Date. The New Notes issued pursuant to
the Exchange Offer will be delivered as promptly as
practicable following the Expiration Date.
Withdrawal Rights.......... Except as otherwise provided herein, tenders of Old
Notes may be withdrawn at any time prior to 5:00
p.m., New York City time, on the Expiration Date.
See "The Exchange Offer -- Terms of the Exchange
Offer -- Withdrawal of Tenders of Old Notes."
Certain Federal Income Tax
Considerations........... For a discussion of certain federal income tax
considerations relating to the exchange of the New
Notes for the Old Notes, see "Certain Federal
Income Tax Considerations."
Exchange Agent............. SunTrust Bank, Atlanta, is the Exchange Agent. The
address, telephone number and facsimile number of
the Exchange Agent are set forth in "The Exchange
Offer -- Exchange Agent."
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SUMMARY OF TERMS OF THE NEW NOTES
The Exchange Offer applies to $250,000,000 aggregate principal amount of
Old Notes. The form and terms of the New Notes will be identical in all material
respects to the form and terms of the Old Notes except that (i) the New Notes
will be registered under the Securities Act and, therefore, will not bear
legends restricting the transfer thereof and (ii) holders of the New Notes will
not be entitled to certain rights of holders of Old Notes under the Registration
Rights Agreement, which will terminate upon consummation of the Exchange Offer.
The New Notes will evidence the same debt as the Old Notes, will be entitled to
the benefits of the Indenture and will be treated as a single class thereunder
with any Old Notes that remain outstanding. Following the Exchange Offer, none
of the Notes will be entitled to the contingent increase in interest rate
provided for (in the event of a failure to consummate the Exchange Offer in
accordance with the terms of the Registration Rights Agreement) pursuant to the
Old Notes. See "Description of the Notes."
Issuer..................... AGCO Corporation
Securities Offered......... $250,000,000 aggregate principal amount of 8 1/2%
Senior Subordinated Notes due 2006 (the "New
Notes").
Maturity................... March 15, 2006.
Interest................... Payable semi-annually in cash, on March 15 and
September 15, commencing on September 15, 1996.
Optional Redemption by the
Company.................. The Notes are redeemable at the option of the
Company, in whole or in part, at any time on or
after March 15, 2001 initially at 104.250% of their
principal amount, plus accrued interest, declining
ratably to 100% of their principal amount, plus
accrued interest, on or after March 15, 2003. See
"Description of the Notes -- Optional Redemption."
Change of Control.......... Upon a Change of Control (as defined herein), the
Company will be required to make an offer to
purchase the Notes at a purchase price equal to
101% of their principal amount, plus accrued
interest. See "Description of the
Notes -- Repurchase of Notes upon a Change of
Control."
Ranking.................... The Notes will be unsecured, general obligations of
the Company, subordinated in right of payment to
all existing and future Senior Indebtedness of the
Company, including the Company's obligations under
the New Credit Facility. The Notes will rank pari
passu in right of payment with any future senior
subordinated indebtedness of the Company and will
be senior in right of payment to all existing and
future subordinated indebtedness of the Company. In
addition, the Notes will be effectively
subordinated to all liabilities of the Company's
subsidiaries, including trade payables. At March
31, 1996, on a pro forma basis after giving effect
to the Maxion Acquisition, the Company (excluding
its subsidiaries) would have had approximately
$752.5 million of indebtedness outstanding, of
which $474.7 million would have been Senior
Indebtedness and $29.9 million would have been
subordinated indebtedness, and the Company's
subsidiaries would have had approximately $431.8
million of liabilities (excluding approximately
$505.2 million of indebtedness and $26.8 million of
other liabilities of Agricredit and $74.7 million
of indebtedness guaranteed by the Company). See
"Risk Factors -- Ranking of the Notes" and
"Description of the Notes -- Ranking."
Covenants.................. The indenture pursuant to which the Old Notes have
been issued and the New Notes will be issued (the
"Indenture") contains certain covenants for the
benefit of the holders of the Notes (the
"Holders"), including,
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<PAGE> 10
among others, covenants limiting the incurrence of
additional indebtedness, the payment of dividends,
the redemption of capital stock, the making of
certain investments, the issuance of capital stock
of subsidiaries, the creation of liens, the
creation of dividend and other restrictions
affecting subsidiaries, the issuance of guarantees,
transactions with affiliates, asset sales and
certain mergers and consolidations. However, these
limitations will be subject to a number of
important qualifications and exceptions and
Agricredit will be classified as an Unrestricted
Subsidiary (as defined herein). Therefore,
Agricredit will not be subject to these covenants.
However, the Company's ability to invest in
Unrestricted Subsidiaries will be limited. In
addition, in the event, and only for so long as,
the Notes are rated Investment Grade, the covenants
described under "Description of the
Notes -- Covenants -- Limitation on Indebtedness,"
"-- Limitation on Restricted Payments,"
"-- Limitation on Dividend and Other Payment
Restrictions Affecting Restricted Subsidiaries,"
"-- Limitation on the Issuance and Sale of Capital
Stock of Restricted Subsidiaries," "-- Limitation
on Issuances of Guarantees by Restricted
Subsidiaries" and "-- Limitation on Transactions
with Stockholders and Affiliates" will be
inapplicable. See "Description of the
Notes -- Covenants."
Book-Entry; Delivery and
Form..................... Transfers of Notes between participants in The
Depository Trust Company ("DTC") will be effected
in the ordinary way in accordance with DTC rules
and will be settled in same-day funds. See
"Description of the Notes -- Book-Entry; Delivery
and Form."
USE OF PROCEEDS
The Company will not receive any proceeds from the issuance of the New
Notes pursuant to this Prospectus.
RISK FACTORS
For a discussion of certain factors to be considered in evaluating the
Company, its business and an investment in the Notes, see "Risk Factors"
beginning on page 12.
7
<PAGE> 11
SUMMARY FINANCIAL DATA
The summary financial data set forth below, except for the pro forma
information, are derived from the Company's Consolidated Financial Statements,
which have been audited by Arthur Andersen LLP, independent public accountants.
For the periods presented, the Company's results of operations were
significantly affected by a series of acquisitions completed during such
periods, including the Massey Acquisition in June 1994. Primarily as a result of
these acquisitions, net sales increased significantly from 1991 to 1995. See
"The Company -- Acquisition History." For certain pro forma financial
information which gives effect to the Maxion Acquisition, see "Pro Forma
Financial Information."
<TABLE>
<CAPTION>
CONSOLIDATED EQUIPMENT OPERATIONS(1)
---------------------------------------------------------- -------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
---------------------------------------------------------- -------------------------
1991 1992 1993(1) 1994(1) 1995(1) 1994 1995
-------- -------- -------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT RATIO DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues:
Net sales.............. $274,535 $314,542 $595,736 $1,319,271 $2,068,427 $1,319,271 $2,068,427
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Finance income......... -- -- -- 39,741 56,621 -- --
-------- -------- -------- ---------- ---------- ---------- ----------
274,535 314,542 595,736 1,359,012 2,125,048 1,319,271 2,068,427
-------- -------- -------- ---------- ---------- ---------- ----------
Costs and Expenses:
Cost of goods sold..... 212,225 256,475 470,452 1,042,930 1,627,716 1,042,930 1,627,716
Selling, general and
administrative
expenses............. 40,357 37,003 55,848 129,538 200,588 117,683 186,752
Engineering expenses... 5,752 6,924 7,510 19,358 27,350 19,358 27,350
Interest (income)
expense, net......... (214) 9,270 13,624 42,836 63,211 24,104 31,490
Other expense (income),
net.................. 7,710 (1,172) 4,166 3,141 9,602 1,978 9,654
Nonrecurring
acquisition related
expenses............. -- -- 14,000 19,500 6,000 19,500 6,000
-------- -------- -------- ---------- ---------- ---------- ----------
265,830 308,500 565,600 1,257,303 1,934,467 1,225,553 1,888,962
-------- -------- -------- ---------- ---------- ---------- ----------
Income before income
taxes and equity in net
earnings of
unconsolidated
subsidiary and
affiliates............. 8,705 6,042 30,136 101,709 190,581 93,718 179,465
Provision (benefit) for
income taxes........... -- -- -- (10,610) 65,897 (13,733) 61,563
-------- -------- -------- ---------- ---------- ---------- ----------
Income before equity in
net earnings of
unconsolidated
subsidiary and
affiliates............. 8,705 6,042 30,136 112,319 124,684 107,451 117,902
Equity in net earnings of
unconsolidated
subsidiary and
affiliates............. -- -- 3,953 3,215 4,458 8,083 11,240
-------- -------- -------- ---------- ---------- ---------- ----------
Net income............... $ 8,705 $ 6,042 $ 34,089 $ 115,534 $ 129,142 $ 115,534 $ 129,142
========= ========= ========= ========== ========== ========== ==========
OTHER FINANCIAL DATA:
Depreciation and
amortization........... $ (1,229) $ 196 $ 2,307 $ 19,352 $ 35,472 $ 19,298 $ 35,350
Capital expenditures..... 7,183 4,406 6,709 20,661 45,259 20,525 45,161
Interest expense,
gross.................. 4,774 12,392 17,927 31,943(2) 42,680(2) 31,943 42,680
Income from
operations(3).......... 16,201 14,140 61,926 139,300(2) 226,609(2) 139,300 226,609
EBITDA(4)................ 12,250 18,630 64,370 164,459(2) 263,495(2) 164,459 263,495
Ratio of EBITDA to
interest expense,
gross.................. 2.6x 1.5x 3.6x 5.1x(2) 6.2x(2) 5.1x 6.2x
Pro forma ratio of EBITDA
to interest expense,
gross(5)............... -- -- -- -- 5.7x(2) -- 5.7x
</TABLE>
8
<PAGE> 12
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1995
---------------------------------------
CONSOLIDATED EQUIPMENT OPERATIONS
------------ --------------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital...................................................... $ 485,521 $ 661,482
Total assets......................................................... 2,162,915 1,628,611
Long-term debt(6).................................................... 568,894 415,894
Stockholders' equity................................................. 588,928 588,928
</TABLE>
- ------------
(1) AGCO acquired a 50% joint venture interest in Agricredit in 1993 and the
Agricredit operations were reflected in the Company's consolidated financial
statements on the equity method of accounting for the year ended December
31, 1993. AGCO acquired the remaining 50% interest in Agricredit in 1994 and
accordingly reflected the Agricredit operations in the Company's
consolidated financial statements on a consolidated basis from the date of
acquisition. "Equipment Operations" reflect the consolidation of all
operations of the Company and its subsidiaries with the exception of
Agricredit, which is included using the equity method of accounting.
(2) Excludes the results of operations of Agricredit and the Massey Ferguson
finance joint ventures.
(3) Income from operations is defined as net sales less cost of goods sold,
selling, general and administrative expenses for the Equipment Operations
and engineering expenses.
(4) EBITDA is defined as income before income taxes and equity in net earnings
of unconsolidated subsidiary and affiliates, plus nonrecurring acquisition
related expenses, interest expense, gross, and depreciation and
amortization. EBITDA is presented to provide additional information
relating to the Company's ability to service indebtedness. EBITDA (subject
to certain adjustments, including not adding back nonrecurring acquisition
related expenses) will be used to determine compliance with certain
covenants contained in the Indenture. However, EBITDA should not be
considered as an alternative to net income as a measure of the Company's
operating results or to cash flow as a measure of liquidity.
(5) Gives effect to the March Offering and the application of the net proceeds
therefrom and the replacement of the Old Credit Facility with the New
Credit Facility as if such transactions had occurred on January 1, 1995 and
excludes the effects of the Maxion Acquisition. For certain pro forma
financial information which gives effect to the Maxion Acquisition, see
"Pro Forma Financial Information." Assumes $245.2 million of average
indebtedness outstanding under the New Credit Facility for 1995 at an
average interest rate of 7.6% and $250.0 million of Notes outstanding at an
effective interest rate of 8.63% for total interest expense of $46.2
million. Interest expense would change by $1.2 million for every 0.5%
change in the assumed interest rate on the New Credit Facility. Excludes
the write-off of $3.5 million, net of taxes, of capitalized fees and
expenses associated with the refinancing of the Old Credit Facility, which
were recorded as an extraordinary loss in the first quarter of 1996.
(6) Includes $37.6 million of the Company's 6.5% Convertible Subordinated
Debentures due 2008 (the "Convertible Subordinated Debentures"), which were
converted on or prior to June 1, 1996 into an aggregate of 5,923,975 shares
of Common Stock of the Company. Also includes in the "Consolidated" column
$153.0 million of long-term indebtedness of Agricredit.
9
<PAGE> 13
The summary financial data set forth below are derived from the Company's
unaudited Condensed Consolidated Financial Statements included in this
Prospectus.
<TABLE>
<CAPTION>
CONSOLIDATED EQUIPMENT OPERATIONS(1)
----------------------- -----------------------
THREE MONTHS ENDED THREE MONTHS ENDED
----------------------- -----------------------
MARCH 31, MARCH 31,
----------------------- -----------------------
1995 1996 1995 1996
-------- -------- -------- --------
(IN THOUSANDS, EXCEPT RATIO DATA)
<S> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues:
Net sales............................... $443,536 $453,884 $443,536 $453,884
Finance income.......................... 12,683 16,808 -- --
-------- -------- -------- --------
456,219 470,692 443,536 453,884
-------- -------- -------- --------
Costs and Expenses:
Cost of goods sold...................... 350,338 360,144 350,338 360,144
Selling, general and administrative
expenses............................. 46,824 49,439 43,344 46,246
Engineering expenses.................... 5,885 6,979 5,885 6,979
Interest expense, net................... 15,315 15,052 8,346 5,964
Other expense, net...................... 567 2,466 620 2,443
Nonrecurring expenses................... 2,012 5,923 2,012 5,923
-------- -------- -------- --------
420,941 440,003 410,545 427,699
-------- -------- -------- --------
Income before income taxes, equity in net
earnings of unconsolidated subsidiary
and affiliates and extraordinary loss... 35,278 30,689 32,991 26,185
Provision for income taxes................ 12,401 10,867 11,509 9,033
-------- -------- -------- --------
Income before equity in net earnings of
unconsolidated subsidiary and affiliates
and extraordinary loss.................. 22,877 19,822 21,482 17,152
Equity in net earnings of unconsolidated
subsidiary and affiliates............... 507 773 1,902 3,443
-------- -------- -------- --------
Income before extraordinary loss.......... 23,384 20,595 23,384 20,595
Extraordinary loss, net of taxes.......... -- (3,503) -- (3,503)
-------- -------- -------- --------
Net income................................ $ 23,384 $ 17,092 $ 23,384 $ 17,092
======== ======== ======== ========
OTHER FINANCIAL DATA:
Depreciation and amortization............. $ 7,512 $ 10,261 $ 7,491 $ 10,228
Capital expenditures...................... 5,255 5,461 5,206 5,439
Interest expense, gross................... 10,388(2) 9,706(2) 10,388 9,706
Income from operations (3)................ 43,969(2) 40,515(2) 43,969 40,515
EBITDA (4)................................ 52,882(2) 52,042(2) 52,882 52,042
Ratio of EBITDA to interest expense,
gross................................... 5.1x(2) 5.4x(2) 5.1x 5.4x
Pro forma ratio of EBITDA to interest
expense, gross(5)....................... 4.6x(2) 4.6x
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 1996
--------------------------
EQUIPMENT
CONSOLIDATED OPERATIONS
------------ -----------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital....................................................... $ 572,011 $ 751,255
Total assets.......................................................... 2,206,220 1,677,834
Long-term debt(6)..................................................... 632,459 492,459
Stockholders' equity.................................................. 610,657 610,657
</TABLE>
10
<PAGE> 14
- ---------------
(1) "Equipment Operations" reflect the consolidation of all operations of the
Company and its subsidiaries with the exception of Agricredit, which is
included using the equity method of accounting.
(2) Excludes the results of operations of Agricredit and the Massey Ferguson
finance joint ventures.
(3) Income from operations is defined as net sales less cost of goods sold,
selling, general and administrative expenses for the Equipment Operations
and engineering expenses.
(4) EBITDA is defined as income before income taxes, equity in net earnings of
unconsolidated subsidiary and affiliates and extraordinary loss, plus
nonrecurring expenses, interest expense, gross, and depreciation and
amortization. EBITDA is presented to provide additional information
relating to the Company's ability to service indebtedness. EBITDA (subject
to certain adjustments, including not adding back nonrecurring expenses)
will be used to determine compliance with certain covenants contained in
the Indenture. However, EBITDA should not be considered as an alternative
to net income as a measure of the Company's operating results or to cash
flows as a measure of liquidity.
(5) Gives effect to the March Offering and the application of the net proceeds
therefrom and the replacement of the Old Credit Facility with the New
Credit Facility as if such transactions had occurred on January 1, 1995 and
excludes the effects of the Maxion Acquisition. For certain pro forma
financial information which gives effect to the Maxion Acquisition, see
"Pro Forma Financial Information." Assumes $224.2 million of average
indebtedness outstanding under the New Credit Facility for the first
quarter of 1996 at an average interest rate of 6.7% and $250.0 million of
Notes outstanding at an effective interest rate of 8.63% for total interest
expense of $11.4 million. Interest expense would change by $0.3 million for
every 0.5% change in the assumed interest rate on the New Credit Facility.
Excludes the write-off of $3.5 million, net of taxes, of capitalized fees
and expenses associated with the refinancing of the Old Credit Facility,
which were recorded as an extraordinary loss in the first quarter of 1996.
(6) Includes $29.9 million of the Convertible Subordinated Debentures, which
were converted on or prior to June 1, 1996 into an aggregate of 4,720,189
shares of Common Stock of the Company.
11
<PAGE> 15
RISK FACTORS
Prospective purchasers should consider carefully the following factors, as
well as the other information contained and incorporated by reference in this
Prospectus, in evaluating an investment in the Notes.
AGRICULTURAL INDUSTRY
Historically, the agricultural industry, including the agricultural
equipment business, has been cyclical. Sales of agricultural equipment generally
are related to the health of the agricultural industry, which is affected by
farm land values, farm cash receipts and farm profits, all of which reflect
levels of commodity prices, acreage planted, crop yields, demand, government
policies and government subsidies. Sales are also influenced by economic
conditions, interest rate and exchange rate levels and the availability of
financing. Weather conditions can also affect farmers' buying decisions. During
previous economic downturns in the farm sector, the agricultural equipment
business experienced a general decline in sales and profitability. The
agricultural equipment business is expected to be subject to such market
fluctuation in the future. Furthermore, the agricultural equipment business is
highly seasonal, with farmers traditionally purchasing agricultural equipment in
the spring and fall in conjunction with the major planting and harvesting
seasons. The Company's net sales and income from operations have historically
been the lowest in the first quarter and have increased in the second and third
quarters as dealers increase inventory in anticipation of increased settlements
in the third and fourth quarters.
During the agricultural industry's extended downturn during the 1980s,
sales of agricultural equipment decreased substantially. Although sales of North
American agricultural equipment have increased somewhat since 1988, the Company
does not believe that industry sales in North America will return to the peak
levels of the 1970s. In Western Europe, economic difficulty and farm
consolidations continue to affect the agricultural equipment market. Outside the
United States, Canada and Western Europe, markets for agricultural equipment
continue to develop, but may be affected by certain factors such as inflation,
slow economic growth, changes in currency relationships or price controls.
COMPETITION
The agricultural equipment business is highly competitive. The Company
competes with several large national and international companies which, like the
Company, offer a full line of agricultural equipment, as well as numerous
manufacturers and suppliers of a limited number of farm equipment products. Some
of the Company's competitors are substantially larger than the Company and have
greater financial and other resources at their disposal. There can be no
assurance that such competitors will not substantially increase the resources
devoted to the development and marketing, including discounting, of products
competitive with those of the Company.
The Company believes that several key factors influence a buyer's choice of
farm equipment, including the strength and quality of a particular company's
dealers, the quality and pricing of products, dealer or brand loyalty, product
availability, the terms of financing and customer service. Principal factors
affecting competition include short-term market share and profit objectives,
exchange rate fluctuations and pricing.
LEVERAGE
At March 31, 1996, after giving effect to the Maxion Acquisition, the
Company would have had approximately $1,257.7 million of total indebtedness
(including $505.2 million of indebtedness of Agricredit), its ratio of total
debt to total capitalization on a consolidated basis (including the Convertible
Subordinated Debentures) would have been approximately 67.3% and its ratio of
total debt to total capitalization for the Equipment Operations (including the
Convertible Subordinated Debentures) would have been approximately 55.2%. The
degree to which the Company is leveraged could have important consequences to
Holders, including the following: (i) the Company's ability to obtain additional
financing in the future for working capital, capital expenditures, acquisitions
or other purposes may be impaired and (ii) the Company's flexibility in planning
for or reacting to changes in market condition may be limited, and the Company
may be more vulnerable in the event of a downturn in its business. The Company
expects that its cash flow from operations
12
<PAGE> 16
will be sufficient to cover its expenses, including fixed charges. However, this
forward-looking expectation regarding the Company's ability to satisfy its
obligations will be dependent upon the future performance of the Company, which
will be subject to prevailing economic conditions and to financial, business and
other factors, including factors beyond the control of the Company.
As of March 31, 1996, after giving effect to the Maxion Acquisition, the
Company had $474.7 million in aggregate borrowings outstanding under the New
Credit Facility, and available borrowings thereunder were $165.8 million. All
borrowings under the New Credit Facility will mature in 2001. Furthermore,
because the New Credit Facility bears, interest at floating rates the Company's
financial performance may be adversely affected by fluctuations in interest
rates. For additional information concerning the effects of the Refinancing, see
"Management's Discussion and Analysis of Results of Operations and Financial
Condition -- Liquidity and Capital Resources," "Description of the Notes" and
"Description of Certain Indebtedness."
RESTRICTIONS IMPOSED BY THE NEW CREDIT FACILITY AND THE INDENTURE
The New Credit Facility and the Indenture contain certain restrictive
covenants, including, among others, covenants limiting the Company's and certain
of its subsidiaries' ability to incur additional indebtedness, pay dividends,
make certain investments, consummate certain asset sales, enter into
transactions with affiliates, incur liens, impose restrictions on the ability of
certain subsidiaries to pay dividends or make certain payments to the Company,
merge or consolidate with any other person or sell, assign, transfer, lease,
convey or otherwise dispose of all or substantially all of the assets of the
Company. Although the covenants are subject to various exceptions which are
designed to allow the Company and its subsidiaries to operate without undue
restraint, there can be no assurance that such restrictions will not adversely
affect their ability to finance their future operations or capital needs or
engage in other business activities which may be in the interest of the Company.
In addition, the Company is required under the New Credit Facility to maintain
specified financial ratios. See "Description of Certain Indebtedness." The
ability of the Company to comply with such provisions may be affected by events
beyond the Company's control. A breach of any of these covenants or the
inability to comply with the required financial ratios could result in a default
under the New Credit Facility which would entitle the lenders to accelerate the
maturity of the New Credit Facility. Such an event would adversely affect the
Company's ability to make payments on the Notes. See " -- Ranking of the Notes."
REGULATION AND GOVERNMENT POLICY
Domestic and foreign political developments and government regulations and
policies directly affect the agricultural industry in the United States and
abroad and indirectly affect the agricultural equipment business. In the United
States, these regulations and policies include those encouraging farm acreage
reduction and limiting exports, export credits and farm subsidies.
Internationally, these regulations and policies include those designed to
discourage the importation of farm commodities. The application or modification
of existing laws, regulations or policies or the adoption of new laws,
regulations or policies could have an adverse effect on the Company's business.
Congress recently adopted and the President signed a new bill, commonly
referred to as the farm bill, which modifies certain existing programs for
farmers, including programs affecting subsidies, loans and price supports. The
Company does not expect the farm bill to have a material effect on its business
or results of operations.
The North American Free Trade Agreement ("NAFTA") and the General Agreement
on Tariffs and Trade ("GATT"), in particular, may affect worldwide agricultural
markets. The United States, Canada and Mexico have implemented NAFTA, which
reduces internal trade restrictions between the three countries. Import duties
were eliminated for some products on January 1, 1994, while duties for other
economically and politically sensitive commodities and products will be
gradually eliminated over a 15-year period. The Uruguay Round of GATT concluded
in 1994. This agreement promised to reduce agricultural export subsidies over a
period of years beginning in 1995 and grants access for many products that were
previously restricted. The Company cannot predict with certainty the effect
these agreements may have on the Company's operations.
13
<PAGE> 17
EXPOSURE TO FOREIGN CURRENCY FLUCTUATIONS; INTERNATIONAL OPERATIONS
The Company currently purchases a portion of its tractors and other
equipment from foreign suppliers and derives a majority of its revenues in
foreign countries. In addition, the Company has significant manufacturing
operations in foreign countries. The production costs, profit margins and
competitive position of the Company are affected by the strength of the
currencies in countries where it manufactures or purchases goods relative to the
strength of the currencies in countries where its products are sold. The
Company's results of operations and financial position may be adversely affected
by fluctuations in foreign currencies and by translations of the financial
statements of the Company's foreign subsidiaries from local currencies into U.S.
dollars. As a result of the Maxion Acquisition, the Company is exposed to any
adverse effects of fluctuations in the Brazilian Real and translations of the
financial statements of the Company's Brazilian subsidiary from the local
currency into U.S. dollars. Further, international operations are generally
subject to various risks that are not present in domestic operations, including
restrictions on dividends and the tax impact of the repatriation of funds.
ACQUISITIONS AND INTEGRATION OF ADDITIONAL BUSINESS
As part of its business strategy, the Company continues to pursue strategic
acquisitions (some of which may be material to the Company) focusing on new
products and distribution in new markets. While the Company has recently
acquired businesses and successfully integrated their operations into its
existing corporate structure, there can be no assurance that the Company will
find additional attractive acquisition candidates or succeed at effectively
managing the integration of any businesses previously acquired (including
Maxion) or acquired in the future.
RANKING OF THE NOTES
The Notes will be unsecured, general obligations of the Company,
subordinated in right of payment to all existing and future Senior Indebtedness
of the Company, including indebtedness under the New Credit Facility. At March
31, 1996, after giving effect to the Maxion Acquisition, the Company would have
had approximately $474.7 million of Senior Indebtedness (representing borrowings
under the New Credit Facility), and the Company would have had $165.8 million of
additional availability under the New Credit Facility (subject to borrowing base
limitations). In the event of the bankruptcy, liquidation or reorganization of
the Company, the assets of the Company would be available to pay obligations on
the Notes only after all Senior Indebtedness of the Company has been repaid in
full. Consequently, sufficient assets may not exist to pay amounts due on the
Notes. In addition, the subordination provisions of the Indenture provide that
no cash payments may be made with respect to the Notes during the continuance of
a payment default under any Senior Indebtedness of the Company. Furthermore, if
certain nonpayment defaults exist with respect to certain Senior Indebtedness,
the holders of such Senior Indebtedness would be able to prevent payments on the
Notes for certain periods of time. See "Description of the Notes -- Ranking."
In addition, the Notes will be effectively subordinated to all liabilities
of the Company subsidiaries, including trade payables. At March 31, 1996, after
giving effect to the Maxion Acquisition, the Company's subsidiaries would have
had $431.8 million of liabilities (excluding approximately $505.2 million of
indebtedness and $26.8 million of other liabilities of Agricredit and $74.7
million of indebtedness guaranteed by the Company). The right of the Company to
receive assets of any of its subsidiaries upon liquidation or reorganization of
such subsidiary will be subordinated to the claims of that subsidiary's
creditors (including trade creditors), except to the extent the Company itself
is recognized as a creditor of such subsidiary. See "Description of the
Notes -- Ranking."
LACK OF A PUBLIC MARKET
The New Notes will constitute a new issue of securities with no established
trading market. The Company does not intend to list the New Notes on any
national securities exchange or to seek approval for quotation through any
automated quotation system. The Company has been advised by the Placement Agents
that following completion of the Exchange Offer, the Placement Agents intend to
make a market in the New
14
<PAGE> 18
Notes. However, the Placement Agents are not obligated to do so and any
market-making activities with respect to the New Notes may be discontinued at
any time without notice. Accordingly, no assurance can be given that an active
public or other market will develop for the New Notes or as to the liquidity of
or the trading market for the New Notes. If a trading market does not develop or
is not maintained, holders of the New Notes may experience difficulty in
reselling the New Notes or may be unable to sell them at all. If a market for
the New Notes develops, any such market may cease to continue at any time. If a
public trading market develops for the New Notes, future trading prices of the
New Notes will depend on many factors, including, among other things, prevailing
interest rates, the Company's results of operations and the market for similar
securities and other factors, including the financial conditions of the Company.
CONSEQUENCES OF THE EXCHANGE OFFER ON NON-TENDERING HOLDERS OF THE OLD NOTES
In the event the Exchange Offer is consummated, the Company will not be
required to register any Old Notes not tendered and accepted in the Exchange
Offer. In such event, holders of Old Notes seeking liquidity in their investment
would have to rely on exemptions to the registration requirements under the
securities laws, including the Securities Act. Following the Exchange Offer,
none of the Notes will be entitled to the contingent increase in interest rate
provided for (in the event of a failure to consummate the Exchange Offer in
accordance with the terms of the Registration Rights Agreement) pursuant to the
Old Notes.
15
<PAGE> 19
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Old Notes were sold by AGCO on March 15, 1996 to Morgan Stanley & Co.
Incorporated, Donaldson Lufkin & Jenrette Securities Corporation and Merrill
Lynch, Pierce, Fenner & Smith Incorporated (together, the "Placement Agents") in
reliance on Section 4(2) of the Securities Act. The Placement Agents offered and
sold the Old Notes only (i) to "qualified institutional buyers" (as defined in
Rule 144A) in compliance with Rule 144A, (ii) to a limited number of other
institutional "accredited investors" (as defined in Rule 501(a)(1), (2), (3) or
(7) under the Securities Act) that, prior to their purchase of Old Notes,
delivered to the Placement Agents a letter containing certain representations
and agreements and (iii) outside the United States to persons other than U.S.
Persons, which term shall include dealers or other professional fiduciaries in
the United States acting on a discretionary basis for foreign beneficial owners
(other than an estate or trust), in reliance upon Regulation S under the
Securities Act.
In connection with the sale of the Old Notes, the Company and the Placement
Agents entered into a Registration Rights Agreement dated as of March 15, 1996
(the "Registration Rights Agreement"), which requires the Company (i) to cause
the Old Notes to be registered under the Securities Act or (ii) to file with the
Commission a registration statement under the Securities Act with respect to an
issue of new notes of the Company identical in all material respects to the Old
Notes and use its best efforts to cause such registration statement to become
effective under the Securities Act and, upon the effectiveness of that
registration statement, to offer to the holders of the Old Notes the opportunity
to exchange their Old Notes for a like principal amount of New Notes, which will
be issued without a restrictive legend and which may be reoffered and resold by
the holder without restrictions or limitations under the Securities Act. A copy
of the Registration Rights Agreement has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part. The Exchange Offer is
being made pursuant to the Registration Rights Agreement to satisfy the
Company's obligations thereunder with regard to the Notes. The term "Holder"
with respect to the Exchange Offer means any person in whose name Old Notes are
registered on the trustee's books or any other person who has obtained a
properly completed bond power from the registered holder, or any person whose
Old Notes are held of record by The Depository Trust Company ("DTC") who desires
to deliver such Old Note by book-entry transfer at DTC.
The Company has not requested, and does not intend to request, an
interpretation by the staff of the Commission with respect to whether the New
Notes issued pursuant to the Exchange Offer in exchange for the Old Notes may be
offered for sale, resold or otherwise transferred by any holder without
compliance with the registration and prospectus delivery provisions of the
Securities Act. Based on interpretations by the staff of the Commission set
forth in no-action letters issued to third parties, the Company believes the New
Notes issued pursuant to the Exchange Offer in exchange for Old Notes may be
offered for resale, resold and otherwise transferred by any holder thereof
(other than broker-dealers, as set forth below, and any such holder that is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act) without compliance with the registration and prospectus delivery provisions
of the Securities Act, provided that such New Notes are acquired in the ordinary
course of such holder's business and that such holder has no arrangement or
understanding with any person to participate in the distribution of such New
Notes. Any holder who tenders in the Exchange Offer with the intention to
participate, or for the purpose of participating, in a distribution of the New
Notes or who is an affiliate of the Company may not rely upon such
interpretations by the staff of the Commission and, in the absence of an
exemption therefrom, must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any secondary resale
transaction. Failure to comply with such requirements in such instance may
result in such holder incurring liabilities under the Securities Act for which
the holder is not indemnified by the Company. Each broker-dealer (other than an
affiliate of the Company) that receives New Notes for its own account pursuant
to the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. The Letter of Transmittal states
that by so acknowledging and by delivering a prospectus, a broker-dealer will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. The Company has agreed that, for a period of 90 days after the
Expiration Date, it will make
16
<PAGE> 20
the Prospectus available to any broker-dealer for use in connection with any
such resale. See "Plan of Distribution."
The Exchange Offer is not being made to, nor will the Company accept
surrenders for exchange from, holders of Old Notes in any jurisdiction in which
this Exchange Offer or the acceptance thereof would not be in compliance with
the securities or blue sky laws of such jurisdiction.
By tendering in the Exchange Offer, each holder of Old Notes will represent
to the Company that, among other things, (i) the New Notes acquired pursuant to
the Exchange Offer are being obtained in the ordinary course of business of the
person receiving such New Notes, whether or not such person is the holder, (ii)
neither the holder of Old Notes nor any such other person has an arrangement or
understanding with any person to participate in the distribution of such New
Notes, (iii) if the holder is not a broker-dealer, or is a broker-dealer but
will not receive New Notes for its own account in exchange for Old Notes,
neither the holder nor any such other person is engaged in or intends to
participate in the distribution of such New Notes and (iv) neither the holder
nor any such other person is an "affiliate" of the Company within the meaning of
Rule 405 under the Securities Act or, if such holder is an "affiliate," that
such holder will comply with the registration and prospectus delivery
requirements of the Securities Act to the extent applicable.
Following the completion of the Exchange Offer, none of the Notes will be
entitled to the contingent increase in interest rate provided pursuant to the
Old Notes. Following the consummation of the Exchange Offer, holders of Notes
will not have any further registration rights, and the Old Notes will continue
to be subject to certain restrictions on transfer. See "-- Consequences of
Failure to Exchange." Accordingly, the liquidity of the market for the Old Notes
could be adversely affected. See "Risk Factors -- Consequences of the Exchange
Offer on Non-Tendering Holders of the Old Notes."
Participation in the Exchange Offer is voluntary and holders should
carefully consider whether to accept. Holders of the Old Notes are urged to
consult their financial and tax advisors in making their own decisions on
whether to participate in the Exchange Offer.
TERMS OF THE EXCHANGE OFFER
General. Upon the terms and subject to the conditions set forth in this
Prospectus and in the Letter of Transmittal, the Company will accept any and all
Old Notes validly tendered and not withdrawn prior to 5:00 p.m., New York City
time, on the Expiration Date. Subject to the minimum denomination requirements
of the New Notes, the Company will issue $1,000 principal amount of New Notes in
exchange for each $1,000 principal amount of outstanding Old Notes accepted in
the Exchange Offer. Holders may tender some or all of their Old Notes pursuant
to the Exchange Offer. However, Old Notes may be tendered only in amounts that
are integral multiples of $1,000 principal amount.
The form and terms of the New Notes will be identical in all material
respects to the form and terms of the Old Notes except that (i) the New Notes
will be registered under the Securities Act and, therefore, will not bear
legends restricting the transfer thereof and (ii) holders of the New Notes will
not be entitled to certain rights of holders of Old Notes under the Registration
Rights Agreement, which will terminate upon consummation of the Exchange Offer.
The New Notes will evidence the same debt as the Old Notes, will be entitled to
the benefits of the Indenture and will be treated as a single class thereunder
with any Old Notes that remain outstanding. The Exchange Offer is not
conditioned upon any minimum aggregate principal amount of Old Notes being
tendered for exchange.
As of June 30, 1996, $250,000,000 aggregate principal amount of the Old
Notes were outstanding and there were two registered holders. This Prospectus,
together with the Letter of Transmittal, is being sent to such registered
Holders.
Holders of Old Notes do not have any appraisal or dissenters' rights under
the Delaware General Corporation Law or the Indenture in connection with the
Exchange Offer. The Company intends to conduct the Exchange Offer in accordance
with the provisions of the Registration Rights Agreement and the applicable
requirements of the Exchange Act, and the rules and regulations of the
Commission thereunder. Old Notes which are not tendered for exchange in the
Exchange Offer will remain outstanding and interest
17
<PAGE> 21
thereon will continue to accrue, but such Old Notes will not be entitled to any
rights or benefits under the Registration Rights Agreement.
The Company shall be deemed to have accepted validly tendered Old Notes
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering holders
for the purposes of receiving the New Notes from the Company. If any tendered
Old Notes are not accepted for exchange because of an invalid tender, the
occurrence of certain other events set forth herein or otherwise, certificates
for any such unaccepted Old Notes will be returned, without expense, to the
tendering holder thereof as promptly as practicable after the Expiration Date.
Holders who tender Old Notes in the Exchange Offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the Letter
of Transmittal, transfer taxes with respect to the exchange of Old Notes
pursuant to the Exchange Offer. The Company will pay all charges and expenses,
other than certain applicable taxes described below, in connection with the
Exchange Offer. See "-- Fees and Expenses."
Expiration Date; Extensions; Amendments. The term "Expiration Date" shall
mean 5:00 p.m., New York City time, on August 14, 1996, unless the Company, in
its sole discretion, extends the Exchange Offer, in which case the term
"Expiration Date" shall mean the latest date and time to which the Exchange
Offer is extended. Although the Company has no current intention to extend the
Exchange Offer, the Company reserves the right to extend the Exchange Offer at
any time and from time to time by giving oral or written notice to the Exchange
Agent and by timely public announcement communicated, unless otherwise required
by applicable law or regulation, by making a release to the Dow Jones News
Service. During any extension of the Exchange Offer, all Old Notes previously
tendered pursuant to the Exchange Offer and not withdrawn will remain subject to
the Exchange Offer. The date of the exchange of the New Notes for Old Notes will
be the first New York Stock Exchange trading day following the Expiration Date.
The Company reserves the right, in its sole discretion, (i) to delay
accepting any Old Notes, to extend the Exchange Offer or to terminate the
Exchange Offer if any of the conditions set forth below under "-- Conditions of
the Exchange Offer" shall not have been satisfied, by giving oral or written
notice of such delay, extension or termination to the Exchange Agent or (ii) to
amend the terms of the Exchange Offer in any manner. Any such delay in
acceptance, extension, termination or amendment will be followed as promptly as
practicable by oral or written notice thereof to the registered holders. If the
Exchange Offer is amended in any manner determined by the Company to constitute
a material change, the Company will promptly disclose such amendment by means of
a prospectus supplement that will be distributed to the registered holders, and
the Company will extend the Exchange Offer for a period of time, depending upon
the significance of the amendment and the manner of disclosure to the registered
holders, if the Exchange Offer would otherwise expire during such period.
In all cases, issuance of the New Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent, of a properly completed and duly executed Letter of
Transmittal and all other required documents; provided, however, that the
Company reserves the absolute right to waive any conditions of the Exchange
Offer or defects or irregularities in the tender of Old Notes. If any tendered
Old Notes are not accepted for any reason set forth in the terms and conditions
of the Exchange Offer or if Old Notes are submitted for a greater principal
amount than the holder desires to exchange, such unaccepted or non-exchanged Old
Notes or substitute Old Notes evidencing the unaccepted portion, as appropriate,
will be returned without expense to the tendering holder, unless otherwise
provided in the Letter of Transmittal, as promptly as practicable after the
expiration or termination of the Exchange Offer.
Interest on the New Notes. Holders of Old Notes that are accepted for
exchange will not receive accrued interest thereon at the time of exchange.
However, each New Note will bear interest from the most recent date to which
interest has been paid on the Old Notes or New Notes, or if no interest has been
paid on the Old Notes or New Notes, from March 20, 1996.
Procedures for Tendering Old Notes. The tender to the Company of Old Notes
by a holder thereof pursuant to one of the procedures set forth below will
constitute an agreement between such holder and the
18
<PAGE> 22
Company in accordance with the terms and subject to the conditions set forth
herein and in the Letter of Transmittal. A holder of the Old Notes may tender
such Old Notes by (i) properly completing and signing a Letter of Transmittal or
a facsimile thereof (all reference in this Prospectus to a Letter of Transmittal
shall be deemed to include a facsimile thereof) and delivering the same,
together with any corresponding certificate or certificates representing the Old
Notes being tendered (if in certificated form) and any required signature
guarantees, to the Exchange Agent at its address set forth in the Letter of
Transmittal on or prior to the Expiration Date (or complying with the procedure
for book-entry transfer described below) or (ii) complying with the guaranteed
delivery procedures described below.
If tendered Old Notes are registered in the name of the signer of the
Letter of Transmittal and the New Notes to be issued in exchange therefor are to
be issued (and any untendered Old Notes are to be reissued) in the name of the
registered holder (which term, for the purposes described herein, shall include
any participant in DTC (also referred to as a book-entry facility) whose name
appears on a security listing as the owner of Old Notes), the signature of such
signer need not be guaranteed. In any other case, the tendered Old Notes must be
endorsed or accompanied by written instruments of transfer in form satisfactory
to the Company and duly executed by the registered holder and the signature on
the endorsement or instrument of transfer must be guaranteed by a member firm of
a registered national securities exchange or of the National Association of
Securities Dealers, Inc., a commercial bank or trust company having an office or
correspondent in the United States or an "eligible guarantor institution" as
defined by Rule 17Ad-15 under the Exchange Act (any of the foregoing hereinafter
referred to as an "Eligible Institution"). If the New Notes or Old Notes not
exchanged are to be delivered to an address other than that of the registered
holder appearing on the note register for the Old Notes, the signature in the
Letter of Transmittal must be guaranteed by an Eligible Institution.
THE METHOD OF DELIVERY OF OLD NOTES, THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF
THE HOLDER. IF SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL,
PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES,
SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT
BEFORE THE EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT
TO THE COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS,
COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS
FOR SUCH HOLDERS.
The Company understands that the Exchange Agent will make a request
promptly after the date of this Prospectus to establish an account with respect
to the Old Notes at DTC for the purpose of facilitating the Exchange Offer, and
subject to the establishment thereof, any financial institution that is a
participant in DTC's system may make book-entry delivery of Old Notes by causing
DTC to transfer such Old Notes into the Exchange Agent's account with respect to
the Old Notes in accordance with DTC's procedure for such transfer. Although
delivery of the Old Notes may be effected through book-entry transfer into the
Exchange Agent's account at DTC, an appropriate Letter of Transmittal with any
required signature guarantee and all other required documents must in each case
be transmitted to and received or confirmed by the Exchange Agent at the address
set forth in the Letter of Transmittal on or prior to the Expiration Date, or,
if the guaranteed delivery procedures described below are complied with, within
the time period provided under such procedures.
A tender will be deemed to have been received as of the date when (i) the
tendering holder's properly completed and duly signed Letter of Transmittal
accompanied by the Old Notes (or a confirmation of book-entry transfer of such
Old Notes into the Exchange Agent's account at DTC), is received by the Exchange
Agent or (ii) a Notice of Guaranteed Delivery or letter, telegram or facsimile
transmission to similar effect (as provided below) from an Eligible Institution
is received by the Exchange Agent. Issuances of New Notes in exchange for Old
Notes tendered pursuant to a Notice of Guaranteed Delivery or letter, telegram
or facsimile transmission to similar effect (as provided below) by an Eligible
Institution will be made only against submission of a duly signed Letter of
Transmittal (and any other required documents) and deposit of the tendered Old
Notes.
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<PAGE> 23
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance for exchange of any tender of Old Notes will be
determined by the Company, whose determination will be final and binding. The
Company reserves the absolute right to reject any or all tenders not in proper
form or the acceptance for exchange of which may, in the opinion of the
Company's counsel, be unlawful. The Company also reserves the absolute right to
waive any of the conditions of the Exchange Offer or any defect or irregularity
in the tender of any Old Notes. None of the Company, the Exchange Agent or any
other person will be under any duty to give notification of any defects or
irregularities in tenders or incur any liability for failure to give any such
notification. Any Old Notes received by the Exchange Agent that are not validly
tendered and as to which the defects or irregularities have not been cured or
waived, or if Old Notes are submitted in principal amount greater than the
principal amount of Old Notes being tendered by such tendering holder, such
unaccepted or non-exchanged Old Notes will be returned by the Exchange Agent to
the tendering holder, unless otherwise provided in the Letter of Transmittal, as
soon as practicable following the Expiration Date.
In addition, the Company reserves the right in its sole discretion (a) to
purchase or make offers for any Old Notes that remain outstanding subsequent to
the Expiration Date and (b) to the extent permitted by applicable law, to
purchase Old Notes in the open market, in privately negotiated transactions or
otherwise. The terms of any such purchases or offers will differ from the terms
of the Exchange Offer.
Guaranteed Delivery Procedures. If the holder desires to accept the
Exchange Offer and time will not permit a Letter of Transmittal or Old Notes to
reach the Exchange Agent before the Expiration Date or the procedure for
book-entry transfer cannot be completed on a timely basis, a tender may be
effected if the Exchange Agent has received at its office, on or prior to the
Expiration Date, a letter, telegram or facsimile transmission from an Eligible
Institution setting forth the name and address of the tendering holder, the
name(s) in which the Old Notes are registered and the certificate number(s) of
the Old Notes to be tendered, and stating that the tender is being made thereby
and guaranteeing that, within three New York Stock Exchange trading days after
the date of execution of such letter, telegram or facsimile transmission by the
Eligible Institution, such Old Notes, in proper form for transfer (or a
confirmation of book-entry transfer of such Old Notes into the Exchange Agent's
account at DTC), will be delivered by such Eligible Institution together with a
properly completed and duly executed Letter of Transmittal (and any other
required documents). Unless Old Notes being tendered by the above-described
method are deposited with the Exchange Agent within the time period set forth
above (accompanied or preceded by a properly competed Letter of Transmittal and
any other required documents), the Company may, at its option, reject the
tender. Copies of a Notice of Guaranteed Delivery which may be used by Eligible
Institutions for the purposes described in this paragraph are available from the
Exchange Agent.
Terms and Conditions of the Letter of Transmittal. The Letter of
Transmittal contains, among other things, the following terms and conditions,
which are part of the Exchange Offer.
The party tendering Old Notes for exchange (the "Transferor") exchanges,
assigns and transfers the Old Notes to the Company and irrevocably constitutes
and appoints the Exchange Agent as the Transferor's agent and attorney-in-fact
to cause the Old Notes to be assigned, transferred and exchanged. The Transferor
represents and warrants that it has full power and authority to tender,
exchange, assign and transfer the Old Notes and to acquire New Notes issuable
upon the exchange of such tendered Old Notes, and that, when the same are
accepted for exchange, the Company will acquire good and unencumbered title to
the tendered Old Notes, free and clear of all liens, restrictions, charges and
encumbrances and not subject to any adverse claim. The Transferor also warrants
that it will, upon request, execute and deliver any additional documents deemed
by the Company to be necessary or desirable to complete the exchange, assignment
and transfer of tendered Old Notes or to transfer ownership of such Old Notes on
the account books maintained by DTC. All authority conferred by the Transferor
will survive the death, bankruptcy or incapacity of the Transferor and every
obligation of the Transferor shall be binding upon the heirs, personal
representatives, executors, administrators, successors, assigns, trustees in
bankruptcy and other legal representatives of such Transferor.
By executing a Letter of Transmittal, each holder will make to the Company
the representations set forth above under the heading "-- Purpose and Effect of
the Exchange Offer."
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<PAGE> 24
Withdrawal of Tenders of Old Notes. Except as otherwise provided herein,
tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m., New York
City time, on the Expiration Date.
To withdraw a tender of Old Notes in the Exchange Offer, a written or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth herein prior to 5:00 p.m., New York City time, on
the Expiration Date. Any such notice of withdrawal must (i) specify the name of
the person having deposited the Old Notes to be withdrawn (the "Depositor"),
(ii) identify the Old Notes to be withdrawn (including the certificate number or
numbers and principal amount of such Old Notes), (iii) contain a statement that
such holder is withdrawing his election to have such Old Notes exchanged, (iv)
be signed by the Holder in the same manner as the original signature on the
Letter of Transmittal by which such Old Notes were tendered (including any
required signature guarantees) or be accompanied by documents of transfer
sufficient to have the Trustee with respect to the Old Notes register the
transfer of such Old Notes in the name of the person withdrawing the tender and
(v) specify the name in which any such Old Notes are to be registered, if
different from that of the Depositor. If Old Notes have been tendered pursuant
to the procedure for book-entry transfer, any notice of withdrawal must specify
the name and number of the account at the book-entry transfer facility. All
questions as to the validity, form and eligibility (including time of receipt)
of such notices will be determined by the Company, whose determination shall be
final and binding on all parties. Any Old Notes so withdrawn will be deemed not
to have been validly tendered for purposes of the Exchange Offer and no New
Notes will be issued with respect thereto unless the Old Notes so withdrawn are
validly retendered. Any Old Notes which have been tendered but which are not
accepted for exchange will be returned to the Holder thereof without cost to
such Holder as soon as practicable after withdrawal, rejection of tender or
termination of the Exchange Offer. Properly withdrawn Old Notes may be
retendered by following one of the procedures described above under
"-- Procedures for Tendering Old Notes" at any time prior to the Expiration
Date.
CONDITIONS OF THE EXCHANGE OFFER
Notwithstanding any other term of the Exchange Offer, or any extension of
the Exchange Offer, the Company shall not be required to accept for exchange, or
exchange New Notes for, any Old Notes, and may terminate the Exchange Offer as
provided herein before the acceptance of such Old Notes, if:
(a) any statute, rule or regulation shall have been enacted, or any
action shall have been taken by any court or governmental authority which,
in the reasonable judgment of the Company, would prohibit, restrict or
otherwise render illegal consummation of the Exchange Offer; or
(b) any change, or any development involving a prospective change, in
the business or financial affairs of the Company or any of its subsidiaries
has occurred which, in the sole judgment of the Company, might materially
impair the ability of the Company to proceed with the Exchange Offer or
materially impair the contemplated benefits of the Exchange Offer to the
Company; or
(c) there shall occur a change in the current interpretations by the
staff of the Commission which, in the Company's reasonable judgment, might
materially impair the Company's ability to proceed with the Exchange Offer.
If the Company determines in its sole discretion that any of the above
conditions are not satisfied, the Company may (i) refuse to accept any Old Notes
and return all tendered Old Notes to the tendering holders, (ii) extend the
Exchange Offer and retain all Old Notes tendered prior to the Expiration Date,
subject, however, to the right of holders to withdraw such Old Notes (see
"-- Terms of the Exchange Offer -- Withdrawal of Tenders of Old Notes") or (iii)
waive such unsatisfied conditions with respect to the Exchange Offer and accept
all validly tendered Old Notes which have not been withdrawn. If such waiver
constitutes a material change to the Exchange Offer, the Company will promptly
disclose such waiver by means of a prospectus supplement that will be
distributed to the registered holders, and the Company will extend the Exchange
Offer for a period of time, depending upon the significance of the waiver and
the manner of disclosure to the registered holders, if the Exchange Offer would
otherwise expire during such period.
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<PAGE> 25
EXCHANGE AGENT
SunTrust Bank, Atlanta has been appointed as Exchange Agent for the
Exchange Offer. Questions and requests for assistance, requests for additional
copies of this Prospectus or of the Letter of Transmittal and requests for
Notices of Guaranteed Delivery should be directed to the Exchange Agent
addressed as follows:
<TABLE>
<S> <C>
By Mail: By Hand or Overnight Courier:
SunTrust Bank, Atlanta SunTrust Bank, Atlanta
P.O. Box 4625 Corporate Trust Department
Atlanta, Georgia 30302 58 Edgewood Avenue
Attn: Bryan Echols Room 400, Annex
Atlanta, Georgia 30303
Attn: Bryan Echols
</TABLE>
Facsimile Transmission:
(404) 332-3966
Confirm by Telephone:
(404) 588-7813
For information with respect to the Exchange Offer, call
Bryan Echols of the Exchange Agent:
(404) 588-7813
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telecopy, telephone or in person by officers and regular
employees of the Company and its affiliates. No additional compensation will be
paid to any such officers and employees who engage in soliciting tenders.
The Company has not retained any dealer-manager or other soliciting agent
in connection with the Exchange Offer and will not make any payments to brokers,
dealers or others soliciting acceptance of the Exchange Offer. The Company,
however, will pay the Exchange Agent reasonable and customary fees for its
services and will reimburse it for its reasonable out-of-pocket expenses in
connection therewith. The Company may also pay brokerage houses and other
custodians, nominees and fiduciaries the reasonable out-of-pocket expenses
incurred by them in forwarding copies of this Prospectus, the Letter of
Transmittal and related documents to the beneficial owners of the Old Notes and
in handling or forwarding tenders for exchange.
The expenses to be incurred in connection with the Exchange Offer will be
paid by the Company. Such expenses include fees and expenses of the Exchange
Agent and transfer agent and registrar, accounting and legal fees and printing
costs, among others.
The Company will pay all transfer taxes, if any, applicable to the exchange
of the Old Notes pursuant to the Exchange Offer. If, however, New Notes, or Old
Notes for principal amounts not tendered or accepted for exchange, are to be
delivered to, or are to be issued in the name of, any person other than the
registered holder of the Old Notes tendered or if a transfer tax is imposed for
any reason other than the exchange of the Old Notes pursuant to the Exchange
Offer, then the amount of any such transfer taxes (whether imposed on the
registered holder or any other persons) will be payable by the tendering holder.
If satisfactory evidence of payment of such taxes or exemption therefrom is not
submitted with the Letter of Transmittal, the amount of such transfer taxes will
be billed directly to such tendering holder.
CONSEQUENCES OF FAILURE TO EXCHANGE
The Old Notes that are not exchanged for New Notes pursuant to the Exchange
Offer will remain restricted securities within the meaning of Rule 144 of the
Securities Act. Accordingly, such Old Notes may
22
<PAGE> 26
be resold only (i) to the Company or any subsidiary thereof, (ii) inside the
United States to a qualified institutional buyer in compliance with Rule 144A,
(iii) inside the United States to an institutional accredited investor that,
prior to such transfer, furnishes to the Trustee a signed letter containing
certain representations and agreements relating to the restrictions on transfer
of the Old Notes (the form of which letter can be obtained from the Trustee)
and, if such transfer is in respect of an aggregate principal amount of Old
Notes at the time of transfer of less than $100,000, an opinion of counsel
acceptable to the Company that such transfer is in compliance with the
Securities Act, (iv) outside the United States in compliance with Rule 904 under
the Securities Act, (v) pursuant to the exemption from registration provided by
Rule 144 under the Securities Act (if available) or (vi) pursuant to an
effective registration statement under the Securities Act. The liquidity of the
Old Notes could be adversely affected by the Exchange Offer. Following the
consummation of the Exchange Offer, holders of the Old Notes will have no
further registration rights under the Registration Rights Agreement and will not
be entitled to the contingent increase in the interest rate provided for in the
Old Notes.
ACCOUNTING TREATMENT
The New Notes would be recorded at the same carrying value as the Old
Notes, as reflected in the Company's accounting records on the date of the
exchange. Accordingly, no gain or loss for accounting purposes will be
recognized by the Company. The costs of the Exchange Offer and the unamortized
expenses related to the issuance of the Old Notes will be amortized over the
term of the New Notes.
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<PAGE> 27
THE COMPANY
AGCO is one of the largest manufacturers and distributors of agricultural
equipment in the world. The Company sells a full range of agricultural equipment
and related replacement parts, including tractors, combines, hay tools and
forage equipment and implements. The Company's products are widely recognized in
the agricultural equipment industry and are marketed under the following brand
names: AGCO Allis, Massey Ferguson, GLEANER, Hesston, White, SAME, Landini,
White-New Idea, Black Machine, AGCOSTAR, Glencoe, Tye, Farmhand, Maxion and
IDEAL. The Company distributes its products through a combination of over 7,000
independent dealers, wholly owned distribution companies, associates and
licensees. In addition, the Company provides retail financing in North America
through Agricredit and in the United Kingdom, France and Germany through its
Massey Ferguson finance joint ventures.
AGCO was organized in June 1990 by an investment group formed by management
to acquire the successor to the agricultural equipment business of
Allis-Chalmers, a company which began manufacturing and distributing
agricultural equipment in the early 1900s. From its formation in June 1990
through December 31, 1995, AGCO has grown substantially through a series of
acquisitions for consideration aggregating approximately $597.4 million. These
acquisitions broadened the Company's product line, expanded its dealer network
and increased its geographic presence in North America, Western Europe and the
rest of the world. In addition, the Company has achieved significant cost
savings and efficiencies from its acquisitions by eliminating duplicative
administrative, sales and marketing functions, rationalizing its dealer network,
increasing manufacturing capacity utilization and expanding its ability to
source certain products and components from third party manufacturers. For the
fiscal year ended December 31, 1995, the Company's net sales and EBITDA were
approximately $2.1 billion and $263.5 million, respectively. For the period from
1991 to 1995, the Company's net sales and EBITDA had compound annual growth
rates of 66% and 115%, respectively. In addition to acquisitions, the Company
has increased its sales by entering into a substantial number of crossover
contracts with its dealers whereby a dealer carrying one of the Company's brands
also contracts to sell additional AGCO brands or products. The Company has also
grown through successful expansion of its product offerings and new product
introductions.
The Company was incorporated in Delaware in April 1991. The Company's
executive offices are located at 4830 River Green Parkway, Duluth, Georgia
30136, and its telephone number is (770) 813-9200.
ACQUISITION HISTORY
Hesston Acquisition. In March 1991, the Company acquired Hesston
Corporation ("Hesston"), a leading manufacturer and distributor of hay tools,
forage equipment and related replacement parts, together with over 500 dealer
contracts (the "Hesston Acquisition"). Hesston's net sales in its full fiscal
year preceding the acquisition were approximately $91.0 million. The Hesston
Acquisition enabled the Company to provide its dealers with a more complete line
of farm equipment and to expand its dealer network into territories in which the
Company had not previously been represented.
White Acquisition. In May 1991, the Company acquired the White Tractor
Division ("White") of Allied Products Corporation ("Allied"), together with over
600 dealer contracts (the "White Acquisition"). White's net sales in its full
fiscal year preceding the acquisition were approximately $58.3 million. As a
result of the White Acquisition, the Company commenced the manufacture of higher
horsepower tractors at its Independence, Missouri facility, ensuring for AGCO an
uninterrupted supply of higher horsepower tractors and increasing utilization at
Independence.
Massey Ferguson North American Acquisition. In January 1993, the Company
entered into an agreement with Varity Corporation ("Varity") to be the exclusive
distributor in the United States and Canada of the Massey line of farm
equipment. Concurrently, the Company acquired Massey's North American
distribution operation from Varity, including approximately 1,100 dealer
contracts (the "Massey Ferguson North American Acquisition"). Net sales
attributable to Massey's North American distribution operation in the full
fiscal year preceding the acquisition were approximately $215.0 million. The
Massey Ferguson North American Acquisition provided AGCO access to another
leading brand name in the agricultural equipment industry, expanded its product
line to include compact tractors and enabled the Company to expand its dealer
network and enter into a substantial number of crossover contracts. The strength
of the acquired dealers in the
24
<PAGE> 28
southern portion of the United States and Canada complemented AGCO's historical
strength in the hay, corn and wheat belts of the central United States.
Agricredit Acquisition. The Company acquired Agricredit from Varity in two
separate transactions (together, the "Agricredit Acquisition"). The Company
acquired a 50% joint venture interest in Agricredit in January 1993 and acquired
the remaining 50% interest in February 1994. The Agricredit Acquisition has
enabled the Company to respond quickly to customer finance applications and to
provide more competitive and flexible financing alternatives to end users. In
1993, 1994 and 1995, Agricredit generated net income of approximately $7.9
million, $6.0 million and $6.8 million, respectively. Prior to the Agricredit
Acquisition on February 10, 1994, the Company recognized 50% of the net earnings
of Agricredit. The Company believes that the proposed Agricredit Joint Venture
with Rabobank will enable Agricredit to continue to provide competitive
financing at a lower cost of funds and provide an opportunity to expand the
Agricredit business.
White-New Idea Acquisition. In December 1993, the Company acquired the
White-New Idea Farm Equipment Division ("White-New Idea") of Allied, together
with approximately 900 dealer contracts (the "White-New Idea Acquisition").
Subject to the satisfactory completion of environmental remediation, the Company
may acquire White-New Idea's manufacturing facility and a replacement parts
warehouse. The White-New Idea Acquisition enabled the Company to offer a more
complete line of planters and spreaders and a broader line of tillage equipment.
Of White-New Idea's net sales of approximately $83.1 million in 1993,
approximately 46% represented sales of products in categories in which the
Company previously did not compete.
Massey Acquisition. In June 1994, the Company acquired Massey from Varity,
together with Massey's independent dealers and associate and licensee companies
outside the United States and Canada. Massey, with fiscal 1993 net sales of
approximately $898.4 million (including net sales to AGCO of approximately
$124.6 million), is one of the largest manufacturers and distributors of
tractors in the world. The Massey Acquisition significantly expanded AGCO's
sales and distribution outside North America and continues to provide growth
opportunities.
Maxion Acquisition. On June 28, 1996, the Company acquired the Maxion
Agricultural Equipment Business for approximately $260 million. The Maxion
Agricultural Equipment Business was AGCO's Massey Ferguson licensee in Brazil,
manufacturing and distributing agricultural tractors and combines under the
Massey Ferguson brand name, industrial loader-backhoes under the Massey Ferguson
and Maxion brand names and combines under the IDEAL brand name. The Maxion
Agricultural Equipment Business' average annual sales volume for the last three
fiscal years has been approximately $400 million. The Maxion Acquisition
establishes AGCO with market leadership in the significant Brazilian
agricultural equipment market.
In addition to the foregoing, from September 1994 through March 1995 the
Company acquired certain assets of Black Machine, Inc. ("Black Machine"), a
manufacturer and distributor of folding planters, McConnell Tractor, Inc.
("McConnell"), a manufacturer and distributor of higher horsepower, four-wheel
drive, articulated tractors and related replacement parts, and AgEquipment, a
manufacturer and distributor of implements, including no-till and minimum
tillage products, using the Glencoe, Tye and Farmhand brand names. Furthermore,
in February 1995 the Company became the exclusive distributor of Landini S.p.A.
equipment in the United States, Canada and Mexico.
STRATEGY
The Company's primary business objective is the achievement of profitable
growth. The Company's strategic plan is based on internal growth for its
existing business and strategic acquisitions which provide an opportunity to
provide returns in excess of its cost of capital.
Key elements of the Company's business strategy are: (i) marketing multiple
brands through multiple dealer networks; (ii) expanding and strengthening the
Company's worldwide organization of independent dealers and distributors; (iii)
cross-selling complementary products through its international distribution
channel; (iv) expanding the international replacement parts business; (v)
introducing competitive new
25
<PAGE> 29
products in all markets which meet the needs of customers and provide reasonable
margins; (vi) focusing on increasing margins through controlling product costs
and operating expenses; and (vii) pursuing strategic acquisitions focusing on
new products and distribution in new markets.
Marketing Multiple Brands Through Multiple Dealer Networks. The Company
has individual dealer contracts in North America for each of its thirteen
brands. Within these multiple dealer-brand networks, AGCO maintains distinct
brand identities through product differentiation and separate marketing
programs. Although certain of the Company's products may compete at the retail
level, the Company believes this strategy enables the Company to maintain a
large distribution network and position each of its products to target
particular market niches, thereby increasing sales and profitability.
The Company has been able to increase sales, as well as dealer focus on its
products, by establishing crossover contracts within its North American dealer
network. In a crossover contract, an existing dealer carrying one of the
Company's brands contracts to sell an additional AGCO brand. This strategy was
developed in conjunction with the Hesston and White Acquisitions and, since
January 1992, the Company has signed over 1,700 new dealer contracts, the
majority of which represent crossover contracts. Additionally, approximately
2,000 of the Company's approximately 3,000 dealers in North America carry two or
more AGCO brands. Due to existing contractual arrangements, not all the
Company's dealers can contract to carry additional Company product lines.
However, the Company believes that significant opportunities remain for
incremental sales through additional crossover contracts within its existing
North American network of Massey Ferguson, AGCO Allis, GLEANER, Hesston, White,
SAME, Landini, White-New Idea, Black Machine, AGCOSTAR, Glencoe, Tye and
Farmhand dealers.
Expanding and Strengthening the Company's Worldwide Organization of
Independent Dealers and Distributors. The Company believes that one of the most
important criteria affecting a farmer's decision to purchase a particular brand
of equipment is the quality of the dealer who sells and services the equipment.
The Company's Dealer Development Organization in North America is responsible
for monitoring each dealer's performance and profitability as well as
establishing programs which focus on the continual improvement of the dealer.
The Dealer Development Organization is also responsible for identifying open
markets with the greatest potential for each brand and selecting an existing
AGCO dealer, or a new dealer, who would best represent the brand in that
territory. AGCO protects each existing dealer's territory and will not place the
same brand within that protected area.
Internationally, the Company has established a central Dealer Development
Organization which is modeled on the one in North America. Currently, this
organization is focusing on the development of the Massey Ferguson dealers. For
example, the Company believes that it increased its market share in Germany and
Spain in 1995 in part as a result of dealer development activities, including
the recruitment of new dealers.
Cross-Selling Complementary Products Internationally. Massey Ferguson is
the most widely sold tractor brand in the world and it generates approximately
85% of its sales from tractors and parts. Prior to the Massey Acquisition, AGCO
generated approximately 55% of its sales from hay tools and forage equipment,
planters, spreaders, combine harvesters and other non-tractor agricultural
equipment and parts. As a result, there is significant opportunity to expand
sales by cross-selling these non-tractor products through Massey Ferguson's
established international distribution channels. These products will be marketed
internationally under the Massey Ferguson brand name.
Expanding the International Replacement Parts Business. Sales of
replacement parts (i) typically generate higher gross margins than new product
sales, (ii) provide a potentially large and recurring revenue stream due to
average product lives of 10 to 20 years and (iii) historically have been less
cyclical than new product sales. Replacement parts sales generated approximately
$203.2 million, or 34% of the Company's net sales in 1993, $359.5 million, or
20% of the Company's pro forma sales in 1994 and $369.9 million, or 18% of the
Company's net sales in 1995. Even though the Massey Acquisition added a
significant dollar volume of parts sales, the percentage of parts sales to total
sales for Massey for the entire year 1994 was only 14%, much below the industry
average of 20%. Prior to the acquisition, Massey did not maximize parts support
for older field equipment in use. With over two million Massey Ferguson tractors
sold since 1972, there is significant opportunity to capture a larger portion of
these high-margin replacement parts sales in international markets.
26
<PAGE> 30
Introducing Competitive New Products. Since 1991 the Company has increased
the scope and competitiveness of its product line through acquisitions and new
product introductions. Beginning with the Hesston Acquisition in March 1991, the
Company has completed acquisitions which expanded the Company's product
offerings into segments of the agricultural equipment market in which the
Company did not previously compete and enhanced the competitiveness of the
Company's products within existing segments. Since late 1991, the Company has
introduced the Series 2 GLEANER combine, a number of product improvements
including water-cooled engines for the GLEANER combine, the 18-speed powershift
transmission for the higher horsepower AGCO Allis 9600 Series and the White 6100
Series tractors, and the Massey Ferguson high horsepower 6100/8100 Series
tractors. In addition, through the Company's acquisition of Black Machine, AGCO
added a unique patented technology for the "2-in-1" planter frame. Similarly,
the AGCOSTAR articulated tractors were added to AGCO's product offering as the
result of the acquisition of McConnell Tractor. Through the acquisition of
AgEquipment, the Company added no-till and minimum tillage implements to its
product lines.
The Company, in conjunction with its affiliate, is one of the leading
innovators in precision farming techniques, such as yield mapping. Through
precision farming, farmers can customize applications and planting rates to each
section of the field for maximum growth potential. The Company continues to
invest in new product technology and innovation in order to remain competitive
in the market.
Focusing on Increasing Margins through Controlling Product Costs and
Operating Expenses. AGCO balances manufacturing and distribution in order to
control manufacturing costs and increase its operating flexibility. The Company
has consolidated the manufacture of its products in certain locations to take
advantage of capacity, technology or local costs. Furthermore, AGCO continues to
balance its manufacturing resources with externally sourced machinery,
components and replacement parts to enable the Company to better control
inventory. During 1995, approximately 50% of the cost of sales was outsourced.
Accordingly, disruptions in production by the Company's suppliers could
adversely affect the Company's results of operations.
AGCO also has two strategic alliances which enables the Company to share
overhead and product development costs, thereby reducing product costs for all
parties. Hay & Forage Industries is a joint venture with Case Corporation to
produce hay and forage equipment for both companies under the Hesston (for AGCO)
and Case brand names. AGCO also formed a joint venture with Renault Agriculture
S.A. to produce driveline assemblies for higher horsepower AGCO and Renault
tractors at AGCO's facility in Beauvais, France.
AGCO has one corporate structure supporting its multiple brands and
independent dealer organizations. Accordingly, the Company has significantly
lowered the costs of acquired company operations by eliminating duplicate
functions and operations.
Strategic Acquisitions. AGCO has been the principal consolidator in the
agricultural equipment industry and continues to review acquisition and joint
venture opportunities that will further broaden its product line, distribution
network or geographic presence. The Company has successfully integrated the
operations of acquired companies. Massey Ferguson North America machinery sales
have increased 95% since 1992 and Massey's international machinery sales have
increased 45% since 1993. Additionally, in the last 18 months the Company has
reduced Massey's international operating expense margin from its 1993 level of
14.1% to 8.3% in 1995.
MARKETING AND DISTRIBUTION
North American Distribution. In North America, the Company markets and
distributes its farm machinery, equipment and replacement parts to farmers
through a network of approximately 7,000 dealer contracts, with dealers in 49
states and all ten Canadian provinces. Each of the Company's approximately 3,000
independent dealers represents one or more of the Company's distribution lines
or brand names. Dealers may also handle competitive and dissimilar lines of
products. The Company intends to maintain the separate strengths and identities
of its brand names and product lines. The Company has been able to increase
sales, as well as dealer focus on its products, by establishing crossover
contracts.
27
<PAGE> 31
Western European Distribution. In Western Europe, fully assembled tractors
and other Massey Ferguson-branded equipment are marketed by wholly owned
distribution companies in the United Kingdom, France, Germany, Norway, Spain,
Denmark and Sweden. In addition, Massey utilizes an associate company to
distribute Massey Ferguson-branded products in Italy. These distribution
companies support a combined network of approximately 1,600 independent dealers
in Western Europe. In addition, the Company sells through independent
distributors in Western Europe, which distribute through 500 Massey dealers. As
in the North American market, dealers are responsible for retail sales to the
equipment end users and in most cases carry competing or complementary products
from other manufacturers.
International Distribution. Outside the United States, Canada and Western
Europe, the Company operates primarily through Massey's network of approximately
2,500 independent distributors and dealers, as well as associates and licensees,
marketing Massey products and providing customer service support in over 140
countries in Africa, the Middle East, Eastern Europe, Asia and Latin America.
These arrangements allow Massey to benefit from local market expertise to
establish strong market positions with limited investment. In some cases, Massey
also sells agricultural equipment directly to governmental agencies. The Company
believes there is significant potential long-term demand for agricultural
equipment in developing countries where the agricultural equipment markets are
less developed. The Company also believes that the Massey Ferguson brand name is
the most widely recognized brand name in these markets. The Company will
continue to actively support the local production and distribution of
Massey-licensed products by third party distributors, associates and licensees.
The Maxion Agricultural Equipment Business distributes its products through
approximately 140 independent dealers with approximately 360 outlets under the
Massey Ferguson and IDEAL brand names. IDEAL also has independent distributor
representation in Argentina, Chile, Ecuador, Paraguay and Uruguay and the
industrial loader-backhoe product line has distributors in Argentina and
Uruguay.
Because the Company depends upon its over 7,000 dealers and distributors to
sell its products, the loss of a significant number of dealers and distributors
or a significant number of contracts for sales of the Company's products could
adversely affect the Company. The Company's contracts with dealers and
distributors are generally terminable by either party at any time.
RETAIL FINANCING
Through Agricredit in the United States and Canada, the Company provides a
competitive and dedicated financing source for AGCO dealers' sales of the
Company's products as well as equipment produced by other manufacturers.
Agricredit has experienced significant growth since the beginning of 1993 from
two primary sources. First, growth has been generated through Agricredit's
penetration into the AGCO dealer organization. Prior to the acquisition of
Agricredit, Agricredit principally provided financing through Massey's dealer
organization. Second, Agricredit began providing financing in Canada in
September 1993. Agricredit currently services approximately 7,000 dealers.
The Company also owns minority interests in three retail finance companies
located in England, France and Germany. These companies are owned 49% by Massey
and 51% by a wholly owned subsidiary of Rabobank.
The Company has entered into an agreement with Rabobank regarding a
possible sale of a 51% interest in Agricredit to a wholly owned subsidiary of
Rabobank. The Agricredit Joint Venture would continue the current business of
Agricredit and seek to build a broader asset-based finance business. The Company
has similar joint venture arrangements with Rabobank and its affiliates with
respect to its retail finance companies located in Europe. Consummation of the
transaction is subject to regulatory approval and other customary closing
conditions, and there can be no assurance that the transaction will be
consummated.
28
<PAGE> 32
USE OF PROCEEDS
The Company will not receive any proceeds from the issuance of the New
Notes offered hereby. In consideration for issuing the New Notes as contemplated
in this Prospectus, the Company will receive in exchange Old Notes in like
principal amount, the term, and form of which are identical in all material
respects to the New Notes. The Old Notes surrendered in exchange for New Notes
will be retired and canceled and cannot be reissued. Accordingly, issuance of
the New Notes will not result in any increase in the indebtedness of the
Company. All of the net proceeds of the March Offering were used to reduce
borrowings outstanding under the Old Credit Facility.
29
<PAGE> 33
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company and the capitalization of the Equipment Operations as of March 31, 1996,
and as adjusted to give pro forma effect to the Maxion Acquisition. The
Equipment Operations reflect the consolidation of all the operations of the
Company and its subsidiaries with the exception of Agricredit, which is
accounted for under the equity method of accounting. The following table should
be read in conjunction with the Company's Consolidated Financial Statements and
the Notes thereto included and incorporated by reference in this Prospectus.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1996
-----------------------------------------------------
CONSOLIDATED EQUIPMENT OPERATIONS
------------------------ ------------------------
ACTUAL AS ADJUSTED ACTUAL AS ADJUSTED
---------- ----------- ---------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
SHORT-TERM DEBT:
Current portion of long-term debt(1)...... $ 365,193 $ 365,193 $ -- $ --
---------- ----------- ---------- -----------
Total short-term debt............. 365,193 365,193 -- --
---------- ----------- ---------- -----------
LONG-TERM DEBT:
New Credit Facility....................... 214,682 474,682 214,682 474,682
Long-term borrowings by Agricredit........ 140,000 140,000 -- --
Senior Subordinated Notes(2).............. 247,851 247,851 247,851 247,851
Convertible Subordinated Debentures....... 29,926 29,926 29,926 29,926
---------- ----------- ---------- -----------
Total long-term debt.............. 632,459 892,459 492,459 752,459
---------- ----------- ---------- -----------
STOCKHOLDERS' EQUITY:
Common Stock, $0.01 par value; 75,000,000
shares authorized(3); 51,894,622 shares
issued and outstanding................. 519 519 519 519
Additional paid-in capital................ 315,264 315,264 315,264 315,264
Retained earnings......................... 304,292 304,292 304,292 304,292
Unearned compensation..................... (19,418) (19,418) (19,418) (19,418)
Additional minimum pension liability...... (2,619) (2,619) (2,619) (2,619)
Cumulative translation adjustment......... 12,619 12,619 12,619 12,619
---------- ----------- ---------- -----------
Total stockholders' equity........ 610,657 610,657 610,657 610,657
---------- ----------- ---------- -----------
Total capitalization.............. $1,608,309 $1,868,309 $1,103,116 $1,363,116
========= =========== ========= ===========
</TABLE>
- ------------
(1) Consists of borrowings outstanding under the Agricredit Revolving Credit
Agreement. Such indebtedness is generally issued with maturities matching
anticipated credit receivable liquidations and, at March 31, 1996, the
terms ranged from one to 31 months. See Note 7 to the Consolidated
Financial Statements.
(2) Reflects reduction for de minimus original issue discount.
(3) At the Annual Meeting of Stockholders held on April 24, 1996, the
stockholders increased the Company's authorized shares of Common Stock from
75,000,000 shares to 150,000,000 shares.
30
<PAGE> 34
PRO FORMA FINANCIAL INFORMATION
The Pro Forma Consolidated Statements of Income are based on the historical
Consolidated Financial Statements of the Company, adjusted to give effect to the
following as if each had occurred on January 1, 1995: (i) the Maxion
Acquisition, (ii) the March Offering and the application of the net proceeds
therefrom and (iii) the replacement of the Old Credit Facility with the New
Credit Facility. The Pro Forma Consolidated Balance Sheet as of March 31, 1996
is based on the historical Consolidated Financial Statements of the Company,
adjusted to give effect to the Maxion Acquisition as if it had occurred on March
31, 1996.
The Maxion Acquisition was accounted for under the purchase method of
accounting. The total purchase price for the Maxion Acquisition was allocated to
tangible and identifiable intangible assets and liabilities based upon the
Company's preliminary estimates of their fair values with the excess of cost
over net assets acquired allocated to goodwill. The allocation of the purchase
price for this acquisition is subject to revision when additional information
concerning asset and liability valuations is obtained. The Company does not
believe that the asset and liability valuation for this acquisition will be
materially different from the pro forma information presented herein. For
purposes of presenting pro forma results, no changes in revenues and expenses
have been made to reflect the results of any modification to operations that
might have been made had such transactions been consummated on the assumed
effective date of the transactions. The pro forma expenses include the recurring
costs which are directly attributable to these transactions, such as interest
expense, depreciation expense and amortization of the excess of cost over net
assets acquired.
The Pro Forma Financial Information does not purport to represent what the
Company's results of operations or financial position would actually have been
had such transactions actually occurred on any of the dates set forth above or
to project the Company's results of operations for any future period.
31
<PAGE> 35
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION> EQUIPMENT
CONSOLIDATED OPERATIONS(1)
--------------------------------------------------------- -------------
MAXION
COMPANY ACQUISITION(2) ADJUSTMENTS PRO FORMA PRO FORMA
---------- -------------- ----------- ---------- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenues:
Net sales............................ $2,068,427 $265,208 $ (19,587)(3) $2,316,019 $ 2,316,019
1,971 (4)
Finance income....................... 56,621 -- -- 56,621 --
---------- -------------- ----------- ---------- -------------
2,125,048 265,208 (17,616) 2,372,640 2,316,019
---------- -------------- ----------- ---------- -------------
Costs and Expenses:
Cost of goods sold................... 1,627,716 237,562 (19,587)(3) 1,853,066 1,853,066
6,048 (5)
1,327 (6)
Selling, general and administrative
expenses........................... 200,588 60,903 1,971 (4) 262,758 248,922
(704)(7)
Engineering expenses................. 27,350 4,869 -- 32,219 32,219
Interest expense, net................ 63,211 33,503 23,271 (8) 119,985 88,264
Other expense, net................... 9,602 685 704 (7) 13,834 13,886
2,843 (9)
Nonrecurring acquisition related
expenses........................... 6,000 -- -- 6,000 6,000
Corporate overhead allocated from
Iochpe-Maxion...................... -- 10,429 -- 10,429 10,429
Foreign exchange losses.............. -- 9,952 -- 9,952 9,952
---------- -------------- ----------- ---------- -------------
1,934,467 357,903 15,873 2,308,243 2,262,738
---------- -------------- ----------- ---------- -------------
Income (loss) before income taxes,
equity in net earnings of
unconsolidated subsidiary and
affiliates and extraordinary loss.... 190,581 (92,695) (33,489) 64,397 53,281
Provision (benefit) for income taxes... 65,897 (20,281) (10,248)(10) 35,368 31,034
---------- -------------- ----------- ---------- -------------
Income (loss) before equity in net
earnings of unconsolidated subsidiary
and affiliates and extraordinary
loss................................. 124,684 (72,414) (23,241) 29,029 22,247
Equity in net earnings of
unconsolidated subsidiary and
affiliates........................... 4,458 -- -- 4,458 11,240
---------- -------------- ----------- ---------- -------------
Net income (loss)...................... 129,142 (72,414) (23,241) 33,487 33,487
Preferred stock dividends.............. 2,012 -- -- 2,012 2,012
---------- -------------- ----------- ---------- -------------
Net income (loss) available for common
stockholders......................... $ 127,130 $(72,414) $ (23,241) $ 31,475 $ 31,475
========== ============= =========== ========== =============
Net Income per Common Share:
Primary.............................. $ 2.76 $ 0.68
========== ==========
Fully diluted........................ $ 2.30 $ 0.62
========== ==========
Weighted Average Number of Common and
Common Equivalent Shares Outstanding:
Primary.............................. 46,126 46,126
========== ==========
Fully diluted........................ 56,684 56,684
========== ==========
</TABLE>
32
<PAGE> 36
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
THREE MONTHS ENDED MARCH 31, 1996
<TABLE>
<CAPTION> EQUIPMENT
CONSOLIDATED OPERATIONS(1)
------------------------------------------------------ -------------
MAXION
COMPANY ACQUISITION(2) ADJUSTMENTS PRO FORMA PRO FORMA
-------- -------------- ----------- --------- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenues:
Net sales.............................. $453,884 $ 48,172 $(1,212)(3) $501,122 $ 501,122
278 (4)
Finance income......................... 16,808 -- -- 16,808 --
-------- -------------- ----------- --------- -------------
470,692 48,172 (934) 517,930 501,122
-------- -------------- ----------- --------- -------------
Costs and Expenses:
Cost of goods sold..................... 360,144 60,051 (1,212)(3) 419,481 419,481
166 (5)
332 (6)
Selling, general and administrative
expenses............................. 49,439 8,608 278 (4) 58,250 55,057
(75)(7)
Engineering expenses................... 6,979 1,022 -- 8,001 8,001
Interest expense (income), net......... 15,052 (5,485) 6,022 (8) 15,589 6,501
Other expense (income), net............ 2,466 (1,414) 75 (7) 1,838 1,815
711 (9)
Nonrecurring expenses.................. 5,923 -- -- 5,923 5,923
Corporate overhead allocated from
Iochpe-Maxion........................ -- 1,437 -- 1,437 1,437
Foreign exchange losses................ -- 1,977 -- 1,977 1,977
-------- -------------- ----------- --------- -------------
440,003 66,196 6,297 512,496 500,192
-------- -------------- ----------- --------- -------------
Income (loss) before income taxes, equity
in net earnings of unconsolidated
subsidiary and affiliates and
extraordinary loss..................... 30,689 (18,024) (7,231) 5,434 930
Provision (benefit) for income taxes..... 10,867 (5,508) (2,210)(10) 3,149 1,315
-------- -------------- ----------- --------- -------------
Income (loss) before equity in net
earnings of unconsolidated subsidiary
and affiliates and extraordinary
loss................................... 19,822 (12,516) (5,021) 2,285 (385)
Equity in net earnings of unconsolidated
subsidiary and affiliates.............. 773 -- -- 773 3,443
-------- -------------- ----------- --------- -------------
Income (loss) before extraordinary
loss................................... $ 20,595 $(12,516) $(5,021) $ 3,058 $ 3,058
========= ============= =========== ========== =============
Income (Loss) before Extraordinary Loss
per Common Share:
Primary................................ $ 0.40 $ 0.06
========= ==========
Fully diluted.......................... $ 0.37 $ 0.06
========= ==========
Weighted Average Number of Common and
Common Equivalent Shares Outstanding:
Primary................................ 51,292 51,292
========= ==========
Fully diluted.......................... 57,071 57,071
========= ==========
</TABLE>
- ---------------
(1) The Pro Forma Income Statement Data under the caption "Equipment
Operations" reflects the consolidation of all operations of the Company and
its subsidiaries with the exception of Agricredit, which is included using
the equity method of accounting and reflects the same pro forma adjustments
as the "Consolidated" Pro Forma Statement of Income.
(2) Represents the actual results of operations of the Maxion Agricultural
Equipment Business for fiscal 1995 and the three months ended March 31,
1996.
33
<PAGE> 37
(3) To reflect the elimination of sales of machinery and equipment from the
Company to the Maxion Agricultural Equipment Business of $5,032 and from
the Maxion Agricultural Equipment Business to the Company of $14,555 for
the year ended December 31, 1995 and from the Company to the Maxion
Agricultural Equipment Business of $290 and from the Maxion Agricultural
Equipment Business to the Company of $922 for the three months ended March
31, 1996.
(4) To reflect the elimination of sales commissions paid by the Maxion
Agricultural Equipment Business to the Company which the Maxion
Agricultural Equipment Business recorded as a reduction to net sales and
the Company recorded as a reduction to selling, general and administrative
expenses.
(5) To reflect a write-up in the cost of engines purchased from the
Iochpe-Maxion engine division based on an imputed profit margin on the
interdivisional transfers. The Maxion Agricultural Equipment Business'
historical financial statements under the heading "Maxion Acquisition" in
the Pro Forma Consolidated Statements of Income included herein reflect
engine prices at the cost to Iochpe-Maxion S.A. without such imputed profit
margin.
(6) To reflect increased depreciation expense related to the write-up over book
value of the acquired fixed assets based on the Company's preliminary
estimates of the fair value.
(7) To reflect the elimination of royalties paid by the Maxion Agricultural
Equipment Business to the Company which the Maxion Agricultural Equipment
Business recorded as selling, general and administrative expenses and the
Company recorded as other income.
(8) To reflect the increase in interest expense with respect to the following:
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1995 MARCH 31, 1996
----------------- ------------------
<S> <C> <C>
Interest and fees incurred on the Company's
revolving credit facility in connection with the
financing of the Maxion Acquisition in the
principal amount of $260 million at an interest
rate of 7.6% for the year ended December 31, 1995
and 6.7% for the three months ended March 31,
1996. ............................................ $19,760 $4,355
Increase in interest expense and fees on
borrowings incurred in connection with the March
Offering and the replacement of the Old Credit
Facility with the New Credit Facility. Excludes
the write-off of capitalized fees and expenses
associated with the refinancing of the Old Credit
Facility, which were $3.5 million, net of taxes,
and which were recorded as an extraordinary loss
in the first quarter of 1996. .................... 3,511 1,667
----------------- -------
$23,271 $6,022
============= ===============
</TABLE>
(9) To reflect amortization of the preliminary estimate of the excess of cost
over net assets acquired related to the Maxion Acquisition.
(10) To reflect the additional tax benefit related to the net effect of the pro
forma adjustments recorded at the statutory rate of 30.6% in effect at
December 31, 1995 and March 31, 1996.
34
<PAGE> 38
PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1996
<TABLE>
<CAPTION>
CONSOLIDATED EQUIPMENT OPERATIONS(1)
-------------------------------------- --------------------------------------
HISTORICAL ADJUSTMENTS PRO FORMA HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------- ---------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents...... $ 27,207 $ -- $ 27,207 $ 24,595 $ -- $ 24,595
Accounts and notes receivable,
net of allowances............ 753,653 27,000(2) 780,653 753,653 27,000(2) 780,653
Receivables from unconsolidated
subsidiary and affiliates.... 6,041 -- 6,041 9,690 -- 9,690
Credit receivables, net........ 197,790 -- 197,790 -- -- --
Inventories, net............... 429,704 40,000(2) 469,704 429,704 40,000(2) 469,704
Other current assets........... 57,625 14,221(2) 71,846 54,266 14,221(2) 68,487
---------- ----------- ---------- ---------- ----------- ----------
Total current assets.... 1,472,020 81,221 1,553,241 1,271,908 81,221 1,353,129
Noncurrent credit receivables,
net............................ 390,549 -- 390,549 -- -- --
Property, plant and equipment,
net............................ 143,696 96,265(2) 239,961 143,348 96,265(2) 239,613
Investments in unconsolidated
subsidiary and affiliates...... 45,975 -- 45,975 108,598 -- 108,598
Other assets..................... 49,822 -- 49,822 49,822 -- 49,822
Intangible assets, net........... 104,158 113,735(2) 217,893 104,158 113,735(2) 217,893
---------- ----------- ---------- ---------- ----------- ----------
Total assets............ $2,206,220 $ 291,221 $2,497,441 $1,677,834 $ 291,221 $1,969,055
========== =========== ========== ========== =========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term
debt......................... $ 365,193 $ -- $ 365,193 $ -- $ -- $ --
Accounts payable............... 277,749 17,000(2) 294,749 273,708 17,000(2) 290,708
Payables to unconsolidated
subsidiary and affiliates.... 26,561 -- 26,561 26,561 -- 26,561
Accrued expenses............... 218,353 14,221(2) 232,574 208,231 14,221(2) 222,452
Other current liabilities...... 12,153 -- 12,153 12,153 -- 12,153
---------- ----------- ---------- ---------- ----------- ----------
Total current
liabilities........... 900,009 31,221 931,230 520,653 31,221 551,874
---------- ----------- ---------- ---------- ----------- ----------
Long-term debt................... 602,533 260,000(3) 862,533 462,533 260,000(3) 722,533
Convertible subordinated
debentures..................... 29,926 -- 29,926 29,926 -- 29,926
Postretirement health care
benefits....................... 23,799 -- 23,799 23,799 -- 23,799
Other noncurrent liabilities..... 39,296 -- 39,296 30,266 -- 30,266
---------- ----------- ---------- ---------- ----------- ----------
Total liabilities....... 1,595,563 291,221 1,886,784 1,067,177 291,221 1,358,398
Stockholders' Equity:
Common stock................... 519 -- 519 519 -- 519
Additional paid-in capital..... 315,264 -- 315,264 315,264 -- 315,264
Retained earnings.............. 304,292 -- 304,292 304,292 -- 304,292
Unearned compensation.......... (19,418) -- (19,418) (19,418) -- (19,418)
Additional minimum pension
liability.................... (2,619) -- (2,619) (2,619) -- (2,619)
Cumulative translation
adjustment................... 12,619 -- 12,619 12,619 -- 12,619
---------- ----------- ---------- ---------- ----------- ----------
Total stockholders' equity... 610,657 -- 610,657 610,657 -- 610,657
---------- ----------- ---------- ---------- ----------- ----------
Total liabilities and
stockholders' equity....... $2,206,220 $ 291,221 $2,497,441 $1,677,834 $ 291,221 $1,969,055
========== =========== ========== ========== =========== ==========
</TABLE>
- ---------------
(1) The Balance Sheet Data under the caption "Equipment Operations" reflects the
consolidation of all operations of the Company and its subsidiaries with the
exception of Agricredit, which is included using the equity method of
accounting.
(2) To reflect the preliminary purchase price allocation of the net assets
acquired related to the Maxion Acquisition.
(3) To reflect the increase in outstanding borrowings as a result of the Maxion
Acquisition.
35
<PAGE> 39
SELECTED FINANCIAL DATA
The selected financial data set forth below, except for the pro forma
information, are derived from the Company's Consolidated Financial Statements,
which have been audited by Arthur Andersen LLP, independent public accountants.
For the periods presented, the Company's results of operations were
significantly affected by a series of acquisitions completed during such
periods, including the Massey Acquisition in June 1994. Primarily as a result of
these acquisitions, net sales increased significantly from 1991 to 1995. See
"The Company -- Acquisition History."
<TABLE>
<CAPTION>
CONSOLIDATED EQUIPMENT OPERATIONS(1)
-------------------------------------------------------- -----------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
-------------------------------------------------------- -----------------------
1991 1992 1993(1) 1994(1) 1995(1) 1994 1995
-------- -------- -------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT RATIO DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues:
Net sales.................. $274,535 $314,542 $595,736 $1,319,271 $2,068,427 $1,319,271 $2,068,427
Finance income............. -- -- -- 39,741 56,621 -- --
-------- -------- -------- ---------- ---------- ---------- ----------
274,535 314,542 595,736 1,359,012 2,125,048 1,319,271 2,068,427
-------- -------- -------- ---------- ---------- ---------- ----------
Costs and Expenses:
Cost of goods sold......... 212,225 256,475 470,452 1,042,930 1,627,716 1,042,930 1,627,716
Selling, general and
administrative
expenses................. 40,357 37,003 55,848 129,538 200,588 117,683 186,752
Engineering expenses....... 5,752 6,924 7,510 19,358 27,350 19,358 27,350
Interest (income) expense,
net...................... (214) 9,270 13,624 42,836 63,211 24,104 31,490
Other expense (income),
net...................... 7,710 (1,172) 4,166 3,141 9,602 1,978 9,654
Nonrecurring acquisition
related expenses......... -- -- 14,000 19,500 6,000 19,500 6,000
-------- -------- -------- ---------- ---------- ---------- ----------
265,830 308,500 565,600 1,257,303 1,934,467 1,225,553 1,888,962
-------- -------- -------- ---------- ---------- ---------- ----------
Income before income taxes
and equity in net earnings
of unconsolidated
subsidiary and
affiliates................. 8,705 6,042 30,136 101,709 190,581 93,718 179,465
Provision (benefit) for
income taxes............... -- -- -- (10,610) 65,897 (13,733) 61,563
-------- -------- -------- ---------- ---------- ---------- ----------
Income before equity in net
earnings of unconsolidated
subsidiary and
affiliates................. 8,705 6,042 30,136 112,319 124,684 107,451 117,902
Equity in net earnings of
unconsolidated subsidiary
and affiliates............. -- -- 3,953 3,215 4,458 8,083 11,240
-------- -------- -------- ---------- ---------- ---------- ----------
Net income................... $ 8,705 $ 6,042 $ 34,089 $ 115,534 $ 129,142 $ 115,534 $ 129,142
========= ========= ========= ========== ========== ========== ==========
OTHER FINANCIAL DATA:
Depreciation and
amortization............... $ (1,229) $ 196 $ 2,307 $ 19,352 $ 35,472 $ 19,298 $ 35,350
Capital expenditures......... 7,183 4,406 6,709 20,661 45,259 20,525 45,161
Interest expense, gross...... 4,774 12,392 17,927 31,943(2) 42,680 (2) 31,943 42,680
Income from operations(3).... 16,201 14,140 61,926 139,300(2) 226,609 (2) 139,300 226,609
EBITDA(4).................... 12,250 18,630 64,370 164,459(2) 263,495 (2) 164,459 263,495
Ratio of EBITDA to interest
expense, gross............. 2.6x 1.5x 3.6x 5.1x(2) 6.2x(2) 5.1x 6.2x
Pro forma ratio of EBITDA to
interest expense,
gross(5)................... -- -- -- -- 5.7x(2) -- 5.7x
Ratio of earnings to fixed
charges(6)................. 2.5x 1.5x 2.2x 2.8x 3.3x 2.8x 3.3x
</TABLE>
36
<PAGE> 40
<TABLE>
<CAPTION>
CONSOLIDATED EQUIPMENT
---------------------------------------------------------- OPERATIONS
----------
AS OF DECEMBER 31, DECEMBER
---------------------------------------------------------- 31,
1991 1992 1993 1994 1995 1995
-------- -------- -------- ---------- ------------ ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital........................ $ 90,523 $221,592 $339,987 $ 497,793 $ 485,521 $ 661,482
Total assets........................... 194,662 320,713 578,346 1,823,294 2,162,915 1,628,611
Long-term debt......................... 41,135 121,047 173,892 589,833 568,894(7) 415,894(7)
Stockholders' equity................... 26,046 93,672 212,229 476,666 588,928 588,928
</TABLE>
- ------------
(1) AGCO acquired a 50% joint venture interest in Agricredit in 1993 and the
Agricredit operations were reflected in the Company's consolidated
financial statements on the equity method of accounting for the year ended
December 31, 1993. AGCO acquired the remaining 50% interest in Agricredit
in 1994 and accordingly reflected the Agricredit operations in the
Company's consolidated financial statements on a consolidated basis from
the date of acquisition. "Equipment Operations" reflect the consolidation
of all operations of the Company and its subsidiaries with the exception of
Agricredit, which is included using the equity method of accounting.
(2) Excludes the results of operations of Agricredit and the Massey Ferguson
finance joint ventures.
(3) Income from operations is defined as net sales less cost of goods sold,
selling, general and administrative expenses for the Equipment Operations
and engineering expenses.
(4) EBITDA is defined as income before income taxes and equity in net earnings
of unconsolidated subsidiary and affiliates, plus nonrecurring acquisition
related expenses, interest expense, gross, and depreciation and
amortization. EBITDA is presented to provide additional information
relating to the Company's ability to service indebtedness. EBITDA (subject
to certain adjustments, including not adding back nonrecurring acquisition
related expenses) will be used to determine compliance with certain
covenants contained in the Indenture. However, EBITDA should not be
considered as an alternative to net income as a measure of the Company's
operating results or to cash flow as a measure of liquidity.
(5) Gives effect to the March Offering and the application of the net proceeds
therefrom and the replacement of the Old Credit Facility with the New
Credit Facility as if such transactions had occurred on January 1, 1995 and
excludes the effects of the Maxion Acquisition. For certain pro forma
financial information which gives effect to the Maxion Acquisition, see
"Pro Forma Financial Information." Assumes $245.2 million of average
indebtedness outstanding under the New Credit Facility for 1995 at an
average interest rate of 7.6% and $250.0 million of Notes outstanding at an
effective interest rate of 8.63% for total interest expense of $46.2
million. Interest expense would change by $1.2 million for every 0.5%
change in the assumed interest rate on the New Credit Facility. Excludes
the write-off of $3.5 million, net of taxes, of capitalized fees and
expenses associated with the refinancing of the Old Credit Facility, which
were recorded as an extraordinary loss in the first quarter of 1996.
(6) For purposes of this computation, earnings represent income before income
taxes plus fixed charges. Fixed charges consist of the summation of the
following: interest expense on indebtedness, the interest component of
rental expense, amortization of deferred financing costs and the
proportionate share of fixed charges of 50% owned entities.
(7) Includes $37.6 million of the Convertible Subordinated Debentures, which
were converted on or prior to June 1, 1996 into an aggregate of 5,923,975
shares of Common Stock of the Company. In June 1995, the Company exchanged
all of its outstanding depositary shares of Preferred Stock into
Convertible Subordinated Debentures. Also includes in the "Consolidated"
column $153.0 million of long-term indebtedness of Agricredit.
37
<PAGE> 41
The selected financial data set forth below are derived from the Company's
unaudited Condensed Consolidated Financial Statements included in this
Prospectus.
<TABLE>
<CAPTION>
EQUIPMENT
CONSOLIDATED OPERATIONS(1)
--------------------- -------------------
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, MARCH 31,
--------------------- -------------------
1995 1996 1995 1996
-------- -------- -------- --------
(IN THOUSANDS, EXCEPT RATIO DATA)
<S> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues:
Net sales....................................... $443,536 $453,884 $443,536 $453,884
Finance income.................................. 12,683 16,808 -- --
-------- -------- -------- --------
456,219 470,692 443,536 453,884
-------- -------- -------- --------
Costs and Expenses:
Cost of goods sold.............................. 350,338 360,144 350,338 360,144
Selling, general and administrative expenses.... 46,824 49,439 43,344 46,246
Engineering expenses............................ 5,885 6,979 5,885 6,979
Interest expense, net........................... 15,315 15,052 8,346 5,964
Other expense, net.............................. 567 2,466 620 2,443
Nonrecurring expenses........................... 2,012 5,923 2,012 5,923
-------- -------- -------- --------
420,941 440,003 410,545 427,699
-------- -------- -------- --------
Income before income taxes, equity in net earnings
of unconsolidated subsidiary and affiliates and
extraordinary loss.............................. 35,278 30,689 32,991 26,185
Provision for income taxes........................ 12,401 10,867 11,509 9,033
-------- -------- -------- --------
Income before equity in net earnings of
unconsolidated subsidiary and affiliates and
extraordinary loss.............................. 22,877 19,822 21,482 17,152
Equity in net earnings of unconsolidated
subsidiary and affiliates....................... 507 773 1,902 3,443
-------- -------- -------- --------
Income before extraordinary loss.................. 23,384 20,595 23,384 20,595
Extraordinary loss, net of taxes.................. -- (3,503) -- (3,503)
-------- -------- -------- --------
Net income........................................ $ 23,384 $ 17,092 $ 23,384 $ 17,092
======== ======== ======== ========
OTHER FINANCIAL DATA:
Depreciation and amortization................... $ 7,512 $ 10,261 $ 7,491 $ 10,228
Capital expenditures............................ 5,255 5,461 5,206 5,439
Interest expense, gross......................... 10,388(2) 9,706(2) 10,388 9,706
Income from operations(3)....................... 43,969(2) 40,515(2) 43,969 40,515
EBITDA(4)....................................... 52,882(2) 52,042(2) 52,882 52,042
Ratio of EBITDA to interest expense, gross...... 5.1x(2) 5.4x(2) 5.1x 5.4x
Pro forma ratio of EBITDA to interest expense,
gross(5)..................................... 4.6x(2) 4.6x
Ratio of earnings to fixed charges(6)........... 2.5x 2.5x
</TABLE>
38
<PAGE> 42
<TABLE>
<CAPTION>
AS OF MARCH 31, 1996
---------------------------
EQUIPMENT
CONSOLIDATED OPERATIONS
------------ ----------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital................................................... $ 572,011 $ 751,255
Total assets...................................................... 2,206,220 1,677,834
Long-term debt(7)................................................. 632,459 492,459
Stockholders' equity.............................................. 610,657 610,657
</TABLE>
- ---------------
(1) "Equipment Operations" reflect the consolidation of all operations of the
Company and its subsidiaries with the exception of Agricredit, which is
included using the equity method of accounting.
(2) Excludes the results of operations of Agricredit and the Massey Ferguson
finance joint ventures.
(3) Income from operations is defined as net sales less cost of goods sold,
selling, general and administrative expenses for the Equipment Operations
and engineering expenses.
(4) EBITDA is defined as income before income taxes, equity in net earnings of
unconsolidated subsidiary and affiliates and extraordinary loss, plus
nonrecurring expenses, interest expense, gross, and depreciation and
amortization. EBITDA is presented to provide additional information
relating to the Company's ability to service indebtedness. EBITDA (subject
to certain adjustments, including not adding back nonrecurring expenses)
will be used to determine compliance with certain covenants contained in
the Indenture. However, EBITDA should not be considered as an alternative
to net income as a measure of the Company's operating results or to cash
flows as a measure of liquidity.
(5) Gives effect to the March Offering and the application of the net proceeds
therefrom and the replacement of the Existing Credit Facility with the New
Credit Facility as if such transactions had occurred on January 1, 1995.
Assumes $224.2 million of average indebtedness outstanding under the New
Credit Facility for the first quarter of 1996 at an average interest rate
of 6.7% and $250.0 million of Notes outstanding at an effective interest
rate of 8.63% for total interest expense of $11.4 million. Interest expense
would change by $1.1 million for every 0.5% change in the assumed interest
rate on the New Credit Facility. Excludes the write-off of $3.5 million,
net of taxes, of capitalized fees and expenses associated with the
refinancing of the Old Credit Facility, which were recorded as an
extraordinary loss in the first quarter of 1996.
(6) For purposes of this computation, earnings represent income before income
taxes plus fixed charges. Fixed charges consist of the summation of the
following: interest expense on indebtedness, the interest component of
rental expense, amortization of deferred financing costs and the
proportionate share of fixed charges of 50% owned entities.
(7) Includes $29.9 million of the Convertible Subordinated Debentures, which
were converted on or prior to June 1, 1996 into an aggregate of 4,720,189
shares of Common Stock of the Company.
39
<PAGE> 43
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
During the periods discussed below, the Company's results of operations
were significantly affected by a series of acquisitions that expanded the size
and geographic scope of its distribution network, enabled it to offer new
products and increased its manufacturing capacity. Primarily as a result of the
following acquisitions, revenues increased from $595.7 million in 1993 to
$2,125.0 million in 1995. In January 1993, the Company became the exclusive
distributor in the United States and Canada of Massey Ferguson branded products
and concurrently completed the Massey North American Acquisition. In December
1993, the Company completed the White-New Idea Acquisition, which added a line
of farm implements including planters, spreaders and tillage equipment to the
Company's range of products. In June 1994, the Company completed the Massey
Acquisition, thereby acquiring a producer of one of the top selling brands of
tractors sold worldwide, and certain related assets. In addition, the Company
completed the Agricredit Acquisition by acquiring a 50% joint venture interest
in Agricredit in January 1993 and the remaining 50% interest in February 1994.
The Agricredit Acquisition enabled the Company to provide flexible financing
alternatives to end users in North America as well as to provide an additional
source of income to the Company. In 1995, the Company further expanded its
product offerings through its acquisition of AgEquipment Group, a manufacturer
and distributor of farm implements and tillage equipment (the "AgEquipment
Acquisition"), and its agreement to become the exclusive distributor of Landini
tractors in the United States and Canada (the "Landini Distribution Agreement").
As a result of these acquisitions, the historical results of the Company are not
comparable from year to year in the periods presented and may not be indicative
of future performance.
Sales are recorded by the Company when equipment and replacement parts are
shipped by the Company to its independent dealers. To the extent possible, the
Company attempts to ship products to its dealers on a level basis throughout the
year to reduce the effect of seasonal demands on its manufacturing operations
and to minimize its investment in inventory. Retail sales by dealers to farmers
are highly seasonal and are a function of the timing of the planting and
harvesting seasons. Therefore, there is often a time lag, generally from one to
twelve months between the date the Company records a sale (a "billing") and the
date a dealer sells the equipment to a farmer (a "settlement"). During this time
lag between a billing and a settlement, dealers may not return equipment to the
Company unless the Company terminates a dealer's contract or agrees to accept
returned products. Commissions payable under the Company's salesman incentive
programs are paid at the time of settlement, as opposed to when products are
billed. Due to fluctuations in dealer inventory levels, settlements are more
indicative of retail demand than are billings.
In 1995, 1994 and 1993, the Company paid income taxes at rates
substantially below statutory rates primarily due to the utilization of net
operating loss carryforwards. For the near future, the Company expects to pay
income taxes in the United States at rates which approximate statutory rates,
but continue to pay foreign income taxes at rates substantially below statutory
rates. The Company's foreign tax liability will be reduced due to the
availability of net operating loss carryforwards acquired in the Massey
Acquisition. At December 31, 1995, the Company had foreign net operating loss
carryforwards of approximately $113.8 million which are principally in France.
For financial reporting purposes, the Company did not record an income tax
provision in 1993 as its current income tax provision was offset by the
recognition of deferred income tax benefits through a reduction of a portion of
the valuation allowance. In 1994, the Company's current United States income tax
provision was offset by the recognition of deferred income tax benefits as a
reduction in the valuation allowance. The reduction in the valuation allowance
in 1994 resulted in a United States net income tax benefit of $29.9 million, or
$0.61 per share on a fully diluted basis. The reduction in the valuation
allowance was supported by the Company's generation of taxable income in recent
years and expectations for taxable income in future periods. The United States
net income tax benefit was partially offset by a foreign income tax provision of
$19.3 million primarily consisting of a deferred income tax provision. The
deferred income tax provision resulted from the realization of deferred tax
assets relating to net operating loss carryforwards
40
<PAGE> 44
acquired in the Massey Acquisition. In 1995, the Company's income tax provision
approximated statutory rates although actual income tax payments remained at
rates substantially below statutory rates.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage
relationship to revenues of certain items included in the Company's Consolidated
Statements of Income:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1995 1994 1993
----- ----- -----
<S> <C> <C> <C>
Revenues:
Net sales................................................... 97.3% 97.1% 100.0%
Finance income.............................................. 2.7 2.9 0.0
----- ----- -----
100.0 100.0 100.0
----- ----- -----
Costs and Expenses:
Cost of goods sold(1)....................................... 76.6 76.7 79.0
Selling, general and administrative expenses................ 9.4 9.5 9.4
Engineering expenses........................................ 1.3 1.4 1.3
Interest expense, net....................................... 3.0 3.2 2.3
Other expense (income), net................................. 0.4 0.3 0.7
Nonrecurring acquisition related expenses................... 0.3 1.4 2.3
----- ----- -----
91.0 92.5 95.0
----- ----- -----
Income before income taxes and equity in net earnings of
unconsolidated affiliates................................... 9.0 7.5 5.0
Provision (benefit) for income taxes.......................... 3.1 (0.8) 0.0
----- ----- -----
Income before equity in net earnings of unconsolidated
affiliates.................................................. 5.9 8.3 5.0
Equity in net earnings of unconsolidated affiliates........... 0.2 0.2 0.7
----- ----- -----
Net income.................................................... 6.1% 8.5% 5.7%
===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
---------------
1996 1995
----- -----
<S> <C> <C>
Revenues:
Net sales.......................................................... 96.4% 97.2%
Finance income..................................................... 3.6 2.8
----- -----
100.0 100.0
----- -----
Costs and Expenses:
Cost of goods sold(1).............................................. 76.5 76.8
Selling, general and administrative expenses....................... 10.5 10.3
Engineering expenses............................................... 1.5 1.3
Interest expense, net.............................................. 3.2 3.4
Other expense (income), net........................................ 0.5 0.1
Nonrecurring expenses.............................................. 1.3 0.4
----- -----
93.5 92.3
----- -----
Income before income taxes, equity in net earnings of unconsolidated
affiliates and extraordinary loss.................................. 6.5 7.7
Provision for income taxes........................................... 2.3 2.7
----- -----
Income before equity in net earnings of unconsolidated affiliates and
extraordinary loss................................................. 4.2 5.0
Equity in net earnings of unconsolidated affiliates.................. 0.2 0.1
----- -----
Income before extraordinary loss..................................... 4.4 5.1
Extraordinary loss, net of taxes..................................... (0.8) 0.0
----- -----
Net income........................................................... 3.6% 5.1%
===== =====
</TABLE>
- ------------
(1) Cost of goods sold as a percent of net sales for the years ended December
31, 1995, 1994 and 1993 was 78.7%, 79.1%, and 79.0%, respectively, and for
the three months ended March 31, 1996 and 1995 was
41
<PAGE> 45
79.3% and 79.0%, respectively. Gross profit, which is defined as net sales
less cost of goods sold, was 21.3%, 20.9% and 21.0% for the years ended
December 31, 1995, 1994 and 1993, respectively, and for the three months
ended March 31, 1996 and 1995 was 20.7% and 21.0%, respectively.
THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THREE MONTHS ENDED MARCH 31, 1995
Net Income
The Company recorded net income for the three months ended March 31, 1996
of $17.1 million compared to $23.4 million for the three months ended March 31,
1995. Net income per common share on a fully diluted basis was $0.31 for the
first quarter of 1996 compared to $0.42 for the same period in 1995. Net income
for the three months ended March 31, 1996 included nonrecurring expenses of $5.9
million, or $0.07 per share on a fully diluted basis, related to the further
restructuring of the Company's International Operations and an extraordinary
after-tax charge of $3.5 million, $0.06 per share, for the write-off of
unamortized debt costs related to the refinancing of the revolving credit
facility for the Company's Equipment Operations (see "Liquidity and Capital
Resources"). Net Income for the three months ended March 31, 1995 included
nonrecurring expenses of $2.0 million, or $0.02 per share on a fully diluted
basis, related to the Massey Acquisition (see "Charges for Nonrecurring
Expenses"). Excluding nonrecurring expenses and the extraordinary after-tax
charge, the improved results in 1996 reflected sales growth in existing product
lines and improved operating efficiencies.
Retail Sales
Conditions in the United States and Canadian agricultural markets continue
to be positive in 1996 compared to 1995. Industry unit retail sales of tractors
and hay and forage equipment for the three months ended March 31, 1996 increased
5% and 14%, respectively, over the same period in 1995, while unit retail sales
of combines decreased 5% compared to the prior year. The Company believes the
increase in the tractor market was primarily due to favorable economic
conditions relating to high net cash farm incomes and strong commodity prices,
and industry hay and forage equipment retail sales were higher than the prior
year primarily due to aggressive retail financing programs of the Company's
major competitors. Additionally, the Company believes the decrease in industry
combine retail sales is not necessarily indicative of the full year outlook
because it is currently not the primary selling season.
Company unit settlements of tractors in the United States and Canada for
the first quarter of 1996 increased significantly compared to 1995. The increase
in tractor settlements was attributable to the favorable industry conditions as
well as the impact of the Company's expanded dealer network, which resulted
primarily from dealers entering into crossover contracts whereby an existing
dealer carrying one of the Company's brands contracts to sell an additional AGCO
brand. In addition, the Company benefited from the successful acceptance of
improved tractor product offerings, including the new Massey Ferguson high
horsepower tractors which were introduced in the middle of 1995. Company unit
settlements of combines decreased slightly more than the industry primarily due
to the timing of custom harvester sales which were planned later in 1996
compared to 1995. Company unit settlements of hay and forage equipment were
below the prior year primarily due to the Company choosing not to match the
aggressive retail financing programs of its major competitors.
Industry conditions in Western Europe continue to be favorable with retail
sales of tractors increasing approximately 7% for the first quarter of 1996
compared to the prior year primarily due to improved economic conditions and
strong export demand for commodities. Retail sales of Massey Ferguson tractors
outperformed the industry by increasing approximately 25% over 1995. The Company
experienced the most significant increases in the United Kingdom, France, Spain
and Scandinavia due to the Company's focus on dealer development and the
continued success of the new Massey Ferguson high horsepower tractors. Outside
North America and Western Europe, industry retail sales of tractors also showed
gains in many markets where the Company competes due to a general improvement in
economic conditions. Retail sales of Massey Ferguson tractors were relatively
flat compared to 1995; however, the Company had strong market share gains in
many markets, particularly in the Middle East and Africa.
42
<PAGE> 46
Revenues
Total revenues for the three months ended March 31, 1996 were $470.7
million, representing an increase of $14.5 million or 3.2% over total revenues
of $456.2 million for the same period in 1995. The increase was primarily
attributable to sales from the International Operations, which generated
increased net sales of $29.6 for the first quarter of 1996 compared to the prior
year. This increase primarily related to the strong retail sales of the new
Massey Ferguson high horsepower tractors. This increase for the International
Operations was partially offset by a net sales decrease of $19.2 million for the
first quarter of 1996 compared to 1995 related to the Company's North American
Operations. This decrease was primarily due to the timing of delivery of certain
tractors sourced from certain European suppliers. Total revenues also increased
for the first quarter of 1996 compared to the same period of 1995 due to an
increase in finance income of $4.1 million associated with the operations of
Agricredit. The increase in finance income was primarily due to the growth in
Agricredit's credit receivable portfolio as a result of Agricredit's increased
penetration into the Company's dealer network.
Costs and Expenses
Cost of goods sold of the Company's Equipment Operations for the three
months ended March 31, 1996 was $360.1 million, or 79.3% of net sales, compared
to $350.3 million, or 79.0% of net sales, for the same period in 1995. Gross
profit, defined as net sales less cost of goods sold, was $93.7 million (20.7%
of net sales) for the three months ended March 31, 1996 as compared to $93.2
million (21.0% of net sales) for the same period of the prior year. Gross
margins were negatively impacted by a change in the mix of machinery sales
compared to the prior year as a result of the timing of shipments of certain
high margin tractors to the North American Operations from certain European
suppliers.
Selling, general and administrative expenses for the three months ended
March 31, 1996 were $49.4 million (10.5% of total revenues) compared to $46.8
million (10.3% of total revenues) for the same period last year. The increase in
selling, general and administrative expenses as a percentage of total revenues
was primarily due to the amortization of stock-based compensation expense
related to the Company's long-term incentive plan, which was $3.4 million higher
than the prior year as a result of the increase in the Company's stock price in
1995. This increase was slightly offset by lower operating expenses as a
percentage of total revenues related to Agricredit. Excluding Agricredit and the
amortization related to the long-term incentive plan, the Company's Equipment
Operations had selling, general and administrative expenses of $41.8 million
(9.2% of net sales) and $42.3 million (9.5% of net sales) for the three months
ended March 31, 1996 and 1995, respectively. The decrease as a percentage of net
sales was primarily due to the cost reduction efforts in the Company's
International Operations.
Engineering expenses for the Company's Equipment Operations were $7.0
million (1.5% of net sales) for the three months ended March 31, 1996 compared
to $5.9 million (1.3% of net sales) for the same period in 1995. The increase as
a percentage of net sales was primarily due to the timing of engineering
expenses related to the development of a new Massey Ferguson utility tractor
line.
Interest expense, net for the three months ended March 31, 1996 was $15.1
million compared to $15.3 million for the same period in the prior year. The
decrease in interest expense, net resulted from lower interest rates and lower
average borrowings in addition to higher interest income relating to the
Company's Equipment Operations. This decrease was partially offset by increased
interest expense, net relating to Agricredit due to the additional borrowings
associated with the increase in the credit receivable portfolio and an increase
in the rates charged on outstanding borrowings.
Other expense, net was $2.5 million for the three months ended March 31,
1996 compared to $0.6 million for the same period in 1995. The increase in other
expense, net was primarily due to foreign exchange losses in the International
Operations.
Nonrecurring expenses were $5.9 million for the three months ended March
31, 1996 compared to $2.0 million for the three months ended March 31, 1995. The
nonrecurring charge recorded in 1996 related to the further restructuring of the
International Operations which was acquired in the Massey Acquisition in June
1994. The nonrecurring charge recorded in 1995 primarily related to costs
associated with the initial
43
<PAGE> 47
integration and restructuring of the International Operations. See "Charges for
Nonrecurring Expenses" for further discussion.
The Company recorded an income tax provision of $10.9 million and $12.4
million for the three months ended March 31, 1996 and 1995, respectively. For
both periods, the Company paid income taxes at rates below statutory rates due
to the utilization of net operating loss carryforwards. Due to the availability
of net operating loss carryforwards acquired in the Massey Acquisition, the
Company expects to continue paying taxes at effective rates substantially below
statutory rates in the near future.
Equity in net earnings of unconsolidated affiliates was $0.8 million and
$0.5 million for the three months ended March 31, 1996 and 1995, respectively.
The increase in equity in net earnings of unconsolidated affiliates related to
the Company's pro-rata share in net earnings of its 49% interest in Massey
Ferguson Finance, which provides retail financing to end users in the United
Kingdom, France and Germany.
Finance Company Operations
Agricredit, the Company's wholly owned finance subsidiary, recorded net
income of $2.7 million and $1.4 million for the three months ended March 31,
1996 and 1995, respectively. Retail acceptances were approximately $73.7 million
for the three months ended March 31, 1996 and $53.9 million for the same period
in the prior year. The increase was primarily the result of Agricredit's
penetration into the Company's dealer network and its continued growth in the
Canadian market, where Agricredit began servicing dealers in late 1994. The
Company has entered into an agreement with Rabobank regarding a possible sale of
a 51% interest in Agricredit. See "The Company -- Retail Financing."
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Net Income
The Company recorded net income for the year ended December 31, 1995 of
$129.1 million compared to $115.5 million for the year ended December 31, 1994.
Net income per common share on a fully diluted basis was $2.30 for 1995 compared
to $2.35 for 1994. Net income for 1995 included nonrecurring acquisition related
expenses of $6.0 million, or $0.07 per share on a fully diluted basis, primarily
related to the Massey Acquisition. See "Charges for Nonrecurring Acquisition
Related Expenses." Net income for 1994 included nonrecurring acquisition related
expenses of $19.5 million, or $0.33 per share on a fully diluted basis,
associated with the Massey and White-New Idea Acquisitions and a deferred income
tax benefit of $29.9 million, or $0.61 per share on a fully diluted basis,
relating to the reduction of a portion of the valuation allowance, as previously
discussed. Excluding nonrecurring acquisition related expenses and the deferred
income tax benefit, the improved results in 1995 reflected the impact of the
Company's acquisitions, sales growth in existing product lines and improved
operating efficiencies.
Retail Sales
Conditions in the United States and Canadian agricultural markets were
generally favorable in 1995 compared to 1994. Industry unit retail sales of
tractors and combines for 1995 increased 2% and 10%, respectively, over 1994.
Unit settlements of hay and forage equipment decreased 6% compared to 1994. The
Company believes the increases in the tractor and combine markets were primarily
due to high net cash farm incomes, strong commodity prices, high replacement
demand and aggressive marketing programs associated with competitors'
introduction of new products. The decrease in hay and forage equipment unit
settlements reflects the effects of a softening in cattle and dairy commodity
prices during 1995.
Company unit settlements of tractors in the United States and Canada
increased in line with the industry retail unit sales for 1995 compared to 1994.
The increase in tractor settlements was attributable to the favorable industry
conditions as well as the impact of the Company's expanded dealer network which
resulted primarily from dealers entering into crossover contracts whereby an
existing dealer carrying one of the Company's brands contracts to sell an
additional AGCO brand. Company hay and forage equipment settlements were level
in comparison to the prior year. This improvement in relation to the industry
retail sales
44
<PAGE> 48
also reflected the benefit of an expanded dealer network which resulted from the
Company's crossover contract strategy. Company unit settlements of combines in
the United States and Canada for 1995 were approximately 8% below the prior year
primarily due to aggressive marketing programs to introduce new products by
certain of the Company's competitors and the discontinuance of certain retail
incentive programs by the Company in the first six months of 1994 to move older,
discontinued models.
Industry conditions in Western Europe were favorable in 1995 with retail
sales of tractors increasing approximately 7% compared to 1994 primarily due to
improved economic conditions, strong commodity prices and high export demand.
Retail sales of Massey Ferguson tractors in Western Europe outperformed the
industry by increasing approximately 14% over 1994. The Company experienced the
most significant market share increases in France, Germany and Spain due to the
Company's focus on dealer development and expansion. Additionally, the Company's
successful introduction of the new Massey Ferguson high horsepower tractor line
contributed to the market share increases, particularly in France. Outside North
America and Western Europe, industry retail sales of tractors also showed gains
in many markets where the Company competes due to a general improvement in
economic conditions. Retail sales of Massey Ferguson tractors increased
significantly in the Middle East and Eastern Europe compared to 1994 primarily
due to favorable government incentive programs and improved funding sources in
these regions. These gains were partially offset by decreased retail sales in
Africa due to widespread drought conditions.
Revenues
Total revenues for 1995 were $2,125.0 million representing an increase of
$766.0 million or 56.4% over total revenues of $1,359.0 million for 1994. The
increase was primarily attributable to sales from the Company's international
operations acquired in the Massey Acquisition (the "International Operations"),
which contributed increased net sales of $712.3 million for 1995. In addition to
the full year impact of the acquired International Operations, the increase
reflects year over year sales increases due to the strong retail sales achieved
by the Company's Massey Ferguson products in 1995. The Company also experienced
net sales increases of $36.8 million in 1995 related to the Company's operations
located in North America (the "North American Operations") as a result of an
expanded dealer network, the AgEquipment Acquisition, the Landini Distribution
Agreement and new product introductions. The North American Operation's sales
increase was partially offset by a decrease in replacement parts sales compared
to 1994 as a result of a late planting season and smooth harvest which decreased
demand on an industry-wide basis. Total revenues also increased in 1995 due to
an increase in finance income of $16.9 million associated with the operations of
Agricredit. The increase in finance income was primarily due to the growth in
the Agricredit credit receivable portfolio as a result of Agricredit's increased
penetration into the Company's dealer network and its expansion into the
Canadian market. In addition, prior to the acquisition of the remaining 50%
interest in Agricredit on February 10, 1994, the results of Agricredit were
accounted for under the equity method of accounting and, accordingly, were not
consolidated with those of the Company.
Costs and Expenses
Cost of goods sold of the Company's Equipment Operations in 1995 was
$1,627.7 million (78.7% of net sales) compared to $1,042.9 million (79.1% of net
sales) in 1994. Gross profit, defined as net sales less cost of goods sold, was
$440.7 million (21.3% of net sales) for 1995 as compared to $276.3 million
(20.9% of net sales) for 1994. The Company's gross profit margin increased in
1995 compared to 1994 despite a decrease in the proportion of higher margin part
sales to total net sales. The change in sales mix occurred because the majority
of the Company's sales growth in 1995 related to machinery sales. The negative
effect of this change in sales mix on the gross profit margin was primarily
offset by the Company's ability to record the entire gross profit on Massey
Ferguson equipment sold in North America as a result of the Massey Acquisition.
Prior to the Massey Acquisition, the gross profit margin on sales of Massey
Ferguson equipment in North America was recognized by both the Company and
Varity. In addition, the Company's gross profit margin benefited from the
introduction of the new high horsepower Massey Ferguson tractor line in Western
Europe and cost reduction efforts related to the integration of the
International Operations.
45
<PAGE> 49
Selling, general and administrative expenses for 1995 were $200.6 million
(9.4% of total revenues) compared to $129.5 million (9.5% of total revenues) for
1994. The decrease in selling, general and administrative expenses as a
percentage of total revenues was primarily due to cost reduction initiatives in
the International Operations and lower operating expenses as a percentage of
total revenues related to Agricredit. These improvements as a percentage of
total revenues were partially offset by increased amortization of long term
incentive compensation related to restricted stock awards tied to stock price
appreciation. In connection with the Massey Acquisition, the Company implemented
a restructuring plan which has eliminated duplicate costs by centralizing
certain sales, marketing and administrative functions. See "Charges for
Nonrecurring Acquisition Related Expenses" for further discussion. Excluding
Agricredit, the Company's Equipment Operations had selling, general and
administrative expenses of $186.8 million (9.0% of net sales) and $117.7 million
(8.9% of net sales) for 1995 and 1994, respectively. The increase as a
percentage of net sales was primarily the result of the increased amortization
of restricted stock awards offset by cost reductions in the International
Operations as discussed above.
Engineering expenses for the Company's Equipment Operations were $27.4
million (1.3% of net sales) for 1995 compared to $19.4 million (1.5% of net
sales) for 1994. The higher engineering expenses as a percentage of net sales in
1994 primarily related to the design of the Massey Ferguson 6100/8100 series
high horsepower tractors introduced in early 1995.
Interest expense, net for 1995 was $63.2 million compared to $42.8 million
for 1994. The increase in interest expense, net was primarily due to the
additional borrowings associated with the Massey and the AgEquipment
Acquisitions. The Company financed the entire purchase price for the AgEquipment
Acquisition and a portion of the purchase price for the Massey Acquisition with
additional indebtedness. In addition, interest expense, net increased at
Agricredit due to the additional borrowings associated with the increase in the
credit receivable portfolio and an increase in the rates charged on outstanding
borrowings.
Other expense, net was $9.6 million for 1995 compared to $3.1 million for
1994. The increase in other expense, net was primarily due to increased
amortization of intangible assets as a result of the Massey Acquisition and
foreign exchange losses in the International Operations.
Nonrecurring acquisition related expenses were $6.0 million in 1995 and
$19.5 million in 1994. The nonrecurring charge recorded in 1995 primarily
related to costs associated with the integration of Massey, which was acquired
in June 1994. The 1994 charge related to the integration of Massey and White-New
Idea, which was acquired in December 1993. See "Charges for Nonrecurring
Acquisition Related Expenses" for further discussion.
The Company recorded a net income tax provision of $65.9 million for 1995
and a net income tax benefit of $10.6 million in 1994. In 1995, the Company's
income tax provision approximated statutory rates. The 1994 net income tax
benefit included a $29.9 million United States deferred income tax benefit
related to a reduction of a portion of the valuation allowance. The United
States income tax benefit was offset by a foreign tax provision of $19.3 million
consisting primarily of a deferred income tax provision which resulted from the
realization of deferred tax assets relating to net operating loss carryforwards
acquired in the Massey Acquisition. Due to the availability of net operating
loss carryforwards acquired in the Massey Acquisition, the Company expects to
continue paying taxes at effective rates substantially below statutory rates in
the near future.
Equity in net earnings of unconsolidated affiliates was $4.5 million in
1995 and $3.2 million in 1994. The increase in equity in net earnings of
unconsolidated affiliates was primarily due to the Company's pro-rata share in
net earnings of its 49% interest in Massey Ferguson Finance, acquired in the
Massey Acquisition in June 1994. Massey Ferguson Finance provides retail
financing to end users in the United Kingdom, France and Germany. The amount
recognized for 1994 includes the Company's pro-rata share of earnings in
Agricredit from January 1, 1994 through February 10, 1994. Beginning February
11, 1994, the results of operations of Agricredit were consolidated with the
Company's operations and were no longer accounted for under the equity method of
accounting.
46
<PAGE> 50
Finance Company Operations
Agricredit, the Company's wholly owned finance subsidiary, recorded net
income of $6.8 million for 1995 and $4.9 million for the period from the
acquisition date to December 31, 1994. Retail acceptances were approximately
$362.7 million for 1995 compared to $321.6 million for 1994. The increase was
primarily the result of Agricredit's increased penetration into the Company's
dealer network and its expansion into the Canadian market.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993
Net Income
The Company recorded net income for the year ended December 31, 1994 of
$115.5 million compared to $34.1 million for the year ended December 31, 1993.
Earnings per share on a fully diluted basis were $2.35 for 1994 compared to
$0.93 for 1993. Net income for 1994 included nonrecurring acquisition related
expenses of $19.5 million, or $0.33 per share on a fully diluted basis,
associated with the Massey and White-New Idea Acquisitions (see "Charges for
Nonrecurring Acquisition Related Expenses"), and a deferred income tax benefit
of $29.9 million, or $0.61 per share on a fully diluted basis, relating to the
reduction of a portion of the valuation allowance, as previously discussed. Net
income for 1993 included nonrecurring acquisition related expenses of $14.0
million, or $0.38 per share on a fully diluted basis, related to the integration
of operations acquired in the Massey North American Acquisition. The improved
results in 1994 reflected the impact of the Company's acquisitions, sales growth
in existing product lines and improved operating efficiencies.
Retail Sales
Conditions in the United States and Canadian agricultural markets were
generally favorable in 1994 compared to 1993. Industry unit settlements of
tractors increased 8% while settlements of combines and hay and forage equipment
decreased 1% and 4%, respectively, in 1994 compared to 1993. Separately for the
United States, industry unit settlements of tractors and combines increased 11%
and 8%, respectively, over 1993. The Company believes that several factors led
to these increases including improved agricultural economic conditions, higher
net cash farm incomes and higher replacement demand. The increases experienced
in the United States were offset by decreased settlements of tractors and
combines in Canada which decreased 12% and 30%, respectively, from the prior
year. The decline in Canadian retail sales was primarily due to the effect of
the elimination of a Canadian investment tax credit effective December 1993
which increased sales in 1993.
Company unit settlements of tractors in the United States and Canada
increased 24% in 1994 compared to 1993. The increase was attributable to the
favorable industry conditions as well as the impact of the Company's expanded
dealer network which resulted from the Company's crossover contract strategy.
Company retail sales of combines in the United States and Canada for 1994 were
level with the prior year as Company settlements were also adversely affected by
the elimination of the Canadian investment tax credit. Company settlements of
hay and forage equipment in the United States and Canada, pro forma as if the
White-New Idea Acquisition occurred on January 1, 1993, decreased 4% in 1994
compared to 1993 primarily due to a December 1993 discounting program by
White-New Idea's previous owner that accelerated settlement activity in 1993
that would have otherwise occurred in 1994.
Industry conditions outside the United States and Canada were also
generally favorable in 1994. In Western Europe, industry retail sales of
tractors in 1994 were approximately 6% higher than the prior year due to
improved economic conditions and increased confidence levels of farmers. Retail
sales of Massey Ferguson tractors in Western Europe increased approximately 16%
in 1994 over 1993 particularly in Germany, France, Spain and the Scandinavian
countries. Outside Western Europe and North America, industry retail sales of
tractors also showed gains in many markets where the Company competes due to a
general improvement in economic conditions. Retail sales of Massey Ferguson
tractors in 1994 were higher than 1993 in most markets particularly in Africa,
Australia, and East Asia and Pacific regions. These gains were partially offset
by
47
<PAGE> 51
decreased retail sales of Massey Ferguson tractors in the Middle East due to a
decline in government subsidies and financing sources in that region.
Revenues
The Company's total revenues in 1994 were $1,359.0 million, an increase of
$763.3 million, or 128.1% over 1993. The increase was primarily attributable to
sales from the Company's International Operations which contributed net sales of
$548.6 million for the period from June 29, 1994 to December 31, 1994. The
Company also experienced net sales increases of $175.0 million in 1994 related
to the Company's North American Operations. Of the $175.0 million increase,
approximately $81.7 million was attributable to sales of White-New Idea
products, resulting from the White-New Idea Acquisition, with the remaining
$93.3 million attributable to sales increases in the majority of its existing
products. The internal sales growth in the Company's products reflected the
benefit of an expanded dealer network which was accomplished through the
Company's crossover contract strategy. Total revenues also increased in 1994 due
to finance income of $39.7 million associated with the operations of Agricredit.
Costs and Expenses
Cost of goods sold of the Company's Equipment Operations in 1994 was
$1,042.9 million (79.1% of net sales) compared to $470.5 million (79.0% of net
sales) in 1993. Gross profit, defined as net sales less cost of goods sold, for
1994 was $276.3 million (20.9% of net sales) which was 120.6% greater than the
gross profit in 1993 of $125.3 million (21.0% of net sales). The Company's gross
profit margin remained essentially the same in 1994 compared to 1993 despite a
decrease in the proportion of higher margin part sales to total net sales. The
change in sales mix occurred because the majority of the Company's sales growth
in 1994 related to machinery sales. The effect of this change in sales mix on
the gross profit margin was primarily offset by the Company's ability to record
the entire gross profit on Massey Ferguson equipment sold in North America as a
result of the Massey Acquisition. Prior to the Massey Acquisition, the gross
profit margin on sales of Massey Ferguson equipment in North America was
recognized by both the Company and Varity. In addition, the Company's gross
profit margin benefited from the addition in 1994 of higher margin White-New
Idea products in its sales mix.
Selling, general and administrative expenses for 1994 were $129.5 million
(9.5% of total revenues) compared to $55.8 million (9.4% of total revenues) for
1993. The increase as a percentage of total revenues was primarily due to the
inclusion of the operating expenses of Agricredit since February 11, 1994. As a
percentage of net sales excluding Agricredit, selling, general and
administrative expenses for the Company's Equipment Operations were 8.9% in 1994
compared to 9.4% in 1993. The decrease as a percentage of net sales was
accomplished by achieving sales growth under the Company's existing cost
structure and by attaining certain synergies in connection with the White-New
Idea business through the elimination of duplicate operating functions.
Engineering expenses for 1994 were $19.4 million (1.5% of net sales), an
increase of $11.9 million over engineering expenses of $7.5 million (1.3% of net
sales) for 1993. The increase as a percentage of net sales was primarily due to
the change in the proportion of products the Company manufactures as a result of
the Massey and White-New Idea Acquisitions. The Company manufactured a larger
percentage of its products in 1994 than in the prior year which resulted in
higher engineering costs as a percentage of net sales.
Interest expense, net for 1994 was $42.8 million, an increase of $29.2
million over 1993. A significant portion of the increase was attributable to the
operations of Agricredit, which was acquired in February 1994. Interest expense,
net relating to Agricredit was $18.7 million for the period from February 11,
1994 to December 31, 1994. The remaining increase in interest expense, net was
primarily due to the borrowings associated with the Company's acquisitions in
1994. The Company financed the entire purchase price of the White-New Idea and
Agricredit Acquisitions and a portion of the purchase price of the Massey
Acquisition with additional indebtedness.
Other expense, net was $3.1 million for 1994 compared to $4.2 million for
1993. The decrease in other expense, net from the prior year was primarily due
to decreased Canadian exchange losses which resulted from
48
<PAGE> 52
the effects of currency fluctuations on the sale of the Company's products in
Canada. The decrease in Canadian exchange losses was partially offset by
increased amortization of intangible assets as a result of the Massey
Acquisition.
Nonrecurring acquisition related expenses were $19.5 million in 1994 and
$14.0 million in 1993. The nonrecurring charges in 1994 related to the
integration of the Massey and White-New Idea Acquisitions. The 1993 nonrecurring
charge related to the integration of the Massey North American distribution
operation which was acquired in January 1993. See "Charges for Nonrecurring
Acquisition Related Expenses."
The Company recorded an income tax benefit of $10.6 million in 1994. The
1994 income tax benefit includes a $29.9 million United States deferred income
tax benefit related to a reduction of a portion of the valuation allowance. The
United States income tax benefit was offset by a foreign tax provision of $19.3
million consisting primarily of a deferred income tax provision which resulted
from the realization of deferred tax assets relating to net operating loss
carryforwards acquired in the Massey Acquisition. In 1993, the Company did not
record an income tax provision as its current tax provision was offset by the
recognition of deferred income tax benefits through a reduction of a portion of
the valuation allowance. In 1994 and 1993, the Company paid income taxes at
rates below statutory rates due to the utilization of net operating loss
carryforwards.
Equity in net earnings of unconsolidated affiliates decreased from $4.0
million in 1993 to $3.2 million in 1994. The decrease was due to the acquisition
of the remaining 50% interest in Agricredit in February 1994. As a result, the
results of operations of Agricredit were consolidated with the Company's
operations beginning February 11, 1994 and were no longer accounted for under
the equity method of accounting. For 1994, the majority of equity in net
earnings of unconsolidated affiliates represented the Company's pro-rata share
in net earnings of certain equity investments acquired in the Massey
Acquisition.
Finance Company Operations
Agricredit recorded net income of $4.9 million for the period from the
acquisition date to December 31, 1994. Retail acceptances were approximately
$321.6 million for 1994 compared to $243.5 million for 1993. The increase was
primarily the result of Agricredit's penetration into the Company's dealer
network. Prior to the Company's acquisition of a 50% interest in Agricredit in
January 1993, Agricredit's financing was more concentrated toward the Massey
Ferguson dealer network. In addition, Agricredit began providing financing in
Canada in September 1993 which increased the number of dealers it services.
QUARTERLY RESULTS
To the extent possible, the Company attempts to ship products to its
dealers on a level basis throughout the year to reduce the effect of seasonal
demands on its manufacturing operations and to minimize its investment in
inventory. However, settlements of agricultural equipment are highly seasonal,
with farmers traditionally purchasing agricultural equipment in the spring and
fall in conjunction with the major planting and harvesting seasons. The
Company's net sales and income from operations have historically been the lowest
in the first quarter and have increased in subsequent quarters as dealers
increase inventory in anticipation of increased retail sales in the third and
fourth quarters.
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<PAGE> 53
The following table presents unaudited interim operating results of the
Company. The Company believes that the following information includes all
adjustments (consisting only of normal, recurring adjustments) that the Company
considers necessary for a fair presentation, in accordance with generally
accepted accounting principles. The operating results for any interim period are
not necessarily indicative of results for any future interim period or the
entire fiscal year.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
--------- -------- ------------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
1996:
Revenues................................. $470,692
Gross profit(1).......................... 93,740
Income from operations(1)................ 34,592 (3)
Net income............................... 17,092 (3)
Net income per common share -- fully
diluted............................... 0.31 (3)
1995:
Revenues................................. $456,219 $571,718 $ 498,639 $598,472
Gross profit(1).......................... 93,198 117,444 112,793 117,276
Income from operations(1)................ 41,957 (3) 61,973(3) 60,693(3) 55,986(3)
Net income............................... 23,384 (3) 35,888(3) 36,195(3) 33,675(3)
Net income per common share -- fully
diluted(2)............................ 0.42 (3) 0.64(3) 0.64(3) 0.60(3)
1994:
Revenues................................. $178,936 $226,338 $ 481,355 $472,383
Gross profit(1).......................... 36,598 45,109 98,386 96,248
Income from operations(1)................ 13,088 (3) 25,430 46,393 34,889(3)
Net income............................... 8,586 (3) 21,767 31,890 53,291(3)(4)
Net income per common share -- fully
diluted(2)............................ 0.20 (3) 0.51 0.57 0.95(3)(4)
</TABLE>
- ------------
(1) Gross profit is defined as net sales less cost of goods sold, and income
from operations is defined as net sales less cost of goods sold, selling,
general and administrative expenses for the Equipment Operations,
engineering expenses and nonrecurring expenses.
(2) Net income per common share-fully diluted has been restated for all periods
presented to reflect the two-for-one stock split, effected January 31, 1996
and the three-for-two stock split, effected December 15, 1994.
(3) 1996 operating results include nonrecurring expenses of $5.9 million, or
$0.07 per share, for the three months ended March 31, 1996. 1995 operating
results include nonrecurring expenses of $2.0 million, or $0.02 per share,
for the three months ended March 31, 1995, $1.7 million, or $0.02 per
share, for the three months ended June 30, 1995, $0.9 million, or $0.01 per
share, for the three months ended September 30, 1995 and $1.4 million, or
$0.02 per share, for the three months ended December 31, 1995. 1994
operating results include $6.0 million or $0.14 per share, for the three
months ended March 31, 1994 and $13.5 million, or $0.18 per share, for the
three months ended December 31, 1994.
(4) Includes a deferred income tax benefit of $29.9 million, or $0.54 per share,
related to the reduction of a portion of the valuation allowance.
LIQUIDITY AND CAPITAL RESOURCES
The Company's financing requirements for its Equipment Operations are
subject to variations due to seasonal changes in inventory and dealer receivable
levels. In March 1996, the Company replaced its $550 million secured Old Credit
Facility with the five-year $650 million unsecured New Credit Facility. The New
Credit Facility is the Company's primary source of financing for its Equipment
Operations and provides increased borrowing capacity over the Old Credit
Facility. Borrowings under the New Credit Facility may not
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<PAGE> 54
exceed the sum of 90% of eligible accounts receivable and 60% of eligible
inventory. As receivables and inventories fluctuate, borrowings under the New
Credit Facility fluctuate as well. As of March 31, 1996, approximately $214.7
million was outstanding under the New Credit Facility and available borrowings
were approximately $425.8 million. The Maxion Acquisition was financed primarily
by borrowings under the New Credit Facility.
In March 1996, the Company issued $250.0 million of Old Notes at 99.139% of
the face amount. The net proceeds from the sale of the Old Notes were used to
repay outstanding indebtedness under the Old Credit Facility. The sale of the
Old Notes provided the Company with subordinated capital and replaced a portion
of its floating rate debt with longer term fixed rate debt.
The Company's finance subsidiary, Agricredit, obtains funds from a $545.0
million revolving credit facility (the "Agricredit Revolving Credit Agreement")
to finance its credit receivable portfolio. In 1995, the terms of the Agricredit
Revolving Credit Agreement were amended and restated to increase Agricredit's
available borrowings from $450.0 million to $545.0 million and to extend the
termination date for funding of new borrowings under the agreement to June 30,
1997. Borrowings under the Agricredit Revolving Credit Agreement are based on
the amount and quality of outstanding credit receivables and are generally
issued for terms with maturities matching anticipated credit receivable
liquidations. As the credit receivable portfolio fluctuates, borrowings under
the Agricredit Revolving Credit Agreement fluctuate as well. As of March 31,
1996, approximately $505.2 million was outstanding under the Agricredit
Revolving Credit Agreement and available borrowings were approximately $34.6
million. Agricredit's outstanding borrowings increased by $103.4 million from
December 31, 1994 to December 31, 1995 primarily due to its increased credit
receivable portfolio.
In April 1996, the Company announced its election, effective June 1, 1996,
to redeem all of its outstanding Convertible Subordinated Debentures. The
redemption price was 104.55% of the principal amount of the Convertible
Subordinated Debentures. The Convertible Subordinated Debentures could be
converted into the Company's Common Stock through the redemption date and all of
the Convertible Subordinated Debentures were converted into the Company's Common
Stock prior to redemption by the Company.
The Company's working capital requirements for its Equipment Operations are
somewhat seasonal, with investments in working capital typically building in the
first and second quarters and then reducing in the third and fourth quarters. As
of March 31, 1996, the Company's Equipment Operations had $751.3 million of
working capital, an increase of $89.8 million over working capital of $661.5
million as of December 31, 1995. The increase in working capital was primarily
due to normal seasonal requirements, particularly in inventories. As of December
31, 1995, the Company's Equipment Operations had $661.5 million of working
capital, an increase of $147.6 million from working capital of $513.9 million as
of December 31, 1994. The increase in working capital was primarily due to an
increase in dealer receivables resulting from the Company's sales growth in
1995, the AgEquipment Acquisition, the Landini Distribution Agreement, and the
timing of sales in the International Operations which had significantly higher
sales in late 1995 than in late 1994.
Cash flow used for operating activities was $47.4 million for the three
months ended March 31, 1996 as compared to $84.5 million for the same period
last year. The decrease in cash flow used for operating activities was primarily
due to the reduction in the first quarter of 1996 of unusually high accounts
receivable levels in the International Operations at December 31, 1995 which
resulted from significantly higher sales in late 1995 than in late 1994. This
impact on cash flow was offset to some extent by increases in cash flow used for
working capital requirements for inventories and payables. Cash flow provided by
operating activities was $67.1 million for 1995 compared to $96.4 million for
1994. The decrease in operating cash flow was primarily due to increases in
working capital, as discussed above, partially offset by an increase in net
income. The cash flow provided by operating activities was primarily used to
fund the AgEquipment Acquisition and capital expenditures. Cash flow provided by
operating activities was $96.4 million for 1994 compared to $22.2 million for
1993. The increase in operating cash flow was primarily due to the increase in
net income in 1994, a decrease in inventories and an increase in accounts
payable and accrued expenses. These items were partially offset by an increase
in dealer receivables of $84.5 million in 1994 primarily due to sales growth in
the
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Company's North American Operations. The cash flow from operations generated in
1994 was primarily used to pay down borrowings under the Old Credit Facility.
Capital expenditures for the first three months of 1996 were $5.5 million
compared to $5.3 million for the same period in 1995. Capital expenditures were
$45.3 million in 1995 compared to $20.7 million in 1994 and $6.7 million in
1993. The increases in 1995 and 1994 were the result of capital expenditures by
the Company's International Operations related to its manufacturing operations.
For both years, the Company's capital expenditures relate to the development of
new and existing products as well as the maintenance and improvement of existing
facilities. The Company currently anticipates that additional capital
expenditures for the remainder of 1996 will range from approximately $35.0
million to $45.0 million and will primarily be used to support the development
and enhancement of new and existing products.
Agricredit's credit receivable originations exceeded credit receivable
payments by $6.6 million for the three months ended March 31, 1996. The increase
in Agricredit's credit receivable portfolio will result in increased finance
income in future periods. The credit receivable originations were financed
through additional borrowings under the Agricredit Revolving Credit Agreement.
The Company's consolidated debt to capitalization ratio, assuming
conversion of the Convertible Subordinated Debentures, was 60.2% at March 31,
1996 compared to 62.4% at March 31, 1995. The Company's Equipment Operations
debt to capitalization ratio, assuming conversion of the Convertible
Subordinated Debentures, was 41.9% at March 31, 1996 compared to 46.6% at March
31, 1995. The decrease in the Company's leverage was due to the net income and
the operating cash flow generated in the last nine months of 1995 and the first
quarter of 1996 which reduced the Company's borrowing requirements to fund
acquisitions and capital expenditures.
In April 1996, the Company's board of directors declared a common stock
dividend of $0.01 per share for the first quarter of 1996. The declaration and
payment of future dividends will be at the sole discretion of the board of
directors and will depend upon the Company's results of operations, financial
condition, cash requirements, future prospectus, limitations imposed by the
Company's credit facilities and other factors deemed relevant by the Company's
board of directors.
The Company believes that available borrowings under the New Credit
Facility and the Agricredit Revolving Credit Agreement, available cash and
internally generated funds will be sufficient to support its working capital,
capital expenditures, credit receivable originations, and debt service
requirements for the foreseeable future.
The Company from time to time reviews and will continue to review
acquisition and joint venture opportunities as well as changes in the capital
markets. If the Company were to consummate a significant acquisition or elect to
take advantage of favorable opportunities in the capital markets, the Company
may supplement availability or revise the terms under its credit facilities or
complete public or private offerings of equity or debt securities.
CHARGES FOR NONRECURRING EXPENSES
Massey Acquisition
The Company identified $19.5 million of nonrecurring acquisition related
expenses primarily related to the integration and restructuring of the Company's
International Operations acquired in June 1994 as a result of the Massey
Acquisition. The Company recorded a charge of $13.5 million in the fourth
quarter of 1994 to recognize a portion of these costs and recorded the remaining
$6.0 million in 1995. These costs primarily related to the centralization and
rationalization of the International Operations' administrative, sales and
marketing functions. Prior to the Massey Acquisition, Massey's operations were
organized in a decentralized business unit structure. The Company's
restructuring plan has centralized many functions duplicated under the previous
organization. This restructuring has resulted in a reduction in personnel and
the elimination of administrative offices, thereby eliminating excessive costs
and redundancies in future periods. The combined $19.5 million charge recorded
through December 31, 1995 included estimates for employee severance, contractual
obligations arising from the acquisition and certain payroll expenses incurred
through Decem-
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ber 31, 1995 for employees that have been terminated or will be terminated in
future periods. Of the total $19.5 million charge, $18.2 million has been
incurred at December 31, 1995. The Company expects to incur the remaining $1.3
million in early 1996.
The Company's successful implementation of its restructuring plan has
resulted in significant savings in the International Operations. The majority of
these savings resulted from personnel reductions, facilities rationalizations,
and other savings which primarily resulted from the centralization of the
International Operations' administrative, sales and marketing functions. In
addition, the Company has achieved material cost savings from the redesign of
certain components, an increased use of common components throughout the Massey
product line and more effective purchasing from the centralization of that
function. In addition, material cost savings have been achieved from the
Company's strategic alliance with Renault Agriculture S.A. (the "GIMA Joint
Venture") to produce driveline assemblies for both companies. By sharing
overhead and engineering costs, the GIMA Joint Venture resulted in decreased
costs for these components.
In 1996, the Company identified approximately $12.0 million of nonrecurring
expenses related to the further restructuring of the Company's International
Operations, acquired in June 1994 as a result of the Massey Acquisition. The
Company recorded $5.9 million during the first quarter of 1996 to recognize a
portion of these costs. These costs primarily related to the centralization of
certain parts warehousing, administrative, sales and marketing functions. The
Company expects to record the remaining $6.1 million of nonrecurring expenses in
1996 and to complete the restructuring by mid-1997. Savings from the further
restructuring of the International Operations are expected to result primarily
from reduced selling, general and administrative expenses primarily relating to
the Company's parts warehousing, finance, dealer communications, sales and
marketing functions. While the Company believes that cost savings from its
restructuring plan can be attained, there can be no assurance that all
objectives of the restructuring will be achieved.
In the first quarter of 1995, the Company recorded nonrecurring expenses of
$2.0 million which was a portion of the Company's $19.5 million charge recorded
through December 31, 1995 primarily related to the initial integration and
restructuring of the International Operations. These costs primarily related to
the centralization and rationalization of the International Operations'
administrative, sales, and marketing functions. Substantially all of the costs
associated with the $19.5 million charge recorded through December 31, 1995 have
been incurred.
White-New Idea Acquisition
In the first quarter of 1994, the Company recorded a $6.0 million charge
for nonrecurring acquisition related expenses related to the integration of
White-New Idea, which was acquired in December 1993. The nonrecurring charge
included employee severance and relocation expenses, costs associated with
operating duplicate parts distribution operations, costs for dealer signs and
other nonrecurring costs related to the integration.
Savings from the integration of White-New Idea resulted primarily from the
elimination of three of White-New Idea's four parts distribution facilities and
the consolidation of the Company's and White-New Idea's parts distribution
operations. In addition, certain efficiencies and cost savings were achieved in
sales, marketing and administrative functions resulting from the integration of
these operations in the first quarter of 1994.
Massey Ferguson North American Acquisition
In the first quarter of 1993, the Company recorded a $14.0 million charge
for nonrecurring acquisition related expenses related to the integration of
Massey's North American distribution operation which was acquired in January
1993. The nonrecurring charge included costs associated with operating duplicate
parts distribution facilities and regional administrative and sales offices
prior to their closings, costs for data processing services and related costs
provided by Massey during the transition and other nonrecurring costs.
Savings from the integration of the Massey North American distribution
operation resulted primarily from the elimination of seven regional
administrative and sales offices operated by Massey and the
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consolidation of the Company's and Massey's parts distribution operations which
resulted in the elimination of eight parts distribution facilities, including
Massey's central parts distribution facility.
OUTLOOK
The Company's operations are subject to the cyclical nature of the
agricultural industry. Sales of the Company's equipment have been and are
expected to continue to be affected by changes in net cash farm income, farm
land values, weather conditions, the demand for agricultural commodities and
general economic conditions.
The outlook for worldwide sales of agricultural equipment expenditures
remains positive. The high net cash farm income and strong farmer balance sheets
in 1995 should enable farmers to make necessary purchases of equipment in 1996.
In addition, worldwide commodity prices continue to increase as a result of
reduced grain stocks and increasing domestic and export demand. These factors
should increase farmers' confidence and result in continued replacement demand
for agricultural equipment. While the new United States farm bill may create
some uncertainty in the farm economy, the Company believes that the improvements
in recent years in the North American farmers' productivity and ability to
control expenses mitigates this uncertainty and further supports the farmers'
replacement demand.
The Western European agricultural market benefited from improved economic
conditions as well as from direct payments to farmers under the Common
Agricultural Policy ("CAP") reform. These items along with strong export demand
and high commodity prices should continue to support the farmers' replacement
demand in 1996 despite uncertainty relating to the long-term impact of the CAP
reforms and provisions of the GATT. Over the longer term, demand for farm
equipment in some parts of Europe is expected to exhibit a slow, modest decline
due to a shift to fewer but larger farms. This consolidation is expected to be
offset, to some extent, by increased sales of more expensive higher horsepower
equipment to support larger farms. Outside of North America and Western Europe,
continued general economic improvement, the increasing affluence of the
population in certain developing countries and the increased availability of
funding sources should positively support equipment demand. As a result of these
favorable market conditions, the Company's production levels in 1996 are
forecasted to be modestly higher than the prior year.
FOREIGN CURRENCY RISK MANAGEMENT
The Company has significant manufacturing operations in the United States,
the United Kingdom, France and, as a result of the Maxion Acquisition, Brazil,
and it purchases a portion of its tractors, combines and components from third
party foreign suppliers primarily in various European countries and in Japan.
The Company also sells products in over 140 countries throughout the world.
Fluctuations in the value of foreign currencies create exposures which can
adversely affect the Company's results of operations.
The Company attempts to manage its foreign exchange exposure by hedging
identifiable foreign currency commitments arising from receivables, payables,
and expected purchases and sales. Where naturally offsetting currency positions
do not occur, the Company hedges its exposures through the use of foreign
currency forward contracts. The Company's policy prohibits foreign currency
forward contracts for speculative trading purposes.
ACCOUNTING CHANGES
In October 1995, the Financial Accounting Standards Board issued Statement
No. 123, "Accounting for Stock-Based Compensation" which the Company is required
to adopt in 1996. The Statement requires companies to estimate the value of all
stock-based compensation using a recognized pricing model. Companies have the
option of recognizing this value as an expense or disclosing its pro forma
effects on net income. The Company has not yet determined its method of
adoption; however, the effect on compensation expense relating to this new
standard would not have had a material effect on the Company's financial
position or results of operations for the year ended December 31, 1995.
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In March 1995, the Financial Accounting Standards Board issued Statement
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of," which established accounting standards for the
impairment of long-lived assets, certain identifiable intangibles and goodwill
related to those assets to be held and used, as well as for long-lived assets
and certain identifiable intangibles to be disposed. The Company will be
required to adopt the new standard in the first quarter of 1996. The adoption of
this standard will not have a material effect on the Company's financial
position.
Effective January 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 112, "Employers' Accounting for Postemployment
Benefits," which requires accrual of postemployment benefits for former or
inactive employees after employment but before retirement. The adoption of this
new standard did not have a material effect on the Company's financial position
or results of operations.
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions," which had the incremental effect of decreasing net income
in 1993 by approximately $1.0 million, or $0.03 per common share on a fully
diluted basis, compared with the expense determined under the previous method of
accounting in 1992. In addition, effective January 1, 1993, the Company adopted
the provisions of Statement of Financial Accounting Standard No. 109,
"Accounting for Income Taxes." The effect of adopting this new standard did not
have a material effect on the Company's financial position or results of
operations.
DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS
Portions of this Prospectus include forward looking statements within the
meaning of Section 27A of the Securities Act and Section 21E of the Exchange
Act. Although the Company believes that the expectations reflected in such
forward looking statements are based upon reasonable assumptions, it can give no
assurance that its expectations will be achieved. Important factors that could
cause actual results to differ materially from the Company's current
expectations are disclosed in conjunction with the forward looking statements
included herein. See "Risk Factors."
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MANAGEMENT
The following table sets forth information with respect to the executive
officers and directors of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITIONS
- ------------------------------------------- --- -------------------------------------------
<S> <C> <C>
Robert J. Ratliff(1)....................... 64 Chairman of the Board and Chief Executive
Officer
Allen W. Ritchie(2)........................ 38 President and Director
John M. Shumejda(2)........................ 50 Executive Vice President, Technology and
Development and Director
James M. Seaver............................ 50 Executive Vice President -- Sales and
Marketing
Norm L. Boyd............................... 53 Vice President -- Marketing, Americas
Judith A. Czelusniak....................... 39 Vice President -- Public Relations
Larry W. Gutekunst......................... 58 Vice President -- Engineering
Daniel H. Hazelton......................... 58 Vice President -- Sales, Americas
Aaron D. Jones............................. 50 Vice President -- Manufacturing
Steven D. Lupton........................... 51 Vice President -- Legal Services,
International
John G. Murdoch............................ 50 Vice President -- Sales and Marketing,
Europe, Middle East and Africa
William A. Nix............................. 44 Vice President and Treasurer
Chris E. Perkins........................... 33 Vice President and Chief Financial Officer
Bruce W. Plagman........................... 45 Vice President -- Parts, International
Dexter E. Schaible......................... 47 Vice President -- Product Development
Patrick S. Shannon......................... 33 Vice President -- Finance and
Administration, International
Michael F. Swick........................... 50 Vice President -- General Counsel
Edward R. Swingle.......................... 54 Vice President -- Parts, Americas
Henry J. Claycamp(1)(3)(4)................. 65 Director
William H. Fike(2)(3)...................... 60 Director
Gerald B. Johanneson(1)(2)(5).............. 56 Director
Richard P. Johnston(1)(4)(5)............... 65 Director
J. Patrick Kaine(5)........................ 70 Director
Alan S. McDowell(6)........................ 48 Director
Charles S. Mechem, Jr.(3).................. 65 Director
J-P Richard(6)............................. 53 Director
Hamilton Robinson, Jr.(1)(4)(6)............ 62 Director
</TABLE>
- ------------
(1) Member of the Executive Committee of the Board of Directors of the Company.
(2) Member of the Strategic Planning Committee of the Board of Directors of the
Company.
(3) Member of the Nominating Committee of the Board of Directors of the Company.
(4) Member of the Succession Planning Committee of the Board of Directors of the
Company.
(5) Member of the Compensation Committee of the Board of Directors of the
Company.
(6) Member of the Audit Committee of the Board of Directors of the Company.
Robert J. Ratliff has been Chief Executive Officer of the Company since
January 1996, President and Chief Executive Officer from June 1990 to December
1995, a Director since June 1990 and Chairman of the Board of Directors since
August 1993. Mr. Ratliff is also a director of Kysor Industrial Corporation.
From October 1988 to June 1990, Mr. Ratliff was President and Chief Executive
Officer of Deutz Allis. From 1986 to 1988, Mr. Ratliff was President and Chief
Executive Officer of Pro-Tread Corporation. From 1983 to 1985, Mr. Ratliff was
Group Vice President of the Worldwide Tire Group and President of the Uniroyal
Tire Company U.S., a subsidiary of Uniroyal, Inc. From 1957 to 1982, Mr. Ratliff
served in various capacities at International Harvester Company, including:
President of the International Harvester Export Company,
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<PAGE> 60
Senior Vice President of Worldwide Operations, Truck Group and Senior Vice
President of North American Operations, Truck Group.
Allen W. Ritchie has been a Director of the Company since July 1995. Mr.
Ritchie has been President of the Company since January 1996, Executive Vice
President and Chief Financial Officer from June 1994 to December 1995, Senior
Vice President and Chief Financial Officer from January 1993 to June 1994 and
Vice President and Chief Financial Officer from September 1991 to January 1993.
Prior to joining the Company, Mr. Ritchie was a partner in the accounting firm
of Arthur Andersen LLP, where he had been employed since 1979.
John M. Shumejda has been a Director of the Company since July 1995. Mr.
Shumejda has been Executive Vice President, Technology and Development since
January 1996, Executive Vice President and Chief Operating Officer from January
1993 to January 1996, Senior Vice President -- Operations from October 1991 to
January 1993, Senior Vice President -- Combine Operations from May 1991 to
October 1991 and Vice President -- Combine Operations from June 1990 to May
1991. Mr. Shumejda was Vice President -- Combine Operations for Deutz Allis from
October 1988 to June 1990. From 1986 to 1988, Mr. Shumejda was Vice
President -- Operations of Pro-Tread and from 1983 to 1986 he was Eastern Region
Manager for Uniroyal responsible for sales. From 1970 to 1983, Mr. Shumejda was
involved in various capacities at International Harvester Company, the most
recent as a Manager of Fleet Marketing.
James M. Seaver has been Executive Vice President -- Sales and Marketing,
for the Company since January 1996, Senior Vice President -- Sales and
Marketing, Americas from February 1995 to January 1996, Vice President -- Sales,
Americas from May 1993 to February 1995, Vice President Dealer Operations from
January 1993 to May 1993, Vice President -- Financial Services from January 1992
to January 1993, Vice President -- Parts Division from October 1991 to December
1991, Vice President -- Sales from June 1991 to October 1991, Vice
President -- Marketing from June 1990 to June 1991 and Vice
President -- Marketing of Deutz Allis from December 1988 to June 1990.
Norm L. Boyd has been Vice President -- Marketing, Americas for the Company
since February 1995 and Manager -- Dealer Operations from January 1993 to
February 1995. From January 1990 to January 1993, Mr. Boyd was a Business Unit
General Manager with Massey Ferguson.
Judith A. Czelusniak has been Vice President -- Public Relations for the
Company since November 1994. From March 1993 to November 1994, Ms. Czelusniak
managed AGCO's external communications on a contract basis while she was a
Principal at The Dilenschneider Group, a public relations consulting company.
From 1991 to 1993, Ms. Czelusniak was Vice President and Director of the
Corporate Communications Group at Morgen-Walke Associates, an investor relations
firm based in New York. From 1989 to 1991, Ms. Czelusniak was a Vice President
for Hill and Knowlton, Inc.
Larry W. Gutekunst has been Vice President -- Engineering for the Company
since October 1995, Director -- Engineering, Americas from January 1994 to
October 1995 and Director, Product Operations, Independence Plant from February
1993 to January 1994. Mr. Gutekunst held various engineering positions with the
Company from June 1990 to February 1993 and with Deutz Allis from December 1988
to June 1990.
Daniel H. Hazelton has been Vice President -- Sales, Americas for the
Company since February 1995 and Vice President -- Parts from January 1992 to
February 1995. From 1986 to 1992, Mr. Hazelton was Manager of Parts Distribution
for Komatsu Dresser.
Aaron D. Jones has been Vice President -- Manufacturing for the Company
since October 1995, Vice President -- Manufacturing, International from March
1995 to October 1995 and Director of Manufacturing, International from June 1994
to March 1995. From April 1988 to June 1994, Mr. Jones was Managing Director of
Massey Ferguson Tractors Limited, a subsidiary of Massey Ferguson.
Steven D. Lupton has been Vice President -- Legal Services, International
since October 1995 and Director -- Legal Services, International from June 1994
to September 1995. Mr. Lupton was Director of Legal Services of Massey Ferguson
from February 1990 to June 1994 and European Legal Counsel for NCH Corporation
from 1975 to January 1990.
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John G. Murdoch has been Vice President -- Sales and Marketing, Europe,
Middle East and Africa for the Company since October 1995, Vice
President -- Sales and Marketing, International from June 1994 to October 1995
and Vice President -- Massey Ferguson Operations from January 1993 to June 1994.
From 1965 to 1993, Mr. Murdoch held various positions with Massey Ferguson, most
recently as Vice President -- Sales.
William A. Nix has been Vice President and Treasurer of the Company since
October 1995. Mr. Nix was Director of Corporate Finance at Caraustar Industries
from September 1990 to October 1995 and was a senior manager with the accounting
firm of Arthur Andersen LLP, where he had been employed from September 1979 to
September 1990.
Chris E. Perkins has been Vice President and Chief Financial Officer of the
Company since January 1996, Vice President -- Finance and Administration,
International from February 1995 to December 1995, Director of Finance and
Administration, International from June 1994 to February 1995, Manager --
Corporate Development from August 1993 to June 1994 and Manager -- Financial and
Operational Controls from August 1992 to August 1993. Prior to joining the
Company, Mr. Perkins was a manager in the accounting firm of Arthur Andersen
LLP, where he had been employed since 1986.
Bruce W. Plagman has been Vice President -- Parts, International for the
Company since February 1995, Director of Parts, International from June 1994 to
February 1995, and Manager -- Massey Ferguson Parts Operations from January 1993
to June 1994. From 1991 to 1993, Mr. Plagman was Director of the Massey Ferguson
Parts Company in North America and from 1989 to 1991 Director of Sales and
Marketing for the Massey Ferguson Parts Company in North America.
Dexter E. Schaible has been Vice President -- Product Development for the
Company since October 1995, Director -- Product Development from September 1993
to October 1995 and Product Marketing Manager from August 1991 to September
1993. Prior to joining the Company, Mr. Schaible was Product Marketing Manager
for Hesston Corporation since 1979.
Patrick S. Shannon has been Vice President -- Finance and Administration,
International for the Company since January 1996, Vice President and Controller
from February 1995 to December 1995, Controller from June 1993 to February 1995
and Assistant Controller from December 1991 to June 1993. Prior to joining the
Company, Mr. Shannon was a senior accountant with the accounting firm of Arthur
Andersen LLP, where he had been employed since 1987.
Michael F. Swick has been Vice President -- General Counsel of the Company
since December 1991 and General Counsel since December 1990. Prior to joining
the Company, Mr. Swick was a partner with the law firm of Drew, Eckl & Farnham.
Edward R. Swingle has been Vice President -- Parts, Americas for the
Company since February 1995, Vice President -- Marketing from May 1993 to
February 1995, Vice President -- Sales from October 1991 until May 1993, Vice
President -- Parts from January 1990 to October 1991 and Vice President -- Parts
of Deutz Allis from December 1988 to June 1990.
Henry J. Claycamp has been a Director of the Company since June 1990. Mr.
Claycamp has been the President of MOSAIX, Inc., a management consulting firm,
from 1985 to 1995. From 1973 to 1982, Mr. Claycamp was Vice
President -- Corporate Planning and Vice President -- Corporate Marketing for
International Harvester Company.
William H. Fike has been a Director of the Company since April 1995. Mr.
Fike has been Vice Chairman and Executive Vice President of Magna International
since September 1994. From 1965 to 1994, Mr. Fike held several managerial
positions at Ford Motor Company, including Corporate Vice President and
President -- Ford of Europe, Executive Director of Ford Mexico Automotive and
North American Trim Operations and President -- Ford of Brazil.
Gerald B. Johanneson has been President and Chief Operating Officer of
Haworth, Inc. since 1993, Executive Vice President and Chief Operating Officer
from 1988 to 1993 and Executive Vice President -- Sales and Marketing from 1986
to 1988. From 1983 to 1986, Mr. Johanneson was Vice President --
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<PAGE> 62
Marketing of Uniroyal's Tire Division and from 1962 to 1983 he held several
managerial positions at International Harvester Company, the most recent as Vice
President -- Marketing of International Harvester Canada.
Richard P. Johnston has been a Director of the Company since June 1990. Mr.
Johnston has been Chairman of the Board of Merbanco Inc., a private equity
investor, since 1976 and is a director of Myers Industries. Mr. Johnston was
Chairman of the Board of Republic Realty Mortgage Corporation, a commercial
mortgage banking company, from January 1993 to January 1995. From July 1991 to
December 1993, Mr. Johnston was a Managing Director of Hamilton Robinson &
Company, Incorporated ("HR&Co."), a private institutional equity manager and he
was the President and Chief Executive Officer of Buckhorn Inc. from 1980 to
1991. Mr. Johnston was also a Vice President of Myers Industries, Inc. from 1987
to 1991.
J. Patrick Kaine has been a Director of the Company since December 1991.
Mr. Kaine has been President of JPK Management Company since 1987 and is a
director of T.C.C. Industries. He spent most of his career with International
Harvester/Navistar, where he held various positions, including President of the
Agricultural and Industrial Equipment Division and President of the Worldwide
Truck Group. From 1982 to 1987, Mr. Kaine was a Director of International
Harvester Company and was named Vice Chairman in 1984.
Alan S. McDowell has been a Director of the Company since June 1990. Mr.
McDowell is also a director of Buffets, Inc. and Chart House Enterprises, Inc.
Mr. McDowell has been a private investor since 1983.
Charles S. Mechem, Jr. has been a Director of the Company since June 1990.
Mr. Mechem has been Commissioner Emeritus of the Ladies Professional Golf
Association since January 1996 and was the Commissioner of the Ladies
Professional Golf Association from January 1991 to December 1995. Mr. Mechem is
a Director of Cincinnati Bell Corporation, Mead Corporation, J.M. Smucker
Company, Star Banc Corporation and Star Bank, N.A. and Ohio National Life
Insurance Company.
J-P Richard has been a Director of the Company since January 1993. Mr.
Richard has been President and Chief Executive Officer and a member of the Board
of Insituform Technologies Incorporated since November 1993. From October 1991
to November 1993, Mr. Richard was President of Massey Ferguson, a subsidiary of
Varity Corporation, and Senior Vice President -- Corporate Development of
Varity. Mr. Richard was Executive Vice President of Asea Brow Boveri, Inc. of
Stamford, Connecticut from 1990 to 1991.
Hamilton Robinson, Jr. has been a Director of the Company since June 1990
and was Chairman of the Board of Directors of the Company from September 1990 to
August 1993. Since 1984, Mr. Robinson has been Managing Director of HR&Co.
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DESCRIPTION OF THE NOTES
The Old Notes were issued under an Indenture, dated as of March 20, 1996
(the "Indenture"), between the Company and SunTrust Bank, Atlanta, as trustee
(the "Trustee"). The New Notes will be issued under the Indenture, which will be
qualified under the Trust Indenture Act of 1939, as amended (the "Trust
Indenture Act"), upon the effectiveness of the Registration Statement of which
this Prospectus is a part. The form and terms of the New Notes are identical in
all material respects to the form and terms of the Old Notes except that the New
Notes will be registered under the Securities Act and, therefore, will not bear
legends restricting transfer thereof. Upon the consummation of the Exchange
Offer, holders of Notes will not be entitled to registration rights under, or
the contingent increase in interest rate provided pursuant to, the Old Notes.
The New Notes will evidence the same debt as the Old Notes and will be treated
as a single class under the Indenture with any Old Notes that remain
outstanding. The Old Notes and New Notes are herein collectively referred to as
the "Notes."
The terms of the Notes include those stated in the Indenture and those made
part of the Indenture by reference to the Trust Indenture Act as in effect on
the date of the Indenture. The Notes are subject to all such terms and reference
is made to the Indenture and the Trust Indenture Act for a statement thereof. A
copy of the Indenture has been filed with the Commission as an exhibit to the
Registration Statement of which this Prospectus is a part. The following
summary, which describes certain provisions of the Indenture and the Notes, does
not purport to be complete and is subject to, and is qualified in its entirety
by reference to all the provisions of the Indenture, including the definitions
of certain terms therein and those terms made a part thereof by the Trust
Indenture Act.
GENERAL
The Notes will be unsecured senior subordinated obligations of the Company,
limited to $250 million aggregate principal amount, and will mature on March 15,
2006. Each Note will initially bear interest at 8 1/2% per annum from March 20,
1996 or from the most recent Interest Payment Date to which interest has been
paid or provided for, payable semiannually (to Holders of record at the close of
business on the March 1 or September 1 immediately preceding the Interest
Payment Date) on March 15 and September 15 of each year, commencing September
15, 1996.
Principal of, premium, if any, and interest on the Notes will be payable,
and the Notes may be exchanged or transferred, at the office or agency of the
Company in the Borough of Manhattan, the City of New York (which initially will
be the corporate trust office of the Trustee c/o First National Bank of Chicago,
14 Wall Street, Suite 4607, New York, New York 10005); provided that, at the
option of the Company, payment of interest may be made by check mailed to the
address of the Holders as such address appears in the Security Register.
The Notes will be issued only in fully registered form, without coupons, in
denominations of $1,000 of principal amount and any integral multiple thereof.
See "-- Book-Entry; Delivery and Form." No service charge will be made for any
registration of transfer or exchange of Notes, but the Company may require
payment of a sum sufficient to cover any transfer tax or other similar
governmental charge payable in connection therewith.
OPTIONAL REDEMPTION
The Notes will be redeemable, at the Company's option, in whole or in part,
at any time or from time to time, on or after March 15, 2001 and prior to
maturity, upon not less than 30 nor more than 60 days' prior notice mailed by
first class mail to each Holders' last address as it appears in the Security
Register, at the following Redemption Prices (expressed in percentages of
principal amount), plus accrued and unpaid interest, if any, to the Redemption
Date (subject to the right of Holders of record on the relevant Regular
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Record Date that is on or prior to the Redemption Date to receive interest due
on an Interest Payment Date), if redeemed during the 12-month period commencing
March 15, of the years set forth below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
-------------------------------------------------------------------------- ----------
<S> <C>
2001...................................................................... 104.250%
2002...................................................................... 102.125
2003 and thereafter....................................................... 100.000
</TABLE>
In the case of any partial redemption, selection of the Notes for
redemption will be made by the Trustee in compliance with the requirements of
the principal national securities exchange, if any, on which the Notes are
listed or, if the Notes are not listed on a national securities exchange, on a
pro rata basis, by lot or by such other method as the Trustee in its sole
discretion shall deem to be fair and appropriate; provided that no Note of
$1,000 in principal amount or less shall be redeemed in part. If any Note is to
be redeemed in part only, the notice of redemption relating to such Note shall
state the portion of the principal amount thereof to be redeemed. A new Note in
principal amount equal to the unredeemed portion thereof will be issued in the
name of the Holder thereof upon cancellation of the original Note.
SINKING FUND
There will be no sinking fund payments for the Notes.
RANKING
The Notes will be unsecured, general obligations of the Company,
subordinated in right of payment to all existing and future Senior Indebtedness
of the Company, pari passu in right of payment with any future senior
subordinated indebtedness of the Company and senior in right of payment to any
existing or future subordinated indebtedness of the Company. In addition, all
existing and future liabilities (including Trade Payables) of the Company's
subsidiaries will be effectively senior to the Notes. After giving pro forma
effect to the Maxion Acquisition, the Company (excluding its subsidiaries) would
have had approximately $752.5 million of Indebtedness outstanding, $474.7
million of which would have been Senior Indebtedness and $29.9 million of which
would have been subordinated indebtedness, and the Company's subsidiaries would
have had approximately $431.8 million of liabilities (excluding approximately
$505.2 million of indebtedness and $26.8 million of other liabilities of
Agricredit and $74.7 million of indebtedness guaranteed by the Company), all of
which would have been effectively senior to the Notes. See "Risk
Factors -- Leverage," "-- Ranking of the Notes," and "Capitalization."
Notwithstanding the foregoing, payment from the money or the proceeds of U.S.
Government Obligations held in any defeasance trust described under "Defeasance"
below will not be contractually subordinated in right of payment to any Senior
Indebtedness or subject to the restrictions described herein.
Upon any payment or distribution of assets or securities of the Company, of
any kind or character, whether in cash, property or securities, in connection
with any dissolution or winding up or total or partial liquidation or
reorganization of the Company, whether voluntary or involuntary, or in
bankruptcy, insolvency, receivership or other proceedings or other marshalling
of assets for the benefit of creditors, all amounts due or to become due upon
all Senior Indebtedness (including any interest accruing subsequent to an event
of bankruptcy, whether or not such interest is an allowed claim enforceable
against the debtor under the United States Bankruptcy Code) shall first be paid
in full, in cash or cash equivalents, before the Holders or the Trustee on their
behalf shall be entitled to receive any payment by the Company on account of
Senior Subordinated Obligations, or any payment to acquire any of the Notes for
cash, property or securities, or any distribution with respect to the Notes of
any cash, property or securities. Before any payment may be made by, or on
behalf of, the Company on any Senior Subordinated Obligations in connection with
any such dissolution, winding up, liquidation or reorganization, any payment or
distribution of assets or securities of the Company of any kind or character,
whether in cash, property or securities, to which the Holders or the Trustee on
their behalf would be entitled, but for the subordination provisions of the
Indenture, shall be made by the Company or by any receiver, trustee in
bankruptcy, liquidating trustee, agent or other similar Person making such
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payment or distribution or by the Holders or the Trustee if received by them or
it, directly to the holders of the Senior Indebtedness (pro rata to such holders
on the basis of the respective amounts of Senior Indebtedness held by such
holders) or their representatives or to any trustee or trustees under any
indenture pursuant to which any such Senior Indebtedness may have been issued,
as their respective interests appear, to the extent necessary to pay all such
Senior Indebtedness in full, in cash or cash equivalents after giving effect to
any concurrent payment, distribution or provision therefor to or for the holders
of such Senior Indebtedness.
No direct or indirect payment by or on behalf of the Company of Senior
Subordinated Obligations, whether pursuant to the terms of the Notes or upon
acceleration or otherwise, shall be made if, at the time of such payment, there
exists a default in the payment of all or any portion of the obligations on any
Senior Indebtedness, and such default shall not have been cured or waived or the
benefits of this sentence waived by or on behalf of the holders of such Senior
Indebtedness. In addition, during the continuance of any other event of default
with respect to (i) the Bank Credit Agreement pursuant to which the maturity
thereof may be accelerated and (a) upon receipt by the Trustee of written notice
from the Agent or (b) if such event of default under the Bank Credit Agreement
results from the acceleration of the Notes or a Change of Control, from and
after the date of such acceleration or occurrence of such Change of Control, no
payment of Senior Subordinated Obligations may be made by or on behalf of the
Company upon or in respect of the Notes for a period (a "Payment Blockage
Period") commencing on the earlier of the date of receipt of such notice or the
date of such acceleration or occurrence of such Change of Control and ending 179
days thereafter (unless such Payment Blockage Period shall be terminated by
written notice to the Trustee from the Agent or such event of default has been
cured or waived or by repayment in full in cash or cash equivalents of such
Senior Indebtedness) or (ii) any other Designated Senior Indebtedness pursuant
to which the maturity thereof may be accelerated, upon receipt by the Trustee of
written notice from the trustee or other representative for the holders of such
other Designated Senior Indebtedness (or the holders of at least a majority in
principal amount of such other Designated Senior Indebtedness then outstanding),
no payment of Senior Subordinated Obligations may be made by or on behalf of the
Company upon or in respect of the Notes for a Payment Blockage Period commencing
on the date of receipt of such notice and ending 119 days thereafter (unless, in
each case, such Payment Blockage Period shall be terminated by written notice to
the Trustee from such trustee of, or other representatives for, such holders or
by repayment in full in cash or cash equivalents of such Designated Senior
Indebtedness or such event of default has been cured or waived). Notwithstanding
anything in the Indenture to the contrary, there must be 180 consecutive days in
any 360-day period in which no Payment Blockage Period is in effect. No event of
default (other than an event of default pursuant to the financial maintenance
covenants under the Bank Credit Agreement) that existed or was continuing (it
being acknowledged that any subsequent action that would give rise to an event
of default pursuant to any provision under which an event of default previously
existed or was continuing shall constitute a new event of default for this
purpose) on the date of commencement of any Payment Blockage Period with respect
to the Designated Senior Indebtedness initiating such Payment Blockage Period
shall be, or shall be made, the basis for the commencement of a second Payment
Blockage Period by the representative for, or the holders of, such Designated
Senior Indebtedness, whether or not within a period of 360 consecutive days,
unless such event of default shall have been cured or waived for a period of not
less than 45 consecutive days.
By reason of the subordination provisions described above, in the event of
bankruptcy, liquidation, insolvency or similar events, creditors of the Company
who are not holders of Senior Indebtedness may recover less, ratably, than
holders of Senior Indebtedness and may recover more, ratably, than Holders of
the Notes.
To the extent any payment of Senior Indebtedness (whether by or on behalf
of the Company, as proceeds of security or enforcement of any right of setoff or
otherwise) is declared to be fraudulent or preferential, set aside or required
to be paid to any receiver, trustee in bankruptcy, liquidating trustee, agent or
other similar Person under any bankruptcy, insolvency, receivership, fraudulent
conveyance or similar law, then if such payment is recovered by, or paid over
to, such receiver, trustee in bankruptcy, liquidating trustee, agent or other
similar Person, the Senior Indebtedness or part thereof originally intended to
be satisfied shall be deemed to be reinstated and outstanding as if such payment
had not occurred. To the extent the obligation to repay any Senior Indebtedness
is declared to be fraudulent, invalid, or otherwise set aside under any
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bankruptcy, insolvency, receivership, fraudulent conveyance or similar law, then
the obligation so declared fraudulent, invalid or otherwise set aside (and all
other amounts that would come due with respect thereto had such obligation not
been affected) shall be deemed to be reinstated and outstanding as Senior
Indebtedness for all purposes hereof as if such declaration, invalidity or
setting aside had not occurred.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
covenants and other provisions of the Indenture. Reference is made to the
Indenture for the full definition of all terms as well as any other capitalized
term used herein for which no definition is provided.
"Acquired Indebtedness" means Indebtedness of a Person existing at the time
such Person becomes a Restricted Subsidiary or assumed in connection with an
Asset Acquisition by a Restricted Subsidiary and not Incurred in connection
with, or in anticipation of, such Person becoming a Restricted Subsidiary or
such Asset Acquisition; provided that Indebtedness of such Person which is
redeemed, defeased, retired or otherwise repaid at the time of or immediately
upon consummation of the transactions by which such Person becomes a Restricted
Subsidiary or such Asset Acquisition shall not be Acquired Indebtedness.
"Adjusted Consolidated Net Income" means, for any period, the aggregate net
income (or loss) of the Company and its Restricted Subsidiaries for such period
determined in conformity with GAAP; provided that the following items shall be
excluded in computing Adjusted Consolidated Net Income (without duplication):
(i) the net income of any Person (other than net income attributable to a
Restricted Subsidiary) in which any Person (other than the Company or any of its
Restricted Subsidiaries) has a joint interest and the net income of any
Unrestricted Subsidiary, except to the extent of the amount of dividends or
other distributions actually paid to the Company or any of its Restricted
Subsidiaries by such other Person or such Unrestricted Subsidiary during such
period; (ii) solely for the purposes of calculating the amount of Restricted
Payments that may be made pursuant to clause (C) of the first paragraph of the
"Limitation on Restricted Payments" covenant described below (and in such case,
except to the extent includable pursuant to clause (i) above), the net income
(or loss) of any Person accrued prior to the date it becomes a Restricted
Subsidiary or is merged into or consolidated with the Company or any of its
Restricted Subsidiaries or all or substantially all of the property and assets
of such Person are acquired by the Company or any of its Restricted
Subsidiaries; (iii) the net income of any Restricted Subsidiary to the extent
that the declaration or payment of dividends or similar distributions by such
Restricted Subsidiary of such net income is not at the time permitted by the
operation of the terms of its charter or any agreement, instrument, judgment,
decree, order, statute, rule or governmental regulation applicable to such
Restricted Subsidiary; (iv) any gains or losses (on an after-tax basis)
attributable to Asset Sales; (v) except for purposes of calculating the amount
of Restricted Payments that may be made pursuant to clause (C) of the first
paragraph of the "Limitation on Restricted Payments" covenant described below,
any amount paid or accrued as dividends on Preferred Stock of the Company or any
Restricted Subsidiary owned by Persons other than the Company and any of its
Restricted Subsidiaries; and (vi) all extraordinary gains and extraordinary
losses.
"Adjusted Consolidated Net Tangible Assets" means the total amount of
assets of the Company and its Restricted Subsidiaries (less applicable
depreciation, amortization and other valuation reserves), except to the extent
resulting from write-ups of capital assets (excluding write-ups in connection
with accounting for acquisitions in conformity with GAAP), after deducting
therefrom (i) all current liabilities of the Company and its Restricted
Subsidiaries (excluding intercompany items) and (ii) all goodwill, trade names,
trademarks, patents, unamortized debt discount and expense and other like
intangibles, all as set forth on the most recent quarterly or annual
consolidated balance sheet of the Company and its Restricted Subsidiaries,
prepared in conformity with GAAP and filed pursuant to the "Commission Reports
and Reports to Holders" covenant.
"Affiliate" means, as applied to any Person, any other Person directly or
indirectly controlling, controlled by, or under direct or indirect common
control with, such Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as applied to any Person, means the
possession, directly or indirectly, of the power to direct or cause
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the direction of the management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise.
"Agent" means Rabobank Nederland, New York Branch, as agent for the
financial institutions from time to time party to the Bank Credit Agreement.
"Asset Acquisition" means (i) an investment by the Company or any of its
Restricted Subsidiaries in any other Person pursuant to which such Person shall
become a Restricted Subsidiary or shall be merged into or consolidated with the
Company or any of its Restricted Subsidiaries; provided that such Person's
primary business is related, ancillary or complementary to the businesses of the
Company and its Restricted Subsidiaries on the date of such investment or (ii)
an acquisition by the Company or any of its Restricted Subsidiaries of the
property and assets of any Person other than the Company or any of its
Restricted Subsidiaries that constitute substantially all of a division or line
of business of such Person; provided that the property and assets acquired are
related, ancillary or complementary to the businesses of the Company and its
Restricted Subsidiaries on the date of such acquisition.
"Asset Disposition" means the sale or other disposition by the Company or
any of its Restricted Subsidiaries (other than to the Company or another
Restricted Subsidiary) of (i) all or substantially all of the Capital Stock of
any Restricted Subsidiary of the Company or (ii) all or substantially all of the
assets that constitute a division or line of business of the Company or any of
its Restricted Subsidiaries.
"Asset Sale" means any sale, transfer or other disposition (including by
way of merger, consolidation or sale-leaseback transaction) in one transaction
or a series of related transactions by the Company or any of its Restricted
Subsidiaries to any Person other than the Company or any of its Restricted
Subsidiaries of (i) all or any of the Capital Stock of any Restricted
Subsidiary, (ii) all or substantially all of the property and assets of an
operating unit or business of the Company or any of its Restricted Subsidiaries
or (iii) any other property and assets of the Company or any of its Restricted
Subsidiaries (other than the Capital Stock or assets of an Unrestricted
Subsidiary) outside the ordinary course of business of the Company or such
Restricted Subsidiary and, in each case, that is not governed by the provisions
of the Indenture applicable to mergers, consolidations and sales of assets of
the Company; provided that "Asset Sale" shall not include (a) sales or other
dispositions of inventory, receivables and other current assets or (b) sales or
other dispositions of assets for consideration at least equal to the fair market
value of the assets sold or disposed of, provided that the consideration
received would satisfy clause (B) of the "Limitation on Asset Sales" covenant.
"Average Life" means, at any date of determination with respect to any debt
security, the quotient obtained by dividing (i) the sum of the products of (a)
the number of years from such date of determination to the dates of each
successive scheduled principal payment of such debt security and (b) the amount
of such principal payment by (ii) the sum of all such principal payments.
"Bank Credit Agreement" means (i) the credit agreement dated October 21,
1994 among the Company, its Subsidiaries named therein, the lenders named
therein, and Cooperatieve Centrale Raiffeisen -- Boerenleenbank B. A., "Rabobank
Nederland", New York Branch, ITT Commercial Finance Corporation and Trust
Company Bank, as co-agents, and (ii) the credit agreement dated as of May 24,
1995 among AGCO Canada, Ltd., the Company, the lenders named therein, Bank of
Montreal, as administrative agent, and Deutsche Financial Services Corporation,
as collateral agent, each together with all other agreements, instruments and
documents executed or delivered pursuant thereto or in connection therewith, in
each case as such agreements, instruments or documents may be amended,
supplemented, extended, renewed, replaced or otherwise modified from time to
time (including the credit agreement contemplated by that certain commitment
letter, dated February 13, 1996, between the Company and Cooperative Centrale
Raiffeisen-Boerenleenbank B.A. "Rabobank Nederland", New York Branch); provided
that, with respect to any agreement providing for the refinancing of
Indebtedness under the Bank Credit Agreement, such agreement shall be the Bank
Credit Agreement under the Indenture only if a notice to that effect is
delivered by the Company to the Trustee and there shall be at any time only one
instrument that is (together with the aforementioned related agreements,
instruments and documents) the Bank Credit Agreement under the Indenture.
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"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated, whether
voting or non-voting) in equity of such Person, whether now outstanding or
issued after the Closing Date, including, without limitation, all Common Stock
and Preferred Stock.
"Capitalized Lease" means, as applied to any Person, any lease of any
property (whether real, personal or mixed) of which the discounted present value
of the rental obligations of such Person as lessee, in conformity with GAAP, is
required to be capitalized on the balance sheet of such Person; and "Capitalized
Lease Obligations" means the discounted present value of the rental obligations
under such lease.
"Change of Control" means such time as (i) a "person" or "group" (within
the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act) becomes the
ultimate "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act) of
Voting Stock representing more than 35% of the total voting power of the total
Voting Stock of the Company on a fully diluted basis; or (ii) individuals who on
the Closing Date constitute the Board of Directors (together with any new
directors whose election by the Board of Directors or whose nomination for
election by the Company's stockholders was approved by a vote of at least a
majority of the members of the Board of Directors then in office who either were
members of the Board of Directors on the Closing Date or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the members of the Board of Directors then in office.
"Closing Date" means the date on which the Notes are originally issued
under the Indenture.
"Consolidated EBITDA" means, for any period, the sum of the amounts for
such period of (i) Adjusted Consolidated Net Income, (ii) Consolidated Interest
Expense, to the extent such amount was deducted in calculating Adjusted
Consolidated Net Income, (iii) income taxes, to the extent such amount was
deducted in calculating Adjusted Consolidated Net Income (other than income
taxes (either positive or negative) attributable to extraordinary and
non-recurring gains or losses or sales of assets), (iv) depreciation expense, to
the extent such amount was deducted in calculating Adjusted Consolidated Net
Income, (v) amortization expense, to the extent such amount was deducted in
calculating Adjusted Consolidated Net Income, and (vi) all other non-cash items
reducing Adjusted Consolidated Net Income (other than items that will require
cash payments and for which an accrual or reserve is, or is required by GAAP to
be, made), less all non-cash items increasing Adjusted Consolidated Net Income,
all as determined on a consolidated basis for the Company and its Restricted
Subsidiaries in conformity with GAAP; provided that, if any Restricted
Subsidiary is not a Wholly Owned Restricted Subsidiary, Consolidated EBITDA
shall be reduced (to the extent not otherwise reduced in accordance with GAAP)
by an amount equal to (A) the amount of the Adjusted Consolidated Net Income
attributable to such Restricted Subsidiary multiplied by (B) the quotient of (1)
the number of shares of outstanding Common Stock of such Restricted Subsidiary
not owned on the last day of such period by the Company or any of its Restricted
Subsidiaries divided by (2) the total number of shares of outstanding Common
Stock of such Restricted Subsidiary on the last day of such period.
"Consolidated Interest Expense" means, for any period, the aggregate amount
of interest in respect of Indebtedness (including amortization of original issue
discount on any Indebtedness and the interest portion of any deferred payment
obligation, calculated in accordance with the effective interest method of
accounting; all commissions, discounts and other fees and charges owed with
respect to letters of credit and bankers' acceptance financing; the net costs
associated with Interest Rate Agreements; and Indebtedness that is Guaranteed or
secured by the Company or any of its Restricted Subsidiaries) and all but the
principal component of rentals in respect of Capitalized Lease Obligations paid,
accrued or scheduled to be paid or to be accrued by the Company and its
Restricted Subsidiaries during such period; excluding, however, (i) any amount
of such interest of any Restricted Subsidiary if the net income of such
Restricted Subsidiary is excluded in the calculation of Adjusted Consolidated
Net Income pursuant to clause (iii) of the definition thereof (but only in the
same proportion as the net income of such Restricted Subsidiary is excluded from
the calculation of Adjusted Consolidated Net Income pursuant to clause (iii) of
the definition thereof) and (ii) any premiums, fees and expenses (and any
amortization thereof) payable in connection with the offering of the Notes, all
as determined on a consolidated basis (without taking into account Unrestricted
Subsidiaries) in conformity with GAAP.
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"Consolidated Net Worth" means, at any date of determination, stockholders'
equity as set forth on the most recently available quarterly or annual
consolidated balance sheet of the Company and its Restricted Subsidiaries (which
shall be as of a date not more than 90 days prior to the date of such
computation, and which shall not take into account Unrestricted Subsidiaries),
less any amounts attributable to Redeemable Stock or any equity security
convertible into or exchangeable for Indebtedness, the cost of treasury stock
and the principal amount of any promissory notes receivable from the sale of the
Capital Stock of the Company or any of its Restricted Subsidiaries, each item to
be determined in conformity with GAAP (excluding the effects of foreign currency
exchange adjustments under Financial Accounting Standards Board Statement of
Financial Accounting Standards No. 52).
"Default" means any event that is, or after notice or passage of time or
both would be, an Event of Default.
"Designated Senior Indebtedness" means (i) Indebtedness and all other
monetary obligations (including expenses, fees and other monetary obligations)
under the Bank Credit Agreement and (ii) any other Indebtedness constituting
Senior Indebtedness that, at any date of determination, has an aggregate
principal amount of at least $25 million and is specifically designated by the
Company in the instrument creating or evidencing such Senior Indebtedness as
"Designated Senior Indebtedness."
"fair market value" means the price that would be paid in an arm's-length
transaction between an informed and willing seller under no compulsion to sell
and an informed and willing buyer under no compulsion to buy, as determined in
good faith by the Board of Directors, whose determination shall be conclusive if
evidenced by a Board Resolution.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the Closing Date, including, without limitation,
those set forth in the opinions and pronouncements of the Accounting Principles
Board of the American Institute of Certified Public Accountants and statements
and pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as approved by a significant segment of the
accounting profession. All ratios and computations contained or referred to in
the Indenture shall be computed in conformity with GAAP applied on a consistent
basis, except that calculations made for purposes of determining compliance with
the terms of the covenants and with other provisions of the Indenture shall be
made without giving effect to (i) the amortization of any expenses incurred in
connection with the offering of the Notes and (ii) except as otherwise provided,
the amortization of any amounts required or permitted by Accounting Principles
Board Opinion Nos. 16 and 17.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness or other obligation of any
other Person and, without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Indebtedness or other obligation of such other Person (whether arising by virtue
of partnership arrangements, or by agreements to keep-well, to purchase assets,
goods, securities or services, to take-or-pay, or to maintain financial
statement conditions or otherwise) or (ii) entered into for purposes of assuring
in any other manner the obligee of such Indebtedness or other obligation of the
payment thereof or to protect such obligee against loss in respect thereof (in
whole or in part); provided that the term "Guarantee" shall not include
endorsements for collection or deposit in the ordinary course of business. The
term "Guarantee" used as a verb has a corresponding meaning.
"Incur" means, with respect to any Indebtedness, to incur, create, issue,
assume, Guarantee or otherwise become liable for or with respect to, or become
responsible for, the payment of, contingently or otherwise, such Indebtedness,
including an "Incurrence" of Indebtedness by reason of a Person becoming a
Restricted Subsidiary of the Company; provided that neither the accrual of
interest nor the accretion of original issue discount shall be considered an
Incurrence of Indebtedness.
"Indebtedness" means, with respect to any Person at any date of
determination (without duplication), (i) all indebtedness of such Person for
borrowed money, (ii) all obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments (other than any non-negotiable
notes issued to insurance carriers in lieu of maintenance of policy reserves in
connection with workers' compensation and liability
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insurance programs), (iii) all obligations of such Person in respect of letters
of credit or other similar instruments (including reimbursement obligations with
respect thereto, but excluding obligations with respect to letters of credit
(including trade letters of credit) securing obligations (other than obligations
described in (i) or (ii) above or (v), (vi) or (vii) below) entered into in the
ordinary course of business of such Person to the extent such letters of credit
are not drawn upon or, if drawn upon, to the extent such drawing is reimbursed
no later than the third Business Day following receipt by such Person of a
demand for reimbursement), (iv) all obligations of such Person to pay the
deferred and unpaid purchase price of property or services, which purchase price
is due more than six months after the date of placing such property in service
or taking delivery and title thereto or the completion of such services, except
Trade Payables, (v) all obligations of such Person as lessee under Capitalized
Leases, (vi) all Indebtedness of other Persons secured by a Lien on any asset of
such Person, whether or not such Indebtedness is assumed by such Person;
provided that the amount of such Indebtedness shall be the lesser of (A) the
fair market value of such asset at such date of determination and (B) the amount
of such Indebtedness, (vii) all Indebtedness of other Persons Guaranteed by such
Person to the extent such Indebtedness is Guaranteed by such Person and (viii)
to the extent not otherwise included in this definition, obligations under
Currency Agreements and Interest Rate Agreements. The amount of Indebtedness of
any Person at any date shall be the outstanding balance at such date of all
unconditional obligations as described above and, with respect to contingent
obligations, the maximum liability upon the occurrence of the contingency giving
rise to the obligation, provided (A) that the amount outstanding at any time of
any Indebtedness issued with original issue discount is the face amount of such
Indebtedness and (B) that Indebtedness shall not include (I) any liability for
federal, state, local or other taxes or (II) any obligations of such Person
pursuant to Receivables Programs to the extent such obligations are nonrecourse
to such Person and its Subsidiaries.
"Interest Coverage Ratio" means, on any Transaction Date, the ratio of (i)
the aggregate amount of Consolidated EBITDA for the then most recent four fiscal
quarters prior to such Transaction Date for which reports have been filed with
the Commission pursuant to the "Commission Reports and Reports to Holders"
covenant (the "Four Quarter Period") to (ii) the aggregate Consolidated Interest
Expense during such Four Quarter Period. In making the foregoing calculation,
(A) pro forma effect shall be given to any Indebtedness Incurred or repaid
during the period (the "Reference Period") commencing on the first day of the
Four Quarter Period and ending on the Transaction Date (other than Indebtedness
Incurred or repaid under a revolving credit or similar arrangement to the extent
of the commitment thereunder (or under any predecessor revolving credit or
similar arrangement) in effect on the last day of such Four Quarter Period
unless any portion of such Indebtedness is projected, in the reasonable judgment
of the senior management of the Company, to remain outstanding for a period in
excess of 12 months from the date of the Incurrence thereof), in each case as if
such Indebtedness had been Incurred or repaid on the first day of such Reference
Period; (B) Consolidated Interest Expense attributable to interest on any
Indebtedness (whether existing or being Incurred) computed on a pro forma basis
and bearing a floating interest rate shall be computed as if the rate in effect
on the Transaction Date (taking into account any Interest Rate Agreement
applicable to such Indebtedness if such Interest Rate Agreement has a remaining
term in excess of 12 months or, if shorter, at least equal to the remaining term
of such Indebtedness) had been the applicable rate for the entire period; (C)
pro forma effect shall be given to Asset Dispositions and Asset Acquisitions
(including giving pro forma effect to the application of proceeds of any Asset
Disposition) that occur during such Reference Period as if they had occurred and
such proceeds had been applied on the first day of such Reference Period; and
(D) pro forma effect shall be given to asset dispositions and asset acquisitions
(including giving pro forma effect to the application of proceeds of any asset
disposition) that have been made by any Person that has become a Restricted
Subsidiary or has been merged with or into the Company or any Restricted
Subsidiary during such Reference Period and that would have constituted Asset
Dispositions or Asset Acquisitions had such transactions occurred when such
Person was a Restricted Subsidiary as if such asset dispositions or asset
acquisitions were Asset Dispositions or Asset Acquisitions that occurred on the
first day of such Reference Period; provided that to the extent that clause (C)
or (D) of this sentence requires that pro forma effect be given to an Asset
Acquisition or Asset Disposition, such pro forma calculation shall be based upon
the four full fiscal quarters immediately preceding the Transaction Date of the
Person, or division or line of business of the Person, that is acquired or
disposed for which financial information is available.
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"Investment" in any Person means any direct or indirect advance, loan or
other extension of credit (including, without limitation, by way of Guarantee or
similar arrangement; but excluding advances to customers in the ordinary course
of business that are, in conformity with GAAP, recorded as accounts receivable
on the balance sheet of the Company or its Restricted Subsidiaries) or capital
contribution to (by means of any transfer of cash or other property to others or
any payment for property or services for the account or use of others), or any
purchase or acquisition of Capital Stock, bonds, notes, debentures or other
similar instruments issued by, such Person and shall include (i) the designation
of a Restricted Subsidiary as an Unrestricted Subsidiary and (ii) the fair
market value of the Capital Stock (or any other Investment), held by the Company
or any of its Restricted Subsidiaries, of (or in) any Person that has ceased to
be a Restricted Subsidiary, including without limitation, by reason of any
transaction permitted by clause (iii) of the "Limitation on the Issuance and
Sale of Capital Stock of Restricted Subsidiaries" covenant. For purposes of the
definition of "Unrestricted Subsidiary" and the "Limitation on Restricted
Payments" covenant described below, (i) "Investment" shall include the fair
market value of the assets (net of liabilities (other than liabilities to the
Company or any of its Restricted Subsidiaries)) of any Restricted Subsidiary at
the time that such Restricted Subsidiary is designated an Unrestricted
Subsidiary, (ii) the fair market value of the assets (net of liabilities (other
than liabilities to the Company or any of its Restricted Subsidiaries)) of any
Unrestricted Subsidiary at the time that such Unrestricted Subsidiary is
designated a Restricted Subsidiary shall be considered a reduction in
outstanding Investments and (iii) any property transferred to or from an
Unrestricted Subsidiary shall be valued at its fair market value at the time of
such transfer.
"Investment Grade" means a rating of the Notes by both S&P and Moody's,
each such rating being in one of such agency's four highest generic rating
categories that signifies investment grade (i.e., BBB- (or the equivalent) or
higher by S&P and Baa3 (or the equivalent) or higher by Moody's); provided, in
each case, such ratings are publicly available; provided further, that in the
event Moody's or S&P is no longer in existence, for purposes of determining
whether the Notes are rated "Investment Grade," such organization may be
replaced by a nationally recognized statistical rating organization (as defined
in Rule 436 under the Securities Act) designated by the Company, notice of which
designation shall be given to the Trustee.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including, without limitation, any conditional sale or other
title retention agreement or lease in the nature thereof or any agreement to
give any security interest).
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Cash Proceeds" means, (a) with respect to any Asset Sale, the proceeds
of such Asset Sale in the form of cash or cash equivalents, including payments
in respect of deferred payment obligations (to the extent corresponding to the
principal, but not interest, component thereof) when received in the form of
cash or cash equivalents (except to the extent such obligations are financed or
sold with recourse to the Company or any Restricted Subsidiary) and proceeds
from the conversion of other property received when converted to cash or cash
equivalents, net of (i) brokerage commissions and other fees and expenses
(including fees and expenses of counsel and investment bankers) related to such
Asset Sale, (ii) provisions for all taxes (whether or not such taxes will
actually be paid or are payable) as a result of such Asset Sale without regard
to the consolidated results of operations of the Company and its Restricted
Subsidiaries, taken as a whole, (iii) payments made to repay Indebtedness or any
other obligation outstanding at the time of such Asset Sale that either (A) is
secured by a Lien on the property or assets sold or (B) is required to be paid
as a result of such sale and (iv) appropriate amounts to be provided by the
Company or any Restricted Subsidiary of the Company as a reserve against any
liabilities associated with such Asset Sale, including, without limitation,
pension and other post-employment benefit liabilities, liabilities related to
environmental matters and liabilities under any indemnification obligations
associated with such Asset Sale, all as determined in conformity with GAAP and
(b) with respect to any issuance or sale of Capital Stock, the proceeds of such
issuance or sale in the form of cash or cash equivalents, including payments in
respect of deferred payment obligations (to the extent corresponding to the
principal, but not interest, component thereof) when received in the form of
cash or cash equivalents (except to the extent such obligations are financed or
sold with recourse to the Company or any Restricted Subsidiary of the Company)
and proceeds from the conversion of other property received when converted to
cash or cash equivalents, net of attorney's fees, accountants' fees,
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underwriters' or placement agents' fees, discounts or commissions and brokerage,
consultant and other fees incurred in connection with such issuance or sale and
net of taxes paid or payable as a result thereof.
"Offer to Purchase" means an offer to purchase Notes by the Company from
the Holders commenced by mailing a notice to the Trustee and each Holder
stating: (i) the covenant pursuant to which the offer is being made and that all
Notes validly tendered will be accepted for payment on a pro rata basis; (ii)
the purchase price and the date of purchase (which shall be a Business Day no
earlier than 30 days nor later than 60 days from the date such notice is mailed)
(the "Payment Date"); (iii) that any Note not tendered will continue to accrue
interest pursuant to its terms; (iv) that, unless the Company defaults in the
payment of the purchase price, any Note accepted for payment pursuant to the
Offer to Purchase shall cease to accrue interest on and after the Payment Date;
(v) that Holders electing to have a Note purchased pursuant to the Offer to
Purchase will be required to surrender the Note, together with the form entitled
"Option of the Holder to Elect Purchase" on the reverse side of the Note
completed, to the Paying Agent at the address specified in the notice prior to
the close of business on the Business Day immediately preceding the Payment
Date; (vi) that Holders will be entitled to withdraw their election if the
Paying Agent receives, not later than the close of business on the third
Business Day immediately preceding the Payment Date, a telegram, facsimile
transmission or letter setting forth the name of such Holder, the principal
amount of Notes delivered for purchase and a statement that such Holder is
withdrawing his election to have such Notes purchased; and (vii) that Holders
whose Notes are being purchased only in part will be issued new Notes equal in
principal amount to the unpurchased portion of the Notes surrendered; provided
that each Note purchased and each new Note issued shall be in a principal amount
of $1,000 or integral multiples thereof. On the Payment Date, the Company shall
(i) accept for payment on a pro rata basis Notes or portions thereof tendered
pursuant to an Offer to Purchase; (ii) deposit with the Paying Agent money
sufficient to pay the purchase price of all Notes or portions thereof so
accepted; and (iii) deliver, or cause to be delivered, to the Trustee all Notes
or portions thereof so accepted together with an Officers' Certificate
specifying the Notes or portions thereof accepted for payment by the Company.
The Paying Agent shall promptly mail to the Holders of Notes so accepted payment
in an amount equal to the purchase price, and the Trustee shall promptly
authenticate and mail to such Holders a new Note equal in principal amount to
any unpurchased portion of the Note surrendered; provided that each Note
purchased and each new Note issued shall be in a principal amount of $1,000 or
integral multiples thereof. The Company will publicly announce the results of an
Offer to Purchase as soon as practicable after the Payment Date. The Trustee
shall act as the Paying Agent for an Offer to Purchase. The Company will comply
with Rule 14e-1 under the Exchange Act and any other securities laws and
regulations thereunder to the extent such laws and regulations are applicable,
in the event that the Company is required to repurchase Notes pursuant to an
Offer to Purchase.
"Permitted Investment" means (i) an Investment in the Company or a
Restricted Subsidiary or a Person which will, upon the making of such
Investment, become a Restricted Subsidiary or be merged or consolidated with or
into or transfer or convey all or substantially all its assets to, the Company
or a Restricted Subsidiary; provided that such person's primary business is
related, ancillary or complementary to the businesses of the Company and its
Restricted Subsidiaries on the date of such Investment; (ii) Temporary Cash
Investments; (iii) payroll, travel and similar advances to cover matters that
are expected at the time of such advances ultimately to be treated as expenses
in accordance with GAAP; (iv) loans or advances to employees made in the
ordinary course of business in accordance with past practice of the Company or
its Restricted Subsidiaries and that do not in the aggregate exceed $3 million
at any time outstanding; and (v) stock, obligations or securities received in
satisfaction of judgments.
"Permitted Liens" means (i) Liens for taxes, assessments, governmental
charges or claims that are either (a) delinquent for less than 90 days; provided
the aggregate amount of such Liens do not exceed $10 million or (b) being
contested in good faith by appropriate legal proceedings promptly instituted and
diligently conducted and for which a reserve or other appropriate provision, if
any, as shall be required in conformity with GAAP shall have been made; (ii)
statutory and common law Liens of landlords and carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen or other similar Liens arising in
the ordinary course of business and with respect to amounts not yet delinquent
or being contested in good faith by appropriate legal proceedings promptly
instituted and diligently conducted and for which a reserve or other
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appropriate provision, if any, as shall be required in conformity with GAAP
shall have been made; (iii) Liens incurred or deposits made in the ordinary
course of business in connection with workers' compensation, unemployment
insurance and other types of social security; (iv) Liens incurred or deposits
made to secure the performance of tenders, bids, leases, statutory or regulatory
obligations, bankers' acceptances, surety and appeal bonds, government
contracts, performance and return-of-money bonds and other obligations of a
similar nature incurred in the ordinary course of business (exclusive of
obligations for the payment of borrowed money); (v) easements, rights-of-way,
municipal and zoning ordinances and similar charges, encumbrances, title defects
or other irregularities that do not materially interfere with the ordinary
course of business of the Company or any of its Restricted Subsidiaries; (vi)
Liens (including extensions and renewals thereof) upon real or personal property
acquired after the Closing Date; provided that (a) such Lien is created solely
for the purpose of securing Indebtedness Incurred, in accordance with the
"Limitation on Indebtedness" covenant described below, (1) to finance the cost
(including the cost of improvement or construction) of the item of property or
assets subject thereto and such Lien is created prior to, at the time of or
within six months after the later of the acquisition, the completion of
construction or the commencement of full operation of such property or (2) to
refinance any Indebtedness previously so secured, (b) the principal amount of
the Indebtedness secured by such Lien does not exceed 100% of such cost and (c)
any such Lien shall not extend to or cover any property or assets other than
such item of property or assets and any improvements on such item; (vii) leases
or subleases granted to others that do not materially interfere with the
ordinary course of business of the Company and its Restricted Subsidiaries,
taken as a whole; (viii) Liens encumbering property or assets under construction
arising from progress or partial payments by a customer of the Company or its
Restricted Subsidiaries relating to such property or assets; (ix) any interest
or title of a lessor in the property subject to any Capitalized Lease or
operating lease; (x) Liens arising from filing Uniform Commercial Code financing
statements regarding leases; (xi) Liens on property of, or on shares of stock or
Indebtedness of, any Person existing at the time such Person becomes, or becomes
a part of, any Restricted Subsidiary; provided that such Liens do not extend to
or cover any property or assets of the Company or any Restricted Subsidiary
other than the property or assets acquired; (xii) Liens in favor of the Company
or any Restricted Subsidiary; (xiii) Liens arising from the rendering of a final
judgment or order against the Company or any Restricted Subsidiary of the
Company that does not give rise to an Event of Default; (xiv) Liens securing
reimbursement obligations with respect to letters of credit that encumber
documents and other property relating to such letters of credit and the products
and proceeds thereof; (xv) Liens in favor of customs and revenue authorities
arising as a matter of law to secure payment of customs duties in connection
with the importation of goods; (xvi) Liens encumbering customary initial
deposits and margin deposits, and other Liens that are either within the general
parameters customary in the industry and incurred in the ordinary course of
business, in each case, securing Indebtedness under Interest Rate Agreements and
Currency Agreements and forward contracts, options, future contracts, futures
options or similar agreements or arrangements designed solely to protect the
Company or any of its Restricted Subsidiaries from fluctuations in interest
rates, currencies or the price of commodities; (xvii) Liens arising out of
conditional sale, title retention, consignment or similar arrangements for the
sale of goods entered into by the Company or any of its Restricted Subsidiaries
in the ordinary course of business in accordance with the past practices of the
Company and its Restricted Subsidiaries prior to the Closing Date; and (xviii)
Liens on or sales of receivables.
"Receivables Program" means, with respect to any Person, any accounts
receivable securitization program pursuant to which such Person receives
proceeds pursuant to a pledge, sale or other encumbrance of its accounts
receivable.
"Redeemable Stock" means any class or series of Capital Stock of any Person
that by its terms or otherwise is (i) required to be redeemed prior to the
Stated Maturity of the Notes, (ii) redeemable at the option of the holder of
such class or series of Capital Stock at any time prior to the Stated Maturity
of the Notes or (iii) convertible into or exchangeable for Capital Stock
referred to in clause (i) or (ii) above or Indebtedness having a scheduled
maturity prior to the Stated Maturity of the Notes; provided that any Capital
Stock that would not constitute Redeemable Stock but for provisions thereof
giving holders thereof the right to require such Person to repurchase or redeem
such Capital Stock upon the occurrence of an "asset sale" or "change of control"
occurring prior to the Stated Maturity of the Notes shall not constitute
Redeemable Stock
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if the "asset sale" or "change of control" provisions applicable to such Capital
Stock are no more favorable to the holders of such Capital Stock than the
provisions contained in "Limitation on Asset Sales" and "Repurchase of Notes
Upon a Change of Control" covenants described below and such Capital Stock
specifically provides that such Person will not repurchase or redeem any such
stock pursuant to such provision prior to the Company's repurchase of such Notes
as are required to be repurchased pursuant to the "Limitation on Asset Sales"
and "Repurchase of Notes Upon a Change of Control" covenants described below.
"Restricted Subsidiary" means any Subsidiary of the Company other than an
Unrestricted Subsidiary.
"Senior Indebtedness" means the following obligations of the Company,
whether outstanding on the Closing Date or thereafter Incurred: (i) all
Indebtedness and all other monetary obligations (including, without limitation,
expenses, fees, claims, indemnifications, reimbursements, liabilities and other
monetary obligations) of the Company under the Bank Credit Agreement, any
Interest Rate Agreement or Currency Agreement and the Company's Guarantee of any
Indebtedness or monetary obligation of any of its Restricted Subsidiaries under
any Interest Rate Agreement or Currency Agreement and (ii) all other
Indebtedness of the Company (other than the Notes), including principal and
interest on such Indebtedness, unless such Indebtedness, by its terms or by the
terms of any agreement or instrument pursuant to which such Indebtedness is
issued is pari passu with, or subordinated in right of payment to, the Notes;
provided that the term "Senior Indebtedness" shall not include (a) any
Indebtedness of the Company that, when Incurred and without respect to any
election under Section 1111(b) of the United States Bankruptcy Code, was without
recourse to the Company, (b) any Indebtedness of the Company to any of its
Subsidiaries or to a joint venture in which the Company has an interest, (c) any
Indebtedness of the Company not permitted by the Indenture, (d) any repurchase,
redemption or other obligation in respect of Redeemable Stock, (e) any
Indebtedness of the Company to any employee, officer or director of the Company
or any of its Subsidiaries, (f) any liability for federal, state, local or other
taxes owed or owing by the Company or (g) any Trade Payables of the Company.
Senior Indebtedness will also include interest accruing subsequent to events of
bankruptcy of the Company and its Subsidiaries at the rate provided for in the
document governing such Senior Indebtedness, whether or not such interest is an
allowed claim enforceable against the debtor in a bankruptcy case under federal
bankruptcy law or similar laws relating to insolvency.
"Senior Subordinated Obligations" means any principal of, premium, if any,
or interest on the Notes payable pursuant to the terms of the Notes or upon
acceleration, including any amounts received upon the exercise of rights of
rescission or other rights of action (including claims for damages) or
otherwise, to the extent relating to the purchase price of the Notes or amounts
corresponding to such principal, premium, if any, or interest on the Notes.
"Significant Subsidiary" means, at any date of determination, any
Restricted Subsidiary that, together with its Subsidiaries, (i) for the most
recent fiscal year of the Company, accounted for more than 10% of the
consolidated revenues of the Company and its Restricted Subsidiaries or (ii) as
of the end of such fiscal year, was the owner of more than 10% of the
consolidated assets of the Company and its Restricted Subsidiaries, all as set
forth on the most recently available consolidated financial statements of the
Company for such fiscal year.
"S&P" means Standard & Poor's Ratings Group and its successors.
"Stated Maturity" means, (i) with respect to any debt security, the date
specified in such debt security as the fixed date on which the final installment
of principal of such debt security is due and payable and (ii) with respect to
any scheduled installment of principal of or interest on any debt security, the
date specified in such debt security as the fixed date on which such installment
is due and payable.
"Subsidiary" means, with respect to any Person, any corporation,
association or other business entity of which more than 50% of the voting power
of the outstanding Voting Stock is owned, directly or indirectly, by such Person
and one or more other Subsidiaries of such Person.
"Temporary Cash Investment" means any of the following: (i) direct
obligations of the United States of America or any agency thereof or obligations
fully and unconditionally guaranteed by the United States of
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America or any agency thereof, (ii) time deposit accounts, certificates of
deposit and money market deposits maturing within 180 days of the date of
acquisition thereof issued by a bank or trust company which is organized under
the laws of the United States of America, any state thereof or any foreign
country recognized by the United States, and which bank or trust company has
capital, surplus and undivided profits aggregating in excess of $50 million (or
the foreign currency equivalent thereof) and has outstanding debt which is rated
"A" (or such similar equivalent rating) or higher by at least one nationally
recognized statistical rating organization (as defined in Rule 436 under the
Securities Act) or any money-market fund sponsored by a registered broker dealer
or mutual fund distributor, (iii) repurchase obligations with a term of not more
than 30 days for underlying securities of the types described in clause (i)
above entered into with a bank meeting the qualifications described in clause
(ii) above, (iv) commercial paper, maturing not more than 90 days after the date
of acquisition, issued by a corporation (other than an Affiliate of the Company)
organized and in existence under the laws of the United States of America, any
state thereof or any foreign country recognized by the United States of America
with a rating at the time as of which any investment therein is made of "P-1"
(or higher) according to Moody's or "A-1" (or higher) according to S&P, and (v)
securities with maturities of six months or less from the date of acquisition
issued or fully and unconditionally guaranteed by any state, commonwealth or
territory of the United States of America, or by any political subdivision or
taxing authority thereof, and rated at least "A" by S&P or Moody's.
"Trade Payables" means, with respect to any Person, any accounts payable or
any other indebtedness or monetary obligation to trade creditors created,
assumed or Guaranteed by such Person or any of its Subsidiaries arising in the
ordinary course of business in connection with the acquisition of goods or
services.
"Transaction Date" means, with respect to the Incurrence of any
Indebtedness by the Company or any of its Restricted Subsidiaries, the date such
Indebtedness is to be Incurred and, with respect to any Restricted Payment, the
date such Restricted Payment is to be made.
"Unrestricted Subsidiary" means (i) Agricredit Acceptance Company and its
successors, provided in the case of any such successor that the property and
assets of such successor do not include any property or assets of the Company or
any of its Restricted Subsidiaries; (ii) any other Subsidiary of the Company
that at the time of determination shall be designated an Unrestricted Subsidiary
by the Board of Directors in the manner provided below; and (iii) any Subsidiary
of an Unrestricted Subsidiary. The Board of Directors may designate any
Restricted Subsidiary (including any newly acquired or newly formed Subsidiary
of the Company) to be an Unrestricted Subsidiary unless such Subsidiary owns any
Capital Stock of, or owns or holds any Lien on any property of, the Company or
any Restricted Subsidiary; provided that (A) any Guarantee by the Company or any
Restricted Subsidiary of any Indebtedness of the Subsidiary being so designated
shall be deemed an "Incurrence" of such Indebtedness by the Company or such
Restricted Subsidiary (or both, if applicable) at the time of such designation;
(B) either (I) the Subsidiary to be so designated has total assets of $1,000 or
less or (II) if such Subsidiary has assets greater than $1,000, such designation
would be permitted under the "Limitation on Restricted Payments" covenant
described below and (C) if applicable, the Incurrence of Indebtedness referred
to in clause (A) of this proviso would be permitted under the "Limitation on
Indebtedness" covenant described below. The Board of Directors may designate any
Unrestricted Subsidiary to be a Restricted Subsidiary; provided that immediately
after giving effect to such designation (x) the Company could Incur $1.00 of
additional Indebtedness under the first paragraph of the "Limitation on
Indebtedness" covenant described below and (y) no Default or Event of Default
shall have occurred and be continuing. Any such designation by the Board of
Directors shall be evidenced to the Trustee by promptly filing with the Trustee
a copy of the Board Resolution giving effect to such designation and an
Officers' Certificate certifying that such designation complied with the
foregoing provisions.
"Voting Stock" means with respect to any Person, Capital Stock of any class
or kind ordinarily having the power to vote for the election of directors,
managers or other voting members of the governing body of such Person.
"Wholly Owned" means, with respect to any Subsidiary of any Person, the
ownership of all of the outstanding Capital Stock of such Subsidiary (other than
any director's qualifying shares or Investments by
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foreign nationals mandated by applicable law) by such Person or one or more
Wholly Owned Subsidiaries of such Person.
COVENANTS
The Indenture will contain, among others, the following covenants;
provided, however, that the Indenture will provide that the "Limitation on
Indebtedness," the "Limitation on Restricted Payments," the "Limitation on
Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries," the
"Limitation on the Issuance and Sale of Capital Stock of Restricted
Subsidiaries," the "Limitation on Issuances of Guarantees by Restricted
Subsidiaries" and the "Limitation on Transactions with Stockholders and
Affiliates" covenants and clauses (iii) and (iv) under "Consolidation, Merger
and Sale of Assets" will not be applicable in the event, and only for so long
as, the Notes are rated Investment Grade.
Limitation on Indebtedness
(a) The Company will not, and will not permit any of its Restricted
Subsidiaries to, Incur any Indebtedness (other than the Notes and Indebtedness
existing on the Closing Date); provided that the Company may Incur Indebtedness,
and any Restricted Subsidiary may Incur Acquired Indebtedness, if, after giving
effect to the Incurrence of such Indebtedness and the receipt and application of
the proceeds therefrom, the Interest Coverage Ratio would be greater than (x)
for the period beginning on the Closing Date and ending on the second
anniversary thereof, 2.5:1 and (y) thereafter 3.0:1.
Notwithstanding the foregoing, the Company and any Restricted Subsidiary
(except as specified below) may Incur each and all of the following: (i)
Indebtedness outstanding at any time in an aggregate principal amount not to
exceed an amount equal to the greater of (A) $650 million, less any amount of
Indebtedness permanently repaid as provided under the "Limitation on Asset
Sales" covenant described below and (B) the sum of (x) 90% of the consolidated
book value of the accounts receivable (other than accounts receivable subject to
a Receivables Program) of the Company and its Restricted Subsidiaries plus (y)
60% of the consolidated book value of the inventory of the Company and its
Restricted Subsidiaries, in each case determined in accordance with GAAP; (ii)
Indebtedness (A) to the Company evidenced by an unsubordinated promissory note
or (B) to any of its Restricted Subsidiaries; provided that any event which
results in any such Restricted Subsidiary ceasing to be a Restricted Subsidiary
or any subsequent transfer of such Indebtedness (other than to the Company or
another Restricted Subsidiary) shall be deemed, in each case, to constitute an
Incurrence of such Indebtedness not permitted by this clause (ii); (iii)
Indebtedness issued in exchange for, or the net proceeds of which are used to
refinance or refund, then outstanding Indebtedness, other than Indebtedness
Incurred under clause (i), (ii), (iv), (vi) or (vii) of this paragraph, and any
refinancings thereof in an amount not to exceed the amount so refinanced or
refunded (plus premiums, accrued interest, fees and expenses); provided that
Indebtedness the proceeds of which are used to refinance or refund the Notes or
Indebtedness that is pari passu with, or subordinated in right of payment to,
the Notes shall only be permitted under this clause (iii) if (A) in case the
Notes are refinanced in part or the Indebtedness to be refinanced is pari passu
with the Notes, such new Indebtedness, by its terms or by the terms of any
agreement or instrument pursuant to which such new Indebtedness is outstanding,
is expressly made pari passu with, or subordinate in right of payment to, the
remaining Notes, (B) in case the Indebtedness to be refinanced is subordinated
in right of payment to the Notes, such new Indebtedness, by its terms or by the
terms of any agreement or instrument pursuant to which such new Indebtedness is
issued or remains outstanding, is expressly made subordinate in right of payment
to the Notes at least to the extent that the Indebtedness to be refinanced is
subordinated to the Notes and (C) such new Indebtedness, determined as of the
date of Incurrence of such new Indebtedness, does not mature prior to the Stated
Maturity of the Indebtedness to be refinanced or refunded, and the Average Life
of such new Indebtedness is at least equal to the remaining Average Life of the
Indebtedness to be refinanced or refunded; and provided further that in no event
may Indebtedness of the Company be refinanced by means of any Indebtedness of
any Restricted Subsidiary pursuant to this clause (iii); (iv) Indebtedness (A)
in respect of performance, surety or appeal bonds provided in the ordinary
course of business, (B) under Currency Agreements and Interest Rate Agreements;
provided that such agreements do not increase the Indebtedness of the obligor
outstanding at any
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time other than as a result of fluctuations in foreign currency exchange rates
or interest rates or by reason of fees, indemnities and compensation payable
thereunder; and (C) arising from agreements providing for indemnification,
adjustment of purchase price or similar obligations, or from Guarantees or
letters of credit, surety bonds or performance bonds securing any obligations of
the Company or any of its Restricted Subsidiaries pursuant to such agreements,
in any case Incurred in connection with the disposition of any business, assets
or Restricted Subsidiary of the Company (other than Guarantees of Indebtedness
Incurred by any Person acquiring all or any portion of such business, assets or
Restricted Subsidiary of the Company for the purpose of financing such
acquisition), in a principal amount not to exceed the gross proceeds actually
received by the Company or any Restricted Subsidiary in connection with such
disposition; (v) Indebtedness of the Company, to the extent the net proceeds
thereof are promptly used to purchase Notes tendered in an Offer to Purchase
made as a result of a Change of Control; (vi) Indebtedness of the Company, to
the extent the net proceeds thereof are promptly deposited to defease the Notes
as described below under "Defeasance"; and (vii) Guarantees of the Notes and
Guarantees of Indebtedness of the Company by any Restricted Subsidiary provided
the Guarantee of such Indebtedness is permitted by and made in accordance with
the "Limitation on Issuance of Guarantees by Restricted Subsidiaries" covenant
described below.
(b) Notwithstanding any other provision of this "Limitation on
Indebtedness" covenant, the maximum amount of Indebtedness that the Company or a
Restricted Subsidiary may Incur pursuant to this "Limitation on Indebtedness"
covenant shall not be deemed to be exceeded, with respect to any outstanding
Indebtedness due solely to the result of fluctuations in the exchange rates of
currencies.
(c) For purposes of determining any particular amount of Indebtedness under
this "Limitation on Indebtedness" covenant, (1) Indebtedness Incurred under the
Bank Credit Agreement on or prior to the Closing Date shall be treated as
Incurred pursuant to clause (i) of the second paragraph of this "Limitation on
Indebtedness" covenant, (2) Guarantees, Liens or obligations with respect to
letters of credit supporting Indebtedness otherwise included in the
determination of such particular amount shall not be included and (3) any Liens
granted pursuant to the equal and ratable provisions referred to in the
"Limitation on Liens" covenant described below shall not be treated as
Indebtedness. For purposes of determining compliance with this "Limitation on
Indebtedness" covenant, in the event that an item of Indebtedness meets the
criteria of more than one of the types of Indebtedness described in the above
clauses (other than Indebtedness referred to in clause (1) of the preceding
sentence), the Company, in its sole discretion, shall classify such item of
Indebtedness and only be required to include the amount and type of such
Indebtedness in one of such clauses.
Limitation on Senior Subordinated Indebtedness
The Company will not Incur any Indebtedness that is expressly made
subordinate in right of payment to any Senior Indebtedness of the Company unless
such Indebtedness, by its terms or by the terms of any agreement or instrument
pursuant to which such Indebtedness is outstanding, is expressly made pari passu
with, or subordinate in right of payment to, the Notes pursuant to provisions
substantially similar to those contained in the "Subordination" provisions of
the Indenture; provided that the foregoing limitation shall not apply to
distinctions between categories of Senior Indebtedness of the Company that exist
by reason of any Liens or Guarantees arising or created in respect of some but
not all of such Senior Indebtedness.
Limitation on Restricted Payments
The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, (i) declare or pay any dividend or make any distribution
on its Capital Stock (other than (x) dividends or distributions payable solely
in shares of its Capital Stock (other than Redeemable Stock) or in options,
warrants or other rights to acquire shares of such Capital Stock and (y) pro
rata dividends or distributions on Common Stock of Restricted Subsidiaries held
by minority stockholders, provided that such dividends do not in the aggregate
exceed the minority stockholders' pro rata share of such Restricted
Subsidiaries' net income from the first day of the fiscal quarter beginning
immediately following the Closing Date) held by Persons other than the Company
or any of its Wholly Owned Restricted Subsidiaries, (ii) purchase, redeem,
retire or otherwise acquire for value any shares of Capital Stock of (A) the
Company or an Unrestricted Subsidiary (including
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options, warrants or other rights to acquire such shares of Capital Stock) held
by any Person or (B) a Restricted Subsidiary (including options, warrants or
other rights to acquire such shares of Capital Stock) held by any Affiliate of
the Company (other than a Wholly Owned Restricted Subsidiary) or any holder (or
any Affiliate of such holder) of 5% or more of the Capital Stock of the Company,
(iii) make any voluntary or optional principal payment, or voluntary or optional
redemption, repurchase, defeasance, or other acquisition or retirement for
value, of Indebtedness of the Company that is subordinated in right of payment
to the Notes (other than the purchase, repurchase or the acquisition of
Indebtedness in anticipation of satisfying a sinking fund obligation, principal
installment or final maturity, in any case due within one year of the date of
acquisition) or (iv) make any Investment, other than a Permitted Investment, in
any Person (such payments or any other actions described in clauses (i) through
(iv) being collectively "Restricted Payments") if, at the time of, and after
giving effect to, the proposed Restricted Payment: (A) a Default or Event of
Default shall have occurred and be continuing, (B) the Company could not Incur
at least $1.00 of Indebtedness under the first paragraph of the "Limitation on
Indebtedness" covenant or (C) the aggregate amount of all Restricted Payments
(the amount, if other than in cash, to be determined in good faith by the Board
of Directors, whose determination shall be conclusive and evidenced by a Board
Resolution) made after the Closing Date shall exceed the sum of (1) 50% of the
aggregate amount of the Adjusted Consolidated Net Income (or, if the Adjusted
Consolidated Net Income is a loss, minus 100% of the amount of such loss)
(determined by excluding income resulting from transfers of assets by the
Company or a Restricted Subsidiary to an Unrestricted Subsidiary) accrued on a
cumulative basis during the period (taken as one accounting period) beginning on
the first day of the fiscal quarter beginning immediately following the Closing
Date and ending on the last day of the last fiscal quarter preceding the
Transaction Date for which reports have been filed pursuant to the "Commission
Reports and Reports to Holders" covenant plus (2) the aggregate Net Cash
Proceeds received by the Company after the Closing Date from the issuance and
sale permitted by the Indenture of its Capital Stock (other than Redeemable
Stock) to a Person who is not a Subsidiary of the Company, including an issuance
or sale permitted by the Indenture of Indebtedness of the Company for cash
subsequent to the Closing Date upon the conversion of such Indebtedness into
Capital Stock (other than Redeemable Stock) of the Company, or from the issuance
to a Person who is not a Subsidiary of the Company of any options, warrants or
other rights to acquire Capital Stock of the Company (in each case, exclusive of
any Redeemable Stock or any options, warrants or other rights that are
redeemable at the option of the holder, or are required to be redeemed, prior to
the Stated Maturity of the Notes) plus (3) an amount equal to the net reduction
in Investments (other than reductions in Permitted Investments) in any Person
resulting from payments of interest on Indebtedness, dividends, repayments of
loans or advances, or other transfers of assets, in each case to the Company or
any Restricted Subsidiary or from the Net Cash Proceeds from the sale of any
such Investment (except, in each case, to the extent any such payment or
proceeds are included in the calculation of Adjusted Consolidated Net Income),
or from redesignations of Unrestricted Subsidiaries as Restricted Subsidiaries
(valued in each case as provided in the definition of "Investments"), not to
exceed, in each case, the amount of Investments previously made by the Company
or any Restricted Subsidiary in such Person or Unrestricted Subsidiary plus (4)
$50 million.
The foregoing provision shall not be violated by reason of: (i) the payment
of any dividend within 60 days after the date of declaration thereof if, at said
date of declaration, such payment would comply with the foregoing paragraph;
(ii) the redemption, repurchase, defeasance or other acquisition or retirement
for value of Indebtedness that is subordinated in right of payment to the Notes
including premium, if any, and accrued and unpaid interest, with the proceeds
of, or in exchange for, Indebtedness Incurred under clause (iii) of the second
paragraph of part (a) of the "Limitation on Indebtedness" covenant; (iii) the
repurchase, redemption or other acquisition of Capital Stock of the Company (or
options, warrants or other rights to acquire such Capital Stock) in exchange
for, or out of the proceeds of a substantially concurrent offering of, shares of
Capital Stock (other than Redeemable Stock) of the Company; (iv) the making of
any principal payment or the repurchase, redemption, retirement, defeasance or
other acquisition for value of Indebtedness of the Company which is subordinated
in right of payment to the Notes in exchange for, or out of the proceeds of, a
substantially concurrent offering of, shares of the Capital Stock of the Company
(other than Redeemable Stock); (v) payments or distributions, to dissenting
stockholders pursuant to applicable law, pursuant to or in connection with a
consolidation, merger or transfer of assets that complies with the provisions of
the Indenture
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applicable to mergers, consolidations and transfers of all or substantially all
of the property and assets of the Company; (vi) the repurchase of shares, or
options to purchase shares, of Capital Stock of the Company from employees,
former employees, directors or former directors of the Company or any of its
Subsidiaries (or permitted transferees of such employees, former employees,
directors or former directors), pursuant to the terms of agreements (including
employment agreements) or plans (or amendments thereto) approved by the Board of
Directors under which such persons purchase or sell or are granted the option to
purchase or sell, shares of such stock; provided, however, that the aggregate
amount of such repurchases shall not exceed $2 million in any calendar year
(unless such repurchases are made with the proceeds of insurance policies and
the shares of Capital Stock are repurchased from the executors, administrators,
testamentary trustees, heirs, legatees or beneficiaries) plus the aggregate Net
Cash Proceeds from any reissuance during such calendar year of Capital Stock to
employees or directors of the Company or its Subsidiaries; provided further,
however, that to the extent less than $2 million of repurchases of Capital Stock
are paid in any calendar year pursuant to this clause (vi) (without taking into
account repurchases from proceeds of insurance policies or Net Cash Proceeds
from reissuances as described above), the unused portion may be carried forward
and paid in any subsequent calendar year; (vii) any purchase of any fractional
share of Common Stock of the Company resulting from (A) any dividend or other
distribution on outstanding shares of Common Stock of the Company that is
payable in shares of such Common Stock (including any stock split or subdivision
of the outstanding Common Stock of the Company), (B) any combination of all of
the outstanding shares of Common Stock of the Company, (C) any reorganization or
consolidation of the Company or any merger of the Company with or into any other
Person or (D) the conversion of any securities of the Company into shares of
Common Stock of the Company; (viii) the redemption of any preferred stock
purchase rights issued under the Company's stockholder rights plan at a
redemption price of $0.01 per right; or (ix) Investments in an aggregate amount
not to exceed $25 million in any Person the primary business of which is
related, ancillary or complementary to the businesses of the Company and its
Restricted Subsidiaries on the date of such Investment; provided that, except in
the case of clauses (i) and (iii), no Default or Event of Default shall have
occurred and be continuing or occur as a consequence of the actions or payments
set forth therein.
Each Restricted Payment permitted pursuant to the preceding paragraph
(other than the Restricted Payment referred to in clause (ii) thereof, an
exchange of Capital Stock for Capital Stock or Indebtedness referred to in
clause (iii) or (iv) thereof and repurchases of Capital Stock with the proceeds
of insurance policies referred to in clause (vi) thereof), and the Net Cash
Proceeds from any issuance of Capital Stock referred to in clauses (iii) and
(iv), shall be included in calculating whether the conditions of clause (C) of
the first paragraph of this "Limitation on Restricted Payments" covenant have
been met with respect to any subsequent Restricted Payments. In the event the
proceeds of an issuance of Capital Stock of the Company are used for the
redemption, repurchase or other acquisition of the Notes, or Indebtedness that
is pari passu with the Notes, then the Net Cash Proceeds of such issuance shall
be included in clause (C) of the first paragraph of this "Limitation on
Restricted Payments" covenant only to the extent such proceeds are not used for
such redemption, repurchase or other acquisition of Indebtedness.
Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries
The Company will not, and will not permit any Restricted Subsidiary to,
create or otherwise cause or suffer to exist or become effective any consensual
encumbrance or restriction of any kind on the ability of any Restricted
Subsidiary to (i) pay dividends or make any other distributions permitted by
applicable law on any Capital Stock of such Restricted Subsidiary owned by the
Company or any other Restricted Subsidiary, (ii) pay any Indebtedness owed to
the Company or any other Restricted Subsidiary, (iii) make loans or advances to
the Company or any other Restricted Subsidiary or (iv) transfer any of its
property or assets to the Company or any other Restricted Subsidiary.
The foregoing provisions shall not restrict any encumbrances or
restrictions: (i) existing on the Closing Date in the Bank Credit Agreement, the
Indenture or any other agreements in effect on the Closing Date, and any
extensions, refinancings, renewals or replacements of such agreements; provided
that the encumbrances and restrictions in any such extensions, refinancings,
renewals or replacements are no less favorable in any material respect to the
Holders than those encumbrances or restrictions that are then in effect and that
are
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being extended, refinanced, renewed or replaced; (ii) existing under or by
reason of applicable law; (iii) existing with respect to any Person or the
property or assets of such Person acquired by the Company or any Restricted
Subsidiary, existing at the time of such acquisition and not incurred in
contemplation thereof, which encumbrances or restrictions are not applicable to
any Person or the property or assets of any Person other than such Person or the
property or assets of such Person so acquired; (iv) in the case of clause (iv)
of the first paragraph of this "Limitation on Dividend and Other Payment
Restrictions Affecting Restricted Subsidiaries" covenant, (A) that restrict in a
customary manner the subletting, assignment or transfer of any property or asset
that is a lease, license, conveyance or contract or similar property or asset,
(B) existing by virtue of any transfer of, agreement to transfer, option or
right with respect to, or Lien on, any property or assets of the Company or any
Restricted Subsidiary not otherwise prohibited by the Indenture or (C) arising
or agreed to in the ordinary course of business, not relating to any
Indebtedness, and that do not, individually or in the aggregate, detract from
the value of property or assets of the Company or any Restricted Subsidiary in
any manner material to the Company or any Restricted Subsidiary; (v) with
respect to a Restricted Subsidiary and imposed pursuant to an agreement that has
been entered into for the sale or disposition of all or substantially all of the
Capital Stock of, or property and assets of, such Restricted Subsidiary; or (vi)
existing under a Receivables Program; provided that the encumbrances and
restrictions in such Receivables Program are no less favorable in any material
respect to the Holders than the encumbrances and restrictions in the Bank Credit
Agreement. Nothing contained in this "Limitation on Dividend and Other Payment
Restrictions Affecting Restricted Subsidiaries" covenant shall prevent the
Company or any Restricted Subsidiary from (1) creating, incurring, assuming or
suffering to exist any Liens otherwise permitted in the "Limitation on Liens"
covenant or (2) restricting the sale or other disposition of property or assets
of the Company or any of its Restricted Subsidiaries that secure Indebtedness of
the Company or any of its Restricted Subsidiaries.
Limitation on the Issuance and Sale of Capital Stock of Restricted
Subsidiaries
The Company will not sell, and will not permit any Restricted Subsidiary,
directly or indirectly, to issue or sell, any shares of Capital Stock of a
Restricted Subsidiary (including options, warrants or other rights to purchase
shares of such Capital Stock) except (i) to the Company or a Wholly Owned
Restricted Subsidiary; (ii) issuances of director's qualifying shares or sales
to foreign nationals of shares of Capital Stock of foreign Restricted
Subsidiaries, to the extent required by applicable law; (iii) issuances or sales
of Common Stock of a Restricted Subsidiary if such issuance or sale complies
with the "Limitation on Asset Sales" covenant described below (including the
application of any Net Cash Proceeds received in such transaction in accordance
with clause (A) or (B) thereof); provided, however, if, immediately after giving
effect to such issuance or sale, such Restricted Subsidiary would no longer
constitute a Restricted Subsidiary, any Investment in such Person remaining
after giving effect to such issuance or sale would have been permitted to be
made under the "Limitation on Restricted Payments" covenant, if made on the date
of such issuance or sale.
Limitation on Issuances of Guarantees by Restricted Subsidiaries
The Company will not permit any Restricted Subsidiary, directly or
indirectly, to Guarantee any Indebtedness of the Company which is pari passu
with or subordinate in right of payment to the Notes ("Guaranteed
Indebtedness"), unless (i) such Restricted Subsidiary simultaneously executes
and delivers a supplemental indenture to the Indenture providing for a Guarantee
(a "Subsidiary Guarantee") of payment of the Notes by such Restricted Subsidiary
and (ii) such Restricted Subsidiary waives and will not in any manner whatsoever
claim or take the benefit or advantage of, any rights of reimbursement,
indemnity or subrogation or any other rights against the Company or any other
Restricted Subsidiary as a result of any payment by such Restricted Subsidiary
under its Subsidiary Guarantee; provided that this paragraph shall not be
applicable to any Guarantee of any Restricted Subsidiary (x) that existed at the
time such Person became a Restricted Subsidiary and was not Incurred in
connection with, or in contemplation of, such Person becoming a Restricted
Subsidiary or (y) of the Indebtedness Incurred under the Bank Credit Agreement.
If the Guaranteed Indebtedness is (A) pari passu with the Notes, then the
Guarantee of such Guaranteed Indebtedness shall be pari passu with, or
subordinated to, the Subsidiary Guarantee or (B) subordinated to
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the Notes, then the Guarantee of such Guaranteed Indebtedness shall be
subordinated to the Subsidiary Guarantee at least to the extent that the
Guaranteed Indebtedness is subordinated to the Notes.
Notwithstanding the foregoing, any Subsidiary Guarantee by a Restricted
Subsidiary may provide by its terms that it shall be automatically and
unconditionally released and discharged upon (i) any sale, exchange or transfer,
to any Person not an Affiliate of the Company, of all of the Company's and each
Restricted Subsidiary's Capital Stock in, or all or substantially all the assets
of, such Restricted Subsidiary (which sale, exchange or transfer is not
prohibited by the Indenture) or (ii) the release or discharge of the Guarantee
which resulted in the creation of such Subsidiary Guarantee, except a discharge
or release by or as a result of payment under such Guarantee.
Limitation on Transactions with Stockholders and Affiliates
The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, enter into, renew or extend any transaction (including,
without limitation, the purchase, sale, lease or exchange of property or assets,
or the rendering of any service) with any holder (or any Affiliate of such
holder) of 5% or more of any class of Capital Stock of the Company or with any
Affiliate of the Company or any Restricted Subsidiary, except upon fair and
reasonable terms no less favorable to the Company or such Restricted Subsidiary
than could be obtained, at the time of such transaction or, if such transaction
is pursuant to a written agreement, at the time of the execution of the
agreement providing therefor, in a comparable arm's-length transaction with a
Person that is not such a holder or an Affiliate.
The foregoing limitation does not limit, and shall not apply to (i)
transactions (A) approved by a majority of the disinterested members of the
Board of Directors, (B) for which the Company or a Restricted Subsidiary
delivers to the Trustee a written opinion of a nationally recognized investment
banking firm stating that the transaction is fair to the Company or such
Restricted Subsidiary from a financial point of view or (C) involving
consideration of $1 million or less; (ii) any transaction solely between the
Company and any of its Wholly Owned Restricted Subsidiaries or solely between
Wholly Owned Restricted Subsidiaries; (iii) the payment of reasonable and
customary regular fees to directors of the Company who are not employees of the
Company; (iv) any payments or other transactions pursuant to any tax-sharing
agreement between the Company and any other Person with which the Company files
a consolidated tax return or with which the Company is part of a consolidated
group for tax purposes; (v) any issuance of securities or other payments, awards
or grants in cash, securities or otherwise pursuant to, or the funding of,
employment arrangements, stock options and stock ownership plans or incentive
plans approved by the Board of Directors; or (vi) any Restricted Payments not
prohibited by the "Limitation on Restricted Payments" covenant. Notwithstanding
the foregoing, any transaction covered by the first paragraph of this
"Limitation on Transactions with Stockholders and Affiliates" covenant and not
covered by clauses (ii) through (iv) of this paragraph, the aggregate amount of
which exceeds $10 million in value, must be approved or determined to be fair in
the manner provided for in clause (i)(A) or (B) above.
Limitation on Liens
The Company will not, and will not permit any Restricted Subsidiary to,
create, incur, assume or suffer to exist any Lien on any of its assets or
properties of any character, or any shares of Capital Stock or Indebtedness of
any Restricted Subsidiary, without making effective provision for all of the
Notes and all other amounts due under the Indenture to be directly secured
equally and ratably with (or, if the obligation or liability to be secured by
such Lien is subordinated in right of payment to the Notes, prior to) the
obligation or liability secured by such Lien.
The foregoing limitation does not apply to (i) Liens existing on the
Closing Date; (ii) Liens granted after the Closing Date on any assets or Capital
Stock of the Company or its Restricted Subsidiaries created in favor of the
Holders; (iii) Liens with respect to the assets of a Restricted Subsidiary
granted by such Restricted Subsidiary to the Company or a Wholly Owned
Restricted Subsidiary to secure Indebtedness owing to the Company or such other
Restricted Subsidiary; (iv) Liens securing Indebtedness which is Incurred to
refinance secured Indebtedness which is permitted to be Incurred under clause
(iii) of the second paragraph
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of the "Limitation on Indebtedness" covenant; provided that such Liens do not
extend to or cover any property or assets of the Company or any Restricted
Subsidiary other than the property or assets securing the Indebtedness being
refinanced; (v) Liens securing obligations under the Bank Credit Agreement and
other Senior Indebtedness of the Company permitted under the "Limitation on
Indebtedness" covenant; (vi) Liens on any property or assets of a Restricted
Subsidiary securing Indebtedness of such Restricted Subsidiary permitted under
the "Limitation on Indebtedness" covenant; or (vii) Permitted Liens.
Limitation on Asset Sales
The Company will not, and will not permit any Restricted Subsidiary to,
consummate any Asset Sale, unless (i) the consideration received by the Company
or such Restricted Subsidiary is at least equal to the fair market value of the
assets sold or disposed of and (ii) at least 85% of the consideration received
consists of cash or Temporary Cash Investments. In the event and to the extent
that the Net Cash Proceeds received by the Company or any of its Restricted
Subsidiaries from one or more Asset Sales occurring on or after the Closing Date
in any period of 12 consecutive months exceed 10% of Adjusted Consolidated Net
Tangible Assets (determined as of the date closest to the commencement of such
12-month period for which a consolidated balance sheet of the Company and its
subsidiaries have been filed pursuant to the "Commission Reports and Reports to
Holders" covenant), then the Company shall or shall cause the relevant
Restricted Subsidiary to (i) within twelve months after the date Net Cash
Proceeds so received exceed 10% of Adjusted Consolidated Net Tangible Assets (A)
apply an amount equal to such excess Net Cash Proceeds to permanently repay
Senior Indebtedness of the Company, or any Restricted Subsidiary providing a
Subsidiary Guarantee pursuant to the "Limitation on Issuances of Guarantees by
Restricted Subsidiaries" covenant described above or Indebtedness of any other
Restricted Subsidiary, in each case owing to a Person other than the Company or
any of its Restricted Subsidiaries or (B) invest an equal amount, or the amount
not so applied pursuant to clause (A) (or enter into a definitive agreement
committing to so invest within 12 months after the date of such agreement), in
property or assets (other than current assets) of a nature or type or that are
used in a business (or in a company having property and assets of a nature or
type, or engaged in a business) similar or related to the nature or type of the
property and assets of, or the business of, the Company and its Restricted
Subsidiaries existing on the date of such investment and (ii) apply (no later
than the end of the 12-month period referred to in clause (i)) such excess Net
Cash Proceeds (to the extent not applied pursuant to clause (i)) as provided in
the following paragraphs of this "Limitation on Asset Sales" covenant. The
amount of such excess Net Cash Proceeds required to be applied (or to be
committed to be applied) during such 12-month period as set forth in clause (i)
of the preceding sentence and not applied as so required by the end of such
period shall constitute "Excess Proceeds."
Notwithstanding the foregoing, to the extent that any or all of the Net
Cash Proceeds of any Asset Sale of assets based outside the United States are
prohibited or delayed by applicable local law from being repatriated to the
United States and such Net Cash Proceeds are not actually applied in accordance
with the foregoing paragraphs, the Company shall not be required to apply the
portion of such Net Cash Proceeds so effected but may permit the applicable
Restricted Subsidiaries to retain such portion of the Net Cash Proceeds so long,
but only so long, as the applicable local law will not permit repatriation to
the United States (the Company hereby agreeing to cause the applicable
Restricted Subsidiary to promptly take all actions required by the applicable
local law to permit such repatriation) and once such repatriation of any such
affected Net Cash Proceeds is permitted under the applicable local law, such
repatriation will be immediately effected and such repatriated Net Cash Proceeds
will be applied in the manner set forth in this covenant as if the Asset Sale
had occurred on such date; provided that to the extent that the Company has
determined in good faith that repatriation of any or all of the Net Cash
Proceeds of such Asset Sale would have a material adverse tax cost consequence,
the Net Cash Proceeds so affective may be retained by the applicable Restricted
Subsidiary for so long as such material adverse tax cost event would continue.
If, as of the first day of any calendar month, the aggregate amount of
Excess Proceeds not theretofore subject to an Offer to Purchase pursuant to this
"Limitation on Asset Sales" covenant totals at least $10 million, the Company
must commence, not later than the fifteenth Business Day of such month, and
consummate an Offer to Purchase from the Holders on a pro rata basis an
aggregate principal amount of
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Notes equal to the Excess Proceeds on such date, at a purchase price equal to
101% of the principal amount of the Notes, plus, in each case, accrued interest
(if any) to the date of purchase.
REPURCHASE OF NOTES UPON A CHANGE OF CONTROL
The Company must commence, within 30 days of the occurrence of a Change of
Control, and consummate an Offer to Purchase for all Notes then outstanding, at
a purchase price equal to 101% of the principal amount thereof, plus accrued
interest (if any) to the date of purchase.
There can be no assurance that the Company will have sufficient funds
available at the time of any Change of Control to make any debt payment
(including repurchases of Notes) required by the foregoing covenant (as well as
may be contained in other securities of the Company which might be outstanding
at the time). The above covenant requiring the Company to repurchase the Notes
will, unless consents are obtained, require the Company to repay all
indebtedness then outstanding which by its terms would prohibit such Note
repurchase, either prior to or concurrently with such Note repurchase.
COMMISSION REPORTS AND REPORTS TO HOLDERS
Whether or not the Company is required to file reports with the Commission,
for so long as any Notes are outstanding, the Company shall file with the
Commission all such reports and other information as it would be required to
file with the Commission by Sections 13(a) or 15(d) under the Securities
Exchange Act of 1934 if it were subject thereto. The Company shall supply the
Trustee and each Holder or shall supply to the Trustee for forwarding to each
such Holder, without cost to such Holder, copies of such reports and other
information.
EVENTS OF DEFAULT
The following events will be defined as "Events of Default" in the
Indenture: (a) default in the payment of principal of (or premium, if any, on)
any Note when the same becomes due and payable at maturity, upon acceleration,
redemption or otherwise, whether or not such payment is prohibited by the
subordination provisions described above under "Ranking"; (b) default in the
payment of interest on any Note when the same becomes due and payable, and such
default continues for a period of 30 days, whether or not such payment is
prohibited by the subordination provisions described above under "Ranking"; (c)
default in the performance or breach of the provisions of the Indenture
applicable to mergers, consolidations and transfers of all or substantially all
of the assets of the Company or the failure to make or consummate an Offer to
Purchase in accordance with the "Limitation on Asset Sales" or "Repurchase of
Notes upon a Change of Control" covenant, whether or not such Offer to Purchase
is prohibited by the subordination provisions described above under "Ranking";
(d) the Company defaults in the performance of or breaches any other covenant or
agreement of the Company in the Indenture or under the Notes (other than a
default specified in clause (a), (b) or (c) above) and such default or breach
continues for a period of 30 consecutive days after written notice by the
Trustee or the Holders of 25% or more in aggregate principal amount of the
Notes; (e) there occurs with respect to any issue or issues of Indebtedness of
the Company or any Significant Subsidiary having an outstanding principal amount
of $10 million or more in the aggregate for all such issues of all such Persons,
whether such Indebtedness now exists or shall hereafter be created, (I) an event
of default that has caused the holder thereof to declare such Indebtedness to be
due and payable prior to its Stated Maturity and such Indebtedness has not been
discharged in full or such acceleration has not been rescinded or annulled
within 30 days of such acceleration and/or (II) the failure to make a principal
payment at the final (but not any interim) fixed maturity and such defaulted
payment shall not have been made, waived or extended within 30 days of such
payment default; (f) any final judgment or order (not covered by insurance) for
the payment of money in excess of $10 million in the aggregate for all such
final judgments or orders against all such Persons (treating any deductibles,
self-insurance or retention as not so covered) shall be rendered against the
Company or any Significant Subsidiary and shall not be paid or discharged, and
there shall be any period of 30 consecutive days following entry of the final
judgment or order that causes the aggregate amount for all such final judgments
or orders outstanding and not paid or discharged against all such Persons to
exceed $10 million during which a stay of enforcement of such final judgment or
order, by reason of a pending appeal or otherwise, shall not be in effect; (g) a
court having jurisdiction in the premises enters a decree or order for
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(A) relief in respect of the Company or any Significant Subsidiary in an
involuntary case under any applicable bankruptcy, insolvency or other similar
law now or hereafter in effect, (B) appointment of a receiver, liquidator,
assignee, custodian, trustee, sequestrator or similar official of the Company or
any Significant Subsidiary or for all or substantially all of the property and
assets of the Company or any Significant Subsidiary or (C) the winding up or
liquidation of the affairs of the Company or any Significant Subsidiary and, in
each case, such decree or order shall remain unstayed and in effect for a period
of 30 consecutive days; or (h) the Company or any Significant Subsidiary (A)
commences a voluntary case under any applicable bankruptcy, insolvency or other
similar law now or hereafter in effect, or consents to the entry of an order for
relief in an involuntary case under any such law, (B) consents to the
appointment of or taking possession by a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official of the Company or any
Significant Subsidiary or for all or substantially all of the property and
assets of the Company or any Significant Subsidiary or (C) effects any general
assignment for the benefit of creditors.
If an Event of Default (other than an Event of Default specified in clause
(g) or (h) above that occurs with respect to the Company) occurs and is
continuing under the Indenture, the Trustee or the Holders of at least 25% in
aggregate principal amount of the Notes, then outstanding, by written notice to
the Company (and to the Trustee if such notice is given by the Holders), may,
and the Trustee at the request of such Holders shall, declare the principal of,
premium, if any, and accrued interest on the Notes to be immediately due and
payable. Upon a declaration of acceleration, such principal of, premium, if any,
and accrued interest shall be immediately due and payable provided that for so
long as the Bank Credit Agreement is in effect, such declaration shall not
become effective until the earlier of (i) five Business Days after receipt of
the acceleration notice by the Agent and the Company and (ii) acceleration of
the Indebtedness under the Bank Credit Agreement. In the event of a declaration
of acceleration because an Event of Default set forth in clause (e) above has
occurred and is continuing, such declaration of acceleration shall be
automatically rescinded and annulled if the event of default triggering such
Event of Default pursuant to clause (e) shall be remedied or cured by the
Company or the relevant Significant Subsidiary or waived by the holders of the
relevant Indebtedness within 60 days after the declaration of acceleration with
respect thereto. If an Event of Default specified in clause (g) or (h) above
occurs with respect to the Company, the principal of, premium, if any, and
accrued interest on the Notes then outstanding shall ipso facto become and be
immediately due and payable without any declaration or other act on the part of
the Trustee or any Holder. The Holders of at least a majority in principal
amount of the outstanding Notes by written notice to the Company and to the
Trustee, may waive all past defaults and rescind and annul a declaration of
acceleration and its consequences if (i) all existing Events of Default, other
than the nonpayment of the principal of, premium, if any, and interest on the
Notes that have become due solely by such declaration of acceleration, have been
cured or waived and (ii) the rescission would not conflict with any judgment or
decree of a court of competent jurisdiction. For information as to the waiver of
defaults, see "-- Modification and Waiver."
The Holders of at least a majority in aggregate principal amount of the
outstanding Notes may direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on the Trustee. However, the Trustee may refuse to follow any
direction that conflicts with law or the Indenture, that may involve the Trustee
in personal liability, or that the Trustee determines in good faith may be
unduly prejudicial to the rights of Holders of Notes not joining in the giving
of such direction and may take any other action it deems proper that is not
inconsistent with any such direction received from Holders of Notes. A Holder
may not pursue any remedy with respect to the Indenture or the Notes unless: (i)
the Holder gives the Trustee written notice of a continuing Event of Default;
(ii) the Holders of at least 25% in aggregate principal amount of outstanding
Notes make a written request to the Trustee to pursue the remedy; (iii) such
Holder or Holders offer the Trustee indemnity satisfactory to the Trustee
against any costs, liability or expense; (iv) the Trustee does not comply with
the request within 60 days after receipt of the request and the offer of
indemnity; and (v) during such 60-day period, the Holders of a majority in
aggregate principal amount of the outstanding Notes do not give the Trustee a
direction that is inconsistent with the request. However, such limitations do
not apply to the right of any Holder of a Note to receive payment of the
principal of, premium, if any, or interest on, such Note or to bring suit for
the enforcement of any such payment, on or after the due date expressed in the
Notes, which right shall not be impaired or affected without the consent of the
Holder.
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The Indenture will require certain officers of the Company to certify, on
or before a date not more than 90 days after the end of each fiscal year, that a
review has been conducted of the activities of the Company and its Restricted
Subsidiaries and the Company's and its Restricted Subsidiaries' performance
under the Indenture and that the Company has fulfilled all obligations
thereunder, or, if there has been a default in the fulfillment of any such
obligation, specifying each such default and the nature and status thereof. The
Company will also be obligated to notify the Trustee of any default or defaults
in the performance of any covenants or agreements under the Indenture.
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Company will not consolidate with, merge with or into, or sell, convey,
transfer, lease or otherwise dispose of all or substantially all of its property
and assets (as an entirety or substantially an entirety in one transaction or a
series of related transactions) to, any Person or permit any Person to merge
with or into the Company unless: (i) the Company shall be the continuing Person,
or the Person (if other than the Company) formed by such consolidation or into
which the Company is merged or that acquired or leased such property and assets
of the Company shall be a corporation organized and validly existing under the
laws of the United States of America or any jurisdiction thereof and shall
expressly assume, by a supplemental indenture, executed and delivered to the
Trustee, all of the obligations of the Company on all of the Notes and under the
Indenture; (ii) immediately after giving effect to such transaction, no Default
or Event of Default shall have occurred and be continuing; (iii) immediately
after giving effect to such transaction on a pro forma basis, the Company or any
Person becoming the successor obligor of the Notes shall have a Consolidated Net
Worth equal to or greater than the Consolidated Net Worth of the Company
immediately prior to such transaction; (iv) immediately after giving effect to
such transaction on a pro forma basis the Company, or any Person becoming the
successor obligor of the Notes, as the case may be, could Incur at least $1.00
of Indebtedness under the first paragraph of the "Limitation on Indebtedness"
covenant; provided that this clause (iv) shall not apply to a consolidation or
merger with or into a Wholly Owned Restricted Subsidiary with a positive net
worth; provided that, in connection with any such merger or consolidation, no
consideration (other than Common Stock in the surviving Person or the Company)
shall be issued or distributed to the stockholders of the Company and (v) the
Company delivers to the Trustee an Officers' Certificate (attaching the
arithmetic computations to demonstrate compliance with clauses (iii) and (iv))
and Opinion of Counsel, in each case stating that such consolidation, merger or
transfer and such supplemental indenture complies with this provision and that
all conditions precedent provided for herein relating to such transaction have
been complied with; provided, however, that clauses (iii) and (iv) above do not
apply if, in the good faith determination of the Board of Directors of the
Company, whose determination shall be evidenced by a Board Resolution, the
principal purpose of such transaction is to change the state of incorporation of
the Company; and provided further that any such transaction shall not have as
one of its purposes the evasion of the foregoing limitations.
DEFEASANCE
Defeasance and Discharge. The Indenture provides that the Company will be
deemed to have paid and will be discharged from any and all obligations in
respect of the Notes on the 123rd day after the deposit referred to below, and
the provisions of the Indenture will no longer be in effect with respect to the
Notes (except for, among other matters, certain obligations to register the
transfer or exchange of the Notes, to replace stolen, lost or mutilated Notes,
to maintain paying agencies and to hold monies for payment in trust) if, among
other things, (A) the Company has deposited with the Trustee, in trust, money
and/or U.S. Government Obligations that through the payment of interest and
principal in respect thereof in accordance with their terms will provide money
in an amount sufficient to pay the principal of, premium, if any, and accrued
interest on the Notes on the Stated Maturity of such payments in accordance with
the terms of the Indenture and the Notes, (B) the Company has delivered to the
Trustee (i) either (x) an Opinion of Counsel to the effect that Holders will not
recognize income, gain or loss for federal income tax purposes as a result of
the Company's exercise of its option under this "Defeasance" provision and will
be subject to federal income tax on the same amount and in the same manner and
at the same times as would have been the case if such deposit, defeasance and
discharge had not occurred, which Opinion of Counsel must be based upon (and
accompanied by a copy of) a ruling of the Internal Revenue Service to the same
effect unless there has been a
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change in applicable federal income tax law after the Closing Date such that a
ruling is no longer required or (y) a ruling directed to the Trustee received
from the Internal Revenue Service to the same effect as the aforementioned
Opinion of Counsel and (ii) an Opinion of Counsel to the effect that the
creation of the defeasance trust does not violate the Investment Company Act of
1940 and after the passage of 123 days following the deposit, the trust fund
will not be subject to the effect of Section 547 of the United States Bankruptcy
Code or Section 15 of the New York Debtor and Creditor Law, (C) immediately
after giving effect to such deposit on a pro forma basis, no Event of Default,
or event that after the giving of notice or lapse of time or both would become
an Event of Default, shall have occurred and be continuing on the date of such
deposit or during the period ending on the 123rd day after the date of such
deposit, and such deposit shall not result in a breach or violation of, or
constitute a default under, any other agreement or instrument to which the
Company or any of its Subsidiaries is a party or by which the Company or any of
its Subsidiaries is bound, (D) the Company is not prohibited from making
payments in respect of the Notes by the provisions described under "Ranking"
above and (E) if at such time the Notes are listed on a national securities
exchange, the Company has delivered to the Trustee an Opinion of Counsel to the
effect that the Notes will not be delisted as a result of such deposit,
defeasance and discharge.
Defeasance of Certain Covenants and Certain Events of Default. The
Indenture further provides that the provisions of the Indenture will no longer
be in effect with respect to clauses (iii) and (iv) under "Consolidation, Merger
and Sale of Assets" and all the covenants described herein under "Covenants,"
clause (c) under "Events of Default" with respect to such clauses (iii) and (iv)
under "Consolidation, Merger and Sale of Assets," clause (d) with respect to
such covenants and clauses (e) and (f) under "Events of Default" shall be deemed
not to be Events of Default, and the provisions described herein under "Ranking"
with respect to the assets held by the Trustee referred to below shall not
apply, upon, among other things, the deposit with the Trustee, in trust, of
money and/or U.S. Government Obligations that through the payment of interest
and principal in respect thereof in accordance with their terms will provide
money in an amount sufficient to pay the principal of, premium, if any, and
accrued interest on the Notes on the Stated Maturity of such payments in
accordance with the terms of the Indenture and the Notes, the satisfaction of
the provisions described in clauses (B)(ii), (C), (D) and (E) of the preceding
paragraph and the delivery by the Company to the Trustee of an Opinion of
Counsel to the effect that, among other things, the Holders will not recognize
income, gain or loss for federal income tax purposes as a result of such deposit
and defeasance of certain covenants and Events of Default and will be subject to
federal income tax on the same amount and in the same manner and at the same
times as would have been the case if such deposit and defeasance had not
occurred.
Defeasance and Certain Other Events of Default. In the event the Company
exercises its option to omit compliance with certain covenants and provisions of
the Indenture with respect to the Notes as described in the immediately
preceding paragraph and the Notes are declared due and payable because of the
occurrence of an Event of Default that remains applicable, the amount of money
and/or U.S. Government Obligations on deposit with the Trustee will be
sufficient to pay amounts due on the Notes at the time of their Stated Maturity
but may not be sufficient to pay amounts due on the Notes at the time of the
acceleration resulting from such Event of Default. However, the Company will
remain liable for such payments.
MODIFICATION AND WAIVER
Modifications and amendments of the Indenture may be made by the Company
and the Trustee with the consent of the Holders of not less than a majority in
aggregate principal amount of the outstanding Notes; provided, however, that no
such modification or amendment may, without the consent of each Holder affected
thereby, (i) change the Stated Maturity of the principal of, or any installment
of interest on, any Note, (ii) reduce the principal amount of, or premium, if
any, or interest on, any Note, (iii) change the place or currency of payment of
principal of, or premium, if any, or interest on, any Note, (iv) impair the
right to institute suit for the enforcement of any payment on or after the
Stated Maturity (or, in the case of a redemption, on or after the Redemption
Date) of any Note, (v) reduce the above-stated percentage of outstanding Notes
the consent of whose Holders is necessary to modify or amend the Indenture, (vi)
modify the subordination provisions in a manner adverse to the Holders, (vii)
waive a default in the payment of
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principal of, premium, if any, or interest on the Notes or (viii) reduce the
percentage or aggregate principal amount of outstanding Notes the consent of
whose Holders is necessary for waiver of compliance with certain provisions of
the Indenture or for waiver of certain defaults.
NO PERSONAL LIABILITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS, DIRECTORS, OR
EMPLOYEES
The Indenture provides that no recourse for the payment of the principal
of, premium, if any, or interest on any of the Notes or for any claim based
thereon or otherwise in respect thereof, and no recourse under or upon any
obligation, covenant or agreement of the Company in the Indenture, or in any of
the Notes or because of the creation of any Indebtedness represented thereby,
shall be had against any incorporator, stockholder, officer, director, employee
or controlling person of the Company or of any successor Person thereof. Each
Holder, by accepting the Notes, waives and releases all such liability.
CONCERNING THE TRUSTEE
The Indenture provides that, except during the continuance of a Default,
the Trustee will not be liable, except for the performance of such duties as are
specifically set forth in such Indenture. If an Event of Default has occurred
and is continuing, the Trustee will use the same degree of care and skill in its
exercise as a prudent person would exercise under the circumstances in the
conduct of such person's own affairs.
The Indenture and provisions of the Trust Indenture Act of 1939, as
amended, incorporated by reference therein contain limitations on the rights of
the Trustee, should it become a creditor of the Company, to obtain payment of
claims in certain cases or to realize on certain property received by it in
respect of any such claims, as security or otherwise. The Trustee is permitted
to engage in other transactions; provided, however, that if it acquires any
conflicting interest, it must eliminate such conflict or resign.
BOOK-ENTRY; DELIVERY AND FORM
The certificates representing the Notes will initially be represented by
one or more permanent global Notes in definitive, fully registered form without
interest coupons (each a "Global Note") and will be deposited with the Trustee
as custodian for, and registered in the name of, a nominee of DTC. Except in the
limited circumstances described below under "Certificated Notes," owners of
beneficial interests in a Global Note will not be entitled to receive physical
delivery of Certificated Notes (as defined below).
Ownership of beneficial interests in a Global Note will be limited to
persons who have accounts with DTC ("participants") or persons who hold
interests through participants. Ownership of beneficial interests in a Global
Note will be shown on, and the transfer of that ownership will be effected only
through, records maintained by DTC or its nominee (with respect to interests of
participants) and the records of participants (with respect to interests of
persons other than participants).
So long as DTC, or its nominee, is the registered owner or holder of a
Global Note, DTC or such nominee, as the case may be, will be considered the
sole owner or holder of the Notes represented by such Global Note for all
purposes under the Indenture and the Notes. No beneficial owner of an interest
in a Global Note will be able to transfer that interest except in accordance
with DTC's applicable procedures, in addition to those provided for under the
Indenture and, if applicable, those of Euroclear and Cedel.
Payments of the principal of, and interest on, a Global Note will be made
to DTC or its nominee, as the case may be, as the registered owner thereof.
Neither the Company, the Trustee nor any Paying Agent will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in a Global Note or
for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests.
The Company expects that DTC or its nominee, upon receipt of any payment of
principal or interest in respect of a Global Note, will credit participants'
accounts with payments in amounts proportionate to their respective beneficial
interests in the principal amount of such Global Note as shown on the records of
DTC or its nominee. The Company also expects that payments by participants to
owners of beneficial interests in such Global Note held through such
participants will be governed by standing instructions and customary practices,
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as is now the case with securities held for the accounts of customers registered
in the names of nominees for such customers. Such payments will be the
responsibility of such participants.
Transfers between participants in DTC will be effected in the ordinary way
in accordance with DTC rules and will be settled in same-day funds. Transfers
between participants in Euroclear and Cedel will be effected in the ordinary way
in accordance with their respective rules and operating procedures.
The Company expects that DTC will take any action permitted to be taken by
a holder of Notes (including the presentation of Notes for exchange as described
below) only at the direction of one or more participants to whose account the
DTC interests in a Global Note is credited and only in respect of such portion
of the aggregate principal amount of Notes as to which such participant or
participants has or have given such direction. However, if there is an Event of
Default under the Notes, DTC will exchange the applicable Global Note for
Certificated Notes, which it will distribute to its participants.
The Company understands that: DTC is a limited purpose trust company
organized under the laws of the State of New York, a "banking organization"
within the meaning of New York Banking Law, a member of the Federal Reserve
System, a "clearing corporation" within the meaning of the Uniform Commercial
Code and a "Clearing Agency" registered pursuant to the provisions of Section
17A of the Exchange Act. DTC was created to hold securities for its participants
and facilitate the clearance and settlement of securities transactions between
participants through electronic book-entry changes in accounts of its
participants, thereby eliminating the need for physical movement of certificates
and certain other organizations. Indirect access to the DTC system is available
to others such as banks, brokers, dealers and trust companies that clear through
or maintain a custodial relationship with a participant, either directly or
indirectly ("indirect participants").
Although DTC, Euroclear and Cedel are expected to follow the foregoing
procedures in order to facilitate transfers of interests in a Global Note among
participants of DTC, Euroclear and Cedel, they are under no obligation to
perform or continue to perform such procedures, and such procedures may be
discontinued at any time. Neither the Company nor the Trustee will have any
responsibility for the performance by DTC, Euroclear or Cedel or their
respective participants or indirect participants of their respective obligations
under the rules and procedures governing their operations.
CERTIFICATED NOTES
If DTC is at any time unwilling or unable to continue as a depositary for
the Global Notes and a successor depositary is not appointed by the Company
within 90 days, the Company will issue Certificated Notes in exchange for the
Global Notes. Holders of an interest in a Global Note may receive Certificated
Notes in accordance with the DTC's rules and procedures in addition to those
provided for under the Indenture. In addition, if there is an Event of Default
under the Notes, DTC will exchange the applicable Global Note for Certificated
Notes, which it will distribute to its participants.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
The following summary of the material terms of the New Credit Facility does
not purport to be complete and is subject to the detailed provisions of, and is
qualified in its entirety by reference to, the credit agreement, a copy of which
has been filed as an exhibit to the Company's Annual Report on Form 10-K for the
year ended December 31, 1995 filed with the Securities and Exchange Commission.
The New Credit Facility consists of a $650.0 million multi-currency
revolving credit facility (including up to $50.0 million in letters of credit)
which will mature in 2001. Interest will accrue on borrowings outstanding under
the New Credit Facility at the Company's option at either (i) LIBOR plus a
margin based upon the Company's senior debt rating by S&P and Moody's or (ii)
the administrative agent's base lending rate or the federal funds rate plus
0.5%, whichever is higher. The New Credit Facility is unsecured, but the
Company's assets are subject to a negative pledge.
In addition to the terms described above, the New Credit Facility contains
customary affirmative and negative covenants, including joint and several
guarantees by the Company and certain subsidiaries and restrictions on the
incurrence of debt, sales of assets, acquisitions, liens, mergers and
consolidations, sale/ leaseback transactions and transactions with affiliates
and payment of dividends. Furthermore, the New Credit Facility requires that the
Company prepay outstanding advances under the New Credit Facility in an amount
equal to 50% of the net cash proceeds from the sale of assets of the Company and
its subsidiaries to the extent that such sales exceed $20 million in the
aggregate. The New Credit Facility also contains certain financial covenants
that require the Company to maintain specified financial ratios, including (i)
total debt to total debt plus consolidated net worth of not more than .60 to 1;
(ii) EBITDA to net interest expense plus the current portion of long-term debt
plus capital expenditures of not less than 2.0 to 1; (iii) funded debt to EBITDA
of not more than 5.0 to 1; and (iv) tangible net worth plus subordinated debt
equal to at least 30% of assets. Failure to satisfy any of the financial
covenants would constitute an event of default under the New Credit Facility,
notwithstanding the ability of the Company to meet its debt service obligations.
The New Credit Facility includes other customary events of default, including
defaults on other indebtedness that aggregate at least $10 million, uninsured
final judgments of $10 million or more and a change of control of the Company.
The Company has agreed to pay certain fees to Rabobank under the New Credit
Facility.
Aggregate borrowings outstanding under the New Credit Facility are subject
to a borrowing base limitation and may not at any time exceed the sum of 90% of
eligible accounts receivable and 60% of eligible inventory.
The initial proceeds of the New Credit Facility and the proceeds from the
March Offering were used to repay all borrowings outstanding under the Old
Credit Facility and thereafter for general corporate purposes. See "Use of
Proceeds."
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following summary, which represents the opinion of King & Spalding,
counsel to the Company, describes the material United States federal income tax
consequences of the acquisition, ownership and disposition of the New Notes.
This discussion is based on currently existing provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), existing and proposed Treasury
regulations promulgated thereunder, and administrative and judicial
interpretations thereof, all as in effect or proposed on the date hereof and all
of which are subject to change, possibly with retroactive effect, or different
interpretations. This discussion assumes that all of the New Notes will be held
as capital assets (i.e., generally assets that are held for investment), within
the meaning of Section 1221 of the Code, and will not be part of a straddle, a
hedge or a conversion transaction, within the meaning of Section 1258 of the
Code. The discussion is for general information only, and does not address all
of the tax consequences that may be relevant to particular purchasers in light
of their personal circumstances, or to certain types of purchasers (such as
certain financial institutions, insurance companies, tax-exempt entities,
dealers in securities or foreign persons). Persons considering the exchange of
Old Notes for New Notes should consult their tax advisors with regard to the
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applications of the United States federal income tax laws to their particular
situations, as well as any tax consequences arising under the laws of any state,
local, or foreign taxing jurisdictions.
THE NEW NOTES
Exchange for Registered Securities. The exchange by a holder of an Old
Note for a New Note should not constitute a taxable exchange. Each New Note
should be treated as having been originally issued at the time the Old Note
exchanged therefor was originally issued.
Stated Interest. Each holder of Notes must include as ordinary interest
income the interest attributable to such Notes at the time it accrues or is
received, in accordance with the holder's accounting method for United States
federal income tax purposes.
Original Issue Discount. The Notes were not issued with original issue
discount for federal income tax purposes.
Sale, Exchange or Retirement. Upon the sale, exchange or retirement of a
Note, a holder will recognize taxable gain or loss equal to the difference
between the amount realized on the sale, exchange or retirement (excluding, in
the case of a cash basis taxpayer, any amount attributable to accrued interest,
which is taxable as such) and such holder's adjusted tax basis in such Note. A
holder's adjusted tax basis in a Note will generally equal the cost of such Note
to such holder, increased by any accrued interest and market discount previously
included in taxable income by the holder, and reduced by any amortized bond
premium and any payments received by the holder, all with respect to such Note.
Subject to the exception discussed below for market discount, gain or loss
recognized on the sale, exchange or retirement of a Note generally will be
capital gain or loss and will be a long-term capital gain or loss if at the time
of sale, exchange or retirement such Note has been held for more than one year.
Amortizable Bond Premium and Market Discount. If a holder purchased a Note
for an amount that is greater than the amount payable at maturity, such holder
will be considered to have purchased such Note with "bond premium." The amount
of bond premium is the excess of (i) the holder's tax basis in such Note, over
(ii) the amount payable at maturity (or on an earlier call date if it results in
a smaller amortizable bond premium). Such holder may elect (in accordance with
applicable Code provisions) to amortize such premium using a constant yield
method over the remaining term of such Note (or until an earlier call date if it
resulted in a smaller amortizable bond premium) and to offset interest otherwise
required to be included in income in respect of such Note during any taxable
year by the amortized amount of such excess for such taxable year. Such
election, once made, is irrevocable (unless permission is received from the
Internal Revenue Service (the "IRS")) and applies to all taxable bonds held
during the taxable year for which the election is made or subsequently acquired.
If a holder purchased a Note for an amount that is less than the stated
redemption price at maturity, such holder will generally be considered to have
purchased such Note with "market discount." For this purpose, the stated
redemption price at maturity of a Note will equal its principal amount. Market
discount with respect to a Note is the excess of the stated redemption price at
maturity over the amount paid by the holder for such Note. However, the amount
of market discount will be considered zero if it would otherwise be less than
1/4 of 1 percent of the stated redemption price of such Note at maturity
multiplied by the number of complete years to maturity (after the holder
acquired such Note). If a Note is subject to the market discount rules, a holder
will generally be required to (i) treat any gain realized with respect to such
Note as ordinary income to the extent market discount accrued during the period
such holder held the Note, (ii) possibly treat any payment on such Note (other
than stated interest) as ordinary income to the extent market discount accrued
during the period such holder held such Note and (iii) defer the deduction of
all or a portion of the interest expense on any indebtedness incurred or
maintained by such holder to purchase or carry such Note. If such Note is
disposed of in a nontaxable transaction (other than a nonrecognition transaction
described in Section 1276(c) of the Code), accrued market discount will be
includable as ordinary income to the holder as if such holder had sold such Note
at its then fair market value. Market discount will be considered to accrue
ratably during the period from the date of acquisition to the maturity date of
such Note, unless the holder irrevocably elects
87
<PAGE> 91
(on an instrument-by-instrument basis) to accrue market discount on the basis of
a constant interest rate. A holder may elect to include market discount in
income currently as it accrues (on either a ratable or constant yield basis), in
which case the rules described above regarding the treatment of gain realized
and the deferral of interest deductions will not apply. An election to include
market discount currently, once made, will apply to all market discount
obligations acquired by the holder on or after the first day of the first
taxable year to which the election applies, and may not be revoked without the
consent of the Internal Revenue Service.
Because of the complexity of the rules relating to bond premium and market
discount, holders should consult their tax advisors as to the application of
these rules to their particular circumstances and as to the merit of making any
elections in connection therewith.
BACKUP WITHHOLDING AND INFORMATION REPORTING
The 31% "backup" withholding and information reporting requirements apply
to certain payments of principal, premium, if any, and interest on a debt
instrument and to proceeds of the sale or redemption of a debt instrument.
Certain holders may be subject to backup withholding at a rate of 31% on any
payments made with respect to, and proceeds of disposition of, the Notes. Backup
withholding will apply only if the holder fails to furnish its taxpayer
identification number (social security number or employer identification
number), to certify that such holder is not subject to backup withholding, or
otherwise to comply with the applicable requirements of the backup withholding
rules. Any amount withheld under these backup withholding rules will be
creditable against the holder's federal income tax liability. Certain holders
(including, among others, corporations) are not subject to the backup
withholding and information reporting requirements.
PLAN OF DISTRIBUTION
Except as described below, (i) a broker-dealer may not participate in the
Exchange Offer in connection with a distribution of the New Notes, (ii) such
broker-dealer would be deemed an underwriter in connection with such
distribution and (iii) such broker-dealer would be required to comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any secondary resale transactions. A broker-dealer may, however,
receive New Notes for its own account pursuant to the Exchange Offer in exchange
for Old Notes when such Old Notes were acquired as a result of market-making
activities or other trading activities. Each such broker-dealer must acknowledge
that it will deliver a prospectus in connection with any resale of such New
Notes. This Prospectus, as it may be amended or supplemented from time to time,
may be used by a broker-dealer (other than an "affiliate" of the Company) in
connection with resales of such New Notes. The Company has agreed that for a
period of 90 days after the Expiration Date, it will make this Prospectus, as
amended or supplemented, available to any such broker-dealer for use in
connection with any such resale.
The Company will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the New Notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such New Notes. Any broker-dealer
that resells New Notes that were received by it for its own account pursuant to
the Exchange Offer may be deemed to be an "underwriter" within the meaning of
the Securities Act and any profit on any such resale of the New Notes and any
commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
For a period of 90 days after the Expiration Date, the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such
88
<PAGE> 92
documents in a Letter of Transmittal. The Company has agreed to pay all expenses
incident to the Exchange Offer other than commissions or concessions of any
brokers or dealers and transfer taxes and will indemnify the holders of the Old
Notes (including any broker-dealers) against certain liabilities, including
liabilities under the Securities Act.
The New Notes will constitute a new issue of securities with no established
trading market. The Company does not intend to list the New Notes on any
national securities exchange or to seek approval for quotation through any
automated quotation system. The Company has been advised by the Placement Agents
that following completion of the Exchange Offer, the Placement Agents intend to
make a market in the New Notes. However, the Placement Agents are not obligated
to do so and any market-making activities with respect to the New Notes may be
discontinued at any time without notice. Accordingly, no assurance can be given
that an active public or other market will develop for the New Notes or as to
the liquidity of or the trading market for the New Notes. If a trading market
does not develop or is not maintained, holders of the New Notes may experience
difficulty in reselling the New Notes or may be unable to sell them at all. If a
market for the New Notes develops, any such market may cease to continue at any
time. If a public trading market develops for the New Notes, future trading
prices of the New Notes will depend on many factors, including, among other
things, prevailing interest rates, the Company's results of operations and the
market for similar securities and other factors, including the financial
conditions of the Company.
LEGAL MATTERS
The legality of the Notes offered hereby will be passed upon for the
Company by King & Spalding, Atlanta, Georgia.
INDEPENDENT AUDITORS
The consolidated balance sheets of AGCO Corporation and subsidiaries as of
December 31, 1995 and 1994 and the related consolidated statements of income,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1995 and the related schedule included and/or incorporated by
reference in this Prospectus from the Company's Annual Report on Form 10-K for
the year ended December 31, 1995 have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their reports with respect
thereto.
The balance sheets of the Maxion Agricultural Equipment Business as of
December 31, 1995 and 1994 and the related statements of operations and cash
flows for each of the three years in the period ended December 31, 1995
incorporated by reference in this Prospectus from the Company's Current Report
on Form 8-K dated June 28, 1996 have been audited by Price Waterhouse Auditores
Independentes, independent public accountants, as indicated in their report with
respect thereto.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange
Act, and in accordance therewith files reports, proxy statements and other
information with the Commission, pursuant to the Exchange Act. Such reports,
proxy statements and other information filed by the Company may be examined
without charge at, or copies obtained upon payment of prescribed fees from, the
Public Reference Section of the Commission at Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549 and are also available for inspection and copying
at the regional offices of the Commission located at Seven World Trade Center,
New York, New York 10048 and at 500 West Madison Street, Chicago, Illinois
60661-2511. Such material can also be inspected and copied at the offices of the
New York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005.
The Company has filed with the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549, a Registration Statement on Form S-4 under the
Securities Act, and the rules and regulations promulgated thereunder, with
respect to the New Notes offered pursuant to the Exchange Offer. For the
purposes hereof,
89
<PAGE> 93
the term "Registration Statement" means the original Registration Statement and
any and all amendments thereto. In accordance with the rules and regulations of
the Commission, this Prospectus does not contain all of the information set
forth in the Registration Statement and the exhibits and schedules thereto. For
further information concerning the Company and the New Notes offered in the
Exchange Offer, reference is made to the Registration Statement and the exhibits
and schedules filed therewith, which may be examined without charge at, or
copies obtained upon payment of prescribed fees from, the Commission and its
regional offices at the locations listed above. Any statements contained herein
concerning the provisions of any document are not necessarily complete, and, in
each instance, reference is made to the copy of such document filed as an
exhibit to the Registration Statement or otherwise filed with the Commission.
Each such statement is qualified in its entirety by such reference.
The Indenture requires the Company to file with the Commission all reports
and other information required by Sections 13(a) or 15(d) of the Exchange Act,
regardless of whether such sections are applicable to the Company. The Company
will supply the trustee under the Indenture and each holder of Notes, without
cost to such holder, copies of such reports and other information.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents heretofore filed by the Company with the Commission
pursuant to the Exchange Act are incorporated by reference in this Prospectus:
(a) Annual Report on Form 10-K for the year ended December 31, 1995;
(b) Current Report on Form 8-K dated March 4, 1996;
(c) Current Report on Form 8-K dated March 21, 1996;
(d) Quarterly Report on Form 10-Q for the quarter ended March 31,
1996; and
(e) Current Report on Form 8-K dated June 28, 1996.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the Exchange Offer shall be deemed to be incorporated by
reference herein and to be a part hereof from the date of the filing of such
reports and documents. The Company will provide a copy of any or all of such
documents (exclusive of exhibits unless such exhibits are specifically
incorporated by reference therein), without charge, to each person to whom this
Prospectus is delivered, upon written or oral request to: AGCO Corporation, 4830
River Green Parkway, Duluth, Georgia 30136 (telephone (770) 813-9200) Attention:
Michael F. Swick, Vice President -- General Counsel.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for the purposes of this Prospectus to the extent that a statement contained
herein or in any other subsequently filed document which also is or is deemed to
be incorporated by reference herein modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
90
<PAGE> 94
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Arthur Andersen LLP......................................................... F-2
Consolidated Statements of Income -- Years Ended December 31, 1995, 1994 and 1993..... F-3
Consolidated Balance Sheets as of December 31, 1995 and 1994.......................... F-5
Consolidated Statements of Stockholders' Equity -- Years Ended December 31, 1995, 1994
and 1993............................................................................ F-7
Consolidated Statements of Cash Flows -- Years Ended December 31, 1995, 1994 and
1993................................................................................ F-9
Notes to Consolidated Financial Statements............................................ F-11
Condensed Consolidated Balance Sheets as of March 31, 1996 and December 31, 1995...... F-32
Condensed Consolidated Statements of Income -- Three Months Ended March 31, 1996 and
1995................................................................................ F-33
Condensed Consolidated Statements of Cash Flows -- Three Months Ended March 31, 1996
and 1995............................................................................ F-34
Notes to Condensed Consolidated Financial Statements.................................. F-35
</TABLE>
F-1
<PAGE> 95
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
AGCO Corporation:
We have audited the accompanying consolidated balance sheets of AGCO
CORPORATION AND SUBSIDIARIES as of December 31, 1995 and 1994 and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the three years in the period ended December 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements 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 AGCO Corporation and
subsidiaries as of December 31, 1995 and 1994 and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995 in conformity with generally accepted accounting principles.
As discussed in the notes to consolidated financial statements, effective
January 1, 1993, the Company changed its methods of accounting for income taxes
and postretirement benefits other than pensions.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
February 7, 1996
F-2
<PAGE> 96
AGCO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
CONSOLIDATED
--------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------
1995 1994 1993
---------- ---------- --------
<S> <C> <C> <C>
Revenues:
Net sales........................................ $2,068,427 $1,319,271 $595,736
Finance income................................... 56,621 39,741 --
---------- ---------- --------
2,125,048 1,359,012 595,736
---------- ---------- --------
Costs and Expenses:
Cost of goods sold............................... 1,627,716 1,042,930 470,452
Selling, general and administrative expenses..... 200,588 129,538 55,848
Engineering expenses............................. 27,350 19,358 7,510
Interest expense, net............................ 63,211 42,836 13,624
Other expense (income), net...................... 9,602 3,141 4,166
Nonrecurring acquisition related expenses........ 6,000 19,500 14,000
---------- ---------- --------
1,934,467 1,257,303 565,600
---------- ---------- --------
Income before income taxes and equity in net
earnings of unconsolidated subsidiary and
affiliates....................................... 190,581 101,709 30,136
Provision (benefit) for income taxes............... 65,897 (10,610) --
---------- ---------- --------
Income before equity in net earnings of
unconsolidated
subsidiary and affiliates........................ 124,684 112,319 30,136
Equity in net earnings of unconsolidated
subsidiary and affiliates..................... 4,458 3,215 3,953
---------- ---------- --------
Net income......................................... 129,142 115,534 34,089
Preferred stock dividends........................ 2,012 5,421 3,705
---------- ---------- --------
Net income available for common stockholders....... $ 127,130 $ 110,113 $ 30,384
========= ========= ========
Net income per common share:
Primary.......................................... $ 2.76 $ 3.07 $ 1.11
========= ========= ========
Fully diluted.................................... $ 2.30 $ 2.35 $ 0.93
========= ========= ========
Weighted average number of common and common
equivalent shares outstanding:
Primary.......................................... 46,126 35,920 27,366
========= ========= ========
Fully diluted.................................... 56,684 49,170 36,774
========= ========= ========
</TABLE>
F-3
<PAGE> 97
AGCO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
EQUIPMENT OPERATIONS
-------------------------------------- FINANCE COMPANY
------------------------------------------
YEAR ENDED DECEMBER 31, FOR THE PERIOD FROM
-------------------------------------- YEAR ENDED FEBRUARY 11, 1994
1995 1994 1993 DECEMBER 31, 1995 TO DECEMBER 31, 1994
---------- ---------- -------- ----------------- --------------------
<S> <C> <C> <C> <C> <C>
$2,068,427 $1,319,271 $595,736 $ -- $ --
-- -- -- 56,621 39,741
---------- ---------- -------- ----------------- ----------
2,068,427 1,319,271 595,736 56,621 39,741
---------- ---------- -------- ----------------- ----------
1,627,716 1,042,930 470,452 -- --
186,752 117,683 55,848 13,836 11,855
27,350 19,358 7,510 -- --
31,490 24,104 13,624 31,721 18,732
9,654 1,978 4,166 (52) 1,163
6,000 19,500 14,000 -- --
---------- ---------- -------- ----------------- ----------
1,888,962 1,225,553 565,600 45,505 31,750
---------- ---------- -------- ----------------- ----------
179,465 93,718 30,136 11,116 7,991
61,563 (13,733) -- 4,334 3,123
---------- ---------- -------- ----------------- ----------
117,902 107,451 30,136 6,782 4,868
11,240 8,083 3,953 -- --
---------- ---------- -------- ----------------- ----------
129,142 115,534 34,089 6,782 4,868
2,012 5,421 3,705 -- --
---------- ---------- -------- ----------------- ----------
$ 127,130 $ 110,113 $ 30,384 $ 6,782 $ 4,868
========= ========= ======== ================= ===================
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 98
AGCO CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
CONSOLIDATED
------------------------------
DECEMBER 31, DECEMBER 31,
1995 1994
------------ ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents....................................... $ 27,858 $ 25,826
Accounts and notes receivable, net of allowances................ 785,801 587,828
Receivables from unconsolidated subsidiary and affiliates....... 4,029 14,805
Credit receivables, net......................................... 185,401 179,029
Inventories, net................................................ 360,969 314,519
Other current assets............................................ 60,442 79,260
------------ ------------
Total current assets.................................... 1,424,500 1,201,267
Noncurrent credit receivables, net................................ 397,177 300,327
Property, plant and equipment, net................................ 146,521 119,211
Investments in unconsolidated subsidiary and affiliates........... 45,963 43,170
Other assets...................................................... 44,510 38,434
Intangible assets, net............................................ 104,244 120,885
------------ ------------
Total assets............................................ $2,162,915 $1,823,294
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Short-term borrowings from unconsolidated subsidiary............ $ -- $ --
Current portion of long-term debt............................... 361,376 188,000
Accounts payable................................................ 325,701 287,127
Payables to unconsolidated subsidiary and
affiliates................................................... 4,837 --
Accrued expenses................................................ 233,848 218,264
Other current liabilities....................................... 13,217 10,083
------------ ------------
Total current liabilities............................... 938,979 703,474
------------ ------------
Revolving credit facilities....................................... 531,336 589,833
Convertible subordinated debentures............................... 37,558 --
Postretirement health care benefits............................... 23,561 22,740
Other noncurrent liabilities...................................... 42,553 30,581
------------ ------------
Total liabilities....................................... 1,573,987 1,346,628
Commitments and Contingencies (Note 14)
Stockholders' Equity:
Preferred stock; $0.01 par value, 1,000,000 shares
authorized, 0 and 301,558 shares of $16.25 Cumulative
Convertible Exchangeable Preferred Stock issued and
outstanding in 1995 and 1994, respectively (liquidation
preference of $250 per share)............................... -- 3
Common stock; $0.01 par value, 75,000,000 shares authorized,
50,557,040 and 21,689,609 shares issued and outstanding in
1995 and 1994, respectively................................. 506 217
Additional paid-in capital................................... 307,189 324,564
Retained earnings............................................ 287,706 161,483
Unearned compensation........................................ (22,587) (10,594)
Additional minimum pension liability......................... (2,619) (338)
Cumulative translation adjustment............................ 18,733 1,331
------------ ------------
Total stockholders' equity.............................. 588,928 476,666
------------ ------------
Total liabilities and stockholders' equity.............. $2,162,915 $1,823,294
========== ==========
</TABLE>
F-5
<PAGE> 99
AGCO CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
EQUIPMENT OPERATIONS FINANCE COMPANY
------------------------------ ------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1994 1995 1994
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
$ 20,023 $ 21,844 $ 7,835 $ 3,982
785,801 587,828 -- --
4,029 23,247 4,686 7,249
-- -- 185,401 179,029
360,969 314,519 -- --
56,950 76,990 3,492 2,270
------------ ------------ ------------ ------------
1,227,772 1,024,428 201,414 192,530
-- -- 397,177 300,327
146,172 118,875 349 336
105,913 96,874 -- --
44,510 38,434 -- --
104,244 120,885 -- --
------------ ------------ ------------ ------------
$1,628,611 $1,399,496 $598,940 $493,193
========== ========== ========== ==========
$ -- $ 7,249 $ -- $ --
-- -- 361,376 188,000
319,711 282,657 5,990 4,470
9,523 -- -- 8,442
223,839 210,566 10,009 7,698
13,217 10,083 -- --
------------ ------------ ------------ ------------
566,290 510,555 377,375 208,610
------------ ------------ ------------ ------------
378,336 366,833 153,000 223,000
37,558 -- -- --
23,561 22,740 -- --
33,938 22,702 8,615 7,879
------------ ------------ ------------ ------------
1,039,683 922,830 538,990 439,489
-- 3 -- --
506 217 1 1
307,189 324,564 48,834 48,834
287,706 161,483 11,150 4,868
(22,587) (10,594) -- --
(2,619) (338) -- --
18,733 1,331 (35) 1
------------ ------------ ------------ ------------
588,928 476,666 59,950 53,704
------------ ------------ ------------ ------------
$1,628,611 $1,399,496 $598,940 $493,193
========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 100
AGCO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<S> <C>
Balance, December 31, 1992..................................................
Net income................................................................
Issuance of preferred stock, net of offering expenses.....................
Stock options exercised...................................................
Stock options canceled....................................................
Common stock dividends....................................................
Preferred stock dividends.................................................
Amortization of unearned compensation.....................................
Additional minimum pension liability......................................
Change in cumulative translation adjustment...............................
Balance, December 31, 1993..................................................
Net income................................................................
Issuance of common stock, net of offering expenses........................
Issuance of restricted stock..............................................
Three-for-two common stock split..........................................
Conversions of preferred stock into common stock..........................
Stock options granted.....................................................
Stock options exercised...................................................
Common stock dividends....................................................
Preferred stock dividends.................................................
Amortization of unearned compensation.....................................
Additional minimum pension liability......................................
Change in cumulative translation adjustment...............................
Balance, December 31, 1994..................................................
Net income................................................................
Issuance of restricted stock..............................................
Two-for-one common stock split............................................
Conversions of subordinated debentures into common stock..................
Conversions of preferred stock into subordinated debentures...............
Conversions of preferred stock into common stock..........................
Stock options exercised...................................................
Common stock dividends....................................................
Preferred stock dividends.................................................
Amortization of unearned compensation.....................................
Additional minimum pension liability......................................
Change in cumulative translation adjustment...............................
Balance, December 31, 1995..................................................
</TABLE>
F-7
<PAGE> 101
AGCO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
ADDITIONAL
PREFERRED STOCK COMMON STOCK ADDITIONAL MINIMUM CUMULATIVE
------------------ ------------------- PAID-IN RETAINED UNEARNED PENSION TRANSLATION
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS COMPENSATION LIABILITY ADJUSTMENT TOTAL
--------- ------ ---------- ------ ---------- -------- ------------ ---------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
-- $ -- 8,916,182 $ 89 $ 72,110 $ 21,811 $ (486) $ -- $ 148 $ 93,672
-- -- -- -- -- 34,089 -- -- -- 34,089
368,000 4 -- -- 87,963 -- -- -- -- 87,967
-- -- 73,597 1 423 -- -- -- -- 424
-- -- -- -- (49) -- 49 -- -- --
-- -- -- -- -- (358) -- -- -- (358)
-- -- -- -- -- (3,705) -- -- -- (3,705)
-- -- -- -- -- -- 145 -- -- 145
-- -- -- -- -- -- -- (155) -- (155)
-- -- -- -- -- -- -- -- 150 150
--------- ------ ---------- ------ ---------- -------- ------------ ---------- ----------- --------
368,000 4 8,989,779 90 160,447 51,837 (292) (155) 298 212,229
-- -- -- -- -- 115,534 -- -- -- 115,534
-- -- 4,237,500 42 151,562 -- -- -- -- 151,604
-- -- 243,000 3 11,542 -- (11,545) -- -- --
-- -- 7,227,398 72 (72) -- -- -- -- --
(66,442) (1) 876,641 9 (8) -- -- -- -- --
-- -- -- -- 352 -- (352) -- -- --
-- -- 115,291 1 741 -- -- -- -- 742
-- -- -- -- -- (467) -- -- -- (467)
-- -- -- -- -- (5,421) -- -- -- (5,421)
-- -- -- -- -- -- 1,595 -- -- 1,595
-- -- -- -- -- -- -- (183) -- (183)
-- -- -- -- -- -- -- -- 1,033 1,033
--------- ------ ---------- ------ ---------- -------- ------------ ---------- ----------- --------
301,558 3 21,689,609 217 324,564 161,483 (10,594) (338) 1,331 476,666
-- -- -- -- -- 129,142 -- -- -- 129,142
-- -- 454,000 5 19,165 -- (19,170) -- -- --
-- -- 25,278,520 253 (253) -- -- -- -- --
-- -- 2,315,661 23 29,267 -- -- -- -- 29,290
(267,453) (3) -- -- (66,845) -- -- -- -- (66,848)
(34,105) -- 673,094 7 (7) -- -- -- -- --
-- -- 146,156 1 1,298 -- -- -- -- 1,299
-- -- -- -- -- (907) -- -- -- (907)
-- -- -- -- -- (2,012) -- -- -- (2,012)
-- -- -- -- -- -- 7,177 -- -- 7,177
-- -- -- -- -- -- -- (2,281) -- (2,281)
-- -- -- -- -- -- -- -- 17,402 17,402
--------- ------ ---------- ------ ---------- -------- ------------ ---------- ----------- --------
-- $ -- 50,557,040 $506 $ 307,189 $287,706 $(22,587) $ (2,619) $18,733 $588,928
========= ====== ========= ====== ======== ======== ========== ======= ========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE> 102
AGCO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
CONSOLIDATED
-------------------------------------------
YEAR ENDED DECEMBER 31,
-------------------------------------------
1995 1994 1993
----------- ----------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income........................................ $ 129,142 $ 115,534 $ 34,089
----------- ----------- ---------
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Depreciation and amortization.................. 24,288 15,713 2,919
Equity in net earnings of unconsolidated
subsidiary and affiliates, net of cash
received..................................... (4,458) (3,031) (3,953)
Deferred income tax provision (benefit)........ 32,915 (40,958) (8,073)
Amortization of intangibles.................... 4,007 2,044 (757)
Amortization of unearned compensation.......... 7,177 1,595 145
Provision for losses on credit receivables..... 4,279 4,691 --
Changes in operating assets and liabilities,
net of effects from purchase of businesses:
Accounts and notes receivable, net............. (131,341) (84,458) (8,815)
Inventories, net............................... (32,273) 30,683 10,623
Other current and noncurrent assets............ 2,794 247 3,953
Accounts payable............................... 8,076 32,498 (3,510)
Accrued expenses............................... 16,624 19,039 (5,740)
Other current and noncurrent liabilities....... 5,898 2,767 1,283
----------- ----------- ---------
Total adjustments......................... (62,014) (19,170) (11,925)
----------- ----------- ---------
Net cash provided by operating
activities.............................. 67,128 96,364 22,164
----------- ----------- ---------
Cash flows from investing activities:
Purchase of businesses, net of cash acquired...... (27,044) (324,249) (148,532)
Purchase of property, plant and equipment......... (45,259) (20,661) (6,709)
Credit receivables originated..................... (393,510) (327,636) --
Principal collected on credit receivables......... 286,009 224,289 --
Investments in unconsolidated subsidiary and
affiliates..................................... 1,070 -- (19,940)
----------- ----------- ---------
Net cash used for investing activities.... (178,734) (448,257) (175,181)
----------- ----------- ---------
Cash flows from financing activities:
Proceeds from revolving credit facilities......... 1,467,499 1,619,507 764,299
Payments on revolving credit facilities........... (1,352,620) (1,367,368) (711,471)
Proceeds from issuance of common stock............ 1,299 133,721 424
Dividends received (paid) from finance company.... -- -- --
Dividends paid on common stock.................... (907) (467) (358)
Dividends paid on preferred stock................. (2,420) (5,511) (3,207)
(Payments) proceeds on short-term borrowings from
unconsolidated subsidiary...................... -- (3,440) 14,516
Proceeds from issuance of preferred stock......... -- -- 87,967
----------- ----------- ---------
Net cash provided by financing
activities.............................. 112,851 376,442 152,170
----------- ----------- ---------
Effect of exchange rate changes on cash and
cash equivalents............................... 787 1,063 --
Increase (decrease) in cash and cash
equivalents.................................... 2,032 25,612 (847)
Cash and cash equivalents, beginning of period.... 25,826 214 1,061
----------- ----------- ---------
Cash and cash equivalents, end of period.......... $ 27,858 $ 25,826 $ 214
========== ========== =========
</TABLE>
F-9
<PAGE> 103
AGCO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
EQUIPMENT OPERATIONS
- --------------------------------------- FINANCE COMPANY
----------------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED FOR THE PERIOD FROM
- --------------------------------------- DECEMBER 31, FEBRUARY 11, 1994
1995 1994 1993 1995 TO DECEMBER 31, 1994
- --------- --------- --------- ----------------- --------------------
<S> <C> <C> <C> <C>
$ 129,142 $ 115,534 $ 34,089 $ 6,782 $ 4,868
- --------- --------- --------- ----------------- --------------------
24,166 15,659 2,919 122 54
(11,240) (7,899) (3,953) -- --
33,920 (38,961) (8,073) (1,005) (1,997)
4,007 2,044 (757) -- --
7,177 1,595 145 -- --
-- -- -- 4,279 4,691
(144,469) (92,063) (8,815) -- --
(32,273) 30,683 10,623 -- --
3,048 306 3,953 (254) (59)
32,812 30,711 (3,510) (11,608) 9,392
14,349 17,108 (5,740) 2,275 1,931
5,162 1,862 1,283 736 905
- --------- --------- --------- ----------------- --------------------
(63,341) (38,955) (11,925) (5,455) 14,917
- --------- --------- --------- ----------------- --------------------
65,801 76,579 22,164 1,327 19,785
- --------- --------- --------- ----------------- --------------------
(27,044) (311,448) (148,532) -- --
(45,161) (20,525) (6,709) (98) (136)
-- -- -- (393,510) (327,636)
-- -- -- 286,009 224,289
1,070 (23,226) (19,940) -- --
- --------- --------- --------- ----------------- --------------------
(71,135) (355,199) (175,181) (107,599) (103,483)
- --------- --------- --------- ----------------- --------------------
366,143 790,007 764,299 1,101,356 829,500
(354,640) (593,468) (711,471) (997,980) (773,900)
1,299 133,721 424 -- --
500 -- -- (500) --
(907) (467) (358) -- --
(2,420) (5,511) (3,207) -- --
(7,249) (25,095) 14,516 7,249 21,655
-- -- 87,967 -- --
- --------- --------- --------- ----------------- --------------------
2,726 299,187 152,170 110,125 77,255
- --------- --------- --------- ----------------- --------------------
787 1,063 -- -- --
(1,821) 21,630 (847) 3,853 (6,443)
21,844 214 1,061 3,982 10,425
- --------- --------- --------- ----------------- --------------------
$ 20,023 $ 21,844 $ 214 $ 7,835 $ 3,982
========= ========= ========= ================ ====================
</TABLE>
See accompanying notes to consolidated financial statements.
F-10
<PAGE> 104
AGCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
AGCO Corporation (the "Company") is one of the largest manufacturers and
distributors of agricultural equipment in the world. The Company sells a full
range of agricultural equipment and related replacement parts, including
tractors, combines, hay tools and forage equipment and implements. The Company's
products are marketed under the following brand names: AGCO Allis, Massey
Ferguson, GLEANER, Hesston, White, SAME, White-New Idea, Black Machine,
AGCOSTAR, Landini, Tye, Farmhand and Glencoe. The Company distributes its
products through a network of approximately 3,000 independent dealers in the
United States and Canada and a combination of wholly owned distribution
companies, associates, licensees and independent dealers in over 140 countries
outside the United States and Canada. In addition, the Company provides retail
financing to end users through Agricredit Acceptance Company ("Agricredit"), a
wholly owned finance subsidiary in the United States and Canada, and through its
Massey Ferguson Finance joint ventures in the United Kingdom, France, and
Germany.
Basis of Presentation
The consolidated financial statements include, on a separate, supplemental
basis, the Company's Equipment Operations and its Finance Company. "Equipment
Operations" reflect the consolidation of all operations of the Company and its
subsidiaries with the exception of Agricredit, which is included using the
equity method of accounting. The results of operations of Agricredit are
included under the caption "Finance Company." All significant intercompany
transactions, including activity within and between the Equipment Operations and
Finance Company, have been eliminated to arrive at the "Consolidated" financial
statements. Certain prior period amounts have been reclassified to conform with
the current period presentation.
Revenue Recognition
Sales of equipment and replacement parts are recorded by the Company when
shipped to independent dealers or other customers. Provisions for sales
incentives and returns and allowances are made at the time of sale to the dealer
for existing incentive programs or at the inception of new incentive programs.
Provisions are revised in the event of subsequent modification to the incentive
programs. There is a time lag, which varies based on the timing and level of
retail demand, between the date the Company records a sale and when the dealer
sells the equipment to a retail customer.
Agricredit recognizes finance income on credit receivables utilizing the
effective interest method. Accrual of interest and finance fees is suspended
when collection is deemed doubtful. Direct costs incurred in origination of the
credit receivables are amortized to income over the expected term of the credit
receivables using methods that approximate the effective interest method.
Foreign Currency Translation
The financial statements of the Company's foreign subsidiaries are
translated into United States currency in accordance with Statement of Financial
Accounting Standards No. 52, "Foreign Currency Translation." Assets and
liabilities are translated to United States dollars at period-end exchange
rates. Income and expense items are translated at average rates of exchange
prevailing during the period. Translation adjustments are accumulated as a
separate component of stockholders' equity. Gains and losses which result from
foreign currency transactions are included in the accompanying consolidated
statements of income.
Use of Estimates
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
F-11
<PAGE> 105
AGCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates. The estimates made by management primarily relate to
receivable and inventory allowances and certain accrued liabilities, principally
relating to reserves for volume discounts and sales incentives, warranty and
insurance.
Transactions with Affiliates
The Company enters into transactions with certain affiliates relating
primarily to the purchase and sale of inventory. All transactions were in the
ordinary course of business and are not considered material to the financial
statements.
Cash and Cash Equivalents
The Company considers all investments with an original maturity of three
months or less to be cash equivalents.
Accounts and Notes Receivable
Accounts and notes receivable arise from the sale of parts and finished
goods inventory to independent dealers and distributors and are ordinarily
collateralized by the related goods. Terms vary by market, generally ranging
from 30 day terms to requiring payment when the equipment is sold to retail
customers. Interest is charged on the balance outstanding after certain
interest-free periods, which generally range from 1 to 12 months.
Accounts and notes receivable are shown net of allowances which consist
primarily of sales incentive discounts available to dealers and doubtful
accounts. Accounts and notes receivable allowances at December 31, 1995 and 1994
were as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Sales incentive discounts.......................................... $39,433 $35,074
Doubtful accounts.................................................. 23,114 24,990
------- -------
$62,547 $60,064
======= =======
</TABLE>
Inventories
Inventories consist primarily of tractors, combines, implements, hay and
forage equipment and service parts and are valued at the lower of cost or
market. Cost is determined on a first-in, first-out basis. Market is net
realizable value for finished goods and repair and replacement parts. For work
in process, production parts and raw materials, market is replacement cost.
Inventory balances at December 31, 1995 and 1994 were as follows (in
thousands):
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Finished goods................................................... $121,034 $ 95,276
Repair and replacement parts..................................... 196,863 182,326
Work in process, production parts and raw........................ 84,505 76,513
-------- --------
Gross inventories................................................ 402,402 354,115
Allowance for surplus and obsolete inventories................... (41,433) (39,596)
-------- --------
Inventories, net................................................. $360,969 $314,519
======== ========
</TABLE>
F-12
<PAGE> 106
AGCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Property, Plant and Equipment
Property, plant and equipment are recorded at cost less accumulated
depreciation and amortization. Depreciation is provided on a straight-line basis
over the estimated useful lives of 10 to 40 years for buildings and
improvements, 3 to 15 years for machinery and equipment, and 3 to 10 years for
furniture and fixtures. Expenditures for maintenance and repairs are charged to
expense as incurred.
The property, plant and equipment balances at December 31, 1995 and 1994
were as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Land............................................................. $ 13,260 $ 8,433
Buildings and improvements....................................... 42,877 36,225
Machinery and equipment.......................................... 110,726 78,490
Furniture and fixtures........................................... 23,572 16,890
-------- --------
Gross property, plant and equipment.............................. 190,435 140,038
Accumulated depreciation and amortization........................ (43,914) (20,827)
-------- --------
Property, plant and equipment, net............................... $146,521 $119,211
======== ========
</TABLE>
Intangible Assets
Intangible assets at December 31, 1995 and 1994 consisted of the following
(in thousands):
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Excess of cost over net assets acquired.......................... $ 52,001 $ 67,057
Trademarks....................................................... 70,000 70,000
Other............................................................ 4,598 2,176
Accumulated amortization......................................... (12,750) (6,419)
-------- --------
113,849 132,814
-------- --------
Excess of net assets acquired over cost.......................... (23,235) (23,235)
Accumulated amortization......................................... 13,630 11,306
-------- --------
(9,605) (11,929)
-------- --------
Intangible assets, net........................................... $104,244 $120,885
======== ========
</TABLE>
The excess of cost over net assets acquired ("goodwill") is being amortized
to income on a straight-line basis over periods ranging from 10 to 40 years. The
Company also assigned values to certain trademarks which were acquired in
connection with the Massey Acquisition (Note 2). The trademarks are being
amortized to income on a straight-line basis over 40 years. The excess of net
assets over cost is being amortized on a straight-line basis over 10 years and
has been reflected along with the related accumulated amortization as a
reduction to intangible assets. The net amortization expense (income), included
in other expense (income), net in the accompanying consolidated statements of
income was $4,007,000, $2,044,000 and ($757,000) for the years ended December
31, 1995, 1994 and 1993, respectively.
The Company periodically reviews the carrying values assigned to goodwill
and other intangible assets based upon expectations of future cash flows and
operating income generated by the underlying tangible assets.
F-13
<PAGE> 107
AGCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Accrued Expenses
Accrued expenses at December 31, 1995 and 1994 consisted of the following
(in thousands):
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Reserve for volume discounts and sales incentives................ $ 62,557 $ 58,164
Warranty reserves................................................ 39,883 30,582
Accrued employee compensation and benefits....................... 28,940 29,811
Insurance reserves............................................... 11,701 10,241
Other............................................................ 90,767 89,466
-------- --------
$233,848 $218,264
======== ========
</TABLE>
Warranty Reserves
The Company's agricultural equipment products are generally under warranty
against defects in material and workmanship for a period of one to four years.
The Company provides for future warranty costs based upon the relationship of
sales in prior periods to actual warranty costs.
Insurance Reserves
Under the Company's insurance programs, coverage is obtained for
significant liability limits as well as those risks required to be insured by
law or contract. It is the policy of the Company to self-insure a portion of
certain expected losses related primarily to workers' compensation and
comprehensive general, product and vehicle liability. Provisions for losses
expected under these programs are recorded based on the Company's estimates of
the aggregate liabilities for the claims incurred.
Net Income Per Common Share
Primary net income per common share is computed by dividing net income
available for common stockholders (net income less preferred stock dividend
requirements) by the weighted average number of common and common equivalent
shares outstanding during each period. Common equivalent shares include shares
issuable upon the assumed exercise of outstanding stock options (Note 13). Fully
diluted net income per common share assumes (i) conversion of the Convertible
Subordinated Debentures (Note 8) into common stock after the Exchange (Note 8)
and the elimination of interest expense related to the Convertible Subordinated
Debentures, net of applicable income taxes and (ii) conversion of the Preferred
Stock (Note 11) into common stock and the elimination of the preferred stock
dividend requirements prior to the Exchange.
All references in the financial statements and the accompanying notes to
the financial statements to the weighted average number of common shares
outstanding and net income per common share have been restated to reflect all
stock splits (Note 12).
Financial Instruments
The carrying amounts reported in the Company's consolidated balance sheets
for cash and cash equivalents, accounts and notes receivable, receivables from
unconsolidated subsidiary and affiliates, accounts payable and payables to
unconsolidated subsidiary and affiliates approximate fair value due to the
immediate or short-term maturity of these financial instruments. Long-term debt
recorded in the accompanying balance sheets approximates fair value based on the
borrowing rates currently available to the Company for loans with similar terms
and average maturities. At December 31, 1995, the estimated fair value of the
Company's credit receivables was $573,851,000 compared to the carrying value of
$582,578,000. At December 31, 1994, the estimated fair value of the Company's
credit receivables was $469,715,000 compared to the carrying value of
F-14
<PAGE> 108
AGCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$479,356,000. The fair value of credit receivables was based on the discounted
values of their related cash flows at current market interest rates.
The Company enters into foreign exchange forward contracts to hedge the
foreign currency exposure of certain receivables, payables and expected
purchases and sales. These contracts are for periods consistent with the
exposure being hedged and generally have maturities of one year or less. Gains
and losses on foreign exchange forward contracts are deferred and recognized in
income in the same period as the hedged transaction. The Company's foreign
exchange forward contracts do not subject the Company's results of operations to
risk due to exchange rate fluctuations because gains and losses on these
contracts generally offset gains and losses on the exposure being hedged. The
Company does not enter into any foreign exchange forward contracts for
speculative trading purposes. At December 31, 1995 and 1994, the Company had
$179,072,000 and $150,968,000, respectively, of foreign exchange forward
contracts outstanding. The deferred gains or losses from these contracts were
not material at December 31, 1995 and 1994.
In 1995, Agricredit entered into interest rate swap agreements in order to
reduce its exposure to portions of the Agricredit Revolving Credit Agreement
(Note 7) which carry floating rates of interest and in order to more closely
match the interest rates of the borrowings to those of the credit receivables
being funded. The differential to be paid or received on the swap agreements is
recognized as an adjustment to interest expense. At December 31, 1995, the total
notional principal amount of the interest rate swap agreements was $25,652,000,
having fixed rates ranging from 8.03% to 8.22% and terminating in 1998. The
notional amount of the swap agreements do not represent amounts exchanged by the
parties and therefore, are not representative of the Company's risk. The credit
and market risk under the swap agreements is not considered significant and the
fair values and carrying values were not material at December 31, 1995.
Accounting Changes
In October 1995, the Financial Accounting Standards Board issued Statement
No. 123, "Accounting for Stock-Based Compensation" which the Company is required
to adopt in 1996. The Statement requires companies to estimate the value of all
stock-based compensation using a recognized pricing model. Companies have the
option of recognizing this value as an expense or disclosing its proforma
effects on net income. The Company has not yet determined its method of
adoption; however, the effect on compensation expense relating to this new
standard would not have had a material effect on the Company's financial
position or results of operations for the year ended December 31, 1995.
In March 1995, the Financial Accounting Standards Board issued Statement
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of," which established accounting standards for the
impairment of long-lived assets, certain identifiable intangibles and goodwill
related to those assets to be held and used, as well as for long-lived assets
and certain identifiable intangibles to be disposed. The Company will be
required to adopt the new standard in the first quarter of 1996. The adoption of
this standard will not have a material effect on the Company's financial
position.
2. ACQUISITIONS
Effective March 31, 1995, the Company acquired substantially all the net
assets of AgEquipment Group, a manufacturer and distributor of agricultural
implements and tillage equipment (the "AgEquipment Acquisition"). The acquired
assets and assumed liabilities consisted primarily of dealer accounts
receivable, inventories, machinery and equipment, trademarks and tradenames,
accounts payable and accrued liabilities. The purchase price, which is subject
to adjustment, was approximately $25,100,000 and was financed through borrowings
under the Company's $550,000,000 revolving credit facility (the "Revolving
Credit Facility" -- Note 7).
F-15
<PAGE> 109
AGCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On June 29, 1994, the Company acquired from Varity Corporation ("Varity")
the outstanding stock of Massey Ferguson Group Limited, certain assets of MF
GmbH, a German operating subsidiary, the Massey Ferguson trademarks and certain
other related assets (collectively, "Massey") for aggregate consideration
consisting of $310,000,000 in cash and 500,000 shares of common stock of the
Company (the "Massey Acquisition"). The acquired assets and assumed liabilities
consisted primarily of accounts receivable, inventories, property, plant and
equipment including two manufacturing facilities, trademarks, stock in
associated companies, accounts payable and accrued liabilities. The total
purchase price was approximately $328,625,000. The cash portion of the purchase
price for the Massey Acquisition and the related transaction costs were financed
through the public offering of 3,737,500 shares of common stock for proceeds of
$132,980,000, net of underwriters' discount and offering expenses (the "1994
Offering" -- Note 12), and incremental borrowings of $177,020,000 under the
Revolving Credit Facility which replaced the Company's credit facility in place
at that time ("the Old Credit Facility" -- Note 7). The 1994 Offering and the
execution of the Revolving Credit Facility were completed concurrently with the
Massey Acquisition.
Effective February 10, 1994, the Company acquired the remaining 50%
interest in Agricredit from Varity. Prior to that date, the Company owned a 50%
interest in Agricredit through a joint venture with Varity (the "Agricredit
Joint Venture"), which was accounted for using the equity method of accounting
since the original date of investment (January 26, 1993). The Company's original
investment in the Agricredit Joint Venture was $19,940,000 and was financed
through borrowings under the Old Credit Facility. The Company's January 1993
acquisition of a 50% joint venture interest in Agricredit together with its
acquisition of the remaining 50% interest is hereinafter referred to as the
"Agricredit Acquisition." The acquired assets and assumed liabilities consisted
primarily of credit receivables, accounts payable, accrued liabilities and
borrowings under a revolving credit agreement. The purchase price for the
remaining 50% interest was $23,226,000 and was financed through borrowings under
the Old Credit Facility. The results of operations of Agricredit are
consolidated with the Company's beginning February 11, 1994.
Effective December 31, 1993, the Company acquired substantially all of the
net assets of the White-New Idea Farm Equipment Division ("White-New Idea") from
Allied Products Corporation, together with approximately 900 dealer contracts
(the "White-New Idea Acquisition"). The acquired assets and assumed liabilities
consisted primarily of dealer accounts receivable, inventories, machinery and
equipment, accounts payable and accrued liabilities. The purchase price was
$52,575,000 before recording certain acquisition expenses and adjustments and
was financed through borrowings under the Old Credit Facility.
Effective January 2, 1993, the Company entered into an agreement with
Varity to become the exclusive distributor in the United States and Canada for
the Massey line of farm equipment and related replacement parts (the
"Distribution Agreement"). Concurrent with the Distribution Agreement, the
Company acquired from Varity substantially all of the net assets of Massey's
North American distribution operations, consisting primarily of dealer accounts
receivable, inventories, accounts payable and accrued liabilities, for
$96,191,000, before recording certain acquisition expenses and adjustments (the
"Massey North American Acquisition"). The purchase price was financed through
borrowings under the Old Credit Facility.
The above acquisitions were accounted for as purchases in accordance with
Accounting Principles Board Opinion No. 16, and accordingly, each purchase price
has been allocated to the assets acquired and the liabilities assumed based on
the estimated fair values as of the acquisition dates. In 1995, the purchase
price allocation for the Massey Acquisition was completed, with the exception of
the recognition of deferred income tax assets which were acquired. The total
purchase price allocation for the Massey Acquisition, excluding the recognition
of deferred income tax assets, resulted in an increase in goodwill of
$6,733,000. In addition, the Company has recognized $59,116,000 of deferred
income tax assets resulting in a decrease in goodwill. In 1994, the purchase
price allocation for the White-New Idea Acquisition was completed resulting in a
decrease in goodwill of $2,894,000. These adjustments were a result of the
completion of certain asset and liability valuations related primarily to
property, plant and equipment and certain allowance and reserve accounts. The
F-16
<PAGE> 110
AGCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
results of operations from these acquisitions are included in the Company's
consolidated statements of income from the respective dates of acquisition.
The following unaudited pro forma data summarizes the results of operations
for the year ended December 31, 1994 as if the Massey and Agricredit
Acquisitions including the related financings had occurred at the beginning of
1994. The unaudited pro forma information has been prepared for comparative
purposes only and does not purport to represent what the results of operations
of the Company would actually have been had the transactions occurred on the
dates indicated or what the results of operations may be in any future period.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1994
----------------------
(IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C>
Net sales and finance income.............................................. $1,819,879
Net income................................................................ 126,498
Net income per common share -- fully diluted(1)........................... 2.28
</TABLE>
- ------------
(1) Net income per common share-fully diluted has been restated to reflect all
stock splits.
Pro forma net income and net income per common share for the year ended
December 31, 1994 include management charges to Massey from Varity of $9,600,000
and nonrecurring acquisition related expenses (Note 3) of $19,500,000. The
management charges to Massey from Varity were discontinued as of the Massey
Acquisition date of June 29, 1994.
3. CHARGES FOR NONRECURRING ACQUISITION RELATED EXPENSES
The results of operations for the years ended December 31, 1995 and 1994
include charges for nonrecurring acquisition related expenses primarily related
to the integration and restructuring of Massey, which was acquired in June 1994
(Note 2). The Company recorded nonrecurring acquisition related expenses of
$13,500,000, or $0.21 per common share on a fully diluted basis, in the fourth
quarter of 1994 and recorded an additional $6,000,000, or $0.07 per common share
on a fully diluted basis, in 1995. The nonrecurring charge included costs
primarily associated with the centralization and rationalization of Massey's
administrative, sales and marketing functions and other nonrecurring costs. The
combined $19,500,000 charge recorded through December 31, 1995 included
$10,148,000 for employee related costs which primarily are severance costs,
$3,300,000 for fees associated with the termination of the Old Credit Facility
which was replaced by the Revolving Credit Facility in conjunction with the
Massey Acquisition, and $6,052,000 for other nonrecurring costs. Included in the
$10,148,000 of employee related costs are $4,160,000 of payroll costs incurred
through December 31, 1995 for personnel that have been terminated or will be
terminated in future periods. Of the total $19,500,000 charge, $18,200,000 has
been incurred at December 31, 1995. The remaining accrual of $1,300,000 consists
of $900,000 for employee severance costs and $400,000 for other nonrecurring
costs. The employee severance costs included in the nonrecurring charge relate
to the planned reduction of approximately 240 employees, of which 211 employees
had been terminated at December 31, 1995.
The results of operations for the year ended December 31, 1994 also include
charges for nonrecurring acquisition related expenses of $6,000,000, or $0.12
per common share on a fully diluted basis, relating to the integration of
White-New Idea which was acquired in December 1993 (Note 2). The nonrecurring
charge included $2,700,000 for employee severance and relocation expenses,
$1,000,000 for costs associated with operating duplicate parts distribution
facilities, $800,000 for certain data processing expenses, $700,000 for dealer
signs, and $800,000 for other nonrecurring costs. All of the costs associated
with the integration of White-New Idea were incurred in 1994 and 1995.
F-17
<PAGE> 111
AGCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The results of operations for the year ended December 31, 1993 include
charges for nonrecurring acquisition related expenses of $14,000,000, or $0.38
per common share on a fully diluted basis, related to the integration of the
Massey North American distribution operation, acquired in January 1993 (Note 2).
The nonrecurring charge included $7,500,000 for costs associated with operating
duplicate parts distribution facilities, $3,500,000 for costs associated with
closing Massey's regional administrative and sales offices, $2,000,000 for
certain data processing services provided by Massey during the transition period
and $1,000,000 for other nonrecurring costs. All of the costs associated with
the integration of Massey's North American distribution operation were incurred
in 1993 and 1994.
4. CREDIT RECEIVABLES
Credit receivables consisted of the following at December 31, 1995 and 1994
(in thousands):
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Retail notes..................................................... $498,732 $396,228
Sales finance contracts.......................................... 199,087 171,482
Wholesale notes.................................................. 16,588 13,095
-------- --------
Gross credit receivables.................................... 714,407 580,805
Less:
Unearned finance income........................................ (119,015) (91,407)
Allowance for credit losses.................................... (12,814) (10,042)
-------- --------
Net credit receivables...................................... 582,578 479,356
Less: current portion............................................ (185,401) (179,029)
-------- --------
Noncurrent credit receivables, net.......................... $397,177 $300,327
======== ========
</TABLE>
At December 31, 1995, contractual maturities of gross credit receivables
were as follows (in thousands):
<TABLE>
<CAPTION>
1995
--------------
<S> <C>
1996........................................................... $243,873
1997........................................................... 191,572
1998........................................................... 139,462
1999........................................................... 91,191
2000........................................................... 40,713
Thereafter..................................................... 7,596
--------------
$714,407
===========
</TABLE>
The maximum maturities for retail notes and sales finance contracts is 7
years, while the maximum maturity for wholesale notes is 1 year. Interest rates
on the credit receivables vary depending on prevailing market interest rates and
certain sales incentive programs offered by the Company. Although the Company
has a diversified receivable portfolio, credit receivables have significant
concentrations of credit risk in the agricultural business sector. At December
31, 1995 and 1994, approximately 78% and 67%, respectively, of the net credit
receivables relate to the financing of products sold by the Company's dealers
and distributors to end users. The Company retains as collateral a security
interest in the equipment financed.
The allowance for credit losses was $12,814,000 and $10,042,000 at December
31, 1995 and 1994, respectively. In addition, the Company had deposits withheld
from dealers and manufacturers available for
F-18
<PAGE> 112
AGCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
potential credit losses of $8,615,000 and $7,879,000 at December 31, 1995 and
1994, respectively. An analysis of the allowance for credit losses is as follows
(in thousands):
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Balance, beginning of year......................................... $10,042 $ 8,709
Provision for credit losses...................................... 4,279 4,691
Charge-offs...................................................... (3,425) (3,403)
Recoveries....................................................... 1,918 45
------- -------
Balance, end of year............................................... $12,814 $10,042
======= =======
</TABLE>
5. INVESTMENTS IN UNCONSOLIDATED AFFILIATES
At December 31, 1995 and 1994, the Company's investments in unconsolidated
affiliates primarily consisted of (i) its 50% investment in Hay and Forage
Industries ("HFI"), a joint venture with Case Corporation ("Case"), which
designs and manufactures hay and forage equipment for distribution by the
Company and Case, (ii) its 50% investment in a joint venture with Renault
Agriculture S.A. ("GIMA"), which manufactures driveline assemblies for Massey
Ferguson and Renault tractors, (iii) a 49% investment in Massey Ferguson
Finance, consisting of retail finance subsidiaries in the United Kingdom, France
and Germany, which are owned by the Company and an unrelated financial
institution and (iv) certain other minority investments in farm equipment
manufacturers and licensees.
Investments in unconsolidated affiliates, accounted for under the equity
method, as of December 31, 1995 and 1994 were as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
HFI................................................................ $12,029 $12,029
GIMA............................................................... 5,651 5,180
Massey Ferguson Finance............................................ 13,523 11,063
Other.............................................................. 14,760 14,898
------- -------
$45,963 $43,170
======= =======
</TABLE>
The Company's equity in net earnings of unconsolidated affiliates for 1995
and 1994 were as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994
------ ------
<S> <C> <C>
Massey Ferguson Finance............................................. $3,459 $1,370
Other............................................................... 999 1,845
------ ------
$4,458 $3,215
====== ======
</TABLE>
Both HFI and GIMA sell their products to the joint venture partners at
prices which result in them operating at or near breakeven on an annual basis.
Equity in net earnings of unconsolidated affiliates for 1993 and 1994 includes
the equity in net earnings of Agricredit prior to February 10, 1994, the date
the remaining 50% interest was acquired by the Company (Note 2). The Company
also has various minority interest investments which are accounted for under the
cost method.
6. INCOME TAXES
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS No.
109"). SFAS No. 109 requires recognition of deferred tax assets and liabilities
for the expected future tax consequences of events that have been included in
the financial statements or tax returns. Under this method, deferred tax assets
and liabilities are determined
F-19
<PAGE> 113
AGCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
based on the differences between the financial reporting and tax bases of assets
and liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse.
The sources of income (expense) before income taxes and equity in net
earnings of unconsolidated subsidiary and affiliates were as follows for the
years ended December 31, 1995, 1994 and 1993 (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- -------
<S> <C> <C> <C>
United States........................................... $ 41,893 $ 50,404 $31,707
Foreign................................................. 148,688 51,305 (1,571)
-------- -------- -------
Income before income taxes and equity in net earnings of
unconsolidated affiliates............................. $190,581 $101,709 $30,136
======== ======== =======
</TABLE>
The provision (benefit) for income taxes by location of the taxing
jurisdiction for the years ended December 31, 1995, 1994 and 1993 consisted of
the following (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
------- -------- -------
<S> <C> <C> <C>
Current:
United States:
Federal............................................. $15,769 $ 23,123 $ 6,892
State............................................... 1,521 3,300 1,181
Foreign................................................ 15,692 3,925 --
------- -------- -------
32,982 30,348 8,073
------- -------- -------
Deferred:
United States:
Federal............................................. (2,485) (51,872) (6,892)
State............................................... 297 (4,498) (1,181)
Foreign................................................ 35,103 15,412 --
------- -------- -------
32,915 (40,958) (8,073)
------- -------- -------
Provision (benefit) for income taxes..................... $65,897 $(10,610) $ --
======= ======== =======
</TABLE>
A reconciliation of income taxes computed at the United States federal
statutory income tax rate (35% in 1995, 1994 and 1993) to the provision
(benefit) for income taxes reflected in the consolidated statements of income
for the years ended December 31, 1995, 1994 and 1993 is as follows (in
thousands):
<TABLE>
<CAPTION>
1995 1994 1993
------- -------- --------
<S> <C> <C> <C>
Provision for income taxes at United States federal
statutory rate........................................ $66,703 $ 35,598 $ 10,548
State and local income taxes, net of federal income tax
benefit............................................... 1,182 2,145 768
Taxes on foreign income which differ from the United
States statutory rate................................. (1,246) 572 --
Reduction in valuation allowance........................ (234) (49,734) (12,699)
Other................................................... (508) 809 1,383
------- -------- --------
$65,897 $(10,610) $ --
======= ======== ========
</TABLE>
For the year ended December 31, 1995, the Company's provision for income
taxes approximates statutory rates. For the years ended December 31, 1994 and
1993, the Company's United States current income tax provision was offset by the
recognition of deferred income tax benefits through a reduction of a portion of
the valuation allowance. In 1994, the reduction in the valuation allowance
resulted in a United States net income tax benefit of $29,947,000, or $0.61 per
common share on a fully diluted basis. The reduction in the valuation
F-20
<PAGE> 114
AGCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
allowance was supported by the generation of taxable income in recent years and
expectations for taxable income in future periods.
For the years ended December 31, 1995 and 1994, the Company's foreign
income tax provision primarily relates to the Company's operations acquired in
the Massey Acquisition. The deferred income tax provision resulted from the
realization of deferred tax assets acquired in the Massey Acquisition primarily
consisting of net operating loss carryforwards.
The significant components of the net deferred tax assets at December 31,
1995 and 1994 were as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Deferred Tax Assets:
Net operating loss carryforwards............................... $ 51,260 $ 71,315
Sales incentive discounts...................................... 15,727 11,792
Inventory valuation reserves................................... 11,327 9,979
Postretirement benefits........................................ 8,256 8,869
Other.......................................................... 41,488 47,153
Valuation allowance............................................ (42,109) (53,472)
-------- --------
Total deferred tax assets.............................. 85,949 95,636
-------- --------
Deferred Tax Liabilities:
Tax over book depreciation..................................... 145 2,117
Tax over book amortization of goodwill......................... 5,805 4,593
Other.......................................................... 5,590 620
-------- --------
Total deferred tax liabilities......................... 11,540 7,330
-------- --------
Net deferred tax assets.......................................... 74,409 88,306
Less: current portion.......................................... (51,214) (68,378)
-------- --------
Noncurrent net deferred tax assets............................... $ 23,195 $ 19,928
======== ========
</TABLE>
As reflected in the preceding table, the Company established a valuation
allowance of $42,109,000 and $53,472,000 for the years ended December 31, 1995
and 1994, respectively, due to the uncertainty regarding the realizability of
certain deferred tax assets. Included in the valuation allowance at December 31,
1995 and 1994 is $27,778,000 and $43,004,000, respectively, related to net
operating loss carryforwards acquired in the Massey Acquisition which will
reduce goodwill if realized.
The Company has United States net operating loss carryforwards of
approximately $12,680,000 at December 31, 1995 which expire in years 2004 and
2005. The Company's United States net operating loss carryforwards are subject
to an annual limitation of $1,280,000 to reduce income taxes in future years.
The Company has foreign net operating loss carryforwards of $113,775,000 which
are principally in France. The foreign net operating loss carryforwards have
expiration dates as follows: 1996 -- $0, 1997 -- $1,338,000, 1998 -- $1,033,000,
1999 -- $1,227,000, 2000 -- $2,293,000, thereafter and
unlimited -- $107,884,000.
The Company paid income taxes of $22,558,000, $24,861,000 and $7,219,000
for the years ended December 31, 1995, 1994, and 1993, respectively.
F-21
<PAGE> 115
AGCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. REVOLVING CREDIT FACILITIES
Revolving credit facilities consisted of the following at December 31, 1995
and 1994 (in thousands):
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Equipment Operations............................................. $378,336 $366,833
Finance Company.................................................. 514,376 411,000
-------- --------
892,712 777,833
Less: current portion............................................ (361,376) (188,000)
-------- --------
$531,336 $589,833
======== ========
</TABLE>
In conjunction with the Massey Acquisition, the Company obtained a
$550,000,000 revolving credit facility (the "Revolving Credit Facility") which
replaced the Company's $290,000,000 credit facility (the "Old Credit Facility").
The Revolving Credit Facility reduces to $530,000,000 in June 1996, $410,000,000
in June 1997, $380,000,000 in June 1998 and expires on June 29, 1999. Aggregate
borrowings outstanding under the Revolving Credit Facility are subject to a
borrowing base limitation and may not at any time exceed the sum of 90% of
eligible accounts receivable and 60% of eligible inventory. At December 31,
1995, $378,336,000 was outstanding under the Revolving Credit Facility and
available borrowings were $162,139,000.
The borrowings outstanding under the Revolving Credit Facility primarily
require interest at the London Interbank Offering Rate ("LIBOR") plus an
applicable margin, as defined. This margin ranged from 0.44% to 0.94% during
1995 and was 0.94% during 1994. Fees associated with the Revolving Credit
Facility include a facility fee on the committed amount and certain other
administrative fees. The Revolving Credit Facility contains certain restrictive
covenants, including, among other things, limitations on the amount of dividends
the Company is allowed to pay and restrictions on additional indebtedness. In
addition, the Company must maintain certain financial covenants, including a
minimum specified net worth, a ratio of debt to earnings, as defined, and an
interest coverage ratio. The Revolving Credit Facility is presently secured by
substantially all of the Company's assets with the exception of the credit
receivables of Agricredit.
Agricredit has a revolving credit facility (the "Agricredit Revolving
Credit Agreement") under which Agricredit can borrow the lesser of $545,000,000
or an amount determinable under the credit agreement based upon the amount and
quality of the outstanding credit receivables. The notes funded under the
Agricredit Revolving Credit Agreement are generally issued with maturities
matching anticipated credit receivable liquidations, and at December 31, 1995,
the terms ranged from 1 to 31 months. Interest rates on the notes outstanding at
December 31, 1995 ranged from 5.1% to 9.1%, with a weighted average interest
rate of 6.8%. The Agricredit Revolving Credit Agreement contains certain
financial covenants which Agricredit and the Company must maintain including a
minimum specified net worth and, specifically for the Company, a ratio of debt
to net worth, as defined. At December 31, 1995, $514,376,000 was outstanding
under the Agricredit Revolving Credit Agreement and available borrowings were
$24,986,000. Funding of new borrowings under the Agricredit Revolving Credit
Agreement expires on June 30, 1997.
At December 31, 1995, the aggregate scheduled maturities of revolving
credit facilities were as follows (in thousands):
<TABLE>
<S> <C>
1996.............................................................. $361,376
1997.............................................................. 119,500
1998.............................................................. 33,500
1999.............................................................. 378,336
--------
$892,712
========
</TABLE>
F-22
<PAGE> 116
AGCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Cash payments for interest were $77,281,000, $56,868,000 and $17,648,000
for the years ended December 31, 1995, 1994 and 1993, respectively.
The Company has arrangements with various banks to issue letters of credit
or similar instruments which guarantee the Company's obligations for the
purchase or sale of certain inventories and for potential claims exposure for
insurance coverage. At December 31, 1995, outstanding letters of credit totaled
$19,945,000, of which $9,525,000 was issued under the Revolving Credit Facility.
At December 31, 1994, outstanding letters of credit totaled $23,663,000, of
which $14,695,000 was issued under the Revolving Credit Facility.
8. CONVERTIBLE SUBORDINATED DEBENTURES
In June 1995, the Company exchanged all of its outstanding 2,674,534
depositary shares (the "Exchange"), each representing 1/10 of a share of
Convertible Preferred Stock (Note 11), into $66,848,000 of 6.5% Convertible
Subordinated Debentures due 2008 (the "Convertible Subordinated Debentures").
The effect of this transaction resulted in a reduction to stockholders' equity
and an increase to liabilities in the amount of $66,848,000. The Convertible
Subordinated Debentures are convertible at any time at the option of the holder
into shares of the Company's common stock at a conversion rate of approximately
157.85 shares of common stock for each $1,000 principal amount of the
debentures. In addition, on or after June 1, 1996, the Convertible Subordinated
Debentures may be redeemed at the option of the Company initially at an amount
equivalent to $1,045.50 per $1,000 principal amount of the debentures and
thereafter, at prices declining to an amount equivalent to the face amount of
the debentures on or after June 1, 2003, plus all accrued and unpaid interest.
During 1995, $29,290,000 of Convertible Subordinated Debentures were converted
at the option of the holders into 4,631,322 shares of the Company's common
stock, adjusted for the two-for-one stock split effected January 31, 1996 (Note
12).
9. EMPLOYEE BENEFIT PLANS
The Company has defined benefit pension plans covering certain hourly and
salaried employees in the United States and certain foreign countries. Under the
United States plans, benefits under the salaried employees' plan are generally
based upon participant earnings, while the hourly employees' benefits are
determined by stated monthly benefit amounts for each year of credited service.
The United States salaried employees' retirement plan was amended to freeze all
future benefit accruals and participation after December 31, 1988, but to
continue the plan provisions with respect to service accumulations toward
achieving eligibility for, and vesting in, plan benefits. As a result of the
Massey Acquisition, the Company sponsors certain foreign defined benefit plans.
These plans are principally in the United Kingdom (the "U.K. Plans") and provide
pension benefits that are based on the employees' highest average eligible
compensation. The Company's policy is to fund amounts to the defined benefit
plans necessary to comply with the funding requirements as prescribed by the
laws and regulations in each country where the plans are located.
Net periodic pension cost for the United States plans for the years ended
December 31, 1995, 1994 and 1993 included the following components (in
thousands):
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Service cost................................................. $ 480 $ 590 $ 504
Interest cost................................................ 2,633 2,482 2,398
Actual (return) loss on plan assets.......................... (4,629) 787 (2,154)
Net amortization and deferral................................ 2,941 (2,588) 504
------ ------ ------
$1,425 $1,271 $1,252
====== ====== ======
</TABLE>
F-23
<PAGE> 117
AGCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following assumptions were used to measure the projected benefit
obligation for the United States plans at December 31, 1995, 1994 and 1993:
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Discount rate to determine the projected benefit
obligation............................................... 7.25% 8.75% 7.50%
Expected long-term rate of return on plan assets used to
determine net periodic pension cost...................... 8.00 8.00 8.00
</TABLE>
The following table sets forth the United States defined benefit plans'
funded status at December 31, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
---------------- ----------------
HOURLY SALARY HOURLY SALARY
------- ------ ------- ------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Actuarial present value of benefit obligation:
Vested benefit obligation......................... $28,997 $7,598 $23,283 $6,220
======= ====== ======= ======
Accumulated benefit obligation.................... $29,336 $7,764 $23,853 $6,366
======= ====== ======= ======
Projected benefit obligation........................ $29,336 $7,833 $24,138 $6,366
Plan assets at fair value, primarily listed stock
and U.S. bonds.................................... 21,961 7,922 18,051 7,115
------- ------ ------- ------
Projected benefit obligation (in excess of) less
than plan assets.................................. (7,375) 89 (6,087) 749
Unrecognized net loss (gain)........................ 2,619 487 623 (167)
Unrecognized prior service cost..................... 1,666 -- 1,974 --
Adjustment required to recognize minimum
liability......................................... (4,285) -- (2,312) --
------- ------ ------- ------
(Accrued) prepaid pension cost...................... $(7,375) $ 576 $(5,802) $ 582
======= ====== ======= ======
</TABLE>
Net periodic pension cost for the U.K. Plans for year ended December 31,
1995 and the period from the Massey Acquisition date (June 29, 1994) to December
31, 1994 included the following components: (in thousands)
<TABLE>
<CAPTION>
1995 1994
-------- -------
<S> <C> <C>
Service cost...................................................... $ 3,319 $ 1,690
Interest cost..................................................... 16,944 8,478
Actual return on plan assets...................................... (29,752) (5,127)
Net amortization and deferral..................................... 10,110 (4,598)
-------- -------
$ 621 $ 443
======== =======
</TABLE>
The following assumptions were used to measure the projected benefit
obligation for the U.K. Plans:
<TABLE>
<CAPTION>
1995 1994
----- -----
<S> <C> <C>
Discount rate to determine the projected benefit obligation.......... 8.75% 9.25%
Rate of increase in future compensation levels used to determine the
projected benefit obligation....................................... 5.00 5.50
Expected long-term rate of return on plan assets used to determine
net periodic pension cost.......................................... 10.00 10.50
</TABLE>
F-24
<PAGE> 118
AGCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table sets forth the U.K. Plans' funded status at December
31, 1995 and 1994 (in thousands):
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Actuarial present value of benefit obligation:
Vested benefit obligation...................................... $203,292 $172,416
======== ========
Accumulated benefit obligation................................. $206,890 $175,466
======== ========
Projected benefit obligation..................................... $214,753 $192,523
Plan assets at fair value, primarily listed stock and bonds...... 217,426 194,681
-------- --------
Projected benefit obligation less than plan assets............... 2,673 2,158
Unrecognized net loss (gain)..................................... 3,647 (563)
-------- --------
Prepaid pension cost............................................. $ 6,320 $ 1,595
======== ========
</TABLE>
In addition to the U.K. Plans, the Company accrues pension costs relating
to various pension plans in other foreign countries all of which are
substantially funded.
The Company maintains a separate defined contribution 401(k) savings plan
covering certain salaried employees. Under the plan, the Company contributes a
specified percentage of each eligible employee's compensation. The Company
contributed $1,301,000, $1,272,000, and $1,010,000 for the years ended December
31, 1995, 1994 and 1993, respectively.
10. POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS
The Company provides certain postretirement health care and life insurance
benefits for United States salaried and hourly employees and their eligible
dependents who retire after attaining specified age and service requirements.
Effective January 1, 1993, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" ("SFAS No. 106"). This accounting
standard requires the accrual of the cost of providing postretirement benefits,
including health care and life insurance coverage, during the active service
period of the employee. The adoption of SFAS No. 106 resulted in an incremental
expense of $1,018,000, or $0.03 per common share on a fully diluted basis,
compared with the expense determined under the previous method of accounting.
Net periodic postretirement benefit cost for the years ended December 31,
1995, 1994 and 1993 included the following components (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Service cost................................................. $ 890 $1,008 $1,149
Interest cost on accumulated postretirement benefit
obligation................................................. 1,287 1,178 1,759
Net amortization of transition obligation and prior service
cost....................................................... (688) (688) (334)
Net amortization of unrecognized net gain.................... (495) (482) --
------ ------ ------
$ 994 $1,016 $2,574
====== ====== ======
</TABLE>
F-25
<PAGE> 119
AGCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table sets forth the postretirement benefit plans' funded
status at December 31, 1995 and 1994 (in thousands):
<TABLE>
<CAPTION>
1995 1994
---------------- ----------------
HOURLY SALARY HOURLY SALARY
------- ------ ------- ------
<S> <C> <C> <C> <C>
Accumulated postretirement benefit obligation:
Retiree........................................... $ 3,191 $ 985 $ 1,756 $1,267
Fully eligible active plan participants........... 1,521 1,213 901 1,195
Other active participants......................... 9,552 2,058 7,465 1,688
------- ------ ------- ------
14,264 4,256 10,122 4,150
Plan assets at fair value........................... -- -- -- --
------- ------ ------- ------
Accumulated postretirement benefit obligation in
excess of plan assets............................. 14,264 4,256 10,122 4,150
Unrecognized prior service cost..................... 2,723 -- 3,438 --
Unrecognized transition obligation.................. -- (456) -- (483)
Unrecognized net gain (loss)........................ 2,541 233 5,568 (55)
------- ------ ------- ------
$19,528 $4,033 $19,128 $3,612
======= ====== ======= ======
</TABLE>
For measuring the expected postretirement benefit obligation, an 11.25%
health care cost trend rate was assumed for 1995, decreasing 0.75% per year to
6% in year 2002 and remaining at that level thereafter. The weighted average
discount rate used to determine the accumulated postretirement benefit
obligation was 7.50% at December 31, 1995 and 8.75% at December 31, 1994.
Increasing the assumed health care cost trend rates by one percentage point
each year and holding all other assumptions constant would increase the
accumulated postretirement benefit obligation at December 31, 1995 by $2,421,000
and increase the aggregate of the service and interest cost components of the
net periodic postretirement benefit cost by $275,000.
Effective January 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 112, "Employers' Accounting for Postemployment
Benefits," which requires accrual of postemployment benefits for former or
inactive employees after employment but before retirement. Adoption of this new
standard did not have a material effect on the Company's financial position or
operating results.
11. PREFERRED STOCK
At December 31, 1995, the Company had 1,000,000 authorized shares of
preferred stock with a par value of $0.01 per share. In May 1993, the Company
completed an offering of 3,680,000 depositary shares, each representing 1/10 of
a share of $16.25 Cumulative Convertible Exchangeable Preferred Stock (the
"Convertible Preferred Stock") at $25.00 per depositary share (the "Convertible
Preferred Stock Offering"). The net proceeds to the Company from the Convertible
Preferred Stock Offering, after deducting the underwriters' discount and
offering expenses, were $87,967,000. Dividends on the Convertible Preferred
Stock were cumulative from the date of original issue and were payable quarterly
at $1.625 per annum per depositary share. Shares of the Convertible Preferred
Stock were convertible at any time at the option of the holder into shares of
the Company's common stock at a conversion price of $6.33. At December 31, 1994,
3,015,580 depositary shares of Convertible Preferred Stock were outstanding. In
June 1995, the Company exchanged all of its outstanding 2,674,534 depositary
shares of Convertible Preferred Stock into $66,848,000 of Convertible
Subordinated Debentures (Note 8).
In April 1994, the Company designated 300,000 shares as Junior Cumulative
Preferred Stock (the "Junior Preferred Stock") in connection with the adoption
of a Stockholders' Rights Plan (the "Rights Plan" -- Note 12). No shares of
Junior Preferred Stock have been issued.
F-26
<PAGE> 120
AGCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. COMMON STOCK
At December 31, 1995, the Company had 75,000,000 authorized shares of
common stock with a par value of $0.01. Subject to stockholder approval, the
board of directors approved an increase in the number of authorized shares of
common stock by 75,000,000 shares to 150,000,000 shares. At December 31, 1995,
50,557,040 shares of common stock were outstanding, 5,928,530 shares were
reserved for issuance subject to conversion of the Company's Convertible
Subordinated Debentures (Note 8), 1,541,020 shares were reserved for issuance
under the Company's 1991 Stock Option Plan (Note 13), 81,000 shares were
reserved for issuance under the Company's Nonemployee Director Stock Incentive
Plan (Note 13) and 180,000 shares were reserved for issuance under the Company's
Long-Term Incentive Plan (Note 13). Subject to stockholder approval, the board
of directors has approved an increase in the number of common shares reserved
for issuance under the Company's Long-Term Incentive Plan by 1,950,000 shares to
2,130,000 shares.
In April 1994, the Company adopted the Rights Plan. Under the terms of the
Rights Plan, one-third of a preferred stock purchase right (a "Right") is
attached to each outstanding share of the Company's common stock. The Rights
Plan contains provisions that are designed to protect stockholders in the event
of certain unsolicited attempts to acquire the Company. Under the terms of the
Rights Plan, each Right entitles the holder to purchase one one-hundredth of a
share of Junior Preferred Stock, par value of $0.01 per share, at an exercise
price of $200 per share. The Rights are exercisable a specified number of days
following (i) the acquisition by a person or group of persons of 20% or more of
the Company's common stock or (ii) the commencement of a tender or exchange
offer for 20% or more of the Company's common stock. In the event the Company is
the surviving company in a merger with a person or group of persons that owns
20% or more of the Company's outstanding stock each Right will entitle the
holder (other than such 20% stockholder) to receive, upon exercise, common stock
of the Company having a value equal to two times the Right's exercise price. In
addition, in the event the Company sells or transfers 50% or more of its assets
or earning power, each Right will entitle the holder to receive, upon exercise,
common stock of the acquiring company having a value equal to two times the
Right's exercise price. The Rights may be redeemed by the Company at $0.01 per
Right prior to their expiration on April 27, 2004.
In June 1994, in conjunction with the financing of the Massey Acquisition,
the Company completed a public offering of 3,737,500 shares of common stock at
$37.50 per share resulting in proceeds of $132,980,000, net of underwriters'
discount and offering expenses. In addition, the Company issued 500,000 shares
to Varity as part of the total consideration for the Massey Acquisition.
On January 31, 1996, the Company effected a two-for-one stock split of the
Company's outstanding common stock in the form of a stock dividend payable to
stockholders of record on January 15, 1996. On December 15, 1994, the Company
effected a three-for-two split of the Company's outstanding common stock in the
form of a 50% stock dividend payable to stockholders of record on December 1,
1994. All references to common share and per share information and the weighted
average number of common and common equivalent shares outstanding, with the
exception of stock offering information, have been restated to reflect both
stock splits.
13. STOCK PLANS
In April 1995, the Company adopted a nonemployee director stock incentive
plan (the "Director Plan"), effective December 14, 1994. Under the Director
Plan, the Company reserved 100,000 common shares for issuance, with 19,000
shares awarded to plan participants at December 31, 1995. The awarded shares are
earned in specified increments for each 15% increase in the average market value
of the Company's common stock over the initial base price established under the
plan. When an increment of the awarded shares are earned, the shares are issued
to the participant in the form of restricted stock which vests at the earlier of
12 months after the specified performance period or upon departure from the
board of directors. When the restricted shares are earned, a cash bonus equal to
40% of the value of the shares on the date the restricted
F-27
<PAGE> 121
AGCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
stock award is earned is paid by the Company to satisfy a portion of the
estimated income tax liability to be incurred by the participant. At December
31, 1995, 17,000 shares awarded under the Director Plan had been earned.
In April 1994, the Company adopted a long-term incentive plan for executive
officers (the "LTIP"), effective December 14, 1993. Under the LTIP, the Company
reserved 1,800,000 common shares for issuance and awarded 1,620,000 shares to
plan participants. The awarded shares are earned in specified increments for
each 20% increase in the average market value of the Company's common stock over
the initial base price established under the plan. When an increment of the
awarded shares are earned, the shares are issued to the participant in the form
of restricted stock which generally carries a five year vesting period.
One-third of each award vests on the last day of the 36th, 48th and 60th month,
respectively, after each award is earned. When the restricted shares are vested,
a cash bonus equal to 40% of the value of the vested shares on the date the
restricted stock award is earned is paid by the Company to satisfy a portion of
the estimated income tax liability to be incurred by the participant.
At the time the awarded shares are earned, the market value of the stock is
added to common stock and additional paid-in capital and an equal amount is
deducted from stockholders' equity as unearned compensation. The LTIP unearned
compensation and the amount of cash bonus to be paid when the awarded shares
become vested are amortized to expense ratably over the vesting period. At
December 31, 1995, 1,620,000 shares have been earned and awarded under the LTIP,
all of which remain unvested. In 1995, the Company recognized compensation
expense associated with the LTIP of $9,763,000, consisting of $6,974,000 related
to the stock award and $2,789,000 related to the cash bonus. In 1994, the
Company recognized compensation expense of $1,508,000, consisting of $1,077,000
related to the stock award and $431,000 related to the cash bonus.
Additional information regarding the LTIP for the years ended December 31,
1995 and 1994 is as follows:
<TABLE>
<CAPTION>
1995 1994
-------- ---------
<S> <C> <C>
Shares awarded but not earned at January 1...................... 891,000 1,620,000
Shares earned................................................... (891,000) (729,000)
-------- ---------
Shares awarded but not earned at December 31.................... -- 891,000
Shares available for grant...................................... 180,000 180,000
-------- ---------
Total shares reserved........................................... 180,000 1,071,000
======== ========
</TABLE>
On July 1995, the board of directors approved an amendment to the LTIP,
subject to stockholder approval, to increase the number of shares of common
stock reserved for issuance under the LTIP by 1,950,000 common shares and
contingently approved a grant of awards totalling 1,950,000 common shares. At
December 31, 1995, 183,000 shares of this contingent grant were earned under the
provisions of the LTIP.
In September 1991 and subsequently amended in May 1993, the Company adopted
a stock option plan (the "Option Plan") for officers, employees, directors and
others and reserved 2,400,000 shares of common stock for distribution under the
Option Plan. Options granted under the Option Plan may be either nonqualified or
incentive stock options as determined by the board of directors. The stock
option exercise price is determined by the board of directors except in the case
of an incentive stock option for which the purchase price shall not be less than
100% of the fair market value at the date of grant. Each recipient of stock
options is entitled to immediately exercise up to 20% of the options issued to
such person, and an additional 20% of such options vest ratably over a four-year
period and expire not later than ten years from the date of grant.
F-28
<PAGE> 122
AGCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Stock option transactions during the three years ended December 31, 1995
were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Options outstanding at January 1............. 1,198,400 1,043,722 1,200,744
Options granted.............................. 20,000 508,650 120,750
Options exercised............................ (292,312) (345,872) (220,790)
Options canceled............................. (26,898) (8,100) (56,982)
------------ ------------ ------------
Options outstanding at December 31........... 899,190 1,198,400 1,043,722
=========== =========== ===========
Options available for grant at December 31... 641,830 634,938 1,135,488
=========== =========== ===========
Option prices per share:
Granted.................................... $14.69-18.25 $11.75-16.96 $ 3.75-6.25
Exercised.................................. 1.52-18.25 1.52-14.63 1.52-3.75
Canceled................................... 1.52-14.63 2.50- 3.75 1.52-3.75
</TABLE>
14. COMMITMENTS AND CONTINGENCIES
The Company leases land, buildings, machinery, equipment and furniture
under various noncancelable operating lease agreements. At December 31, 1995,
future minimum lease payments under noncancelable operating leases were as
follows (in thousands):
<TABLE>
<S> <C>
1996........................................................ $ 12,243
1997........................................................ 9,553
1998........................................................ 5,798
1999........................................................ 4,197
2000........................................................ 2,423
Thereafter.................................................. 6,565
--------------
$ 40,779
===========
</TABLE>
Total lease expense under noncancelable operating leases was $15,069,000,
$7,250,000 and $3,174,000 for the years ended December 31, 1995, 1994 and 1993,
respectively.
The Company is party to various claims and lawsuits arising in the normal
course of business. It is the opinion of management, after consultation with
legal counsel, that those claims and lawsuits, when resolved, will not have a
material adverse effect on the financial position or results of operations of
the Company.
F-29
<PAGE> 123
AGCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
15. SEGMENT REPORTING
The Company's operations consist of two primary geographic segments, United
States and Canada and International, as set forth below (in thousands):
Year Ended December 31, 1995
<TABLE>
<CAPTION>
UNITED
STATES
AND
CANADA INTERNATIONAL CONSOLIDATED(1)
---------- ------------- ---------------
<S> <C> <C> <C>
Revenues:
Net sales to unaffiliated customers................... $ 807,499 $ 1,260,928 $ 2,068,427
Net sales between geographic segments................. 20,218 203,882 --
---------- ------------- ---------------
827,717 1,464,810 2,068,427
Finance income........................................ 56,621 -- 56,621
---------- ------------- ---------------
Total revenues................................ $ 884,338 $ 1,464,810 $ 2,125,048
========= ========= ============
Income from operations(2)............................... $ 65,175 $ 163,948 $ 227,666
========= ========= ============
Identifiable assets..................................... $1,406,778 $ 943,588 $ 2,162,915
========= ========= ============
</TABLE>
Year Ended December 31, 1994
<TABLE>
<CAPTION>
UNITED
STATES
AND
CANADA INTERNATIONAL CONSOLIDATED(1)
---------- ------------- ---------------
<S> <C> <C> <C>
Revenues:
Net sales to unaffiliated customers.................... $ 770,661 $ 548,610 $ 1,319,271
Net sales between geographic segments.................. 1,276 61,930 --
---------- ------------- ---------------
771,937 610,540 1,319,271
Finance income......................................... 39,741 -- 39,741
---------- ------------- ---------------
Total revenues................................. $ 811,678 $ 610,540 $ 1,359,012
========= ========= ============
Income from operations (2)............................. $ 81,736 $ 47,484 $ 126,910
========= ========= ============
Identifiable assets.................................... $1,192,788 $ 738,268 $ 1,823,294
========= ========= ============
</TABLE>
- ---------------
(1) Consolidated information reflects the elimination of intersegment
transactions. Intersegment sales are made at selling prices that are
intended to reflect the market value of the products.
(2) Income from operations represents revenues less cost of goods sold, selling,
general and administrative expenses, engineering expenses, nonrecurring
acquisition related expenses, interest expense for Agricredit, and
intangible asset amortization.
For the year ended December 31, 1993, the Company's operations were solely
in the United States and Canada.
F-30
<PAGE> 124
AGCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Net sales by customer location for the years ended December 31, 1995, 1994
and 1993 were as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- --------
<S> <C> <C> <C>
Net Sales:
United States..................................... $ 660,879 $ 626,205 $465,168
Canada............................................ 134,458 130,316 117,814
Europe............................................ 947,628 389,687 11,055
Australia......................................... 39,477 23,132 1,699
Africa............................................ 71,672 44,053 --
Asia.............................................. 135,031 42,907 --
Middle East....................................... 41,203 34,846 --
Central and South America......................... 38,079 28,125 --
---------- ---------- --------
$2,068,427 $1,319,271 $595,736
========= ========= ========
</TABLE>
Total export sales from the United States were $157,663,000 in 1995,
$138,540,000 in 1994 and $94,240,000 in 1993 with the large majority of products
sold in Canada. The remaining sales to customers outside the United States in
1995 and 1994 were sourced from the Company's operations in Europe.
F-31
<PAGE> 125
AGCO CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
CONSOLIDATED EQUIPMENT OPERATIONS FINANCE COMPANY
-------------------------- -------------------------- --------------------------
MARCH 31, DECEMBER 31, MARCH 31, DECEMBER 31, MARCH 31, DECEMBER 31,
1996 1995 1996 1995 1996 1995
----------- ------------ ----------- ------------ ----------- ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents............... $ 27,207 $ 27,858 $ 24,595 $ 20,023 $ 2,612 $ 7,835
Accounts and notes receivable, net of
allowances............................ 753,653 785,801 753,653 785,801 -- --
Receivables from unconsolidated
subsidiary and affiliates............. 6,041 4,029 9,690 4,029 -- 4,686
Credit receivables, net................. 197,790 185,401 -- -- 197,790 185,401
Inventories, net........................ 429,704 360,969 429,704 360,969 -- --
Other current assets.................... 57,625 60,442 54,266 56,950 3,359 3,492
----------- ------------ ----------- ------------ ----------- ------------
Total current assets.............. 1,472,020 1,424,500 1,271,908 1,227,772 203,761 201,414
Noncurrent credit receivables, net........ 390,549 397,177 -- -- 390,549 397,177
Property, plant and equipment, net........ 143,696 146,521 143,348 146,172 348 349
Investments in unconsolidated subsidiary
and affiliates.......................... 45,975 45,963 108,598 105,913 -- --
Other assets.............................. 49,822 44,510 49,822 44,510 -- --
Intangible assets, net.................... 104,158 104,244 104,158 104,244 -- --
----------- ------------ ----------- ------------ ----------- ------------
Total assets...................... $2,206,220 $2,162,915 $1,677,834 $1,628,611 $ 594,658 $598,940
========== ========== ========== ========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt....... $ 365,193 $ 361,376 $ -- $ -- $ 365,193 $361,376
Accounts payable........................ 277,749 325,701 273,708 319,711 4,041 5,990
Payables to unconsolidated subsidiary
and affiliates........................ 26,561 4,837 26,561 9,523 3,649 --
Accrued expenses........................ 218,353 233,848 208,231 223,839 10,122 10,009
Other current liabilities............... 12,153 13,217 12,153 13,217 -- --
----------- ------------ ----------- ------------ ----------- ------------
Total current liabilities......... 900,009 938,979 520,653 566,290 383,005 377,375
----------- ------------ ----------- ------------ ----------- ------------
Long-term debt............................ 602,533 531,336 462,533 378,336 140,000 153,000
Convertible subordinated debentures....... 29,926 37,558 29,926 37,558 -- --
Postretirement health care benefits....... 23,799 23,561 23,799 23,561 -- --
Other noncurrent liabilities.............. 39,296 42,553 30,266 33,938 9,030 8,615
----------- ------------ ----------- ------------ ----------- ------------
Total liabilities................. 1,595,563 1,573,987 1,067,177 1,039,683 532,035 538,990
Stockholders' Equity:
Common stock; $0.01 par value,
150,000,000 shares authorized,
51,894,622 and 50,557,040 shares
issued and outstanding at March 31,
1996 and December 31, 1995,
respectively.......................... 519 506 519 506 1 1
Additional paid-in capital.............. 315,264 307,189 315,264 307,189 48,834 48,834
Retained earnings....................... 304,292 287,706 304,292 287,706 13,820 11,150
Unearned compensation................... (19,418) (22,587) (19,418) (22,587) -- --
Additional minimum pension liability.... (2,619) (2,619) (2,619) (2,619) -- --
Cumulative translation adjustment....... 12,619 18,733 12,619 18,733 (32) (35)
----------- ------------ ----------- ------------ ----------- ------------
Total stockholders' equity........ 610,657 588,928 610,657 588,928 62,623 59,950
----------- ------------ ----------- ------------ ----------- ------------
Total liabilities and
stockholders'
equity.......................... $2,206,220 $2,162,915 $1,677,834 $1,628,611 $ 594,658 $598,940
========== ========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-32
<PAGE> 126
AGCO CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED AND IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
CONSOLIDATED EQUIPMENT OPERATIONS FINANCE COMPANY
--------------------- --------------------- -------------------
THREE MONTHS ENDED THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, MARCH 31, MARCH 31,
--------------------- --------------------- -------------------
1996 1995 1996 1995 1996 1995
-------- -------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Net sales.......................... $453,884 $443,536 $453,884 $443,536 $ -- $ --
Finance income..................... 16,808 12,683 -- -- 16,808 12,683
-------- -------- -------- -------- ------- -------
470,692 456,219 453,884 443,536 16,808 12,683
-------- -------- -------- -------- ------- -------
Costs and Expenses:
Cost of goods sold................. 360,144 350,338 360,144 350,338 -- --
Selling, general and administrative
expenses......................... 49,439 46,824 46,246 43,344 3,193 3,480
Engineering expenses............... 6,979 5,885 6,979 5,885 -- --
Interest expense, net.............. 15,052 15,315 5,964 8,346 9,088 6,969
Other expense (income), net........ 2,466 567 2,443 620 23 (53)
Nonrecurring expenses.............. 5,923 2,012 5,923 2,012 -- --
-------- -------- -------- -------- ------- -------
440,003 420,941 427,699 410,545 12,304 10,396
-------- -------- -------- -------- ------- -------
Income before income taxes, equity in
net earnings of unconsolidated
subsidiary and affiliates and
extraordinary loss................. 30,689 35,278 26,185 32,991 4,504 2,287
Provision for income taxes........... 10,867 12,401 9,033 11,509 1,834 892
-------- -------- -------- -------- ------- -------
Income before equity in net earnings
of unconsolidated subsidiary and
affiliates and extraordinary
loss............................... 19,822 22,877 17,152 21,482 2,670 1,395
Equity in net earnings of
unconsolidated subsidiary and
affiliates......................... 773 507 3,443 1,902 -- --
-------- -------- -------- -------- ------- -------
Income before extraordinary loss..... 20,595 23,384 20,595 23,384 2,670 1,395
Extraordinary loss, net of taxes..... (3,503) -- (3,503) -- -- --
-------- -------- -------- -------- ------- -------
Net income........................... 17,092 23,384 17,092 23,384 2,670 1,395
Preferred stock dividends............ -- 1,213 -- 1,213 -- --
-------- -------- -------- -------- ------- -------
Net income available for common
stockholders....................... $ 17,092 $ 22,171 $ 17,092 $ 22,171 $ 2,670 $ 1,395
========= ========= ========= ========= ======== ========
Net income per common share:
Primary:
Income before extraordinary
loss........................... $ 0.40 $ 0.50
Extraordinary loss............... (0.07) --
-------- --------
Net income....................... $ 0.33 $ 0.50
========= =========
Fully diluted:
Income before extraordinary
loss........................... $ 0.37 $ 0.42
Extraordinary loss............... (0.06) --
-------- --------
Net income....................... $ 0.31 $ 0.42
========= =========
Weighted average number of common and
common equivalent shares
outstanding:
Primary............................ 51,292 44,052
========= =========
Fully diluted...................... 57,071 55,938
========= =========
Dividends declared per common
share.............................. $ 0.01 $ 0.01
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-33
<PAGE> 127
AGCO CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED AND IN THOUSANDS)
<TABLE>
<CAPTION>
CONSOLIDATED EQUIPMENT OPERATIONS FINANCE COMPANY
-------------------- -------------------- -------------------
THREE MONTHS ENDED THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, MARCH 31, MARCH 31,
-------------------- -------------------- -------------------
1996 1995 1996 1995 1996 1995
-------- --------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income............................... $ 17,092 $ 23,384 $ 17,092 $ 23,384 $ 2,670 $ 1,395
-------- --------- -------- --------- -------- --------
Adjustments to reconcile net income to
net cash provided by (used for)
operating activities:
Extraordinary loss, net of taxes....... 3,503 -- 3,503 -- -- --
Depreciation and amortization.......... 6,093 6,074 6,060 6,053 33 21
Equity in net earnings of
unconsolidated subsidiary and
affiliates, net of cash received..... (773) (507) (3,443) (1,902) -- --
Deferred income tax provision
(benefit)............................ 3,622 5,672 3,840 6,244 (218) (572)
Amortization of intangibles............ 1,003 859 1,003 859 -- --
Amortization of unearned
compensation......................... 3,165 579 3,165 579 -- --
Provision for losses on credit
receivables.......................... 851 1,122 -- -- 851 1,122
Changes in operating assets and
liabilities, net of effects from
purchase of businesses:
Accounts and notes receivable, net... 19,951 (63,035) 16,302 (58,284) -- --
Inventories, net..................... (70,970) (55,948) (70,970) (55,948) -- --
Other current and noncurrent
assets............................ (4) 562 (345) 493 341 69
Accounts payable..................... (20,384) 5,425 (23,121) 7,084 6,386 (6,410)
Accrued expenses..................... (12,546) (6,167) (12,662) (5,799) 116 (368)
Other current and noncurrent
liabilities....................... 1,955 (2,554) 1,540 (2,382) 415 (172)
-------- --------- -------- --------- -------- --------
Total adjustments................. (64,534) (107,918) (75,128) (103,003) 7,924 (6,310)
-------- --------- -------- --------- -------- --------
Net cash (used for) provided by
operating activities............ (47,442) (84,534) (58,036) (79,619) 10,594 (4,915)
-------- --------- -------- --------- -------- --------
Cash flows from investing activities:
Purchase of businesses, net of cash
acquired............................... (6,180) -- (6,180) -- -- --
Purchase of property, plant and
equipment.............................. (5,461) (5,255) (5,439) (5,206) (22) (49)
Credit receivables originated............ (80,336) (60,133) -- -- (80,336) (60,133)
Principal collected on credit
receivables............................ 73,724 61,947 -- -- 73,724 61,947
-------- --------- -------- --------- -------- --------
Net cash (used for) provided by
investing activities............ (18,253) (3,441) (11,619) (5,206) (6,634) 1,765
-------- --------- -------- --------- -------- --------
Cash flows from financing activities:
Proceeds (payments) on long-term debt,
net.................................... 75,016 74,756 84,199 78,406 (9,183) (3,650)
Payment of debt issuance costs........... (9,851) -- (9,851) -- -- --
Proceeds from issuance of common stock... 458 71 458 71 -- --
Dividends paid on common stock........... (506) (217) (506) (217) -- --
Dividends paid on preferred stock........ -- (1,222) -- (1,222) -- --
(Payments) proceeds on short-term
borrowings from unconsolidated
subsidiary and affiliates, net......... -- -- -- (3,397) -- 3,397
-------- --------- -------- --------- -------- --------
Net cash provided by (used for)
financing activities............ 65,117 73,388 74,300 73,641 (9,183) (253)
-------- --------- -------- --------- -------- --------
Effect of exchange rate changes on cash and
cash equivalents......................... (73) 622 (73) 622 -- --
(Decrease) increase in cash and cash
equivalents.............................. (651) (13,965) 4,572 (10,562) (5,223) (3,403)
Cash and cash equivalents, beginning of
period................................... 27,858 25,826 20,023 21,844 7,835 3,982
-------- --------- -------- --------- -------- --------
Cash and cash equivalents, end of period... $ 27,207 $ 11,861 $ 24,595 $ 11,282 $ 2,612 $ 579
========= ========== ========= ========== ========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-34
<PAGE> 128
AGCO CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The condensed consolidated financial statements of AGCO Corporation and
subsidiaries (the "Company" or "AGCO") included herein have been prepared by the
Company pursuant to the rules and regulations of the Securities and Exchange
Commission. In the opinion of management, the accompanying unaudited condensed
consolidated financial statements reflect all adjustments, which are of a normal
recurring nature, to present fairly the Company's financial position, results of
operations and cash flows at the dates and for the periods presented. These
condensed consolidated financial statements should be read in conjunction with
the Company's audited financial statements and notes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1995.
Interim results of operations are not necessarily indicative of results to be
expected for the fiscal year.
The accompanying condensed consolidated financial statements include, on a
separate, supplemental basis, the Company's Equipment Operations and its Finance
Company. "Equipment Operations" reflect the consolidation of all operations of
the Company and its subsidiaries with the exception of Agricredit Acceptance
Company ("Agricredit"), a wholly-owned finance subsidiary, which is included
using the equity method of accounting. The results of operations of Agricredit
are included under the caption "Finance Company." All significant intercompany
transactions, including activity within and between the Equipment Operations and
Finance Company, have been eliminated to arrive at the "Consolidated" financial
statements. Certain prior period amounts have been reclassified to conform with
the current period presentation.
2. CHARGES FOR NONRECURRING EXPENSES
The results of operations for the three months ended March 31, 1996
included a charge for nonrecurring expenses of $5,923,000, or $0.07 per common
share on a fully diluted basis, related to the further restructuring of the
International Operations which was acquired in the Massey Acquisition in June
1994.
The nonrecurring charge included costs associated with the centralization
of certain parts warehousing, administrative, sales and marketing functions. The
$5,923,000 nonrecurring charge recorded through March 31, 1996 included
$4,763,000 for employee related costs, consisting primarily of severance costs,
and $1,160,000 for other nonrecurring costs. Included in the $4,763,000 of
employee related costs are $421,000 of payroll costs incurred through March 31,
1996 for personnel that have been terminated or will be terminated in future
periods. Of the total $5,923,000 charge, $2,394,000 has been incurred at March
31, 1996. The remaining accrual of $3,529,000 consists of employee severance
costs which relate to the planned reduction of 86 employees, of which 34
employees had been terminated at March 31, 1996.
The results of operations for the three months ended March 31, 1995
included a charge for nonrecurring expenses of $2,012,000, or $0.02 per common
share on a fully diluted basis, which was a portion of the Company's $19,500,000
charge recorded through December 31, 1995 for the initial integration and
restructuring of the International Operations. The nonrecurring charge for the
three months ended March 31, 1995 included $1,504,000 for employee severance and
$508,000 for certain data processing expenses. Substantially all of the costs
associated with the $19,500,000 charge recorded through December 31, 1995 have
been incurred.
F-35
<PAGE> 129
AGCO CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
3. LONG-TERM DEBT
Long-term debt consisted of the following at March 31, 1996 and
December 31, 1995 (in thousands):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
--------- ------------
<S> <C> <C>
Revolving credit facility -- Equipment Operations.............. $ 214,682 $378,336
Revolving credit facility -- Finance Company................... 505,193 514,376
Senior subordinated notes...................................... 247,851 --
--------- ------------
$ 967,726 $892,712
======== ==========
</TABLE>
In March 1996, the Company issued $250,000,000 of 8 1/2% Senior
Subordinated Notes due 2006 (the "Notes") at 99.139% of their par value. The
Notes are unsecured obligations of the Company and are redeemable at the option
of the Company, in whole or in part, at any time on or after March 15, 2001
initially at 104.25% of their principal amount, plus accrued interest, declining
ratably to 100% of their principal amount plus accrued interest, on or after
March 15, 2003. The Notes include certain covenants, including covenants
restricting the incurrence of indebtedness and the making of certain restrictive
payments, including dividends. The net proceeds from the sale of the Notes were
used to repay outstanding indebtedness under the Company's $550.0 million
revolving credit facility.
In March 1996, the Company replaced its $550.0 million secured revolving
credit facility (the "Old Credit Facility") with a five-year $650.0 million
unsecured credit facility (the "New Credit Facility"). Aggregate borrowings
outstanding under the New Credit Facility are subject to a borrowing base
limitation and may not at any time exceed the sum of 90% of eligible accounts
receivable and 60% of eligible inventory. Interest will accrue on borrowings
outstanding under the New Credit Facility primarily at LIBOR plus an applicable
margin, as defined. The New Credit Facility contains certain covenants,
including covenants restricting the incurrence of indebtedness and the making of
certain restrictive payments, including dividends. In addition, the Company must
maintain certain financial covenants including, among others, a debt to
capitalization ratio, an interest coverage ratio, and a ratio of debt to cash
flow, as defined. At March 31, 1996, $214,682,000 was outstanding under the New
Credit Facility and available borrowings were $425,768,000.
4. EXTRAORDINARY LOSS
During the first quarter of 1996, as part of the refinancing of the Old
Credit Facility with the New Credit Facility, the Company recorded an
extraordinary loss of $3.5 million, net of tax, for the write-off of unamortized
debt costs related to the Existing Credit Facility.
5. CONVERTIBLE SUBORDINATED DEBENTURES
In June 1995, the Company exchanged all of its outstanding 2,674,534
depositary shares (the "Exchange"), each representing 1/10 of a share of $16.25
Cumulative Convertible Exchangeable Preferred Stock (the "Preferred Stock"),
into $66,848,000 of its 6.5% Convertible Subordinated Debentures due 2008 (the
"Convertible Subordinated Debentures"). The effect of this transaction resulted
in a reduction to stockholders' equity and an increase to liabilities in the
amount of $66,848,000. The Convertible Subordinated Debentures are convertible
at any time at the option of the holder into shares of the Company's common
stock at a conversion rate of 157.85 shares of common stock for each $1,000
principal amount of the debentures. In addition, on or after June 1, 1996, the
Convertible Subordinated Debentures may be redeemed at the option of the Company
initially at an amount equivalent to $1,045.50 per $1,000 principal amount of
the debentures and thereafter at prices declining to an amount equivalent to the
face amount of the debentures on or after June 1, 2003, plus all accrued and
unpaid interest. During the first quarter of 1996, $7,632,000 of Convertible
F-36
<PAGE> 130
AGCO CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
Subordinated Debentures were converted at the option of the holder into
1,203,626 shares of the Company's common stock.
In April 1996, the Company announced its election, effective June 1, 1996,
to redeem all of its outstanding Convertible Subordinated Debentures. The
redemption price will be 104.55% of the principal amount of the Convertible
Subordinated Debentures. The Convertible Subordinated Debentures may be
converted into the Company's common stock through the redemption date.
6. NET INCOME PER COMMON SHARE
Primary net income per common share is computed by dividing net income
available for common stockholders (net income less preferred stock dividend
requirements) by the weighted average number of common and common equivalent
shares outstanding during each period. Common equivalent shares include shares
issuable upon the assumed exercise of outstanding stock options. Fully diluted
net income per common share assumes (i) conversion of the Convertible
Subordinated Debentures into common stock after the Exchange and the elimination
of interest expense related to the Convertible Subordinated Debentures, net of
applicable income taxes and (ii) the conversion of the Preferred Stock into
common stock and the elimination of the preferred stock dividend requirements
prior to the Exchange.
7. INVENTORIES
Inventories consist primarily of farm tractors, combines, implements, hay
and forage equipment and service parts and are valued at the lower of cost or
market. Cost is determined on a first-in, first-out basis. Market is net
realizable value for finished goods and repair and replacement parts. For work
in process, production parts and raw materials, market is replacement cost.
Inventory balances at March 31, 1996 and December 31, 1995 were as follows
(in thousands):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
--------- ------------
<S> <C> <C>
Finished goods............................................... $ 175,792 $121,034
Repair and replacement parts................................. 209,811 196,863
Work in process, production parts and raw materials.......... 89,087 84,505
--------- ------------
Gross inventories............................................ 474,690 402,402
Allowance for surplus and obsolete inventories............... (44,986) (41,433)
--------- ------------
Inventories, net............................................. $ 429,704 $360,969
======== ==========
</TABLE>
8. SUBSEQUENT EVENT
On April 30, 1996, the Company executed a Letter of Intent with
Iochpe-Maxion, S.A. ("Maxion"), a Brazilian company, in which the Company agreed
to purchase substantially all of the net assets of the agricultural equipment
business of Maxion for $260 million, subject to certain adjustments (the "Maxion
Acquisition"). The Maxion Acquisition is planned to be financed with borrowings
under the New Credit Facility. The closing of the Maxion Acquisition is
anticipated to occur by the end of the second quarter of 1996 and is subject to
obtaining certain approvals and consents and other customary conditions.
Maxion is the licensee for Massey Ferguson branded products distributed in
Brazil. Maxion is a leading manufacturer and distributor of agricultural
tractors and combines and industrial loader-backhoes in Brazil.
F-37
