<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 22, 1997
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20552
---------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
AGCO CORPORATION
(Exact Name of Registrant as Specified in Charter)
---------------------
<TABLE>
<S> <C>
DELAWARE 58-1960019
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
</TABLE>
4830 RIVER GREEN PARKWAY
DULUTH, GEORGIA 30136
(770) 813-9200
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
---------------------
J-P RICHARD
PRESIDENT AND CHIEF EXECUTIVE OFFICER
AGCO CORPORATION
4830 RIVER GREEN PARKWAY
DULUTH, GEORGIA 30136
(770) 813-9200
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code of
Agent For Service)
---------------------
WITH A COPY TO:
<TABLE>
<S> <C>
JOHN J. KELLEY III, ESQ. VALERIE FORD JACOB, ESQ.
KING & SPALDING FRIED, FRANK, HARRIS, SHRIVER & JACOBSON
191 PEACHTREE STREET ONE NEW YORK PLAZA
ATLANTA, GEORGIA 30303 NEW YORK, NEW YORK 10004
(404) 572-4600 (212) 859-8000
</TABLE>
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after the effective date of the Registration Statement.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, check the following
box. []
---------------------
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. []
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. []
- ------------------------
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. []
- ------------------------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [X]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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- ------------------------------------------------------------------------------------------------------------
PROPOSED
MAXIMUM
AMOUNT PROPOSED MAXIMUM AGGREGATE AMOUNT OF
TITLE OF SHARES TO BE AGGREGATE PRICE OFFERING REGISTRATION
TO BE REGISTERED REGISTERED(1) PER UNIT(2) PRICE(2) FEE
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<S> <C> <C> <C> <C>
Common Stock, par value $.01 per
share............................. 5,375,000 $26.875 $144,453,125 $43,774
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</TABLE>
(1) Includes 675,000 shares which the Underwriters have the option to purchase
solely to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(a).
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED JANUARY 22, 1997
PROSPECTUS
'AGCO LOGO'
4,700,000 SHARES
AGCO CORPORATION
COMMON STOCK
------------------------
Of the 4,700,000 shares of Common Stock offered hereby, 4,500,000 shares
are being offered by AGCO Corporation ("AGCO" or the "Company") and 200,000
shares are being offered by a stockholder of the Company (the "Selling
Stockholder"). The Company will not receive any of the net proceeds from the
sale of shares by the Selling Stockholder.
The Common Stock is listed on the New York Stock Exchange (the "NYSE")
under the symbol "AG." On January 20, 1997, the last reported sale price of the
Common Stock on the NYSE was $28 7/8. See "Price Range of Common Stock and
Dividend History."
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 8, FOR A DISCUSSION OF RISK FACTORS
THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE COMMON STOCK
OFFERED HEREBY.
------------------------
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.
<TABLE>
<CAPTION>
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- --------------------------------------------------------------------------------------------------------
PROCEEDS TO
PRICE TO PROCEEDS TO SELLING
PUBLIC UNDERWRITING COMPANY(2) STOCKHOLDER
DISCOUNT(1)
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<S> <C> <C> <C> <C>
Per share......................... $ $ $ $
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Total(3).......................... $ $ $ $
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</TABLE>
(1) The Company and the Selling Stockholder have agreed to indemnify the several
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses of the Offering payable by the Company estimated
to be $450,000.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
675,000 additional shares of Common Stock, solely to cover over-allotments,
if any. If such option is exercised in full, the total Price to Public,
Underwriting Discount and Proceeds to Company will be $ ,
$ and $ , respectively. See "Underwriting."
------------------------
The shares of Common Stock are being offered by the several Underwriters,
subject to prior sale, when, as and if issued to and accepted by them, subject
to approval of certain legal matters by counsel for the Underwriters and certain
other conditions. The Underwriters reserve the right to withdraw, cancel or
modify such offer and reject orders in whole or in part. It is expected that
delivery of the shares of Common Stock will be made in New York, New York, on or
about , 1997.
------------------------
MERRILL LYNCH & CO.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
MORGAN STANLEY & CO.
INCORPORATED
------------------------
The date of this Prospectus is , 1997.
<PAGE> 3
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE COMMON STOCK
AT LEVELS ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
descriptions and the financial information and statements appearing elsewhere or
incorporated by reference in this Prospectus. Unless otherwise indicated, (i)
the information contained in this Prospectus assumes that the Underwriters'
over-allotment option is not exercised, (ii) all references in this Prospectus
to "AGCO" or the "Company" include the Company's subsidiaries and its
predecessors and (iii) all dollar ($) amounts are in U.S. dollars. The offering
of 4,700,000 shares of the Common Stock of the Company, par value $.01 per share
(the "Common Stock"), pursuant to this Prospectus is referred to herein as the
"Offering."
THE COMPANY
AGCO is a leading manufacturer and distributor of agricultural equipment
throughout 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: Massey Ferguson(R), AGCO(R) Allis, GLEANER(R), Hesston(R), White, SAME,
Landini, White-New(R) Idea, Black Machine, AGCOSTAR(TM), Glencoe(R), Tye(R),
Farmhand(R), Maxion, IDEAL, PMI, Deutz and Fendt. The Company distributes its
products through a combination of over 7,500 independent dealers, wholly-owned
distribution companies, associates and licensees. In addition, the Company
provides retail financing in North America, the United Kingdom, France and
Germany through its finance joint ventures with Cooperative Centrale
Raiffeisen-Boerenleenbank B.A., "Rabobank Nederland" ("Rabobank").
For the twelve months ended September 30, 1996, the Company's revenues were
approximately $2.2 billion, of which $1.4 billion or 63% were outside of North
America. For the period from 1991 to 1995, the Company's revenues increased at a
compound annual growth rate of 66%. This growth in revenues has resulted
primarily from the Company's ability to increase penetration of its existing
markets and through acquisitions. The Company has increased penetration in its
existing markets primarily through expanding and strengthening its independent
dealer network, cross-selling complementary products, expanding its replacement
parts business and introducing new products to meet the growing needs of its
customers. For example, 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.
Since January 1992, the Company has signed over 2,200 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. The Company has introduced a number of product improvements
including the redesigned Massey Ferguson high horsepower 6100/8100 Series
tractors, an 18-speed powershift transmission for the higher horsepower AGCO
Allis 9600 Series and the White 6100 Series tractors, and water-cooled engines
for the GLEANER combine. The Company continues to invest in new product
technology and innovation in order to remain competitive in the market.
The Company has also grown through a series of 14 acquisitions for
consideration aggregating approximately $1,222.7 million. These acquisitions
have allowed the Company to broaden its product line, expand its dealer network
and establish strong market positions in several new markets throughout North
America, South America, Western Europe and the rest of the world. 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.
The Company's primary business objective is to achieve 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 the Company's cost of capital. Key elements of the
Company's business strategy are: (i) expanding and strengthening the Company's
worldwide organization of independent dealers and distributors; (ii) marketing
multiple brands through multiple dealer networks; (iii) selling complementary
non-tractor products through its international distribution channel; (iv)
introducing competitive new products in all markets which meet the needs of
customers and provide reasonable margins; (v) expanding the international
replacement parts business; (vi) focusing on increasing margins through
controlling product
3
<PAGE> 5
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.
RECENT DEVELOPMENTS
Fendt Acquisition. On January 20, 1997, the Company acquired the
operations of Xaver Fendt GmbH & Co. KG ("Fendt") for approximately $283.5
million plus approximately $38.0 million of assumed working capital debt (the
"Fendt Acquisition"). Fendt, which had 1995 sales of approximately $580.0
million, manufactures and sells tractors ranging from 45 to 260 horsepower
through a network of independent agricultural cooperatives and dealers in
Germany and a network of 250 dealers throughout Europe. With this acquisition,
AGCO has the number one market share in Germany and the number two market share
in France, two of Europe's largest agricultural equipment markets.
Deutz Argentina Acquisition. On December 27, 1996, the Company acquired
the operations of Deutz Argentina S.A. ("Deutz Argentina") for approximately
$62.5 million (the "Deutz Argentina Acquisition"). Deutz Argentina, with 1995
sales of approximately $109.0 million, supplies agricultural equipment, engines
and trucks to Argentina and other markets of Latin America. Deutz Argentina
distributes a broad range of tractor models in Argentina under the Deutz brand
name ranging from 60 to 190 horsepower, combines under the Deutz Fahr brand
name, and light trucks and agricultural implements. In addition, Deutz Argentina
manufactures Deutz diesel engines for distribution to other equipment
manufacturers and for use in its own equipment. The Deutz Argentina Acquisition
establishes AGCO as the dominant supplier of agricultural equipment in
Argentina.
Maxion Acquisition. On June 28, 1996, the Company acquired the
agricultural and industrial equipment business of Iochpe-Maxion S.A. (the
"Maxion Agricultural Equipment Business") for approximately $260.0 million (the
"Maxion Acquisition"). The Maxion Agricultural Equipment Business, with 1995
sales of approximately $265.0 million, was AGCO's Massey Ferguson licensee in
Brazil, manufacturing and distributing agricultural tractors under the Massey
Ferguson brand name, combines under the Massey Ferguson and IDEAL brand names
and industrial loader-backhoes under the Massey Ferguson and Maxion brand names.
The Maxion Acquisition establishes AGCO with market leadership in the
significant Brazilian agricultural equipment market.
Agricredit Joint Venture. On November 1, 1996, the Company sold a 51%
interest in Agricredit Acceptance Company ("Agricredit"), the Company's wholly
owned finance subsidiary, to a wholly owned subsidiary of Rabobank (the
"Agricredit Sale"). The Company received total consideration of approximately
$44.3 million in the transaction. The Company retained a 49% interest in
Agricredit and now operates Agricredit with Rabobank as a joint venture (the
"Agricredit Joint Venture"). The Agricredit Joint Venture has continued the
business of Agricredit and seeks to build a broader asset-based finance business
through the addition of other lines of business. The Company has similar joint
venture arrangements with Rabobank with respect to its retail finance companies
located in the United Kingdom, France and Germany. See "The Company -- Retail
Financing/Joint Ventures."
New Credit Facility. On January 14, 1997, the Company replaced its $650.0
million unsecured credit facility (the "Second Credit Facility") with a new
credit facility with Rabobank as lead agent (the "New Credit Facility"), which
initially provides for borrowings of up to $1.0 billion. The New Credit Facility
is the Company's primary source of financing. Borrowings under the New Credit
Facility may not exceed the sum of 90% of eligible accounts receivable and 60%
of eligible inventory. Lending commitments under the New Credit Facility reduce
to $900 million on January 1, 1998 and $800 million on January 1, 1999. If the
Company consummates offerings of debt or capital stock (including the Offering)
prior to such dates, the proceeds of such offerings will be used to reduce the
lending commitments, but not below $800 million. The Company used borrowings
under the Second Credit Facility to finance the Deutz Argentina Acquisition and
borrowings under the New Credit Facility to finance the Fendt Acquisition. Pro
forma for the New Credit Facility, the Agricredit Sale, the Deutz Argentina
Acquisition and the Fendt Acquisition, at September 30, 1996, the Company would
have had approximately $239.4 million available for borrowing under the New
4
<PAGE> 6
Credit Facility. The Company will use the net proceeds from the Offering to
repay a portion of its borrowings under the New Credit Facility. Pro forma for
such repayment the Company would have had approximately $239.4 available for
borrowing under the New Credit Facility at September 30, 1996.
THE OFFERING
Shares of Common Stock offered by
the Company........................ 4,500,000
Shares of Common Stock offered by
the Selling Stockholder............ 200,000
Shares of Common Stock outstanding
after the Offering(1).............. 61,754,868
Use of Proceeds.................... To repay outstanding indebtedness of the
Company. The Company will not receive any
proceeds from the sale of shares of
Common Stock by the Selling Stockholder.
NYSE Symbol........................ "AG"
- ---------------
(1) Excludes, as of January 20, 1997, (i) 787,250 shares of Common Stock subject
to outstanding options and (ii) 1,604,500 shares of Common Stock subject to
issuance pursuant to grants of restricted stock.
RISK FACTORS
For a discussion of certain factors to be considered in evaluating the
Company, its business and an investment in the shares of Common Stock, see "Risk
Factors" beginning on page 8.
5
<PAGE> 7
SUMMARY HISTORICAL FINANCIAL DATA
The summary historical financial data set forth below for the five years
ended December 31, 1995 are derived from the Company's Consolidated Financial
Statements which have been audited by Arthur Andersen LLP, independent public
accountants. The summary historical financial data for the nine months ended
September 30, 1995 and 1996 and as of September 30, 1996 are derived from the
unaudited Condensed Consolidated Financial Statements of the Company. For the
periods presented, the Company's results of operations were significantly
affected by a series of acquisitions completed during such periods. Primarily as
a result of these acquisitions, net sales have increased significantly since
1991. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------------------------- -------------------------
1991 1992 1993(1) 1994(1) 1995(1) 1995(1) 1996(1)
-------- -------- -------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT SHARE 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 $1,486,358 $1,627,424
Finance income.................... -- -- -- 39,741 56,621 40,218 51,404
-------- -------- -------- ---------- ---------- ---------- ----------
274,535 314,542 595,736 1,359,012 2,125,048 1,526,576 1,678,828
-------- -------- -------- ---------- ---------- ---------- ----------
Costs and Expenses:
Cost of goods sold................ 212,225 256,475 470,452 1,042,930 1,627,716 1,162,920 1,294,350
Selling, general and
administrative expenses......... 40,357 37,003 55,848 129,538(2) 200,588(2) 146,463(2) 161,000(2)
Engineering expenses.............. 5,752 6,924 7,510 19,358 27,350 18,592 20,805
Interest (income) expense, net.... (214) 9,270 13,624 42,836(3) 63,211(3) 48,054(3) 51,677(3)
Other expense (income), net....... 7,710 (1,172) 4,166 3,141(4) 9,602(4) 5,289(4) 8,003(4)
Nonrecurring expenses............. -- -- 14,000 19,500 6,000 4,607 12,878
-------- -------- -------- ---------- ---------- ---------- ----------
265,830 308,500 565,600 1,257,303 1,934,467 1,385,925 1,548,713
-------- -------- -------- ---------- ---------- ---------- ----------
Income before income taxes and
equity in net earnings of
unconsolidated subsidiary and
affiliates and extraordinary
loss.............................. 8,705 6,042 30,136 101,709 190,581 140,651 130,115
Provision (benefit) for income
taxes............................. -- -- -- (10,610)(5) 65,897(5) 48,848(5) 45,570(5)
-------- -------- -------- ---------- ---------- ---------- ----------
Income before equity in net earnings
of unconsolidated subsidiary and
affiliates and extraordinary
loss.............................. 8,705 6,042 30,136 112,319 124,684 91,803 84,545
Equity in net earnings of
unconsolidated subsidiary and
affiliates........................ -- -- 3,953(6) 3,215(6) 4,458 3,664 4,857
-------- -------- -------- ---------- ---------- ---------- ----------
Income before extraordinary loss.... 8,705 6,042 34,089 115,534 129,142 95,467 89,402(7)
Preferred stock dividends......... -- -- 3,705 5,421 2,012 2,012 --
-------- -------- -------- ---------- ---------- ---------- ----------
Net income available for common
stockholders before extraordinary
loss.............................. $ 8,705 $ 6,042 $ 30,384 $ 110,113 $ 127,130 $ 93,455 $ 89,402(7)
======== ======== ======== ========== ========== ========== ==========
Net Income Per Common Share Before
Extraordinary Loss:
Primary........................... $ 0.69 $ 0.27 $ 1.11 $ 3.07 $ 2.76 $ 2.06 $ 1.64(7)
Fully diluted..................... $ 0.69 $ 0.27 $ 0.93 $ 2.35 $ 2.30 $ 1.71 $ 1.57(7)
Weighted Average Number of Common
and Common Equivalent Shares
Outstanding:
Primary........................... 12,624 22,516 27,366 35,920 46,126 45,354 54,374
Fully diluted..................... 12,624 22,516 36,774 49,170 56,684 56,440 57,341
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1996
---------------------------
ACTUAL AS ADJUSTED(8)
---------- --------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital........................................................................... $ 555,842 $ 555,842
Total assets.............................................................................. 2,592,942 2,592,942
Long-term debt (9)........................................................................ 778,753 654,788
Stockholders' equity...................................................................... 715,910 839,875
</TABLE>
(footnotes on following page)
6
<PAGE> 8
- ---------------
(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 using 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 for
the period from February 11, 1994 to December 31, 1994, the year ended
December 31, 1995 and for the nine months ended September 30, 1995 and
1996. AGCO sold a 51% joint venture interest in Agricredit effective
November 1, 1996.
(2) Includes selling, general and administrative expenses attributable to
Agricredit in the amount of $11.9 million and $13.8 million for the years
ended December 31, 1994 and 1995, respectively, and $10.8 million and $9.9
million for the nine months ended September 30, 1995 and 1996,
respectively.
(3) Includes interest expense, net attributable to Agricredit in the amount of
$18.7 million and $31.7 million for the years ended December 31, 1994 and
1995, respectively, and $22.8 million and $28.0 million for the nine months
ended September 30, 1995 and 1996, respectively.
(4) Includes other expense (income), net attributable to Agricredit in the
amount of $1.2 million for the year ended December 31, 1994. Amounts
attributable to Agricredit were not significant for the year ended December
31, 1995 and for the nine months ended September 30, 1995 and 1996.
(5) Includes provision for income taxes attributable to Agricredit in the amount
of $3.1 million and $4.3 million for the years ended December 31, 1994 and
1995, respectively, and $2.6 million and $5.1 million for the nine months
ended September 30, 1995 and 1996, respectively.
(6) Includes $4.0 million for 1993 and $0.6 million for 1994 for the equity in
net earnings of Agricredit prior to February 11, 1994, the date the
remaining 50% interest in Agricredit was acquired by the Company (See Note
1).
(7) Excludes extraordinary loss, net of taxes, of $3.5 million, or $.06 per
share, for the write-off of unamortized debt costs related to the
refinancing in March 1996 of the Company's $550.0 million secured credit
facility (the "Old Credit Facility") with the Second Credit Facility.
(8) As adjusted to give effect to the Offering and the application of the
estimated net proceeds therefrom.
(9) Includes $94.5 million of long-term indebtedness of Agricredit.
7
<PAGE> 9
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 Common Stock.
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 subsequent 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. In Western Europe, farm
consolidations continue to affect the agricultural equipment market. 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. Outside Western Europe and North
America, markets for agricultural equipment continue to develop, but may be
affected by certain factors such as the availability of financing, 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.
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. 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.
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 reduces agricultural export subsidies over a period of
years beginning in 1995 and grants access for many products that were previously
restricted. The next round of GATT negotiations are scheduled to occur in 1999.
The Company cannot predict with certainty the effect which existing and future
trade agreements may have on the Company's operations.
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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 Company's recent acquisitions, the Company is
exposed to adverse effects of fluctuations in the relevant local currency and
translations of the financial statements of the Company's subsidiaries 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 restrictions on the repatriation of
funds. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Foreign Currency Risk Management."
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 or acquired in
the future.
9
<PAGE> 11
PRICE RANGE OF COMMON STOCK AND DIVIDENDS
The Company's Common Stock is traded on the New York Stock Exchange under
the symbol "AG." The following table sets forth for the periods indicated the
high and low sales prices for the Common Stock and the cash dividends declared
per share of Common Stock:
<TABLE>
<CAPTION>
SALES PRICE
----------------
HIGH LOW DIVIDENDS
---- ---- ---------
<S> <C> <C> <C>
1995:
First Quarter......................................... $16 5/8 $12 3/8 $ 0.005
Second Quarter........................................ 20 1/2 16 1/16 0.005
Third Quarter......................................... 27 5/16 18 13/16 0.005
Fourth Quarter........................................ 26 20 0.005
1996:
First Quarter......................................... 28 5/8 21 3/16 0.01
Second Quarter........................................ 31 5/8 22 0.01
Third Quarter......................................... 27 7/8 19 1/4 0.01
Fourth Quarter........................................ 29 3/8 23 3/4 0.01
1997:
First Quarter (through January 20, 1997).............. 29 3/8 26 5/8 0.01
</TABLE>
On January 20, 1997, the last reported sale price of the Common Stock on
the NYSE was $28 7/8 per share.
On January 29, 1997, the Board of Directors of the Company expects to
declare a dividend of $.01 per share for the first quarter of 1997. The dividend
will be paid on March 3, 1997 to stockholders of record on February 17, 1997.
Purchasers of shares of Common Stock in this Offering will not be entitled to
the first quarter dividend. The Company intends to continue to pay dividends on
its Common Stock, subject to review in each quarter by the Company's Board of
Directors, taking into account the Company's results of operations, financial
condition, capital needs, future prospects and other factors deemed relevant by
the Board of Directors. The Company's New Credit Facility and the Indenture
relating to the Company's 8 1/2% Senior Subordinated Notes due 2006 limit the
amount of cash dividends payable by the Company. However, the Company does not
believe that such limitations will have a material effect on the Company's
ability to pay cash dividends in the future.
USE OF PROCEEDS
The net proceeds to the Company from the Offering are estimated to be
approximately $124.0 million, after deduction of underwriting discounts and
commissions and estimated expenses. The Company intends to use these proceeds to
reduce a portion of the borrowings outstanding under the New Credit Facility.
Under the New Credit Facility, the Company's borrowings may not exceed 90% of
eligible accounts receivable and 60% of eligible inventory. The New Credit
Facility terminates on March 20, 2001 and borrowings thereunder bear interest at
the Company's option at either (i) for base rate advances, the administrative
agent's base lending rate or the federal funds rate plus 0.5%, whichever is
higher or (ii) for eurocurrency rate advances, the eurocurrency rate for such
period plus a margin ranging from .25% to 1.25% depending on the credit rating
of the Company's senior, unsecured, long-term debt. As of January 20, 1997,
aggregate borrowings under the New Credit Facility were $673.2 million and
interest accrued on borrowings outstanding under the New Credit Facility at a
weighted average interest rate of 6.2% per annum. The Company uses borrowings
under the New Credit Facility for general working capital purposes and
acquisitions, including the Fendt Acquisition. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources." The Company will not receive any proceeds from the sale of
Common Stock by the Selling Stockholder in the Offering.
10
<PAGE> 12
CAPITALIZATION
The following unaudited table sets forth the consolidated capitalization of
the Company as of September 30, 1996 (i) on a historical basis; (ii) on a pro
forma basis giving effect to the Agricredit Sale, the Deutz-Argentina
Acquisition, the Fendt Acquisition and the New Credit Facility; and (iii) on a
pro forma as adjusted basis to give effect to the Offering and the application
of the estimated net proceeds therefrom. The following table should be read in
conjunction with the Company's unaudited Condensed Consolidated Financial
Statements and the Notes thereto included and incorporated by reference in this
Prospectus.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1996
-----------------------------------------------
ACTUAL PRO FORMA PRO FORMA AS ADJUSTED
---------- ---------- ---------------------
(IN THOUSANDS)
<S> <C> <C> <C>
SHORT-TERM DEBT:
Current portion of long-term debt(1)............... $ 455,702 $ -- $ --
---------- ---------- ----------
Total short-term debt.................... $ 455,702 $ -- $ --
========== ========== ==========
LONG-TERM DEBT:
Second Credit Facility(2).......................... $ 436,332 $ -- $ --
New Credit Facility(3)............................. -- 760,579 636,614
Long-term borrowings by Agricredit(1).............. 94,500 -- --
8 1/2% Senior Subordinated Notes due 2006(4)....... 247,921 247,921 247,921
Other long-term debt............................... -- 20,286 20,286
---------- ---------- ----------
Total long-term debt..................... $ 778,753 $1,028,786 $ 904,821
---------- ---------- ----------
STOCKHOLDERS' EQUITY:
Common Stock, $0.01 par value; 150,000,000 shares
authorized; 57,237,156 shares issued and
outstanding, actual and pro forma; 61,737,156
shares issued and outstanding, pro forma as
adjusted......................................... $ 572 $ 572 $ 617
Additional paid-in capital......................... 360,057 360,057 483,977
Retained earnings.................................. 372,006 376,751 376,751
Unearned compensation.............................. (24,301) (24,301) (24,301)
Additional minimum pension liability............... (2,619) (2,619) (2,619)
Cumulative translation adjustment.................. 10,195 10,195 10,195
---------- ---------- ----------
Total stockholders' equity............... 715,910 720,655 844,620
---------- ---------- ----------
Total capitalization..................... $1,494,663 $1,749,441 $ 1,749,441
========== ========== ==========
</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 September 30, 1996, the
terms ranged from one to 31 months.
(2) Effective January 2, 1997, the Company replaced its $650 million Second
Credit Facility with the five-year New Credit Facility.
(3) Consists of borrowings outstanding under the New Credit Facility.
(4) Reflects reduction for de minimus original issue discount.
11
<PAGE> 13
SELECTED HISTORICAL FINANCIAL DATA
The selected historical financial data set forth below as of and for the
five years ended December 31, 1995 are derived from the Company's Consolidated
Financial Statements which have been audited by Arthur Andersen LLP, independent
public accountants. The selected historical financial data for the nine months
ended September 30, 1995 and 1996 and as of September 30, 1996 are derived from
the unaudited Condensed Consolidated Financial Statements of the Company. In the
opinion of the Company, such unaudited Condensed Consolidated Financial
Statements include all adjustments (consisting of only normal recurring
adjustments) necessary for a fair presentation of the information set forth
therein. The results of operations for the nine months ended September 30, 1996
are not necessarily indicative of results that may be expected for the full
year. The following data should be read in conjunction with the Consolidated
Financial Statements and the Condensed Consolidated Financial Statements of the
Company and the Notes thereto included elsewhere herein and incorporated by
reference in this Prospectus and "Management's Discussion and Analysis of
Financial Condition and Results of Operations." For the periods presented, the
Company's results of operations were significantly affected by a series of
acquisitions completed during such periods. Primarily as a result of these
acquisitions, net sales have increased significantly since 1991.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------------------------------- -------------------------
1991 1992 1993(1) 1994(1) 1995(1) 1995(1) 1996(1)
-------- -------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT SHARE 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 $1,486,358 $1,627,424
Finance income............. -- -- -- 39,741 56,621 40,218 51,404
-------- -------- -------- ---------- ---------- ---------- ----------
274,535 314,542 595,736 1,359,012 2,125,048 1,526,576 1,678,828
-------- -------- -------- ---------- ---------- ---------- ----------
Costs and Expenses:
Cost of goods sold......... 212,225 256,475 470,452 1,042,930 1,627,716 1,162,920 1,294,350
Selling, general and
administrative
expenses................. 40,357 37,003 55,848 129,538(2) 200,588(2) 146,463(2) 161,000(2)
Engineering expenses....... 5,752 6,924 7,510 19,358 27,350 18,592 20,805
Interest (income) expense,
net...................... (214) 9,270 13,624 42,836(3) 63,211(3) 48,054(3) 51,677(3)
Other expense (income),
net...................... 7,710 (1,172) 4,166 3,141(4) 9,602(4) 5,289(4) 8,003(4)
Nonrecurring expenses...... -- -- 14,000 19,500 6,000 4,607 12,878
-------- -------- -------- ---------- ---------- ---------- ----------
265,830 308,500 565,600 1,257,303 1,934,467 1,385,925 1,548,713
-------- -------- -------- ---------- ---------- ---------- ----------
Income before income taxes
and equity in net earnings
of unconsolidated
subsidiary and affiliates
and extraordinary loss..... 8,705 6,042 30,136 101,709 190,581 140,651 130,115
Provision (benefit) for
income taxes............... -- -- -- (10,610)(5) 65,897(5) 48,848(5) 45,570(5)
-------- -------- -------- ---------- ---------- ---------- ----------
Income before equity in net
earnings of unconsolidated
subsidiary and affiliates
and extraordinary loss..... 8,705 6,042 30,136 112,319 124,684 91,803 84,545
Equity in net earnings of
unconsolidated subsidiary
and affiliates............. -- -- 3,953(6) 3,215(6) 4,458 3,664 4,857
-------- -------- -------- ---------- ---------- ---------- ----------
Income before extraordinary
loss....................... 8,705 6,042 34,089 115,534 129,142 95,467 89,402(7)
Preferred stock
dividends................ -- -- 3,705 5,421 2,012 2,012 --
-------- -------- -------- ---------- ---------- ---------- ----------
Net income available for
common stockholders before
extraordinary loss......... $ 8,705 $ 6,042 $ 30,384 $ 110,113 $ 127,130 $ 93,455 $ 89,402(7)
======== ======== ======== ========== ========== ========== ==========
Net Income Per Common Share
Before Extraordinary Loss:
Primary.................... $ 0.69 $ 0.27 $ 1.11 $ 3.07 $ 2.76 $ 2.06 $ 1.64(7)
Fully diluted.............. $ 0.69 $ 0.27 $ 0.93 $ 2.35 $ 2.30 $ 1.71 $ 1.57(7)
Weighted Average Number of
Common and Common
Equivalent Shares
Outstanding:
Primary.................... 12,624 22,516 27,366 35,920 46,126 45,354 54,374
Fully diluted.............. 12,624 22,516 36,774 49,170 56,684 56,440 57,341
</TABLE>
(continued on following page)
12
<PAGE> 14
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
------------------------------------------------------------ SEPTEMBER 30,
1991 1992 1993 1994 1995 1996
-------- -------- -------- ---------- ---------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital................. $ 90,523 $221,592 $339,987 $ 497,793 $ 485,521 $ 555,842
Total assets.................... 194,662 320,713 578,346 1,823,294 2,162,915 2,592,942
Long-term debt.................. 41,135 121,047 173,892 589,833(8) 568,894(8)(9) 778,753(8)
Stockholders' equity............ 26,046 93,672 212,229 476,666 588,928 715,910
</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 using 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 for
the period from February 11, 1994 to December 31, 1994, the year ended
December 31, 1995 and for the nine months ended September 30, 1995 and
1996. AGCO sold a 51% joint venture interest in Agricredit effective
November 1, 1996.
(2) Includes selling, general and administrative expenses attributable to
Agricredit in the amount of $11.9 million and $13.8 million for the years
ended December 31, 1994 and 1995, respectively, and $10.8 million and $9.9
million for the nine months ended September 30, 1995 and 1996,
respectively.
(3) Includes interest expense, net attributable to Agricredit in the amount of
$18.7 million and $31.7 million for the years ended December 31, 1994 and
1995, respectively, and $22.8 million and $28.0 million for the nine months
ended September 30, 1995 and 1996, respectively.
(4) Includes other expense (income), net attributable to Agricredit in the
amount of $1.2 million for the year ended December 31, 1994. Amounts
attributable to Agricredit were not significant for the year ended December
31, 1995 and for the nine months ended September 30, 1995 and 1996.
(5) Includes provision for income taxes attributable to Agricredit in the amount
of $3.1 million and $4.3 million for the years ended December 31, 1994 and
1995, respectively, and $2.6 million and $5.1 million for the nine months
ended September 30, 1995 and 1996, respectively.
(6) Includes $4.0 million for 1993 and $0.6 million for 1994 for the equity in
net earnings of Agricredit prior to February 11, 1994, the date the
remaining 50% interest in Agricredit was acquired by the Company (See Note
1).
(7) Excludes extraordinary loss, net of taxes, of $3.5 million, or $.06 per
share, for the write-off of unamortized debt costs related to the
refinancing of the Old Credit Facility with the Second Credit Facility.
(8) Includes long-term indebtedness of Agricredit in the amount of $223.0
million, $153.0 million and $94.5 million as of December 31, 1994 and 1995
and September 30, 1996, respectively.
(9) Includes $37.6 million of the 6.5% Convertible Subordinated Debentures due
2008 (the "Convertible Subordinated Debentures"), which were converted into
an aggregate of 5.9 million shares of Common Stock during 1996.
13
<PAGE> 15
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 and were $1,678.8 million for the nine months ended
September 30, 1996. 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 acquisition
of Massey Ferguson (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, and its agreement to become the exclusive distributor of Landini
tractors in the United States and Canada. In June 1996, the Company completed
the Maxion Acquisition, which expanded its product offerings and its
distribution network to include Brazil. 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 1993, 1994 and 1995, the Company paid income taxes at rates
substantially below statutory rates primarily due to the utilization of net
operating loss carryforwards. For 1996 and 1997, 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
14
<PAGE> 16
resulted from the realization of deferred tax assets relating to net operating
loss carryforwards acquired in the Massey Acquisition. In 1995 and 1996, 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>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------- --------------
1993 1994 1995 1995 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Revenues:
Net sales.................................... 100.0% 97.1% 97.3% 97.4% 96.9%
Finance income............................... 0.0 2.9 2.7 2.6 3.1
----- ----- ----- ----- -----
100.0 100.0 100.0 100.0 100.0
----- ----- ----- ----- -----
Costs and Expenses:
Cost of goods sold(1)........................ 79.0 76.7 76.6 76.2 77.1
Selling, general and administrative
expenses.................................. 9.4 9.5 9.4 9.6 9.6
Engineering expenses......................... 1.3 1.4 1.3 1.2 1.2
Interest expense, net........................ 2.3 3.2 3.0 3.2 3.1
Other expense (income), net.................. 0.7 0.3 0.4 0.3 0.5
Nonrecurring expenses........................ 2.3 1.4 0.3 0.3 0.8
----- ----- ----- ----- -----
95.0 92.5 91.0 90.8 92.3
----- ----- ----- ----- -----
Income before income taxes and equity in net
earnings of unconsolidated subsidiary and
affiliates and extraordinary loss............ 5.0 7.5 9.0 9.2 7.7
Provision (benefit) for income taxes........... 0.0 (0.8) 3.1 3.2 2.7
----- ----- ----- ----- -----
Income before equity in net earnings of
unconsolidated subsidiary and affiliates and
extraordinary loss........................... 5.0 8.3 5.9 6.0 5.0
Equity in net earnings of unconsolidated
subsidiary and affiliates.................... 0.7 0.2 0.2 0.2 0.3
----- ----- ----- ----- -----
Income before extraordinary loss............... 5.7 8.5 6.1 6.2 5.3
Extraordinary loss, net of taxes............... 0.0 0.0 0.0 0.0 (0.2)
----- ----- ----- ----- -----
Net income........................... 5.7% 8.5% 6.1% 6.2% 5.1%
===== ===== ===== ===== =====
</TABLE>
- ---------------
(1) Cost of goods sold as a percent of net sales for the years ended December
31, 1993, 1994 and 1995 was 79.0%, 79.1%, and 78.7%, respectively, and for
the nine months ended September 30, 1995, and 1996 was 78.2% and 79.5%,
respectively. Gross profit, which is defined as net sales less cost of
goods sold, was 21.0%, 20.9% and 21.3% for the years ended December 31,
1993, 1994 and 1995, respectively, and for the nine months ended September
30, 1995 and 1996 was 21.8% and 20.5%, respectively.
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1995
Net Income
The Company recorded net income for the nine months ended September 30,
1996 of $85.9 million compared to $95.5 million for the same period in 1995. Net
income per common share on a fully diluted basis was $1.51 and $1.71 for the
nine months ended September 30, 1996 and 1995, respectively. Net income for the
nine months ended September 30, 1996 included nonrecurring expenses of $12.9
million, or $0.15 per share on a fully diluted basis, related to the further
restructuring of the Company's European operations, which were acquired in the
Massey Acquisition in June 1994, and the integration and restructuring of the
15
<PAGE> 17
Maxion Agricultural Equipment Business, which was acquired in June 1996. See
"-- Charges for Nonrecurring Expenses." In addition, net income for the nine
months ended September 30, 1996 included an extraordinary after-tax charge of
$3.5 million, or $0.06 per share on a fully diluted basis, 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 nine months ended September 30, 1995 included
nonrecurring expenses of $4.6 million, or $0.05 per share on a fully diluted
basis, related to the Massey Acquisition. See "-- Charges for Nonrecurring
Expenses." The Company's results were negatively impacted by losses in the newly
acquired Brazilian operations as a result of the poor industry conditions
currently experienced in the region. Excluding nonrecurring expenses, the
extraordinary after-tax charge and the impact of the Brazilian operations, the
Company's results were slightly improved over 1995, primarily the result of
sales growth in existing markets.
Retail Sales
Conditions in the United States and Canadian agricultural equipment markets
continued to be favorable for the first nine months of 1996 compared to 1995.
Industry unit retail sales of tractors for the nine months ended September 30,
1996 increased 6.4% over the same period in 1995, while unit retail sales of
combines and hay and forage equipment decreased 1.6% and 3.8%, respectively,
compared to the prior year. The Company believes general market conditions
continued to be positive due to favorable economic conditions relating to high
net cash farm incomes, strong commodity prices and increased export demand. The
industry combine retail sales were partly impacted by dry weather conditions in
the South and Southwest United States and a late planting season resulting in a
late harvest in the Midwest. Industry retail sales of hay and forage equipment
were below the prior year primarily due to a softness in the cattle market
resulting from low commodity prices.
Company unit settlements of tractors in the United States and Canada
increased in line with the industry for the nine months ended September 30, 1996
compared to the same period in 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 continues to benefit 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 increased significantly compared to the prior year due to increased
sales to contract harvesters. Company unit settlements of hay and forage
equipment were below the prior year and slightly below the industry decrease
primarily due to the unfavorable industry conditions and the Company choosing
not to match the aggressive retail financing programs of its major competitors
during the first quarter of 1996.
Industry conditions in Western Europe continued to be favorable with retail
sales of tractors increasing approximately 8.8% for the nine months ended
September 30, 1996 compared to the same period in the prior year primarily due
to higher net cash farm incomes, improved economic conditions, increased export
demand and strong commodity prices. Retail sales of Massey Ferguson tractors
continued to outperform the industry compared to the first nine months of 1995
with the most significant increases in France, Spain and Scandinavia due to the
Company's focus on dealer development. 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 compared to the first nine months of
1995 particularly in the Middle East, Africa and Australia primarily due to the
Company's strong distribution channels in these markets. Industry conditions in
Brazil remained depressed in the first nine months of 1996 relative to historic
volumes following the suspension and subsequent reinstatement of Brazilian
Central Bank loan programs.
Revenues
Total revenues for the nine months ended September 30, 1996 increased 10.0%
to $1,678.8 million compared to $1,526.6 million for the same period in 1995. A
significant portion of the increase was the result
16
<PAGE> 18
of the Company's sales of $48.1 million in Brazil for the three months ended
September 30, 1996 resulting from the Maxion Acquisition. Excluding sales in
Brazil, the Company achieved net sales increases in its international markets of
$85.2 million for the nine months ended September 30, 1996 compared to the prior
year. The increase primarily related to increased sales of tractors due to the
Company's favorable retail sales performance and increased sales of non-tractor
products resulting from the Company's efforts to expand non-tractor sales in
international markets. The Company also experienced increased net sales of $7.7
million for the nine months ended September 30, 1996 compared to the prior year
in North America primarily due to the Company's strong retail sales in 1996.
Total revenues also increased from the prior period due to increases in finance
income of $11.2 million for the nine months ended September 30, 1996 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 continued penetration into the Company's North American dealer
network.
Costs and Expenses
Cost of goods sold of the Company's Equipment Operations, consisting of all
of the Company's business other than its financing operations, for the nine
months ended September 30, 1996 was $1,294.4 million (79.5% of net sales)
compared to $1,162.9 million (78.2% of net sales) for the same period in 1995.
Gross profit, defined as net sales less cost of goods sold, was $333.1 million
(20.5% of net sales) for the nine months ended September 30, 1996 as compared to
$323.4 million (21.8% of net sales) for the same period of the prior year. Gross
margins were negatively impacted by the following: (1) lower margins related to
the Brazilian operations acquired in the Maxion Acquisition and (2) a change in
the mix of products sold, particularly due to a reduction in high margin North
American parts sales, a shift in North American sales from higher margin utility
tractors (under 100 horsepower) to high horsepower tractors (over 100
horsepower) and increased sales of combines in Europe, which have lower margins.
Selling, general and administrative expenses for the nine months ended
September 30, 1996 were $161.0 million (9.6% of total revenues) compared to
$146.5 million (9.6% of total revenues) for the same period in 1995. The
increase in selling, general and administrative expenses for the nine months
ended September 30, 1996 was primarily due to an increase in sales volume and an
increase in the amortization of stock-based compensation expense of $11.2
million over the prior year related to the Company's long-term incentive plan
which is tied to stock price appreciation. For the first nine months of 1996 and
1995, the Company's Equipment Operations, excluding Agricredit and the
amortization expense related to the long-term incentive plan, had selling,
general and administrative expenses of $134.4 million (8.3% of net sales) and
$130.0 million (8.7% of net sales), respectively. The decrease as a percentage
of net sales for the nine months ended September 30, 1996 was primarily due to
the successful cost reduction efforts in the Company's European operations.
Engineering expenses for the Company's Equipment Operations were $20.8
million (1.3% of net sales) for the nine months ended September 30, 1996 and
$18.6 million (1.3% of net sales) for the same period in the prior year.
Interest expense, net for the nine months ended September 30, 1996 was
$51.7 million compared to $48.1 million for the same period in 1995. For the
nine months ended September 30, 1996, the Company had higher interest expense,
net relating to Agricredit which was slightly offset by lower interest expense,
net in its Equipment Operations compared to 1995 resulting from increased
interest income related to dealer accounts receivable.
Other expense, net was $8.0 million for the nine months ended September 30,
1996 compared to $5.3 million for the same period in 1995. The increase in other
expense, net was primarily due to foreign exchange losses in 1996 compared to
foreign exchange gains in 1995 related to the sale of the Company's products
internationally and increased amortization of intangibles related to the Maxion
Acquisition.
Nonrecurring expenses were $12.9 million for the nine months ended
September 30, 1996 compared to $4.6 million for the nine months ended September
30, 1995. The nonrecurring charge recorded in 1996 related to the further
restructuring of the European operations which was acquired in the Massey
Acquisition in June 1994 and the integration and restructuring of the Brazilian
operations which was acquired in the Maxion
17
<PAGE> 19
Acquisition in June 1996. The nonrecurring charge recorded in 1995 primarily
related to costs associated with the initial integration and restructuring of
the European operations. See "-- Charges for Nonrecurring Expenses" for further
discussion.
The Company recorded income tax provisions of $45.6 million and $48.8
million for the nine months ended September 30, 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 paid taxes in 1996 and expects to pay taxes in 1997 at effective rates
substantially below statutory rates. See "-- General."
Equity in net earnings of unconsolidated affiliates was $4.9 million and
$3.7 million for the nine months ended September 30, 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 certain
equity investments in the European operations, including its 49% interest in
Massey Ferguson Finance which provides retail financing to end users in the
United Kingdom, France and Germany.
Finance Company Operations
On November 1, 1996, the Company sold a 51% interest in Agricredit, the
Company's wholly owned finance subsidiary, to a wholly owned subsidiary of
Rabobank. The Company received total consideration of approximately $44.3
million in the transaction, the proceeds of which were used to repay borrowings
under the Second Credit Facility. The Company retained a 49% interest in
Agricredit and now operates Agricredit with Rabobank as a joint venture. The
Agricredit Joint Venture has continued the business of Agricredit and seeks to
build a broader asset-based finance business through the addition of other lines
of business. The Company's benefits from the transaction also include
deleveraging the consolidated balance sheet by approximately $550.0 million and
the redeployment of approximately $44.3 million of capital. 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.
Agricredit recorded net income of $8.5 million and $4.0 million for the
nine months ended September 30, 1996 and 1995, respectively. Retail acceptances
were approximately $281.8 million for the nine months ended September 30, 1996
and $242.4 million for the same period in the prior year. The increase was
primarily the result of the strong retail demand for the Company's products
during the nine months ended September 30, 1996 and Agricredit's continued
penetration in the Company's North American dealer network.
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 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 Expenses." Net income for
1994 included nonrecurring 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 the nonrecurring expenses and
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
18
<PAGE> 20
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 reflected 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 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% in 1995 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 an increase of $712.3 million in net
sales in the Company's international markets in 1995 as a result of the Massey
Acquisition. In addition to the full year impact of the Massey Acquisition, the
increase reflects year over year sales increases due to the strong international
retail sales achieved in the Company's Massey Ferguson products in 1995. The
Company also experienced net sales increases of $36.8 million in 1995 in North
America as a result of an expanded dealer network, the AgEquipment acquisition,
the Landini distribution agreement and new product introductions. The North
American 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 North American 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
19
<PAGE> 21
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 both by the Company
and by Varity Corporation ("Varity"), the prior owner of Massey Ferguson. 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 Company's European
operations acquired in the Massey Acquisition.
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 Company's European 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 Expenses." 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 Company's European 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 redesign 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 related to the Company's international operations.
Nonrecurring 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 initial integration of the Company's European operations, which were
acquired in the Massey Acquisition in June 1994. The 1994 nonrecurring charge
related to the initial integration in Europe and the integration in North
America of White-New Idea which was acquired in December 1993. See "-- Charges
for Nonrecurring 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 paid taxes at
effective rates substantially below statutory rates.
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
20
<PAGE> 22
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.
Finance Company Operations
Agricredit 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 North American 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 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 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
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 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,
21
<PAGE> 23
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 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 in the Company's international markets as a result of the Massey
Acquisition with 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 in North America. 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 both by the Company and by 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
22
<PAGE> 24
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 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 expenses were $19.5 million in 1994 and $14.0 million in 1993.
The nonrecurring charges in 1994 related to the initial integration of the
Company's operations in Europe acquired in the Massey Acquisition and the
integration in North America of the White-New Idea acquisition. 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 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 North
American dealer network. Prior to the formation of the Agricredit Joint Venture,
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.
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
23
<PAGE> 25
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 $601,631 $606,505
Gross profit(1)............................. 93,740 115,794 123,540
Income from operations(1)................... 34,592(3) 59,617(3) 54,068(3)
Net income.................................. 17,092(3) 37,508(3) 31,299(3)
Net income per common share -- fully
diluted(2)................................ 0.31(3) 0.66(3) 0.54(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, $0.8 million,
or $0.01 per share, for the three months ended June 30, 1996 and $6.2
million, or $0.07 per share, for the three months ended September 30, 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 January 1997, the Company replaced its $650 million Second Credit
Facility with the New Credit Facility, which initially provides for borrowings
of up to $1.0 billion. The Second Credit Facility was put into effect in March
1996 to replace the Old 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 Second Credit Facility. Borrowings under
the New Credit Facility may not 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. Lending
commitments under the New Credit Facility reduce to $900 million on January 1,
1998 and $800 million on
24
<PAGE> 26
January 1, 1999. If the Company consummates offerings of debt or capital stock
(including the Offering) prior to such dates, the proceeds of such offerings
will be used to reduce the lending commitments, but not below $800 million. As
of September 30, 1996, approximately $436.3 million was outstanding under the
Second Credit Facility and available borrowings were approximately $210.5
million. The Company used borrowings under the New Credit Facility to finance
the Deutz Acquisition and the Fendt Acquisition. Pro forma for the New Credit
Facility, the Agricredit Sale, the Deutz Acquisition and the Fendt Acquisition,
available borrowings at September 30, 1996 would have been approximately $239.4
million. The Company will use the net proceeds from the Offering to repay a
portion of its borrowings outstanding under the New Credit Facility.
In March 1996, the Company issued $250.0 million of 8 1/2% Senior
Subordinated Notes due 2006 (the "Notes") at 99.139% of their principal amount.
The net proceeds from the sale of the Notes were used to repay outstanding
indebtedness under the Old Credit Facility. The sale of the Notes provided the
Company with subordinated capital and replaced a portion of its floating rate
debt with longer term fixed rate debt.
Prior to November 1, 1996, Agricredit obtained funds from a $630.0 million
revolving credit agreement (the "Agricredit Revolving Credit Agreement") to
finance its credit receivable portfolio. Borrowings under the Agricredit
Revolving Credit Agreement were based on the amount and quality of outstanding
credit receivables and were generally issued for terms with maturities matching
anticipated credit receivable liquidations. As the credit receivable portfolio
fluctuated, borrowings under the Agricredit Revolving Credit Agreement
fluctuated as well. As of September 30, 1996, approximately $550.2 million was
outstanding under the Agricredit Revolving Credit Agreement and available
borrowings were approximately $73.5 million. On November 1, 1996, in connection
with the Agricredit Joint Venture, the Agricredit Revolving Credit Agreement was
repaid, and the Agricredit Joint Venture entered into a new credit agreement.
In April 1996, the Company announced its election, effective June 1, 1996,
to redeem all of its outstanding Convertible Subordinated Debentures. Prior to
the execution of the redemption, all of the outstanding Convertible Subordinated
Debentures were converted into Common Stock. Since December 31, 1995, $37.6
million of outstanding Convertible Subordinated Debentures were converted into
approximately 5,920,000 shares of the Company's Common Stock.
The Company's working capital requirements for its Equipment Operations are
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
September 30, 1996, the Company's Equipment Operations had $813.9 million of
working capital, an increase of $152.4 million over working capital of $661.5
million as of December 31, 1995. The increase in working capital was primarily
due to working capital acquired in the Maxion Acquisition and normal seasonal
requirements, particularly in receivables and 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 international sales which were significantly higher in late 1995 than
in late 1994.
Cash flow provided by operating activities was $43.8 million for the nine
months ended September 30, 1996 as compared to cash flow used for operating
activities of $46.1 million for the same period last year. The increase in cash
flow provided by operating activities was primarily due to the collection of
receivables in 1996 related to unusually high international accounts receivable
levels at December 31, 1995, which resulted from significantly higher sales in
late 1995 than in late 1994 and the strong retail sales in North America during
the first nine months of 1996 which resulted in a lower seasonal increase of
dealer inventories compared to 1995. 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
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primarily due to sales growth in North America. 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 nine months of 1996 were $26.5 million
compared to $24.5 million for the same period in 1995. The Company anticipates
that additional capital expenditures for the remainder of 1996 will range from
approximately $20.0 million to $25.0 million. 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 European operations related to its manufacturing operations. For all
periods, the Company's capital expenditures related to the development of new
and existing products as well as the maintenance and improvement of existing
facilities. The Company currently estimates that aggregate capital expenditures
for 1997 will range from approximately $70.0 million to $80.0 million.
Agricredit's credit receivable originations exceeded credit receivable
payments by $61.3 million for the nine months ended September 30, 1996 and by
$107.5 million for the year ended December 31, 1995. The increase in
Agricredit's credit receivable portfolio will result in increased finance income
for the Agricredit Joint Venture 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 63.3% at September
30, 1996, 58.8% at December 31, 1995 and 62.0% at December 31, 1994. The
Company's debt to capitalization ratio for its Equipment Operations, assuming
conversion of the Convertible Subordinated Debentures, was 48.9% at September
30, 1996, 37.7% at December 31, 1995 and 44.0% at December 31, 1994. The
increase in the Company's leverage at September 30, 1996 was due to increased
borrowings resulting from funding the Maxion Acquisition in June 1996 and
seasonal working capital requirements. The decrease in the Company's leverage
from 1994 to 1995 was due to the net income generated in 1995 and the operating
cash flow in 1995 which reduced the Company's borrowing requirements to fund
acquisitions and expenditures.
The Company believes that available borrowings under the New Credit
Facility, available cash and internally generated funds will be sufficient to
support its working capital, capital expenditures, 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
Maxion Acquisition
The Company identified $5.0 million to $6.0 million of nonrecurring
expenses related to the integration and restructuring of the Company's Brazilian
operations, acquired in June 1996 as a result of the Maxion Acquisition. The
Company recorded $3.7 million of nonrecurring expenses during the third quarter
of 1996 to recognize a portion of these costs. These costs are primarily related
to the rationalization of manufacturing, sales and administrative functions
designed to resize the operations to current sales and production volumes.
Savings from the integration and restructuring of the Brazilian operations are
expected to result primarily in reduced selling, general and administrative
expenses and product cost reductions. The Company expects to record the
remaining $1.8 million of nonrecurring expenses in the fourth quarter of 1996
and 1997 and to complete the integration by 1997. While the Company believes
that cost savings from its restructuring plans can be attained, there can be no
assurance that all objectives of the restructuring will be achieved.
Massey Acquisition
The Company identified $19.5 million of nonrecurring expenses primarily
related to the initial integration and restructuring of the Company's European
operations acquired in June 1994 as a result of the Massey
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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, including $4.6 million for the first nine months of 1995.
These costs primarily related to the centralization and rationalization of the
Company's European 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 December 31,
1995 for employees that have been terminated or will be terminated in future
periods. All of the costs associated with the $19.5 million charge recorded
through December 31, 1995 have been incurred.
The Company's successful implementation of its restructuring plan has
resulted in significant savings in the European operations. The majority of
these savings resulted from personnel reductions, facilities
rationalizations, and other savings which primarily resulted from the
centralization of the European operations' administrative and 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 European
operations, acquired in June 1994 as a result of the Massey Acquisition. The
Company recorded $9.2 million of nonrecurring expenses during the first nine
months 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 $2.8
million of nonrecurring expenses in the fourth quarter of 1996 and to complete
the restructuring by mid-1997. Savings from the further restructuring of the
European 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.
White-New Idea Acquisition
In the first quarter of 1994, the Company recorded a $6.0 million charge
for nonrecurring 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 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.
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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 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. In North America, as a result of low worldwide grain stocks,
high commodity prices and government payments to farmers under the new U.S. Farm
Bill, net cash farm income has remained at high levels, and farmer balance
sheets remain strong, which the Company believes will enable farmers to make
necessary purchases of equipment in 1997. These factors should increase farmers'
confidence and result in continued replacement demand for agricultural
equipment.
The Western European agricultural market continues to benefit from
increased export demand and high commodity prices. These items should continue
to support the farmers' replacement demand 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.
Beginning in the second half of 1995, the Brazilian agricultural equipment
market experienced a significant decline due to the Brazilian Central Bank's
suspension of all loans for agricultural purposes under the FINAME loan program.
Although the loan program has been reinstated, the suspension has negatively
impacted farm equipment sales in 1996 and may impact results in 1997. In
general, 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 1997 are forecasted to be modestly higher than
the prior year.
The information contained in this "Outlook" section includes
forward-looking statements. For a discussion of important factors that could
affect such matters, see "Risk Factors."
FOREIGN CURRENCY RISK MANAGEMENT
The Company has significant manufacturing operations in the United States,
the United Kingdom, France, Brazil, and, as a result of the Company's recent
acquisitions, Argentina and Germany, 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 hedging 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 requires companies to
estimate the value of all stock-based compensation
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using a recognized pricing model. The Company has adopted the disclosure
requirements of this statement and has chosen to continue to apply the
accounting provisions of Accounting Principles Board Opinion No. 25 to
stock-based employee compensation arrangements as allowed by Statement No. 123.
As a result, the adoption of this new standard did not have a material effect on
the Company's financial position or results of operations.
Effective January 1996, the Company adopted Statement of Financial
Accounting Standards 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 adoption of this standard did 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 adoption of this standard did not have a
material effect on the Company's financial position or results of operations.
FORWARD LOOKING STATEMENTS
Portions of this Prospectus include forward looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934, including the information set forth under
"-- Outlook." 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. Additionally, the
Company's financial results are sensitive to movement in interest rates and
foreign currencies, as well as general economic conditions, pricing and product
actions taken by competitors, production disruptions and changes in
environmental, international trade and other laws which impact the way in which
it conducts its business. 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 also "Risk
Factors" for a discussion of certain factors that could affect the information
contained in the forward looking statements.
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BUSINESS
AGCO is a leading manufacturer and distributor of agricultural equipment
throughout 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: Massey Ferguson(R), AGCO(R) Allis, GLEANER(R), Hesston(R), White, SAME,
Landini, White-New(R) Idea, Black Machine, AGCOSTAR(TM), Glencoe(R), Tye(R),
Farmhand(R), Maxion, IDEAL, PMI, Deutz and Fendt. The Company distributes its
products through a combination of over 7,500 independent dealers, wholly-owned
distribution companies, associates and licensees. In addition, the Company
provides retail financing in North America, the United Kingdom, France and
Germany through its finance joint ventures with Rabobank.
For the twelve months ended September 30, 1996, the Company's revenues were
approximately $2.2 billion; of which $1.4 billion or 63% were outside of North
America. For the period from 1991 to 1995, the Company's revenues increased at a
compound annual growth rate of 66%. This growth in revenues has resulted
primarily from the Company's ability to increase penetration of its existing
markets and through acquisitions. The Company has increased penetration in its
existing markets primarily through expanding and strengthening its independent
dealer network, cross-selling complementary products, expanding its replacement
parts business and introducing new products to meet the growing needs of its
customers. For example, 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.
Since January 1992, the Company has signed over 2,200 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. The Company has introduced a number of product improvements
including the redesigned Massey Ferguson high horsepower 6100/8100 Series
tractors, an 18-speed powershift transmission for the higher horsepower AGCO
Allis 9600 Series and the White 6100 Series tractors, and water-cooled engines
for the GLEANER combine. The Company continues to invest in new product
technology and innovation in order to remain competitive in the market.
The Company has also grown through a series of 14 acquisitions for
consideration aggregating approximately $1,222.7 million. These acquisitions
have allowed the Company to broaden its product line, expand its dealer network
and establish strong market positions in several new markets throughout North
America, South America, Western Europe and the rest of the world. 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.
The Company's primary business objective is to achieve 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 the Company's cost of capital. Key elements of the
Company's business strategy are: (i) expanding and strengthening the Company's
worldwide organization of independent dealers and distributors; (ii) marketing
multiple brands through multiple dealer networks; (iii) selling complementary
non-tractor products through its international distribution channel; (iv)
introducing competitive new products in all markets which meet the needs of
customers and provide reasonable margins; (v) expanding the international
replacement parts business; (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.
RECENT DEVELOPMENTS
Fendt Acquisition.
On January 20, 1997, the Company acquired the operations of Fendt for
approximately $283.5 million plus approximately $38.0 million of assumed working
capital debt. Fendt, which had 1995 sales of approximately $580.0 million,
manufactures and sells tractors ranging from 45 to 260 horsepower through a
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network of independent agricultural cooperatives and dealers in Germany and a
network of approximately 250 dealers throughout Europe. With this acquisition,
AGCO has the number one market share in Germany and the number two market share
in France, two of Europe's largest agricultural equipment markets. In connection
with the Fendt Acquisition, the Company acquired a caravan business which
assembles and sells a line of travel trailers and sells a line of motor homes
which are manufactured on behalf of Fendt by a third party supplier.
Fendt owns and operates three manufacturing facilities in Germany.
Approximately 80% to 85% of Fendt's sales in Germany are effected through
agricultural cooperatives. The remainder are through dealers mainly in North and
East Germany. Sales outside of Germany are carried out through company sales
organizations in France, Italy and Australia, and through independent
distributors in other European countries.
Deutz Argentina Acquisition.
On December 27, 1996, the Company acquired the operations of Deutz
Argentina for approximately $62.5 million. Deutz Argentina, with 1995 sales of
approximately $109.0 million, supplies agricultural equipment, engines and
trucks to Argentina and other markets of Latin America. Deutz Argentina
distributes a broad range of tractor models in Argentina under the Deutz brand
name ranging from 60 to 190 horsepower, combines under the Deutz Fahr brand
name, and light trucks and agricultural implements. In addition, Deutz Argentina
manufactures Deutz diesel engines for distribution to other equipment
manufacturers and for use in its own equipment.
AGCO acquired Deutz Argentina's three manufacturing and assembly
facilities. Deutz Argentina distributes products through approximately 85
independent dealers in Argentina with approximately 225 outlets. In addition,
Deutz Argentina produces 70 to 140 horsepower transaxles in Argentina and
exports them to Agrale's Brazilian production facility for assembly and
marketing under the Deutz-Agrale brand name. Deutz Argentina's engines are
produced in Argentina and are included in the vehicles which are sold in the
Argentina market. The Deutz Argentina Acquisition enhanced the Company's
presence in the agricultural equipment market in South America by acquiring a
market leadership position in Argentina, which is the second largest market in
South America.
Maxion Acquisition.
On June 28, 1996, the Company acquired the Maxion Agricultural Equipment
Business for approximately $260.0 million. The Maxion Agricultural Equipment
Business, with 1995 sales of approximately $265.0 million, was AGCO's Massey
Ferguson licensee in Brazil, manufacturing and distributing agricultural
tractors under the Massey Ferguson brand name, combines under the Massey
Ferguson and IDEAL brand names, and industrial loader-backhoes under the Massey
Ferguson and Maxion brand names.
AGCO acquired Iochpe-Maxion's tractor and combine manufacturing facilities.
The acquired facilities, like the Company's other facilities, are primarily
assembly operations with all major components such as engines and transmissions
being outsourced. The Company's current product line consists of quality
products of a lower specification and lower cost to meet the demands of the
Brazilian market. In connection with the acquisition, the Company entered into
an engine supply agreement with Iochpe-Maxion to continue to source certain
engines for use in AGCO's Brazilian production.
The Maxion Agricultural Equipment Business distributes products under the
Massey Ferguson and IDEAL brand names through approximately 175 independent
dealers with approximately 360 outlets. IDEAL also has independent distributor
representation in Argentina, Chile, Ecuador, Paraguay and Uruguay and the
industrial line has distributors in Argentina and Uruguay. The Maxion
Acquisition enhanced the Company's presence in the agricultural equipment market
in South America by acquiring a market leadership position in Brazil, which is
the largest market in South America. The independent dealers and distributors
are responsible for retail sales to end users and after-sales service and
support. In Brazil, dealers are prohibited from carrying competing brands of
tractors or combines from other manufacturers.
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Agricredit Joint Venture.
Effective November 1, 1996, the Company sold a 51% interest in Agricredit,
the Company's wholly owned finance subsidiary, to a wholly owned subsidiary of
Rabobank. The Company received total consideration of approximately $44.3
million in the transaction. Under the Agricredit Joint Venture, Rabobank will
have a 51% interest in Agricredit and the Company will retain a 49% interest in
the finance company. The Agricredit Joint Venture has continued the business of
Agricredit and seeks to build a broader asset-based finance business through the
addition of other lines of business. The Company has established similar joint
venture arrangements with Rabobank with respect to its retail finance companies
located in the United Kingdom, France and Germany. See "The Company -- Retail
Financing/Joint Ventures."
New Credit Facility.
On January 14, 1997, the Company replaced its $650.0 million unsecured
credit facility (the "Second Credit Facility") with a new credit facility with
Rabobank as lead agent (the "New Credit Facility"), which initially provides for
borrowings of up to $1.0 billion. The New Credit Facility is the Company's
primary source of financing. Borrowings under the New Credit Facility may not
exceed the sum of 90% of eligible accounts receivable and 60% of eligible
inventory. Lending commitments under the New Credit Facility reduce to $900
million on January 1, 1998 and $800 million on January 1, 1999. If the Company
consummates offerings of debt or capital stock (including the Offering) prior to
such dates, the proceeds of such offerings will be used to reduce the lending
commitments, but not below $800 million. The Company used borrowings under the
Second Credit Facility to finance the Deutz Argentina Acquisition and borrowings
under the New Credit Facility to finance the Fendt Acquisition. Pro forma for
the New Credit Facility, the Agricredit Sale, the Deutz Argentina Acquisition
and the Fendt Acquisition, at September 30, 1996, the Company would have had
approximately $239.4 million available for borrowing under the New Credit
Facility. The Company will use the net proceeds from the Offering to repay a
portion of its borrowings under the New Credit Facility. Pro forma for such
repayment the Company would have had approximately $239.4 available for
borrowing under the New Credit Facility at September 30, 1996.
STRATEGY
The Company's primary business objective is to achieve 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) expanding and
strengthening the Company's worldwide organization of independent dealers and
distributors; (ii) marketing multiple brands through multiple dealer networks;
(iii) selling complementary non-tractor products through its international
distribution channel; (iv) introducing competitive new products in all markets
which meet the needs of customers and provide reasonable margins; (v) expanding
the international replacement parts business; (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.
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
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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.
Marketing Multiple Brands Through Multiple Dealer Networks. The Company
has individual dealer contracts in North America for each of its fourteen brands
marketed in North America. 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 and maximize the sales and profitability of its
products.
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 Company's acquisitions of Hesston Corporation
and the White Tractor Division of Allied Products Corporation, and since January
1992, the Company has signed over 2,200 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, Farmhand and PMI dealers. The Fendt
Acquisition will enable AGCO to expand its multiple brand strategy outside North
America by adding another brand to complement Massey Ferguson.
Selling Complementary Non-Tractor Products Internationally. Massey
Ferguson is the most widely sold tractor brand in the world. Prior to the Massey
Acquisition, Massey Ferguson generated approximately 89% of its sales from
tractors and parts. Comparatively, 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. Since the Massey
Acquisition, AGCO has increased its sales of non-tractor agricultural equipment
and parts by cross-selling these products under the Massey Ferguson brand name
through its established international distribution channels. The acquisitions of
Maxion, Deutz Argentina and Fendt provide AGCO with additional opportunities to
distribute non-tractor products in South America and Europe.
Introducing Competitive New Products. Since 1991 the Company has increased
the scope and competitiveness of its product line through acquisitions 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. Since late 1991, the Company
has introduced the Series 2 GLEANER combine, a number of product improvements
including the redesigned Massey Ferguson high horsepower 6100/8100 Series
tractors, an 18-speed powershift transmission for the higher horsepower AGCO
Allis 9600 Series and the White 6100 Series tractors, and water-cooled engines
for the GLEANER combine. 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 acquisition of Fendt gives AGCO additional
product lines which could be sold through the AGCO distribution network
including a high specification vineyard tractor and a tool carrier.
The Company, in conjunction with a European 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. Most recently, AGCO
introduced FIELDSTAR(TM), a system that uses satellite technology to give
farmers the most accurate data to boost their productivity. The Company
continues to invest in new product technology and innovation in order to remain
competitive in the market.
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<PAGE> 35
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 net sales in 1994 (assuming the acquisition of
Massey Ferguson was completed at the beginning of the year), $369.9 million, or
18% of the Company's net sales in 1995 and $292.1 million, or 18% of the
Company's net sales for the nine months ended September 30, 1996. Even though
the Massey Acquisition added a significant dollar volume of parts sales, the
percentage of parts sales to total sales for Massey for 1993 (the last full year
prior to the acquisition by the Company) 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 internationally since 1972, there is significant opportunity to capture a
larger portion of these high-margin replacement parts sales in international
markets. Similar opportunities for expansion of international replacement parts
sales exist as a result of the Fendt acquisition where Fendt tractor parts
accounted for approximately 10% of Fendt's total net sales in 1995.
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.
AGCO also has two strategic alliances which enable 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. The Fendt Acquisition provides the opportunity to
eliminate manufacturing costs and other expenses by combining the Fendt and AGCO
international operations. Additionally, AGCO will have the opportunity to reduce
manufacturing costs through purchasing and sourcing synergies.
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 historically been successful in
integrating the operations of acquired companies. Massey Ferguson's
international machinery sales have increased 45% since 1993, the year prior to
acquisition. Additionally, 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
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, the Company utilizes an associated company to
distribute Massey Ferguson-branded products in Italy. These distribution
companies support a combined network of approximately 1,500 independent dealers
in Western Europe. In addition, the Company sells through independent
distributors in Western Europe, which distribute through approximately 500
Massey Ferguson dealers. Dealers are responsible for retail sales to the
equipment end users and in most cases carry competing or complementary products
from other manufacturers. As a result of the Fendt Acquisition, the Company also
manufactures and sells tractors ranging from 45 to 260 horsepower through a
network of
34
<PAGE> 36
independent agricultural cooperatives and dealers in Germany and a network of
250 dealers throughout Europe.
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.
South American Distribution. The Company markets and distributes its farm
machinery, equipment and replacement parts to farmers in South America through
several different networks. In Brazil, the Company distributes products under
the Massey Ferguson and IDEAL brand names through the Maxion network, which
consists of approximately 140 independent dealers with approximately 360
outlets, and under the Deutz-Agrale brand name through 89 dealers. In Argentina,
the Company distributes its products under the IDEAL brand name through
independent distributors and under the Deutz brand name through approximately 85
independent dealers with approximately 225 outlets. The Company also distributes
products in Chile, Ecuador, Paraguay and Uruguay under the IDEAL brand name.
International Distribution. Outside North America, South America and
Western Europe, the Company operates primarily through the Company's network of
approximately 2,600 independent distributors and dealers, as well as associates
and licensees, marketing Massey products and providing customer service support
in approximately 100 countries in Africa, the Middle East, Eastern Europe and
Asia. These arrangements allow AGCO to benefit from local market expertise to
establish strong market positions with limited investment. In some cases, AGCO
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
Ferguson-licensed products by third party distributors, associates and
licensees.
RETAIL FINANCING/JOINT VENTURES
Through the Agricredit Joint Venture 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. Agricredit began
providing financing in Canada in September 1993. In addition, the Agricredit
Joint Venture will seek to build a broader asset-based finance business through
the addition of other lines of business.
The Company also owns minority interests in three retail finance companies
located in the United Kingdom, France and Germany. These companies are owned 49%
by AGCO and 51% by a wholly owned subsidiary of Rabobank.
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<PAGE> 37
MANAGEMENT
The following table sets forth certain information with respect to the
executive officers and directors of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
--------------------------------------- --- ---------------------------------------
<S> <C> <C>
Robert J. Ratliff(1)................... 65 Chairman of the Board of Directors
J-P Richard(2)......................... 53 President, Chief Executive Officer and
Director
John M. Shumejda(3).................... 51 President, Corporate Operations and
Technology and Director
James M. Seaver........................ 50 President, Corporate Sales and
Marketing
Norman L. Boyd......................... 53 Vice President -- Marketing, Americas
Judith A. Czelusniak................... 39 Vice President -- Corporate Relations
Larry W. Gutekunst..................... 59 Vice President -- Engineering
Daniel H. Hazelton..................... 58 Vice President -- Sales, Americas
Aaron D. Jones......................... 51 Vice President -- Manufacturing
Stephen D. Lupton...................... 52 Vice President -- Legal Services,
International
John G. Murdoch........................ 51 Vice President -- Sales and Marketing,
Europe/Middle East/Africa
William A. Nix III..................... 45 Vice President -- Treasurer
Chris E. Perkins....................... 34 Vice President and Chief Financial
Officer
Bruce W. Plagman....................... 45 Vice President -- Parts, Europe/Middle
East/Africa
Dexter E. Schaible..................... 47 Vice President -- Product Development
Patrick S. Shannon..................... 34 Vice President -- Director of Finance,
International
Michael F. Swick....................... 50 Vice President and General Counsel
Edward R. Swingle...................... 55 Vice President -- Parts, Americas
Henry J. Claycamp(1)(4)(5)............. 65 Director
William H. Fike(3)(4).................. 60 Director
Gerald B. Johanneson(1)(3)(6).......... 62 Director
Richard P. Johnston(1)(5)(6)........... 66 Director
J. Patrick Kaine(6).................... 71 Director
Alan S. McDowell(7).................... 48 Director
Charles S. Mechem, Jr.(4).............. 66 Director
Hamilton Robinson, Jr.(1)(5)(7)........ 62 Director
</TABLE>
- ---------------
(1) Member of the Executive Committee of the Board of Directors of the Company.
(2) J-P Richard, who has been a Director of the Company since January 1993, was
appointed President and Chief Executive Officer of the Company in November
1996. From November 1993 to November 1996, Mr. Richard was President and
Chief Executive Officer of Insituform Technologies Incorporated. From
October 1991 to November 1993, Mr. Richard was President of Massey
Ferguson, a subsidiary of Varity.
(3) Member of the Strategic Planning Committee of the Board of Directors of the
Company.
(4) Member of the Nominating Committee of the Board of Directors of the Company.
(5) Member of the Succession Planning Committee of the Board of Directors of the
Company.
(6) Member of the Compensation Committee of the Board of Directors of the
Company.
(7) Member of the Audit Committee of the Board of Directors of the Company.
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<PAGE> 38
SELLING STOCKHOLDER
Mr. Robert J. Ratliff is offering to sell 200,000 shares of Common Stock in
the Offering. The Company has agreed to pay all of Mr. Ratliff's expenses
incurred in connection with the Offering, including the underwriting discount.
Mr. Ratliff owned 1,090,202 shares of Common Stock, or 1.9% of the shares of
Common Stock outstanding, as of December 31, 1996 and will own 890,202 shares of
Common Stock, or 1.4% of the shares of Common Stock outstanding, upon completion
of the Offering. The shares owned by Mr. Ratliff prior to the Offering include
9,000 shares which may be purchased upon exercise of options which are currently
exercisable, 2,742 shares of Common Stock owned by Mr. Ratliff's wife, 200,000
shares of Common Stock beneficially owned by Mr. Ratliff as trustee of the
Robert J. Ratliff Charitable Remainder Unitrust and 778,360 shares owned by a
family limited partnership of which Mr. Ratliff controls the general partner.
Mr. Ratliff has been a Director of the Company since June 1990 and Chairman of
the Board of Directors since August 1993. He was Chief Executive Officer of the
Company from June 1990 to November 1996 and President from June 1990 to December
1995.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 150,000,000 shares
of Common Stock, par value $0.01 per share, and 1,000,000 shares of preferred
stock, par value $0.01 per share. In January 1994, the Company established a
series of preferred stock designated "Junior Cumulative Preferred Stock" (the
"Junior Preferred Stock") in connection with the adoption of a Stockholder
Rights Plan. As of January 20, 1997, 57,254,868 shares of Common Stock were
issued and outstanding. No shares of Junior Preferred Stock have been issued.
COMMON STOCK
Holders of Common Stock are entitled to receive such dividends as may from
time to time be declared by the Board of Directors of the Company out of funds
legally available therefor. Holders of Common Stock are entitled to one vote per
share on all matters on which the holders of Common Stock are entitled to vote
and do not have any cumulative voting rights. Holders of Common Stock have no
preemptive, conversion, redemption or sinking fund rights. In the event of
liquidation, dissolution or winding up of the Company, holders of Common Stock
are entitled to share equally and ratably in the assets of the Company, if any,
remaining after the payment of all debts and liabilities of the Company and the
liquidation preference of any outstanding class or series of preferred stock.
The outstanding shares of Common Stock are duly and validly issued, fully paid
and nonassessable. The rights, preferences and privileges of holders of Common
Stock are subject to the rights of the Junior Cumulative Preferred Stock and any
other series of preferred stock which the Company may issue in the future as
described below.
The Common Stock trades on the New York Stock Exchange under the symbol
"AG."
PREFERRED STOCK
The Company has designated 300,000 shares of preferred stock as Junior
Preferred Stock, which may be issued upon the exercise of any of the preferred
stock purchase rights that are associated with the Common Stock. See
"-- Stockholder Rights Plan."
The Company has 332,000 shares of authorized but undesignated preferred
stock. The Board of Directors is authorized to provide for the issuance of
additional classes and series of preferred stock out of these undesignated
shares, and, subject to the limitations on ranking provided for the Certificate
of Designations for the Convertible Preferred Stock, the Board of Directors may
establish the voting powers, designations, preferences and relative,
participating, optional or other special rights and qualifications, limitations
or restrictions of any such additional class or series of preferred stock,
including the dividend rights, dividend rate, terms of redemption, redemption
price or prices, conversion rights and liquidation preferences of the shares
constituting any series, without any further vote or action by the stockholders
of the Company.
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<PAGE> 39
STOCKHOLDER RIGHTS PLAN
On January 26, 1994, the Board of Directors approved a rights agreement
setting forth the terms of a stockholder rights plan (the "Rights Plan"), and
pursuant thereto declared a dividend of one preferred stock purchase right (a
"Right") for each share of Common Stock held of record at the close of business
on April 27, 1994. At the 1994 Annual Stockholder Meeting, the Company's
stockholders approved the Rights Plan. Each Right entitles the registered holder
to purchase from the Company a unit consisting of one one-hundredth of a share
(a "Unit") of Junior Cumulative Preferred Stock, par value $.01 per share, at a
purchase price of $200 per Unit (the "Purchase Price"), subject to adjustment.
The Rights contain provisions that are designed to protect the stockholders in
the event of certain unsolicited attempts to acquire the Company, including a
gradual accumulation of shares in the open market, a partial or two-tier tender
offer that does not treat all stockholders equally, and other takeover tactics
which the Board of Directors believes may be abusive and not in the best
interests of stockholders. Distribution of Rights will not alter the financial
strength of the Company or interfere with its business plans. The distribution
of the Rights is not dilutive, does not affect reported earnings per share, is
not taxable either to the recipient or to the Company and will not change the
way in which stockholders can currently trade shares of the Company's Common
Stock.
CERTAIN UNITED STATES FEDERAL TAX
CONSIDERATIONS FOR NON-UNITED STATES HOLDERS
The following is a general discussion of certain United States federal
income and estate tax consequences of the ownership and disposition of Common
Stock applicable to Non-U.S. Holders. In general, a "Non-U.S. Holder" is any
holder other than (i) a citizen or resident of the United States, (ii) a
corporation or partnership created or organized in the United States or under
the laws of the United States or of any state, (iii) an estate, the income of
which is includable in gross income for United States federal income tax
purposes regardless of its source, or (iv) a trust if (a) a court within the
United States is able to exercise primary supervision over the administration of
the trust, and (b) one or more United States fiduciaries have the authority to
control all substantial decisions of the trust. This discussion is based on
current law and is for general information only. This discussion does not
address aspects of United States federal taxation other than income and estate
taxation and does not address all aspects of income and estate taxation, nor
does it consider any specific facts or circumstances that may apply to a
particular Non-U.S. Holder (including certain U.S. expatriates). ACCORDINGLY,
PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR TAX ADVISERS REGARDING THE
UNITED STATES FEDERAL, STATE, LOCAL AND NON-UNITED STATES INCOME AND OTHER TAX
CONSEQUENCES OF HOLDING AND DISPOSING OF SHARES OF COMMON STOCK.
An individual may, subject to certain exceptions, be deemed to be a
resident alien (as opposed to a non-resident alien) by virtue of being present
in the United States for at least 31 days in the calendar year and for an
aggregate of at least 183 days during a three year period ending in the current
calendar year (counting for such purposes all of the days present in the current
year, one-third of the days present in the immediately preceding year, and
one-sixth of the days present in the second preceding year). In addition to the
"substantial presence test" described in the immediately preceding sentence, an
alien may be treated as a resident alien if he (i) meets a lawful permanent
residence test (a so-called "green card" test) or (ii) elects to be treated as a
U.S. resident and meets the "substantial presence test" in the immediately
following year. Resident aliens are subject to U.S. federal tax as if they were
U.S. citizens.
DIVIDENDS
In general, dividends paid to a Non-U.S. Holder will be subject to United
States withholding tax at a 30% rate (or a lower rate prescribed by an
applicable tax treaty) unless the dividends are either (i) effectively connected
with a trade or business carried on by the Non-U.S. Holder within the United
States, or (ii) if certain income tax treaties apply, attributable to a
permanent establishment in the United States maintained by the Non-U.S. Holder.
Dividends effectively connected with such a United States trade or business or
attributable to such a United States permanent establishment generally will not
be subject to United States
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<PAGE> 40
withholding tax (if the Non-U.S. Holder files certain forms, including Internal
Revenue Service Form 4224, with the payor of the dividend) and generally will be
subject to United States federal income tax on a net income basis, in the same
manner as if the Non-U.S. Holder were a resident of the United States. A Non-
U.S. Holder that is a corporation may be subject to an additional branch profits
tax at a rate of 30% (or such lower rate as may be specified by an applicable
treaty) on the repatriation from the United States of its "effectively connected
earnings and profits," subject to certain adjustments. To determine the
applicability of a tax treaty providing for a lower rate of withholding,
dividends paid to an address in a foreign country are presumed under current
Treasury regulations to be paid to a resident of that country absent knowledge
to the contrary. Proposed Treasury regulations, which are proposed to be
effective for payments made after December 31, 1997, however, generally would
require Non-U.S. Holders to file an I.R.S. Form W-8 to obtain the benefit of any
applicable tax treaty providing for a lower rate of withholding tax on
dividends. A Non-U.S. Holder that is eligible for a reduced rate of U.S.
withholding tax pursuant to a tax treaty may obtain a refund of any excess
amounts withheld by filing an appropriate claim for refund with the Internal
Revenue Service.
SALE OF COMMON STOCK
In general, a Non-U.S. Holder will not be subject to United States federal
income tax on any gain realized upon the disposition of such holder's shares of
Common Stock unless (i) the gain either is effectively connected with a trade or
business carried on by the Non-U.S. Holder within the United States or,
alternatively, if certain tax treaties apply, is attributable to a permanent
establishment in the United States maintained by the Non-U.S. Holder (and in
either case, the branch profits tax discussed above may also apply if the
Non-U.S. Holder is a corporation); (ii) the Non-U.S. Holder is an individual who
holds shares of Common Stock as a capital asset and is present in the United
States for 183 days or more in the taxable year of disposition, and either (a)
such individual has a "tax home" (as defined for United States federal income
tax purposes) in the United States (unless the gain from the disposition is
attributable to an office or other fixed place of business maintained by such
Non-U.S. Holder in a foreign country and such gain has been subject to a foreign
income tax equal to at least 10% of the gain derived from such disposition), or
(b) the gain is attributable to an office or other fixed place of business
maintained by such individual in the United States; or (iii) the Company is or
has been a United States real property holding corporation (a "USRPHC") for
United States federal income tax purposes (which the Company does not believe
that it is or is likely to become) at any time within the shorter of the five
year period preceding such disposition or such Non-U.S. Holder's holding period.
If the Company were or were to become a USRPHC at any time during this period,
gains realized upon a disposition of Common Stock by a Non-U.S. Holder which did
not directly or indirectly own more than 5% of the Common Stock during this
period generally would not be subject to United States federal income tax,
provided that the Common Stock is regularly traded on an established securities
market.
ESTATE TAX
Common Stock owned or treated as owned by an individual who is not a
citizen or resident (as defined for United States federal estate tax purposes)
of the United States at the time of death will be includable in the individual's
gross estate for United States federal estate tax purposes (unless an applicable
estate tax treaty provides otherwise), and therefore may be subject to United
States federal estate tax.
BACKUP WITHHOLDING, INFORMATION REPORTING AND OTHER REPORTING REQUIREMENTS
The Company must report annually to the Internal Revenue Service and to
each Non-U.S. Holder the amount of dividends paid to, and the tax withheld with
respect to, each Non-U.S. Holder. These reporting requirements apply regardless
of whether withholding was reduced or eliminated by an applicable tax treaty.
Copies of this information also may be made available under the provisions of a
specific treaty or agreement with the tax authorities in the country in which
the Non-U.S. Holder resides or is established.
United States backup withholding tax (which generally is imposed at the
rate of 31% on certain payments to persons that fail to furnish the information
required under the United States information reporting requirements) and
information reporting requirements (other than those discussed above under
"Dividends") generally will not apply to dividends paid on Common Stock to a
Non-U.S. Holder at an address outside the
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<PAGE> 41
United States. Backup withholding and information reporting generally will
apply, however, to dividends paid on shares of Common Stock to a Non-U.S. Holder
at an address in the United States, if such holder fails to establish an
exemption or to provide certain other information to the payor.
The payment of proceeds from the disposition of Common Stock to or through
a United States office of a broker will be subject to information reporting and
backup withholding unless the owner, under penalties of perjury, certifies,
among other things, its status as a Non-U.S. Holder or otherwise establishes an
exemption. The payment of proceeds from the disposition of Common Stock to or
through a non-U.S. office of a non-U.S. broker generally will not be subject to
backup withholding and information reporting, except as noted below. In the case
of proceeds from a disposition of Common Stock paid to or through a non-U.S.
office of a broker that is (i) a United States person, (ii) a "controlled
foreign corporation" for United States federal income tax purposes or (iii) a
foreign person 50% or more of whose gross income from certain periods is
effectively connected with a United States trade or business, information
reporting (but not backup withholding) will apply unless the broker has
documentary evidence in its files that the owner is a Non-U.S. Holder (and the
broker has no actual knowledge to the contrary). Proposed regulations state that
backup withholding will not apply to such payments unless the broker has actual
knowledge that the payee is a U.S. person.
Backup withholding is not an individual tax. Any amounts withheld under the
backup withholding rules from a payment to a Non-U.S. Holder will be refunded or
credited against the Non-U.S. Holder's United States federal income tax
liability, if any, provided that the required information is furnished to the
Internal Revenue Service.
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<PAGE> 42
UNDERWRITING
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"),
Donaldson, Lufkin & Jenrette Securities Corporation and Morgan Stanley & Co.
Incorporated are acting as Representatives (the "Representatives") of each of
the Underwriters named below (the "Underwriters"). Subject to the terms and
conditions set forth in a purchase agreement (the "Purchase Agreement") among
the Company, the Selling Stockholder and the Underwriters, the Company for its
own account and the Selling Stockholder severally have agreed to sell to the
Underwriters, and each of the Underwriters severally has agreed to purchase from
the Company and the Selling Stockholder, the number of shares of Common Stock
set forth opposite its name below.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
- ---------------------------------------------------------------------------------- ---------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.........................................................
Donaldson, Lufkin & Jenrette Securities Corporation...............................
Morgan Stanley & Co. Incorporated.................................................
-------
Total............................................................... 4,700,000
=======
</TABLE>
In the Purchase Agreement, the several Underwriters have agreed, subject to
the terms and conditions set forth therein, to purchase all of the shares of
Common Stock being sold pursuant to such agreement if any of the shares of
Common Stock being sold pursuant to such agreement are purchased. Under certain
circumstances, the commitments of non-defaulting Underwriters may be increased.
The Representatives have advised the Company and the Selling Stockholder
that the Underwriters propose initially to offer the shares of Common Stock to
the public at the public offering price set forth on the cover page of this
Prospectus, and to certain dealers at such price less a concession not in excess
of $ per share of Common Stock. The Underwriters may allow, and such
dealers may reallow, a discount not in excess of $ per share of Common
Stock on sales to certain other dealers. After the Offering, the public offering
price, concession and discount may be changed.
The Company has granted an option to the Underwriters, exercisable for 30
days after the date of this Prospectus, to purchase up to an aggregate of
675,000 additional shares of Common Stock at the public offering price set forth
on the cover page of this Prospectus, less the underwriting discount. The
Underwriters may exercise this option only to cover over-allotments, if any,
made on the sale of the Common Stock offered hereby. To the extent that the
Underwriters exercise this option, each Underwriter will be obligated, subject
to certain conditions, to purchase a number of additional shares of Common Stock
proportionate to such Underwriter's initial amount reflected in the foregoing
table.
The Company, the Selling Stockholder and certain other officers and
directors of the Company have agreed, subject to certain exceptions, not to
directly or indirectly (i) offer, pledge, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract to sell, grant
any option, right or warrant for the sale of or otherwise dispose of or transfer
any shares of Common Stock or securities convertible into or exchangeable or
exercisable for Common Stock, whether now owned or thereafter acquired by the
person executing the agreement or with respect to which the person executing the
agreement thereafter acquires the power of disposition, or file a registration
statement under the Securities Act with respect to the foregoing or (ii) enter
into any swap or other agreement that transfers, in whole or in part, the
economic consequence of ownership of the Common Stock whether any such swap or
transaction is to be settled by delivery of Common
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<PAGE> 43
Stock or other securities, in cash or otherwise, without the prior written
consent of Merrill Lynch on behalf of the Underwriters for a period of 90 days
after the date of this Prospectus.
The Company and the Selling Stockholder have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act.
LEGAL MATTERS
The legality of the shares of Common Stock offered hereby will be passed
upon for the Company by King & Spalding, Atlanta, Georgia. Certain legal matters
in connection with the sale of the shares of Common Stock offered hereby will be
passed upon for the Underwriters by Fried, Frank, Harris, Shriver & Jacobson (a
partnership including professional corporations), New York, New York .
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 Securities
Exchange Act of 1934 (the "Exchange Act"), and in accordance therewith files
reports, proxy statements and other information with the Securities and Exchange
Commission (the "Commission"). Reports, proxy statements and other information
filed by the Company may be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C., and at the regional offices of the Commission at 7 World Trade
Center, Suite 1300, New York, New York 10048 and 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Copies of such information can be obtained from
the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. Reports and other information
concerning the Company can also be inspected at the offices of the New York
Stock Exchange, Inc. at 20 Broad Street, New York, New York 10005. The
Registration Statement may also be obtained through the Commission's Internet
address at "http://www.sec.gov".
The Company has filed with the Commission a registration statement on form
S-3 (herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act with
respect to the offering made hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement, certain portions of which
are omitted in accordance with the rules and regulation of the Commission. Such
additional information may be obtained from the Commission's principal office in
Washington, D.C. as a set forth above. For further information, reference is
hereby made to the Registration Statement, including the exhibits filed as a
part thereof or otherwise incorporated herein. Statements made in this
Prospectus as to the contents of any documents filed as an exhibit are not
necessarily complete, and in each instance reference is made to such exhibit for
a more complete description and each such statement is modified in its entirety
by such reference.
42
<PAGE> 44
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) Quarterly Report on Form 10-Q for the quarters ended March 30,
1996, June 30, 1996 and September 30, 1996; and
(c) Current Reports on Form 8-K dated March 4, 1996, March 21, 1996,
June 28, 1996, and November 1, 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 offering of the shares of Common Stock hereunder 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.
43
<PAGE> 45
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-4
Consolidated Balance Sheets as of December 31, 1995 and 1994.......................... F-6
Consolidated Statements of Stockholders' Equity -- Years Ended December 31, 1995, 1994
and 1993............................................................................ F-8
Consolidated Statements of Cash Flows -- Years Ended December 31, 1995, 1994 and
1993................................................................................ F-10
Notes to Consolidated Financial Statements............................................ F-12
Condensed Consolidated Balance Sheets as of September 30, 1996 and December 31, 1995
(unaudited)......................................................................... F-34
Condensed Consolidated Statements of Income -- Nine Months Ended September 30, 1996
and 1995 (unaudited)................................................................ F-36
Condensed Consolidated Statements of Cash Flows -- Nine Months Ended September 30,
1996 and 1995 (unaudited)........................................................... F-38
Notes to Condensed Consolidated Financial Statements (unaudited)...................... F-40
</TABLE>
F-1
<PAGE> 46
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> 47
(This page intentionally left blank)
F-3
<PAGE> 48
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-4
<PAGE> 49
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-5
<PAGE> 50
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-6
<PAGE> 51
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-7
<PAGE> 52
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-8
<PAGE> 53
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-9
<PAGE> 54
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-10
<PAGE> 55
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> <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-11
<PAGE> 56
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-12
<PAGE> 57
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 materials.............. 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-13
<PAGE> 58
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-14
<PAGE> 59
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-15
<PAGE> 60
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-16
<PAGE> 61
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-17
<PAGE> 62
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-18
<PAGE> 63
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-19
<PAGE> 64
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-20
<PAGE> 65
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-21
<PAGE> 66
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-22
<PAGE> 67
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-23
<PAGE> 68
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-24
<PAGE> 69
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 the 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-25
<PAGE> 70
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-26
<PAGE> 71
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-27
<PAGE> 72
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-28
<PAGE> 73
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>
In 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-29
<PAGE> 74
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-30
<PAGE> 75
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-31
<PAGE> 76
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-32
<PAGE> 77
(This page intentionally left blank)
F-33
<PAGE> 78
AGCO CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
CONSOLIDATED
------------------------------
SEPTEMBER
30, DECEMBER 31,
1996 1995
------------ ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents....................................... $ 28,331 $ 27,858
Accounts and notes receivable, net of allowances................ 805,218 785,801
Receivables from unconsolidated subsidiary and affiliates....... 4,527 4,029
Credit receivables, net......................................... 210,409 185,401
Inventories, net................................................ 481,603 360,969
Other current assets............................................ 60,894 60,442
------------ ------------
Total current assets.................................... 1,590,982 1,424,500
Noncurrent credit receivables, net................................ 430,534 397,177
Property, plant and equipment, net................................ 247,564 146,521
Investments in unconsolidated subsidiary and affiliates........... 48,629 45,963
Other assets...................................................... 56,506 44,510
Intangible assets, net............................................ 218,727 104,244
------------ ------------
Total assets............................................ $2,592,942 $2,162,915
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt............................... $ 455,702 $ 361,376
Accounts payable................................................ 284,899 325,701
Payables to unconsolidated subsidiary and affiliates............ 16,248 4,837
Accrued expenses................................................ 266,363 233,848
Other current liabilities....................................... 11,928 13,217
------------ ------------
Total current liabilities............................... 1,035,140 938,979
------------ ------------
Long-term debt.................................................... 778,753 531,336
Convertible subordinated debentures............................... -- 37,558
Postretirement health care benefits............................... 24,229 23,561
Other noncurrent liabilities...................................... 38,910 42,553
------------ ------------
Total liabilities....................................... 1,877,032 1,573,987
Stockholders' Equity:
Common stock; $0.01 par value, 150,000,000 shares authorized,
57,237,156 and 50,557,040 shares issued and outstanding at
September 30, 1996 and December 31, 1995, respectively....... 572 506
Additional paid-in capital...................................... 360,057 307,189
Retained earnings............................................... 372,006 287,706
Unearned compensation........................................... (24,301) (22,587)
Additional minimum pension liability............................ (2,619) (2,619)
Cumulative translation adjustment............................... 10,195 18,733
------------ ------------
Total stockholders' equity.............................. 715,910 588,928
------------ ------------
Total liabilities and stockholders' equity.............. $2,592,942 $2,162,915
========== ==========
</TABLE>
F-34
<PAGE> 79
AGCO CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
EQUIPMENT OPERATIONS FINANCE COMPANY
------------------------------ ------------------------------
SEPTEMBER SEPTEMBER
30, DECEMBER 31, 30, DECEMBER 31,
1996 1995 1996 1995
------------ ------------ ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
$ 26,759 $ 20,023 $ 1,572 $ 7,835
805,218 785,801 -- --
7,307 4,029 -- 4,686
-- -- 210,409 185,401
481,603 360,969 -- --
57,560 56,950 3,334 3,492
------------ ------------ ------------ ------------
1,378,447 1,227,772 215,315 201,414
-- -- 430,534 397,177
247,257 146,172 307 349
117,033 105,913 -- --
56,506 44,510 -- --
218,727 104,244 -- --
------------ ------------ ------------ ------------
$2,017,970 $1,628,611 $646,156 $598,940
========== ========== ========== ==========
$ -- $ -- $455,702 $361,376
281,443 319,711 3,456 5,990
16,248 9,523 2,780 --
254,905 223,839 11,458 10,009
11,928 13,217 -- --
------------ ------------ ------------ ------------
564,524 566,290 473,396 377,375
------------ ------------ ------------ ------------
684,253 378,336 94,500 153,000
-- 37,558 -- --
24,229 23,561 -- --
29,054 33,938 9,856 8,615
------------ ------------ ------------ ------------
1,302,060 1,039,683 577,752 538,990
572 506 1 1
360,057 307,189 48,834 48,834
372,006 287,706 19,629 11,150
(24,301) (22,587) -- --
(2,619) (2,619) -- --
10,195 18,733 (60) (35)
------------ ------------ ------------ ------------
715,910 588,928 68,404 59,950
------------ ------------ ------------ ------------
$2,017,970 $1,628,611 $646,156 $598,940
========== ========== ========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-35
<PAGE> 80
AGCO CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
CONSOLIDATED
----------------------------
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------------
1996 1995
---------- ----------
(UNAUDITED AND IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
Revenues:
Net sales...................................................... $1,627,424 $1,486,358
Finance income................................................. 51,404 40,218
-------- --------
1,678,828 1,526,576
-------- --------
Costs and Expenses:
Cost of goods sold............................................. 1,294,350 1,162,920
Selling, general and administrative expenses................... 161,000 146,463
Engineering expenses........................................... 20,805 18,592
Interest expense, net.......................................... 51,677 48,054
Other expense (income), net.................................... 8,003 5,289
Nonrecurring expenses.......................................... 12,878 4,607
-------- --------
1,548,713 1,385,925
-------- --------
Income before income taxes, equity in net earnings of
unconsolidated subsidiary and affiliates and extraordinary
loss........................................................... 130,115 140,651
Provision for income taxes....................................... 45,570 48,848
-------- --------
Income before equity in net earnings of unconsolidated subsidiary
and affiliates and extraordinary loss.......................... 84,545 91,803
Equity in net earnings of unconsolidated subsidiary and
affiliates..................................................... 4,857 3,664
-------- --------
Income before extraordinary loss................................. 89,402 95,467
Extraordinary loss, net of taxes................................. (3,503) --
-------- --------
Net income....................................................... 85,899 95,467
Preferred stock dividends........................................ -- 2,012
-------- --------
Net income available for common stockholders..................... $ 85,899 $ 93,455
======== ========
Net income per common share:
Primary:
Income before extraordinary loss............................ $ 1.64 $ 2.06
Extraordinary loss.......................................... (0.06) --
-------- --------
Net income.................................................. $ 1.58 $ 2.06
======== ========
Fully diluted:
Income before extraordinary loss............................ $ 1.57 $ 1.71
Extraordinary loss.......................................... (0.06) --
-------- --------
Net income.................................................. $ 1.51 $ 1.71
======== ========
Weighted average number of common and common equivalent shares
outstanding:
Primary........................................................ 54,374 45,354
======== ========
Fully diluted.................................................. 57,341 56,440
======== ========
Dividends declared per common share.............................. $ 0.03 $ 0.03
======== ========
</TABLE>
F-36
<PAGE> 81
AGCO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME -- (CONTINUED)
<TABLE>
<CAPTION>
EQUIPMENT OPERATIONS FINANCE COMPANY
-------------------------- --------------------
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- --------------------
1996 1995 1996 1995
---------- ---------- ------- -------
(UNAUDITED AND
(UNAUDITED AND IN THOUSANDS,
IN THOUSANDS, EXCEPT PER SHARE
EXCEPT PER SHARE DATA) DATA)
<S> <C> <C> <C> <C>
$1,627,424 $1,486,358 $ -- $ --
-- -- 51,404 40,218
-------- -------- ------- -------
1,627,424 1,486,358 51,404 40,218
-------- -------- ------- -------
1,294,350 1,162,920 -- --
151,114 135,616 9,886 10,847
20,805 18,592 -- --
23,718 25,220 27,959 22,834
8,005 5,351 (2) (62)
12,878 4,607 -- --
-------- -------- ------- -------
1,510,870 1,352,306 37,843 33,619
-------- -------- ------- -------
116,554 134,052 13,561 6,599
40,488 46,275 5,082 2,573
-------- -------- ------- -------
76,066 87,777 8,479 4,026
13,336 7,690 -- --
-------- -------- ------- -------
89,402 95,467 8,479 4,026
(3,503) -- -- --
-------- -------- ------- -------
85,899 95,467 8,479 4,026
-- 2,012 -- --
-------- -------- ------- -------
$ 85,899 $ 93,455 $ 8,479 $ 4,026
======== ======== ======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-37
<PAGE> 82
AGCO CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
CONSOLIDATED
-----------------------
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------
1996 1995
-------- ---------
(UNAUDITED AND IN
THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................................ $ 85,899 $ 95,467
--------- ---------
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Extraordinary loss, net of taxes................... 3,503 --
Depreciation and amortization...................... 20,496 17,621
Equity in net earnings of unconsolidated subsidiary
and affiliates, net of cash received............. (4,857) (3,664)
Deferred income tax provision (benefit)............ 14,530 29,632
Amortization of intangibles........................ 3,833 2,917
Amortization of unearned compensation.............. 11,981 3,995
Provision for losses on credit receivables......... 2,931 4,005
Changes in operating assets and liabilities, net of
effects from purchase of businesses:
Accounts and notes receivable, net............... 1,106 (101,534)
Inventories, net................................. (72,905) (71,030)
Other current and noncurrent assets.............. (10,132) (2,842)
Accounts payable................................. (40,607) (19,386)
Accrued expenses................................. 26,106 4,345
Other current and noncurrent liabilities......... 1,902 (5,641)
--------- ---------
Total adjustments............................. (42,113) (141,582)
--------- ---------
Net cash provided by (used for) operating
activities.................................. 43,786 (46,115)
--------- ---------
Cash flows from investing activities:
Purchase of businesses, net of cash acquired.......... (287,426) (27,364)
Purchase of property, plant and equipment............. (26,513) (24,471)
Credit receivables originated......................... (307,079) (265,552)
Principal collected on credit receivables............. 245,783 190,505
Proceeds from disposition of (investments in)
unconsolidated subsidiary and affiliates........... 1,181 (1,710)
--------- ---------
Net cash used for investing activities........ (374,054) (128,592)
--------- ---------
Cash flows from financing activities:
Proceeds on long-term debt, net....................... 341,744 173,057
Payment of debt issuance costs........................ (10,590) --
Proceeds from issuance of common stock................ 1,680 850
Dividends (paid) received on common stock............. (1,599) (670)
Dividends paid on preferred stock..................... -- (2,420)
(Payments) proceeds on short-term borrowings from
unconsolidated subsidiary and affiliates, net...... -- --
--------- ---------
Net cash provided by financing activities..... 331,235 170,817
--------- ---------
Effect of exchange rate changes on cash and cash
equivalents........................................... (494) 848
Increase (decrease) in cash and cash equivalents........ 473 (3,042)
Cash and cash equivalents, beginning of period.......... 27,858 25,826
--------- ---------
Cash and cash equivalents, end of period................ $ 28,331 $ 22,784
========= =========
</TABLE>
F-38
<PAGE> 83
AGCO CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
<TABLE>
<CAPTION>
EQUIPMENT OPERATIONS FINANCE COMPANY
------------------------ -----------------------
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------ -----------------------
1996 1995 1996 1995
--------- --------- -------- ---------
(UNAUDITED AND IN (UNAUDITED AND IN
THOUSANDS) THOUSANDS)
<S> <C> <C> <C> <C>
$ 85,899 $ 95,467 $ 8,479 $ 4,026
--------- --------- --------- ---------
3,503 -- -- --
20,398 17,529 98 92
(13,336) (7,690) -- --
14,593 31,282 (63) (1,650)
3,833 2,917 -- --
11,981 3,995 -- --
-- -- 2,931 4,005
(1,674) (98,996) -- --
(72,905) (71,030) -- --
(10,326) (2,793) 194 (49)
(42,759) (17,872) 4,932 (4,052)
24,682 3,434 1,424 911
661 (5,972) 1,241 331
--------- --------- --------- ---------
(61,349) (145,196) 10,757 (412)
--------- --------- --------- ---------
24,550 (49,729) 19,236 3,614
--------- --------- --------- ---------
(287,426) (27,364) -- --
(26,484) (24,354) (29) (117)
-- -- (307,079) (265,552)
-- -- 245,783 190,505
1,181 (1,710) -- --
--------- --------- --------- ---------
(312,729) (53,428) (61,325) (75,164)
--------- --------- --------- ---------
305,918 109,300 35,826 63,757
(10,590) -- -- --
1,680 850 -- --
(1,599) 1,330 -- (2,000)
-- (2,420) -- --
-- (7,249) -- 7,249
--------- --------- --------- ---------
295,409 101,811 35,826 69,006
--------- --------- --------- ---------
(494) 848 -- --
6,736 (498) (6,263) (2,544)
20,023 21,844 7,835 3,982
--------- --------- --------- ---------
$ 26,759 $ 21,346 $ 1,572 $ 1,438
========= ========= ========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-39
<PAGE> 84
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 elsewhere
herein. 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. ACQUISITIONS
Effective 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
consideration consisting of approximately $260.0 million (the "Maxion
Acquisition"). The Maxion Acquisition was financed primarily by borrowings under
the Company's $650.0 million revolving credit facility and was funded on July 1,
1996. The acquired assets and assumed liabilities consist primarily of accounts
receivable, inventories, property, plant and equipment (including two
manufacturing facilities), accounts payable and accrued liabilities. Prior to
the acquisition, the Maxion Agricultural Equipment Business was AGCO's Massey
Ferguson licensee in Brazil, manufacturing and distributing agricultural
tractors under the Massey Ferguson brand name, industrial loader-backhoes under
the Massey Ferguson and Maxion brand names and combines under the Massey
Ferguson and IDEAL brand names.
The following unaudited pro forma data summarizes the results of operations
for the nine months ended September 30, 1996 and 1995 as if the Maxion
Acquisition, and the related financings, had occurred at the beginning of 1995.
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 transaction occurred on the dates
indicated or what the results of operations may be in any future period.
<TABLE>
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1996 SEPTEMBER 30, 1995
------------------------ ------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C>
Net sales and finance income....................... $1,771,963 $1,771,909
Net income(1)...................................... 44,418 54,056
Net income per common share -- fully diluted(1).... 0.82 0.97
</TABLE>
- ---------------
(1) For the nine months ended September 30, 1996, amount excludes extraordinary
loss, net of taxes of $3,503, or $0.06 per common share on a fully diluted
basis.
F-40
<PAGE> 85
AGCO CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
3. CHARGES FOR NONRECURRING EXPENSES
The results of operations included a charge for nonrecurring expenses of
$6.2 million, or $0.07 per common share on a fully diluted basis, for the three
months ended September 30, 1996 and $12.9 million, or $0.15 per common share on
a fully diluted basis, for the nine months ended September 30, 1996. This charge
related to the further restructuring of the European operations, which was
acquired in the Massey Acquisition in June 1994 and the integration and
restructuring of the Maxion Agricultural Equipment Business, which was acquired
in June 1996 (Note 2).
The nonrecurring charge for the further restructuring of the European
operations included costs associated with the centralization of certain parts
warehousing, administrative, sales and marketing functions. The $9.2 million
nonrecurring charge recorded through September 30, 1996 included $7.1 million
for employee related costs consisting primarily of severance costs and $2.1
million for other nonrecurring costs. Included in the $7.1 million of employee
related costs was $1.0 million of payroll costs incurred through September 30,
1996 for personnel that have been terminated or will be terminated in future
periods. Of the total $9.2 million charge, $5.2 million has been incurred at
September 30, 1996. The remaining accrual of $4.0 million primarily consists of
employee severance costs which relate to the planned reduction of 86 employees,
of which 54 employees have been terminated at September 30, 1996.
The nonrecurring charge for the integration and restructuring of the Maxion
Agricultural Equipment Business included costs associated with the
rationalization of manufacturing, sales, and administrative functions. The $3.7
million recorded for the three months ended September 30, 1996 included $2.3
million for employee related costs, including severance costs, and $1.4 million
for other nonrecurring costs. Included in the $2.3 million of employee related
costs was $1.0 million of payroll costs incurred through September 30, 1996 for
personnel that have been terminated or will be terminated in future periods. Of
the total $3.7 million charge, $2.5 million has been incurred through September
30, 1996, with the remaining accrual of $1.2 million primarily related to
employee severance. The employee severance costs relate to the planned reduction
of 260 employees, of which 180 employees have been terminated at September 30,
1996.
The results of operations for the three and nine months ended September 30,
1995 included a charge for nonrecurring expenses of $0.9 million, or $0.01 per
common share on a fully diluted basis, and $4.6 million, or $0.05 per common
share on a fully diluted basis, respectively, 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 European operations
related to the Massey Acquisition. The nonrecurring charge for the nine months
ended September 30, 1995 included $3.0 million for employee severance and $1.6
million for certain data processing expenses. All of the costs associated with
the $19.5 million charge recorded through December 31, 1995 have been incurred.
4. LONG-TERM DEBT
Long-term debt consisted of the following at September 30, 1996 and
December 31, 1995 (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
<S> <C> <C>
Revolving credit facility -- Equipment Operations............ $ 436,332 $378,336
Revolving credit facility -- Finance Company................. 550,202 514,376
Senior subordinated notes.................................... 247,921 --
---------- --------
$ 1,234,455 $892,712
========== ========
</TABLE>
In March 1996, the Company issued $250.0 million of 8 1/2% Senior
Subordinated Notes due 2006 (the "Notes") at 99.139% of their principal amount.
The Notes are unsecured obligations of the Company and are
F-41
<PAGE> 86
AGCO CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
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 secured 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. As of September 30, 1996, approximately $436.3 million was
outstanding under the New Credit Facility and available borrowings were
approximately $210.5 million.
5. 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 taxes of $2.2 million, for the write-
off of unamortized debt costs related to the Old Credit Facility.
6. 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 $66.8 million 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 $66.8 million. The Convertible Subordinated Debentures were
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 were redeemable 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.
In April 1996, the Company announced its election, effective June 1, 1996,
to redeem all of its outstanding Convertible Subordinated Debentures. Prior to
the execution of the redemption, all of the outstanding Convertible Subordinated
Debentures were converted into common stock. Since December 31, 1995, $37.6
million of outstanding Convertible Subordinated Debentures were converted into
approximately 5,920,000 shares of the Company's common stock.
7. 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
F-42
<PAGE> 87
AGCO CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
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.
8. 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 September 30, 1996 and December 31, 1995 were as
follows (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
<S> <C> <C>
Finished goods............................................... $ 193,162 $121,034
Repair and replacement parts................................. 219,237 196,863
Work in process, production parts and raw materials.......... 116,680 84,505
-------- --------
Gross inventories............................................ 529,079 402,402
Allowance for surplus and obsolete inventories............... (47,476) (41,433)
-------- --------
Inventories, net............................................. $ 481,603 $360,969
======== ========
</TABLE>
9. SUBSEQUENT EVENT
Effective November 1, 1996, the Company entered into an agreement with De
Lage Landen International, B.V., a wholly owned subsidiary of Cooperatieve
Raiffeisen-Boerenleenbank B.A., "Rabobank Nederland" (together, "Rabobank") to
be its joint venture partner in Agricredit, the Company's retail finance
subsidiary in North America (the "Agricredit Joint Venture"). As a result of the
agreement, the Company sold a 51% interest in Agricredit to Rabobank. The
Company received total consideration of approximately $44.3 million in the
transaction. Under the Agricredit Joint Venture, Rabobank will have a 51%
interest in Agricredit and the Company will retain a 49% interest in the finance
company. Substantially all of the net assets of Agricredit were transferred to
the Agricredit Joint Venture. The Agricredit Joint Venture will continue the
current business of Agricredit and seek to build a broader asset-based finance
business.
F-43
<PAGE> 88
------------------------------------------------------
------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING
MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY,
THE SELLING STOCKHOLDER OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY BY ANYONE IN ANY
JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION OR TO
ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE
FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE
DATE HEREOF.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS
Prospectus Summary.................... 3
Risk Factors.......................... 8
Price Range of Common Stock and
Dividends........................... 10
Use of Proceeds....................... 10
Capitalization........................ 11
Selected Historical Financial Data.... 12
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 14
Business.............................. 30
Management............................ 36
Selling Stockholder................... 37
Description of Capital Stock.......... 37
Certain United States Federal Tax
Considerations for Non-United States
Holders............................. 38
Underwriting.......................... 41
Legal Matters......................... 42
Independent Auditors.................. 42
Available Information................. 42
Incorporation of Certain Documents by
Reference........................... 43
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
4,700,000 SHARES
AGCO CORPORATION
COMMON STOCK
---------------------
PROSPECTUS
---------------------
MERRILL LYNCH & CO.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
MORGAN STANLEY & CO.
INCORPORATED
, 1997
------------------------------------------------------
------------------------------------------------------
<PAGE> 89
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the fees and expenses in connection with the
issuance and distribution of the securities being registered hereunder. All of
such fees are being paid by the Company. Except for the SEC registration fee,
the NYSE listing fee and the NASD filing fee, all amounts are estimates.
<TABLE>
<S> <C>
SEC registration fee.............................................................. $ 43,774
NASD filing fee................................................................... 14,946
NYSE listing fee.................................................................. 18,112
Accounting fees and expenses...................................................... 50,000
Legal fees and expenses........................................................... 150,000
Blue Sky fees and expenses (including counsel fees)............................... 10,000
Printing and engraving expenses................................................... 150,000
Transfer agent and registrar fees and expenses.................................... 2,000
Miscellaneous expenses............................................................ 11,168
--------
Total................................................................... $450,000
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law, as amended, provides
in regard to indemnification of directors and officers as follows:
SECTION 145. INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND
AGENTS; INSURANCE
(a) A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation)
by reason of the fact that he is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent or another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of
any action, suit or proceeding by judgment, order, settlement, conviction,
or upon a plea of nolo contendere its equivalent, shall not, of itself,
create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
(b) A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the corporation to procure a judgment
in its favor by reason of the fact that he is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request
of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
expenses (including attorneys' fees) actually and reasonably incurred by
him in connection with the defense or settlement of such action or suit if
he acted in good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as
to which such person shall have been adjudged to be liable to the
corporation unless and only to the extent that the Court of Chancery or the
court in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in view of
II-1
<PAGE> 90
all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or such
other court shall deem proper.
(c) To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense of
any action, suit or proceeding referred to in subsections (a) and (b) of
this section, or in defense of any claim, issue or matter therein, he shall
be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith.
(d) Any indemnification under subsections (a) and (b) of this section
(unless ordered by a court) shall be made by the corporation only as
authorized in the specific case upon a determination that indemnification
of the director, officer, employee or agent is proper in the circumstances
because he has met the applicable standard of conduct set forth in
subsections (a) and (b) of this section. Such determination shall be made
(1) by a majority vote of the directors who are not parties to such action,
suit or proceeding even though less than a quorum, or (2) if there are no
such directors, or if such directors so direct, by independent legal
counsel in a written opinion, or (3) by the stockholders.
(e) Expenses (including attorneys' fees) incurred by an officer or
director defending any civil, criminal, administrative or investigative
action, suit or proceeding may be paid by the corporation in advance of the
final deposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such
amount if it shall ultimately be determined that he is not entitled to be
indemnified by the corporation as authorized in this section. Such expenses
(including attorneys' fees) incurred by other employees and agents may be
so paid upon such terms and conditions, if any, as the board of directors
deems appropriate.
(f) The indemnification and advancement of expenses provided by, or
granted pursuant to, the other subsections of this section shall not be
deemed exclusive of any other rights to which those seeking indemnification
or advancement of expenses may be entitled under any by-law, agreement,
vote of stockholders or disinterested directors or otherwise, both as to
action in his official capacity and as to action in another capacity while
holding such office.
(g) A corporation shall have power to purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
any liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liability
under this section.
(h) For purposes of this section, references to "the corporation"
shall include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued,
would have had power and authority to indemnify its directors, officers,
and employees or agents, so that any person who is or was a director,
officer, employee or agent of such constituent corporation, or is or was
serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, shall stand in the same position under
this section with respect to the resulting or surviving corporation as he
would have with respect to such constituent corporation if its separate
existence had continued.
(i) For purposes of this section, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include
any excise taxes assessed on a person with respect to an employee benefit
plan; and references to "serving at the request of the corporation" shall
include any service as a director, officer, employee or agent of the
corporation which imposes duties on, or involves services by, such
director, officer, employee or agent with respect to an employee benefit
plan, its participants or beneficiaries; and a person who acted in good
faith and in a manner he reasonably believed to be in the interest of the
participants and beneficiaries of an employee benefit plan shall be deemed
to have acted in a manner "not opposed to the best interests of the
corporation" as referred to in this section.
II-2
<PAGE> 91
(j) The indemnification and advancement of expenses provided by, or
granted pursuant to, this section shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such person.
(k) The Court of Chancery is hereby vested with exclusive jurisdiction
to hear and determine all actions for advancement of expenses or
indemnification brought under the Section or under any bylaw, agreement,
vote of stockholders or disinterested directors or otherwise. The Court of
Chancery may summarily determine a corporation's obligation to advance
expenses (including attorney's fees).
Article XI of the Company's Bylaws provides in regard to indemnification of
directors and officer as follows:
1. Definitions. As used in this article, the term "person" means any
past, present or future director or officer of the corporation or a
designated officer of any operating division of the corporation.
2. Indemnification Granted. The Corporation shall indemnify, to the
full extent and under the circumstances permitted by the Delaware General
Corporation Law of the State of Delaware in effect from time to time, any
person as defined above, made or threatened to be made a party to any
threatened, pending or completed action, suit or proceeding whether civil,
criminal, administrative or investigative by reason of the fact that he is
or was a director, officer of the corporation or designated officer of an
operating division of the corporation, or is or was an employee or agent of
the corporation as a director, officer, employee or agent of another
company or other enterprise in which the corporation should own, directly
or indirectly, an equity interest or of which it may be a creditor.
This right of indemnification shall not be deemed exclusive of any
other rights to which a person indemnified herein may be entitled by Bylaw,
agreement, vote of stockholders or disinterested directors or otherwise,
and shall continue as to a person who has ceased to be a director, officer,
designated officer, employee or agent and shall inure to the benefit of the
heirs, executors, administrators and other legal representatives of such
person. It is not intended that the provisions of this article be
applicable to, and they are not to be construed as granting indemnity with
respect to, matters as to which indemnification would be in contravention
of the laws of Delaware or of the United States of America whether as a
matter of public policy or pursuant to statutory provisions.
3. Miscellaneous. The board of directors may also on behalf of the
corporation grant indemnification to any individual other than a person
defined herein to such extent and in such manner as the board in its sole
discretion may from time to time and at any time determine.
Article 7 of the Company's Certificate of Incorporation provides in regard
to the limitation of liability of directors and officers as follows:
A director of the corporation shall not be personally liable to the
corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of
the director's duty of loyalty to the corporation or its stockholders, (ii)
for acts or omissions not in good faith or which involve intentional
misconduct or knowing violation of law, (iii) under section 174 of the
Delaware General Corporation Law as the same exists or hereafter may be
amended or (iv) for any transaction from which the director derived an
improper personal benefit. If the Delaware General Corporation Law
hereafter is amended to authorize the further elimination or limitation of
the liability or directors, then, in addition to the limitation or personal
liability provided herein the liability of a director of the corporation
shall be limited to the fullest extent permitted by the amended Delaware
General Corporation Law. Any repeal or modification of this paragraph by
the stockholders of the corporation shall be prospective only, and shall
not adversely affect any limitation on the personal liability of a director
of the corporation existing at the time of such repeal or modification.
The Company's directors and officer are also insured against claims arising
out of the performance of their duties in such capacities.
II-3
<PAGE> 92
Section 6 of the Purchase Agreement filed as Exhibit 1.1 hereto also
contains certain provisions pursuant to which certain officers, directors and
controlling persons of the Company may be entitled to be indemnified by the
underwriters named therein.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER NUMBER DESCRIPTION
- ------ -----------------------------------------------------------------------------------
<C> <C> <S>
1.1* -- Purchase Agreement
5.1* -- Opinion of King and Spalding as to the legality of the Common Stock being
registered
23.1* -- Consent of King and Spalding (included as part of its opinion filed as Exhibit
5.1).
23.2 -- Consent of Arthur Andersen LLP, independent public accountants.
23.3 -- Consent of Price Waterhouse Auditores Independentes, independent public
accountants.
24.1 -- Powers of Attorney (contained on signature page).
</TABLE>
- ---------------
* To be filed by amendment
(b) Financial Statement Schedules
Schedule II -- Valuation and Qualifying Accounts
ITEM 17. UNDERTAKINGS.
The undersigned restraint hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933 (the "Securities
Act"), each filing of the registrant's annual report pursuant to Section 13 (a)
or 15 (d) of the Securities Exchange Act of 1934 (and, where applicable, each
filing of an employee benefit plan's annual report pursuant to Section 15 (d) of
the Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 93
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and duly caused this Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Duluth, State of Georgia, on the 21st day of January, 1997.
AGCO CORPORATION
By: /s/ CHRIS E. PERKINS
------------------------------------
Chris E. Perkins
Vice President and Chief
Financial Officer
KNOW ALL MEN BY THESE PRESENT, that each person whose signature appears
below constitutes and appoints J-P Richard and Chris E. Perkins, and each of
them, his or her true and lawful attorney-in-fact and agents, with full power of
substitution and resubstitution, from such person and in each person's name,
place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to the Registration Statement, and to file
the same, with all exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission and to sign and file any other
registration statement for the same offering that is to be effective upon filing
pursuant to Rule 462(b) under the Securities Act of 1933, as amended, granting
unto said attorneys-in-fact and agents, full power and authority to do and
perform each and every act and thing requisite and necessary to be done as fully
to all intents and purposes as he or she might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any of
them, may lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated below on January 21, 1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------------------------------------------- ----------------------------------------------
<C> <S>
/s/ ROBERT J. RATLIFF Chairman of the Board
- ---------------------------------------------
Robert J. Ratliff
/s/ J-P RICHARD President and Chief Executive Officer and
- --------------------------------------------- Director (Principal Executive Officer)
J-P Richard
President, Corporate Operations and Technology
- --------------------------------------------- and Director
John M. Shumejda
/s/ CHRIS E. PERKINS Vice President and Chief Financial Officer
- --------------------------------------------- (Principal Financial Officer and Principal
Chris E. Perkins Accounting Officer)
Director
- ---------------------------------------------
Henry J. Claycamp
Director
- ---------------------------------------------
William H. Fike
</TABLE>
II-5
<PAGE> 94
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------------------------------------------- ----------------------------------------------
<C> <S>
/s/ GERALD B. JOHANNESON Director
- ---------------------------------------------
Gerald B. Johanneson
/s/ RICHARD P. JOHNSTON Director
- ---------------------------------------------
Richard P. Johnston
/s/ J. PATRICK KAINE Director
- ---------------------------------------------
J. Patrick Kaine
/s/ ALAN S. MCDOWELL Director
- ---------------------------------------------
Alan S. McDowell
/s/ CHARLES S. MECHEM, JR. Director
- ---------------------------------------------
Charles S. Mechem, Jr.
/s/ HAMILTON ROBINSON, JR. Director
- ---------------------------------------------
Hamilton Robinson, Jr.
</TABLE>
II-6
<PAGE> 95
SCHEDULE II
AGCO CORPORATION AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
---------------------
CHARGED CHARGED
BALANCE AT TO COSTS (CREDITED) BALANCE
BEGINNING ACQUIRED AND TO OTHER AT END
DESCRIPTION OF PERIOD BUSINESSES EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD
- ------------------------------------- ---------- ---------- -------- ---------- ---------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1995
Allowances for doubtful receivables:
Equipment Operations
Dealer receivable allowances.... $ 60,064 $ 2,244 $ 83,970 $ -- $(83,731) $ 62,547
---------- ---------- -------- ---------- ---------- ---------
Finance Company
Credit receivable allowances.... 10,042 -- 4,279 -- (1,507) 12,814
---------- ---------- -------- ---------- ---------- ---------
Consolidated receivable
allowances.................... $ 70,106 $ 2,244 $ 88,249 $ -- $(85,238) $ 75,361
======== ======== ======= ======== ======== =======
YEAR ENDED DECEMBER 31, 1994
Allowances for doubtful receivables:
Equipment Operations
Dealer receivable allowances.... $ 41,327 $ 18,102 $ 66,863 $ -- $(66,228) $ 60,064
---------- ---------- -------- ---------- ---------- ---------
Finance Company
Credit receivable allowances.... -- 8,709 4,691 -- (3,358) 10,042
---------- ---------- -------- ---------- ---------- ---------
Consolidated receivable
allowances.................... $ 41,327 $ 26,811 $ 71,554 $ -- $(69,586) $ 70,106
======== ======== ======= ======== ======== =======
YEAR ENDED DECEMBER 31, 1993
Allowances for doubtful receivables:
Dealer receivable allowances....... $ 35,679 $ 18,103 $ 47,775 $ -- $(60,230) $ 41,327
======== ======== ======= ======== ======== =======
</TABLE>
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports on the consolidated financial statements and schedule of AGCO
Corporation and Subsidiaries (and to all references to our Firm) included (or
incorporated by reference) in this Registration Statement covering the sale of
AGCO Corporation common stock.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
January 20, 1997
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-3 of AGCO Corporation
of our report dated July 10, 1996 relating to the financial statements of the
Agricultural Division of Iochpe-Maxion S.A., which appears in the Current Report
on Form 8-K of AGCO Corporation dated June 28, 1996. We also consent to the
reference to us under the heading "Independent Auditors" in such Prospectus.
PRICE WATERHOUSE
Auditores Independentes
Sao Paulo, Brazil
January 20, 1997
