1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 7, 1997 REGISTRATION NO. 333-20125 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20125 --------------------- AMENDMENT NO. 1 TO FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 --------------------- AGCO CORPORATION (Exact Name of Registrant as Specified in Charter) --------------------- 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:
DELAWARE 58-1960019 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification Number) --------------------- 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. [] CALCULATION OF REGISTRATION FEE
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 (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). (3) Previously paid. 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. ================================================================================
======================================================================================================================== AMOUNT PROPOSED MAXIMUM PROPOSED AMOUNT OF TITLE OF SHARES TO BE AGGREGATE PRICE MAXIMUM AGGREGATE REGISTRATION TO BE REGISTERED REGISTERED(1) PER UNIT(2) OFFERING PRICE(2) FEE - ------------------------------------------------------------------------------------------------------------------------ Common Stock, par value $.01 per share............................. 5,375,000 $26.875 $144,453,125 $43,774(3) ======================================================================================================================== 2 EXPLANATORY NOTE This Registration Statement contains two separate prospectuses. The first prospectus relates to a public offering in the United States and Canada of an aggregate of 3,760,000 shares of Common Stock (the "U.S. Offering"). The second prospectus relates to a concurrent offering outside the United States and Canada of an aggregate of 940,000 shares of Common Stock (the "International Offering"). The prospectuses for the U.S. Offering and the International Offering will be identical with the exception of the following alternate pages for the International Offering: a front cover page, "Underwriting," "Legal Matters," "Independent Auditors," "Available Information" and "Incorporation of Certain Documents by Reference" sections and a back cover page. Such alternate pages appear in this Registration Statement immediately following the complete prospectus for the U.S. Offering. 3 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 FEBRUARY 7, 1997 PROSPECTUS 4,700,000 SHARES [AGCO LOGO] 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. Of the 4,700,000 shares being offered hereby, 3,760,000 are being offered for sale initially in the United States and Canada by the U.S. Underwriters and 940,000 are being offered for sale initially in a concurrent offering outside the United States and Canada by the International Managers. The initial offering price and the underwriting discount per share will be identical for both offerings. See "Underwriting." The Common Stock is listed on the New York Stock Exchange (the "NYSE") under the symbol "AG." On February 5, 1997, the last reported sale price of the Common Stock on the NYSE was $28 1/2. See "Price Range of Common Stock and Dividend History." ------------------------ SEE "RISK FACTORS" BEGINNING ON PAGE 9, 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. (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 U.S. Underwriters and the International Managers 30-day options to purchase up to an additional 540,000 shares and 135,000 shares of Common Stock, respectively, solely to cover over-allotments, if any. If such options are 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.
================================================================================================================== PRICE TO UNDERWRITING PROCEEDS TO PROCEEDS TO PUBLIC DISCOUNT(1) COMPANY(2) SELLING STOCKHOLDER - ------------------------------------------------------------------------------------------------------------------ Per share......................... $ $ $ $ - ------------------------------------------------------------------------------------------------------------------ Total(3).......................... $ $ $ $ ================================================================================================================== 4 IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT A LEVEL 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 5 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 3,760,000 shares of common stock of the Company, par value $.01 per share (the "Common Stock")in the United States and Canada (the "U.S. Offering") and the offering of 940,000 shares of Common Stock outside the United States and Canada (the "International Offering") are collectively 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 Cooperatieve 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, selling complementary non-tractor 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 1,750 of the Company's approximately 2,800 dealers in North America carry two or more AGCO brands. Furthermore, 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 3 6 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. 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 "Business -- Retail Financing/Joint Ventures." New Credit Facility. On January 14, 1997, the Company replaced its $650 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 4 7 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. THE OFFERING Shares of Common Stock offered by the Company...................... 4,500,000 Shares of Common Stock offered by the Selling Stockholder.......... 200,000 ---------- Total.................... 4,700,000(1) Shares of Common Stock outstanding after the Offering(2)............ 61,761,178 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) Consists of 3,760,000 shares for the U.S. Offering and 940,000 shares for the International Offering. (2) Excludes, as of January 20, 1997, (i) 800,940 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 9. 5 8 RECENT HISTORICAL FINANCIAL DATA On February 6, 1997, the Company announced results for the quarter and year ended December 31, 1996. A summary of the information released appears in the table and discussion below. Such information set forth below should be read in conjunction with the Company's condensed consolidated financial statements and the notes thereto included and incorporated by reference herein. The financial data presented below are not audited and are not necessarily indicative of the results that may be expected for future periods.
THREE MONTHS ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, ------------------------ -------------------- 1995 1996 1995 1996 ---------- ---------- -------- -------- (IN THOUSANDS, EXCEPT SHARE DATA) STATEMENT OF INCOME DATA: Net sales...................................... $2,068,427 $2,317,486 $582,069 $690,062 Net income before extraordinary loss........... 129,142 129,390 33,675 39,988 Net Income Per Common Share Before Extraordinary Loss: Primary...................................... $ 2.76 $ 2.34 $ 0.69 $ 0.69 Fully diluted................................ $ 2.30 $ 2.26 $ 0.60 $ 0.69 Weighted Average Number of Common and Common Equivalent Shares Outstanding: Primary...................................... 46,126 55,186 48,458 57,608 Fully diluted................................ 56,684 57,441 57,136 57,648 - --------------- (1) On November 1, 1996, AGCO sold a 51% joint venture interest in Agricredit. Accordingly, the 1996 balance sheet data reflects Agricredit on the equity method of accounting. The 1995 balance sheet data reflects Agricredit on a consolidated basis. Excluding Agricredit, the balance sheet data in 1995 would be: working capital -- $661,482; total assets -- $1,628,611; and long-term debt -- $415,894. AGCO's results for the three months ended December 31, 1996 included several unusual items which affect comparability. These items are severance costs of $7.3 million, or $.08 per share, including accelerated amortization of shares earned under the Company's Long Term Incentive Plan and related cash severance, nonrecurring expenses relating to the integration and restructuring of the Company's Brazilian and European operations of $2.1 million, or $0.02 per share, and a gain on the sale of a 51% interest in Agricredit of $4.7 million, or $0.05 per share. For comparative purposes, excluding the unusual items and excluding the nonrecurring charge recorded in 1995, net earnings were $43.0 million, or $0.75 per share, for the fourth quarter of 1996, compared to $34.6 million, or $0.62 per share, for the same period in 1995. For the year ended December 31, 1996, net earnings were $140.6 million, or $2.46 per share, compared to $133.0 million, or $2.37 per share, for the same period in 1995. 6
AS OF DECEMBER 31, ------------------------ 1995 1996 ---------- ---------- (IN THOUSANDS) BALANCE SHEET DATA:(1) Working capital................................ $ 485,521 $ 750,474 Total assets................................... 2,162,915 2,116,531 Long-term debt................................. 568,894 567,055 Stockholders' equity........................... 588,928 774,665 9 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."
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) 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 (footnotes on following page) 7
AS OF SEPTEMBER 30, 1996 --------------------------- ACTUAL AS ADJUSTED(8) ---------- -------------- (IN THOUSANDS) BALANCE SHEET DATA: Working capital............................................. $ 555,842 $ 555,842 Total assets................................................ 2,592,942 2,592,942 Long-term debt (9).......................................... 778,753 656,404 Stockholders' equity........................................ 715,910 838,259 10 - --------------- (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 $0.06 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. 8 11 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. 9 12 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. 10 13 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: On February 5, 1997, the last reported sale price of the Common Stock on the NYSE was $28 1/2 per share. On January 29, 1997, the Board of Directors of the Company declared a dividend of $0.01 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 $122.3 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 (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 0.25% to 1.25% depending on the credit rating of the Company's senior, unsecured, long-term debt. As of February 5, 1997, aggregate borrowings under the New Credit Facility were $709.6 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. 11
SALES PRICE --------------- HIGH LOW DIVIDENDS ---- ---- --------- 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 February 5, 1997).............. 29 7/8 26 5/8 0.01 14 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. - --------------- (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) On January 14, 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. 12
AS OF SEPTEMBER 30, 1996 ----------------------------------------------- ACTUAL PRO FORMA PRO FORMA AS ADJUSTED ---------- ---------- --------------------- (IN THOUSANDS) 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)............................. -- 760,579 638,230 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 $ 906,437 ---------- ---------- ---------- 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......................... 360,057 360,057 482,361 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............... 715,910 720,655 843,004 ---------- ---------- ---------- Total capitalization..................... $1,494,663 $1,749,441 $1,749,441 ========== ========== ========== 15 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. (continued on following page) 13
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) 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 16 - --------------- (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 $0.06 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 approximately 5,920,000 shares of Common Stock during 1996. 14
AS OF DECEMBER 31, AS OF ---------------------------------------------------------- SEPTEMBER 30, 1991 1992 1993 1994 1995 1996 -------- -------- -------- ---------- ---------- ------------- (IN THOUSANDS) 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 17 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, 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 15 18 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: - --------------- (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 16
NINE MONTHS ENDED YEAR ENDED DECEMBER 31, SEPTEMBER 30, ------------------------ ------------- 1993 1994 1995 1995 1996 ------ ------ ------ ----- ----- 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 3.1 3.1 Other expense (income), net.................. 0.7 0.3 0.4 0.4 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% ===== ===== ===== ===== ===== 19 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 17 20 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 18 21 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 19 22 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 20 23 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 21 24 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, 22 25 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 23 26 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 24 27 principles. The operating results for any interim period are not necessarily indicative of results for any future interim period or the entire fiscal year. - --------------- (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 25
THREE MONTHS ENDED --------------------------------------------------- MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 -------- -------- ------------ ----------- (IN THOUSANDS, EXCEPT PER SHARE DATA) 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) 28 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 Argentina Acquisition and 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 borrowings 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. 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 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 26 29 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 27 30 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. 28 31 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 29 32 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. 30 33 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, selling complementary non-tractor 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 1,750 of the Company's approximately 2,800 dealers in North America carry two or more AGCO brands. Furthermore, 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 31 34 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 also 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. 32 35 Agricredit Joint Venture. 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. Under the Agricredit Joint Venture, Rabobank has a 51% interest in Agricredit and the Company retained a 49% interest in Agricredit. 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 "-- Retail Financing/Joint Ventures." New Credit Facility. On January 14, 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 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 33 36 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 1,750 of the Company's approximately 2,800 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. 34 37 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 tractor 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 530 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 35 38 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 2,800 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. 36 39 MANAGEMENT The following table sets forth certain information with respect to the executive officers and directors of the Company: - --------------- (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 Nominating Committee of the Board of Directors of the Company. (4) Member of the Succession Planning Committee of the Board of Directors of the Company. (5) Member of the Strategic 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. 37
NAME AGE POSITION ---- --- -------- Robert J. Ratliff(1)(5)................ 65 Chairman of the Board of Directors J-P Richard(1)(2)(5)................... 53 President, Chief Executive Officer and Director John M. Shumejda....................... 51 Executive Vice President, Technology and Manufacturing James M. Seaver........................ 50 Executive Vice President, Sales and Marketing Norman L. Boyd......................... 53 Vice President, General Manager -- Europe/Middle East/Africa Distribution Judith A. Czelusniak................... 39 Vice President -- Corporate Relations Larry W. Gutekunst..................... 59 Vice President -- Global Engineering Daniel H. Hazelton..................... 58 Vice President -- Sales, North America Aaron D. Jones......................... 51 Vice President -- Global Manufacturing/Purchasing Stephen D. Lupton...................... 52 Vice President -- Legal Services, International John G. Murdoch........................ 51 Vice President, General Manager -- North America Distribution William A. Nix III..................... 45 Vice President -- Treasurer Chris E. Perkins....................... 34 Vice President and Chief Financial Officer Bruce W. Plagman....................... 45 Vice President, General Manager -- North America Supply Dexter E. Schaible..................... 47 Vice President -- Global 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, North America Henry J. Claycamp(1)(3)(4)............. 65 Director William H. Fike(3)(5)(6)............... 60 Director Gerald B. Johanneson(1)(4)(5).......... 62 Director Richard P. Johnston(1)(4)(6)........... 66 Director J. Patrick Kaine....................... 71 Director Alan S. McDowell(6)(7)................. 48 Director Charles S. Mechem, Jr.(3)(7)........... 66 Director Hamilton Robinson, Jr.(1)(4)(7)........ 62 Director 40 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. 38 41 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 39 42 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 40 43 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. 41 44 UNDERWRITING Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), Donaldson, Lufkin & Jenrette Securities Corporation and Morgan Stanley & Co. Incorporated are acting as representatives (the "U.S. Representatives") of each of the Underwriters named below (the U.S. "Underwriters"). Subject to the terms and conditions set forth in a purchase agreement (the "U.S. Purchase Agreement") among the Company, the Selling Stockholder and the U.S. Underwriters, the Company for its own account and the Selling Stockholder severally have agreed to sell to the U.S. Underwriters, and each of the U.S. 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. The Company and the Selling Stockholder have also entered into an international purchase agreement (the "International Purchase Agreement") with certain underwriters outside the United States and Canada (the "International Managers" and together with the U.S. Underwriters, the "Underwriters") for whom Merrill Lynch International, Donaldson, Lufkin & Jenrette Securities Corporation and Morgan Stanley & Co. International are acting as lead managers (the "Lead Managers"). Subject to the terms and conditions set forth in the International Purchase Agreement, and concurrently with the sale of 3,760,000 shares of Common Stock to the U.S. Underwriters pursuant to the U.S. Purchase Agreement, the Company for its own account and the Selling Stockholder severally have agreed to sell to the International Managers, and each of the International Managers severally have agreed to purchase from the Company and the Selling Stockholder, an aggregate of 940,000 shares of Common Stock. The initial public offering price per share and the total underwriting discount per share of Common Stock are identical under the U.S. Purchase Agreement and the International Purchase Agreement. In the U.S. Purchase Agreement and the International Purchase Agreement, the several U.S. Underwriters and the several International Managers, respectively, have agreed, subject to the terms and conditions set forth therein, to purchase all of the shares of Common Stock being sold pursuant to each 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 U.S. Underwriters or International Managers (as the case may be) may be increased. The closings with respect to the sale of shares of Common Stock to be purchased by the U.S. Underwriters and the International Managers are conditioned upon one another. The U.S. Representatives have advised the Company and the Selling Stockholder that the U.S. 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 U.S. 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 U.S. Underwriters, exercisable for 30 days after the date of this Prospectus, to purchase up to an aggregate of 540,000 additional shares of Common Stock at the public 42
NUMBER OF UNDERWRITERS SHARES ------------ --------- Merrill Lynch, Pierce, Fenner & Smith Incorporated................................... Donaldson, Lufkin & Jenrette Securities Corporation......... Morgan Stanley & Co. Incorporated........................... --------- Total......................................... 3,760,000 ========= 45 offering price set forth on the cover page of this Prospectus, less the underwriting discount. The U.S. 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 U.S. Underwriters exercise this option, each U.S. Underwriter will be obligated, subject to certain conditions, to purchase a number of additional shares of Common Stock proportionate to such U.S. Underwriter's initial amount reflected in the foregoing table. The Company also has granted an option to the International Managers, exercisable for 30 days after the date of this Prospectus, to purchase up to an aggregate of 135,000 additional shares of Common Stock to cover over-allotments, if any, on terms similar to those granted to the U.S. Underwriters. 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 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 U.S. Underwriters and the International Managers have entered into an intersyndicate agreement (the "Intersyndicate Agreement") that provides for the coordination of their activities. Pursuant to the Intersyndicate Agreement, the U.S. Underwriters and the International Managers are permitted to sell shares of Common Stock to each other for purposes of resale at the initial public offering price, less an amount not greater than the selling concession. Under the terms of the Intersyndicate Agreement, the U.S. Underwriters and any dealer to whom they sell shares of Common Stock will not offer to sell or sell shares of Common Stock to persons who are non-U.S. or non-Canadian persons or to persons they believe intend to resell to persons who are non-U.S. or non-Canadian persons, and the International Managers and any dealer to whom they sell shares of Common Stock will not offer to sell or sell shares of Common Stock to U.S. persons or to Canadian persons or to persons they believe intend to resell to United States or Canadian persons, except in the case of transactions pursuant to the Intersyndicate Agreement. The Company and the Selling Stockholder have agreed to indemnify the U.S. Underwriters and International Managers 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 and the Selling Stockholder 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 43 46 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 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. 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. 44 47 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS F-1
PAGE ---- 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 48 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 49 (This page intentionally left blank) F-3 50 AGCO CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS, EXCEPT PER SHARE DATA) F-4
CONSOLIDATED ---------------------------------------------- YEAR ENDED DECEMBER 31, ---------------------------------------------- 1995 1994 1993 ---------- ---------- -------- 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 ========== ========== ======== 51 AGCO CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME -- (CONTINUED) (IN THOUSANDS, EXCEPT PER SHARE DATA) See accompanying notes to consolidated financial statements. F-5
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 ---------- ---------- -------- ----------------- -------------------- $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 ========== ========== ======== ======= ======= 52 AGCO CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA) F-6
CONSOLIDATED ------------------------------- DECEMBER 31, DECEMBER 31, 1995 1994 ------------ ------------ 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 ========== ========== 53 AGCO CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS -- (CONTINUED) (IN THOUSANDS, EXCEPT SHARE DATA) See accompanying notes to consolidated financial statements. F-7
EQUIPMENT OPERATIONS FINANCE COMPANY ------------------------------- ------------------------------- DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 1995 1994 1995 1994 ------------ ------------ ------------ ------------ $ 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 ========== ========== ======== ======== 54 AGCO CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (IN THOUSANDS, EXCEPT SHARE DATA) F-8
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.................................. 55 AGCO CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY -- (CONTINUED) (IN THOUSANDS, EXCEPT SHARE DATA) See accompanying notes to consolidated financial statements. F-9
ADDITIONAL PREFERRED STOCK COMMON STOCK ADDITIONAL MINIMUM CUMULATIVE --------------- ------------ PAID-IN RETAINED UNEARNED PENSION TRANSLATION SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS COMPENSATION LIABILITY ADJUSTMENT TOTAL --------- ------ ---------- ------ ---------- -------- ------------ ---------- ----------- -------- -- $ -- 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 ========= ==== ========== ==== ======== ======== ======== ======= ======= ======== 56 AGCO CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) F-10
CONSOLIDATED --------------------------------------------- YEAR ENDED DECEMBER 31, --------------------------------------------- 1995 1994 1993 ----------- ----------- --------- 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 =========== =========== ========= 57 AGCO CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED) (IN THOUSANDS) See accompanying notes to consolidated financial statements. F-11
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 --------- --------- --------- ----------------- -------------------- $ 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 ========= ========= ========= ========== ========= 58 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 59 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): 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):
1995 1994 ------- ------- Sales incentive discounts................................... $39,433 $35,074 Doubtful accounts........................................... 23,114 24,990 ------- ------- $62,547 $60,064 ======= ======= F-13
1995 1994 -------- -------- 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 ======== ======== 60 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): Intangible Assets Intangible assets at December 31, 1995 and 1994 consisted of the following (in thousands):
1995 1994 -------- -------- 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 ======== ======== 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
1995 1994 -------- -------- 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 ======== ======== 61 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): 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
1995 1994 -------- -------- 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 ======== ======== 62 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 63 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 64 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. - ------------ (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
YEAR ENDED DECEMBER 31, 1994 ----------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Net sales and finance income................................ $1,819,879 Net income.................................................. 126,498 Net income per common share -- fully diluted(1)............. 2.28 65 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): At December 31, 1995, contractual maturities of gross credit receivables were as follows (in thousands):
1995 1994 -------- -------- 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 ======== ======== 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
1995 -------------- 1996........................................................ $243,873 1997........................................................ 191,572 1998........................................................ 139,462 1999........................................................ 91,191 2000........................................................ 40,713 Thereafter.................................................. 7,596 -------- $714,407 ======== 66 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): 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):
1995 1994 ------- ------- 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 ======= ======= The Company's equity in net earnings of unconsolidated affiliates for 1995 and 1994 were as follows (in thousands):
1995 1994 ------- ------- 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 ======= ======= 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
1995 1994 ------ ------ Massey Ferguson Finance..................................... $3,459 $1,370 Other....................................................... 999 1,845 ------ ------ $4,458 $3,215 ====== ====== 67 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): 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):
1995 1994 1993 -------- -------- ------- 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 ======== ======== ======= 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):
1995 1994 1993 ------- -------- ------- 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) $ -- ======= ======== ======= 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
1995 1994 1993 ------- -------- -------- 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) $ -- ======= ======== ======== 68 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): 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
1995 1994 -------- -------- 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 ======== ======== 69 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): 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):
1995 1994 -------- -------- 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 ======== ======== F-23
1996........................................................ $361,376 1997........................................................ 119,500 1998........................................................ 33,500 1999........................................................ 378,336 -------- $892,712 ======== 70 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): F-24
1995 1994 1993 ------ ------ ------ 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 ====== ====== ====== 71 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: The following table sets forth the United States defined benefit plans' funded status at December 31, 1995 and 1994:
1995 1994 1993 ------ ------ ------ 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 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):
1995 1994 ---------------- ---------------- HOURLY SALARY HOURLY SALARY ------- ------ ------- ------ (IN THOUSANDS) 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 ======= ====== ======= ====== The following assumptions were used to measure the projected benefit obligation for the U.K. Plans:
1995 1994 -------- ------- 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 ======== ======= F-25
1995 1994 ----- ----- 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 72 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): 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):
1995 1994 -------- -------- 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 ======== ======== F-26
1995 1994 1993 ------ ------ ------ 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 ====== ====== ====== 73 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): 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
1995 1994 ---------------- ---------------- HOURLY SALARY HOURLY SALARY ------- ------ ------- ------ 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 ======= ====== ======= ====== 74 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 75 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: 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
1995 1994 -------- --------- 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 ======== ========= 76 AGCO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Stock option transactions during the three years ended December 31, 1995 were as follows: 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):
1995 1994 1993 ------------ ------------ ------------ 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 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
1996........................................................ $ 12,243 1997........................................................ 9,553 1998........................................................ 5,798 1999........................................................ 4,197 2000........................................................ 2,423 Thereafter.................................................. 6,565 -------------- $ 40,779 ============== 77 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 Year Ended December 31, 1994
UNITED STATES AND CANADA INTERNATIONAL CONSOLIDATED(1) ---------- ------------- --------------- 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 ========== ========== ========== - --------------- (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
UNITED STATES AND CANADA INTERNATIONAL CONSOLIDATED(1) ---------- ------------- --------------- 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 ========== ======== ========== 78 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): 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
1995 1994 1993 ---------- ---------- -------- 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 ========== ========== ======== 79 (This page intentionally left blank) F-33 80 AGCO CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA) F-34
CONSOLIDATED -------------------------------- SEPTEMBER 30, DECEMBER 31, 1996 1995 ------------- ------------ (UNAUDITED) 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 ========== ========== 81 AGCO CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS -- (CONTINUED) (IN THOUSANDS, EXCEPT SHARE DATA) See accompanying notes to condensed consolidated financial statements. F-35
EQUIPMENT OPERATIONS FINANCE COMPANY -------------------------------- -------------------------------- SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30, DECEMBER 31, 1996 1995 1996 1995 ------------- ------------ ------------- ------------ (UNAUDITED) (UNAUDITED) $ 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 ========== ========== ======== ======== 82 AGCO CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME F-36
CONSOLIDATED ----------------------------- NINE MONTHS ENDED SEPTEMBER 30, ----------------------------- 1996 1995 ---------- ---------- (UNAUDITED AND IN THOUSANDS, EXCEPT PER SHARE DATA) 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 ========== ========== 83 AGCO CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME -- (CONTINUED) See accompanying notes to condensed consolidated financial statements. F-37
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) $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 ========== ========== ======= ======= 84 AGCO CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS F-38
CONSOLIDATED ------------------------ NINE MONTHS ENDED SEPTEMBER 30, ------------------------ 1996 1995 -------- --------- (UNAUDITED AND IN THOUSANDS) 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 ======== ========= 85 AGCO CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED) See accompanying notes to condensed consolidated financial statements. F-39
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) $ 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 ========= ========= ======== ========= 86 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. - --------------- (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
NINE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, 1996 SEPTEMBER 30, 1995 ------------------------ ------------------------ (IN THOUSANDS, EXCEPT PER SHARE DATA) 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 87 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): 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
SEPTEMBER 30, DECEMBER 31, 1996 1995 ------------- ------------ 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 ========== ======== 88 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 89 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): 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
SEPTEMBER 30, DECEMBER 31, 1996 1995 ------------- ------------ 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 ======== ======== 90 ====================================================== 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 ====================================================== ====================================================== 4,700,000 SHARES [AGCO LOGO] AGCO CORPORATION COMMON STOCK --------------------- PROSPECTUS --------------------- MERRILL LYNCH & CO. DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION MORGAN STANLEY & CO. I N C O R P O R A T E D , 1997 ======================================================
PAGE ---- PROSPECTUS Prospectus Summary.................... 3 Risk Factors.......................... 9 Price Range of Common Stock and Dividends........................... 11 Use of Proceeds....................... 11 Capitalization........................ 12 Selected Historical Financial Data.... 13 Management's Discussion and Analysis of Financial Condition and Results of Operations....................... 15 Business.............................. 31 Management............................ 37 Selling Stockholder................... 38 Description of Capital Stock.......... 38 Certain United States Federal Tax Considerations for Non-United States Holders............................. 39 Underwriting.......................... 42 Legal Matters......................... 43 Independent Auditors.................. 43 Available Information................. 44 Incorporation of Certain Documents by Reference........................... 44 Index to Consolidated Financial Statements.......................... F-1 91 [ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS] 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 FEBRUARY 7, 1997 PROSPECTUS 4,700,000 SHARES [AGCO LOGO] 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. Of the 4,700,000 shares being offered hereby, 940,000 are being offered for sale initially outside of the United States and Canada by the International Managers and 3,760,000 are being offered for sale initially in a concurrent offering in the United States and Canada by the U.S. Underwriters. The initial offering price and the underwriting discount per share will be identical for both offerings. See "Underwriting." The Common Stock is listed on the New York Stock Exchange (the "NYSE") under the symbol "AG." On February 5, 1997, the last reported sale price of the Common Stock on the NYSE was $28 1/2. See "Price Range of Common Stock and Dividend History." ------------------------ SEE "RISK FACTORS" BEGINNING ON PAGE 9, 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. (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 International Managers and the U.S. Underwriters 30-day options to purchase up to an additional 135,000 shares and 540,000 shares of Common Stock, respectively, solely to cover over-allotments, if any. If such options are 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 INTERNATIONAL DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION MORGAN STANLEY & CO. INTERNATIONAL ------------------------ The date of this Prospectus is , 1997.
================================================================================================================== PRICE TO UNDERWRITING PROCEEDS TO PROCEEDS TO PUBLIC DISCOUNT(1) COMPANY(2) SELLING STOCKHOLDER - ------------------------------------------------------------------------------------------------------------------ Per share......................... $ $ $ $ - ------------------------------------------------------------------------------------------------------------------ Total(3).......................... $ $ $ $ ================================================================================================================== 92 [ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS] UNDERWRITING Merrill Lynch International ("Merrill Lynch"), Donaldson, Lufkin & Jenrette Securities Corporation and Morgan Stanley & Co. International are acting as representatives (the "International Representatives") of each of the International Managers named below (the "International Managers"). Subject to the terms and conditions set forth in an international purchase agreement (the "International Purchase Agreement") among the Company, the Selling Stockholder and the International Managers, the Company for its own account and the Selling Stockholder severally have agreed to sell to the International Managers, and each of the International Managers 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. The Company and the Selling Stockholder have also entered into a U.S. purchase agreement (the "U.S. Purchase Agreement") with certain underwriters in the United States and Canada (the "U.S. Underwriters" and together with the International Managers, the "Underwriters") for whom Merrill Lynch, Pierce, Fenner & Smith Incorporated, Donaldson, Lufkin & Jenrette Securities Corporation and Morgan Stanley & Co. Incorporated are acting as representatives (the "U.S. Representatives"). Subject to the terms and conditions set forth in the U.S. Purchase Agreement, and concurrently with the sale of 940,000 shares of Common Stock to the International Managers pursuant to the International Purchase Agreement, the Company for its own account and the Selling Stockholder have agreed to sell to the U.S. Underwriters, and each of the U.S. Underwriters severally have agreed to purchase from the Company and the Selling Stockholder, an aggregate of 3,760,000 shares of Common Stock. The initial public offering price per share and the total underwriting discount per share of Common Stock are identical under the International Purchase Agreement and the U.S. Purchase Agreement. In the International Purchase Agreement and the U.S. Purchase Agreement, the several International Managers and the several U.S. Underwriters, respectively, have agreed, subject to the terms and conditions set forth therein, to purchase all of the shares of Common Stock being sold pursuant to each 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 International Managers or U.S. Underwriters (as the case may be) may be increased. The closings with respect to the sale of shares of Common Stock to be purchased by the International Managers and the U.S. Underwriters are conditioned upon one another. The International Representatives have advised the Company and the Selling Stockholder that the International Managers 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 International Managers 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 International Managers, exercisable for 30 days after the date of this Prospectus, to purchase up to an aggregate of 135,000 additional shares of Common Stock at the public offering price set forth on the cover page of this Prospectus, less the underwriting discount. The International 42
NUMBER OF UNDERWRITERS SHARES ------------ --------- Merrill Lynch International................................. Donaldson, Lufkin & Jenrette Securities Corporation......... Morgan Stanley & Co. International.......................... ------- Total......................................... 940,000 ======= 93 [ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS] Managers 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 International Managers exercise this option, each International Manager will be obligated, subject to certain conditions, to purchase a number of additional shares of Common Stock proportionate to such International Manager's initial amount reflected in the foregoing table. The Company also has granted an option to the U.S. Underwriters, exercisable for 30 days after the date of this Prospectus, to purchase up to an aggregate of 540,000 additional shares of Common Stock to cover over-allotments, if any, on terms similar to those granted to the International Managers. 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 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 International Managers and the U.S. Underwriters have entered into an intersyndicate agreement (the "Intersyndicate Agreement") that provides for the coordination of their activities. Pursuant to the Intersyndicate Agreement, the International Managers and the U.S. Underwriters are permitted to sell shares of Common Stock to each other for purposes of resale at the initial public offering price, less an amount not greater than the selling concession. Under the terms of the Intersyndicate Agreement, the U.S. Underwriters and any dealer to whom they sell shares of Common Stock will not offer to sell or sell shares of Common Stock to persons who are non-U.S. or non-Canadian persons or to persons they believe intend to resell to persons who are non-U.S. or non-Canadian persons, and the International Managers and any dealer to whom they sell shares of Common Stock will not offer to sell or sell shares of Common Stock to U.S. persons or to Canadian persons or to persons they believe intend to resell to United States or Canadian persons, except in the case of transactions pursuant to the Intersyndicate Agreement. The Company and the Selling Stockholder have agreed to indemnify the International Managers and the U.S. Underwriters against certain liabilities, including liabilities under the Securities Act. Each International Manager has agreed that (i) it has not offered or sold and, prior to the expiration of the period of six months from the Closing Date, will not offer or sell any shares of Common Stock to persons in the United Kingdom, except to persons whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of their businesses or otherwise in circumstances which do not constitute an offer to the public in the United Kingdom within the meaning of the Public Offers of Securities Regulations 1995; (ii) it has complied and will comply with all applicable provisions of the Financial Services Act 1986 with respect to anything done by it in relation to the Common Stock in, from or otherwise involving the United Kingdom; and (iii) it has only issued or passed on and will only issue or pass on in the United Kingdom any document received by it in connection with the issuance of Common Stock to a person who is of a kind described in Article 11(3) of the Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order 1995 or is a person to whom such document may otherwise lawfully be issued or passed on. No action has been or will be taken in any jurisdiction (except in the United States) that would permit a public offering of the shares of Common Stock, or the possession, circulation or distribution of this Prospectus or any other material relating to the Company, the Selling Stockholder or shares of Common Stock in any jurisdiction where action for that purpose is required. Accordingly, the shares of Common Stock may not be offered or sold, directly or indirectly, and neither this Prospectus nor any other offering material or advertisements in connection with the shares of Common Stock may be distributed or published, in or from 43 94 [ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS] any country or jurisdiction except in compliance with any applicable rules and regulations of any such country or jurisdiction. Purchasers of the shares offered hereby may be required to pay stamp taxes and other charges in accordance with the laws and practices of the country of purchase in addition to the offering price set forth on the cover page hereof. LEGAL MATTERS The legality of the shares of Common Stock offered hereby will be passed upon for the Company and the Selling Stockholder 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 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. 44 95 [ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS] 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. 45 96 [ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS] ====================================================== 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. IN THE PROSPECTUS, REFERENCES TO "DOLLARS" AND "$" ARE TO UNITED STATES DOLLARS. --------------------- TABLE OF CONTENTS ====================================================== ====================================================== 4,700,000 SHARES (AGCO LOGO) AGCO CORPORATION COMMON STOCK --------------------- PROSPECTUS --------------------- MERRILL LYNCH INTERNATIONAL DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION MORGAN STANLEY & CO. I N T E R N A T I O N A L , 1997 ======================================================
PAGE ---- PROSPECTUS Prospectus Summary.................... 3 Risk Factors.......................... 9 Price Range of Common Stock and Dividends........................... 11 Use of Proceeds....................... 11 Capitalization........................ 12 Selected Historical Financial Data.... 13 Management's Discussion and Analysis of Financial Condition and Results of Operations....................... 15 Business.............................. 31 Management............................ 37 Selling Stockholder................... 38 Description of Capital Stock.......... 38 Certain United States Federal Tax Considerations for Non-United States Holders............................. 39 Underwriting.......................... 42 Legal Matters......................... 44 Independent Auditors.................. 44 Available Information................. 44 Incorporation of Certain Documents by Reference........................... 45 Index to Consolidated Financial Statements.......................... F-1 97 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. 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
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 ======== 98 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 99 (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-3 100 Section 6 of the U.S. and International Purchase Agreements filed as Exhibits 1.1 and 1.2 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: - --------------- * Previously filed. ** 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
EXHIBIT NUMBER NUMBER DESCRIPTION - ------- ------------------ 1.1** -- U.S. Purchase Agreement 1.2** -- International 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.101 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 6th day of February, 1997. AGCO CORPORATION By: /s/ CHRIS E. PERKINS ------------------------------------ Chris E. Perkins Vice President and Chief Financial Officer 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 February 6, 1997. II-5
SIGNATURE TITLE --------- ----- * Chairman of the Board - ----------------------------------------------------- Robert J. Ratliff * President and Chief Executive Officer and - ----------------------------------------------------- Director (Principal Executive Officer) J-P Richard /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 * Director - ----------------------------------------------------- Gerald B. Johanneson * Director - ----------------------------------------------------- Richard P. Johnston * Director - ----------------------------------------------------- J. Patrick Kaine * Director - ----------------------------------------------------- Alan S. McDowell102 *By: /s/ CHRIS E. PERKINS ------------------------------- Chris E. Perkins Attorney-in-Fact II-6
SIGNATURE TITLE --------- ----- Director * - ----------------------------------------------------- Charles S. Mechem, Jr. * Director - ----------------------------------------------------- Hamilton Robinson, Jr.103 SCHEDULE II AGCO CORPORATION AND SUBSIDIARIES SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
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) 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 ======= ======= ======= ======= ======== =======
1 EXHIBIT 5.1 [LETTERHEAD OF KING & SPALDING] (404) 572-4600 (404) 572-5100 February 7, 1997 AGCO Corporation 4830 River Green Parkway Duluth, Georgia 30136 Re: AGCO Corporation -- Registration Statement on Form S-3 relating to 5,375,000 shares of Common Stock Ladies and Gentlemen: We have acted as counsel for AGCO Corporation, a Delaware corporation (the "Company"), in connection with the preparation of a Registration Statement on Form S-3 (the "Registration Statement") filed with the Securities and Exchange Commission under the Securities Act of 1933, as amended, relating to the proposed public offering and sale of up to (i) 4,500,000 shares of the Company's Common Stock, par value $.01 per share (the "Company Shares") by the Company, and up to 200,000 shares of the Company's Common Stock, par value $.01 per share (the "Selling Stockholder Shares") by a certain stockholder of the Company and (ii) 675,000 shares of the Company's Common Stock, par value $.01 per share, subject to an overallotment option (the "Option Shares" and together with the Company Shares and the Selling Stockholder Shares, the "Shares"), pursuant to (i) the U.S. Purchase Agreement (the "U.S. Purchase Agreement") to be entered into among the Company and Merrill Lynch, Pierce, Fenner & Smith Incorporated , Donaldson, Lufkin & Jenrette Securities Corporation and Morgan Stanley & Co. Incorporated, as representatives of the several underwriters and (ii) the International Purchase Agreement (the "International Purchase Agreement" and together with the U.S. Purchase Agreement, the "Purchase Agreements") to be entered into among the Company and Merrill Lynch International, Donaldson, Lufkin & Jenrette Securities Corporation and Morgan Stanley & Co. International, as representatives of the international managers. In connection with this opinion, we have examined and relied upon such records, documents, certificates and other instruments as in our judgment are necessary or appropriate to form the basis for the opinions hereinafter set forth. In all such examinations, we have assumed the genuineness of signatures on original documents and the conformity to such original documents of all copies submitted to us as certified, conformed or photographic copies, and as to certificates of public officials, we have assumed the same to have been properly given and to be accurate. As to matters of fact material to this opinion, we have relied upon statements and representations of representatives of the Company and of public officials. 2 AGCO Corporation February 7, 1997 Page 2 - ------------------ The opinions expressed herein are limited in all respects to the Delaware General Corporation Law, and no opinion is expressed with respect to the laws of any other jurisdiction or any effect which such laws may have on the opinions expressed herein. This opinion is limited to the matters stated herein, and no opinion is implied or may be inferred beyond the matters expressly stated herein. Based upon and subject to the foregoing, we are of the opinion that: (i) Upon the issuance of the Company Shares and the Option Shares against payment therefore as provided in the Purchase Agreements, the Company Shares and the Option Shares will be duly authorized, validly issued, fully paid and nonassessable. (ii) The Selling Stockholder Shares are duly authorized, validly issued, fully paid and nonassessable. This opinion is given as of the date hereof, and we assume no obligation to advise you after the date hereof of facts or circumstances that come to our attention or changes in law that occur which could affect the opinions contained herein. This letter is being rendered solely for the benefit of the Company in connection with the matters addressed herein. This opinion may not be furnished to or relied upon by any person or entity for any purpose without our prior written consent. We hereby consent to the filing of this opinion as an Exhibit to the Registration Statement and to the reference to us under the caption "Legal Matters" in the Prospectus that is included in the Registration Statement. Very truly yours, KING & SPALDING
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 February 5, 1997
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 February 6, 1997