Table of Contents
SECURITIES AND EXCHANGE COMMISSION
FORM 8-K
Current Report
Dated March 24, 2004
of
AGCO CORPORATION
A Delaware Corporation
IRS Employer Identification No. 58-1960019
SEC File Number 1-12930
4205 River Green Parkway
Duluth, Georgia 30096
(770) 813-9200
Table of Contents
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Financial Statements of Business Acquired
The following audited financial statements of Valtra are filed herewith as Exhibit 99.1 to this Current Report on Form 8-K:
| (i) | Report of Independent Accountants | |||
| (ii) | Combined Statements of Operations for the year ended December 31, 2001, the periods from January 1, 2002 to June 30, 2002 (Predecessor) and from July 1, 2002 to December 31, 2002 (Successor) and the year ended December 31, 2003 | |||
| (iii) | Combined Balance Sheets as of December 31, 2003 and 2002 and June 30, 2002 | |||
| (iv) | Combined Statements of Cash Flows for the year ended December 31, 2001, the periods from January 1, 2002 to June 30, 2002 (Predecessor) and from July 1, 2002 to December 31, 2002 (Successor) and the year ended December 31, 2003 | |||
| (v) | Notes to Combined Financial Statements | |||
(b) Pro Forma Financial Information
The following pro forma financial information is filed herewith as Exhibit 99.3 to this Current Report on Form 8-K:
| (i) | Unaudited Pro Forma Combined Statement of Operations for the year ended December 31, 2003, together with notes thereto. | |||
| (ii) | Unaudited Pro Forma Combined Balance Sheet as of December 31, 2003, together with notes thereto. | |||
(c) Exhibits
| 99.1 | Audited Financial Statements of Valtra as of December 31, 2003 and 2002 and June 30, 2002 and for the year ended December 31, 2001, the periods from January 1, 2002 to June 30, 2002 (Predecessor) and from July 1, 2002 to December 31, 2002 (Successor) and the year ended December 31, 2003 and Report of Independent Accountants thereon. | |||
| 99.2 | Management’s Discussion and Analysis of Financial Condition and Results of Operations of the Valtra Group | |||
| 99.3 | Unaudited Pro Forma Combined Financial Information of AGCO Corporation and its subsidiaries. | |||
| 99.4 | Consent of KPMG WIDERI OY AB | |||
Table of Contents
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| AGCO Corporation |
||||
| By: | /s/ Andrew H. Beck | |||
| Andrew H. Beck | ||||
| Senior Vice President and Chief Financial Officer | ||||
Dated: March 24, 2004
Table of Contents
Exhibit Index
| Exhibit No. |
Description |
|
99.1
|
Audited Financial Statements of Valtra as of December 31, 2003 and 2002 and June 30, 2002, and for the year ended December 31, 2001, the periods from January 1, 2002 to June 30, 2002 (Predecessor) and from July 1, 2002 to December 31, 2002 (Successor) and the year ended December 31, 2003 and Report of Independent Accountants thereon | |
99.2
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations of the Valtra Group | |
99.3
|
Unaudited Pro Forma Combined Financial Information of AGCO Corporation and its subsidiaries | |
99.4
|
Consent of KPMG WIDERI OY AB |
EXHIBIT 99.1 REPORT OF INDEPENDENT ACCOUNTANTS TO THE BOARD OF DIRECTORS OF VALTRA INC. We have audited the combined balance sheets of Valtra Group as of June 30, 2002, December 31, 2002 and 2003 and the related combined statements of operations and combined statements of cash flows for the year ended December 31, 2001 and the periods from January 1, 2002 to June 30, 2002 (Predecessor) and from July 1, 2002 to December 31, 2002 (Successor) and for the year ended December 31, 2003. These combined financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these combined financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in Finland and in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. An audit also 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 combined financial statements referred to above present fairly, in all material respects, the combined financial position of Valtra Group as of June 30, 2002, December 31, 2002 and 2003 and the combined results of their operations and their cash flows for the year ended December 31, 2001 and the periods from January 1, 2002 to June 30, 2002 (Predecessor) and from July 1, 2002 to December 31, 2002 (Successor) and for the year ended December 31, 2003 in conformity with accounting principles generally accepted in Finland. Accounting principles generally accepted in Finland vary in certain significant respects from accounting principles generally accepted in the United States of America. Information relating to the nature and effect of such differences is presented in Note 18 to the combined financial statements. Helsinki, Finland 12 March, 2004 KPMG WIDERI OY AB /s/ Solveig Tornroos-Huhtamaki - -------------------------------- Solveig Tornroos-Huhtamaki Authorized Public Accountant
VALTRA GROUP 1 COMBINED STATEMENTS OF OPERATIONS (AMOUNTS IN MILLIONS OF EURO) SUCCESSOR PREDECESSOR ---------------------------------------------------------------- YEAR ENDED PERIOD FROM JULY 1 | PERIOD FROM YEAR ENDED DECEMBER 31, TO DECEMBER 31, | JANUARY 1 TO DECEMBER 31, NOTES 2003 2002 | JUNE 30, 2002 2001 ----------------------------------------------------------------------- | Net sales 2 852,4 379,4 | 382,3 685,5 Cost of goods sold (695,4) (308,9) | (315,4) (563,3) | Gross profit 157,0 70,5 | 66,9 122,2 | Selling and marketing expenses (64,7) (31,2) | (30,7) (63,3) Research and development expenses (17,0) (5,4) | (6,8) (13,3) Administration expenses (19,5) (9,6) | (9,6) (19,0) Other operating income 5 4,0 1,2 | 2,1 1,6 Other operating expenses 5 (3,5) (1,3) | (1,5) (2,3) --------------------------------------------------------------- Total (100,7) (46,3) | (46,5) (96,3) --------------------------------------------------------------- | Operating profit 56,3 24,2 | 20,4 25,9 Equity in income (loss) of associated companies 0,1 0,1 | (0,1) (0,3) | Financial items | Other interest income 3,9 0,4 | 0,3 0,9 Interest expenses (6,2) (2,6) | (2,3) (7,2) Other financial items 6 (1,7) (0,2) | (1,0) (1,0) --------------------------------------------------------------- Total (4,0) (2,4) | (3,0) (7,3) --------------------------------------------------------------- | Profit after financial items 52,4 21,9 | 17,3 18,3 | Extraordinary items Group contributions (paid)/received 110,5 (24,7) | - (13,6) Profit before appropriations and taxes 162,9 (2,8) | 17,3 4,7 Change in deferred taxes 7 - (1,4) | 0,2 4,8 Direct taxes 7 (17,0) (2,2) | (4,2) (4,8) --------------------------------------------------------------- NET INCOME/(LOSS) FOR THE PERIOD 145,9 (6,4) | 13,3 4,7 --------------------------------------------------------------- See accompanying notes to the combined financial statements.
VALTRA GROUP 2 COMBINED BALANCE SHEETS (AMOUNTS IN MILLIONS OF EURO) SUCCESSOR PREDECESSOR ----------------------------------------------------- AT AT | AT DECEMBER 31, DECEMBER 31, | JUNE 30, NOTES 2003 2002 | 2002 ------------------------------------------------------------- | ASSETS | FIXED ASSETS AND OTHER LONG-TERM INVESTMENTS | Intangible assets | Other capitalised expenditure 8 1,7 1,2 | 1,6 | Tangible assets | Land 8 1,4 1,4 | 2,2 Buildings and constructions 8 23,5 20,1 | 20,1 Machinery and equipment 8 37,4 30,3 | 28,3 Other tangible assets 8 0,1 0,1 | 0,1 Advance payments and construction in progress 8 5,2 5,0 | 6,1 --------------------------------------------------- Total 67,6 56,9 | 56,8 --------------------------------------------------- | Investments Investments in equity method investees 8,9 1,6 1,6 | 1,5 Other shares and participations 8,9 0,1 0,1 | 0,3 Long-term loan receivables 10 0,3 1,6 | 1,0 --------------------------------------------------- Total 2,0 3,3 | 2,8 --------------------------------------------------- | Total fixed assets and long-term investments 71,3 61,4 | 61,2 --------------------------------------------------- | CURRENT ASSETS | Inventories | Materials and supplies 42,4 32,6 | 30,5 Work in progress 5,7 5,6 | 11,1 Finished goods 70,2 60,7 | 57,8 --------------------------------------------------- Total 118,3 98,9 | 99,4 --------------------------------------------------- | Receivables | Accounts receivable 88,2 76,3 | 89,4 Loan receivables 10 2,4 74,3 | - Other receivables 10 110,7 4,0 | - Deferred tax assets 7 6,2 6,5 | 7,9 Prepaid expenses and accrued income 10 21,5 18,1 | 21,9 --------------------------------------------------- Total 229,0 179,2 | 119,2 --------------------------------------------------- | Cash and bank balances 126,4 30,3 | 18,2 --------------------------------------------------- | Total current assets 473,7 308,4 | 236,8 | TOTAL ASSETS 545,0 369,8 | 298,0 =================================================== See accompanying notes to the combined financial statements.
VALTRA GROUP 3 COMBINED BALANCE SHEETS (AMOUNTS IN MILLIONS OF EURO) SUCCESSOR PREDECESSOR ----------------------------------------------- AT AT | AT DECEMBER 31, DECEMBER 31, | JUNE 30, NOTES 2003 2002 | 2002 ------------------------------------------------------- | SHAREHOLDERS' EQUITY AND | LIABILITIES | Shareholders' equity | Share capital 11 43,6 43,6 | 43,6 Share premium account 11 27,0 54,7 | 54,7 Retained earnings (deficit) 11 (25,8) (44,7) | (48,3) Net income for the period 145,9 (6,4) | 13,3 --------------------------------------------- Total shareholders' equity 190,7 47,2 | 63,3 --------------------------------------------- | Liabilities | Long-term | Other interest-bearing liabilities 12 77,2 75,1 | 45,4 Other non interest-bearing liabilities 12 - 1,4 | 0,8 Deferred tax liability 7 - 0,1 | 0,1 --------------------------------------------- Total 13 77,2 76,6 | 46,3 --------------------------------------------- | Current | Other interest-bearing liabilities 13 88,6 91,3 | 57,9 Advances received 14 5,5 3,9 | 0,3 Accounts payable 14 59,4 59,0 | 70,3 Other non-interest bearing liabilities 43,1 - | - Accrued expenses and deferred income 14,15 80,5 91,8 | 59,9 --------------------------------------------- Total 277,1 246,0 | 188,4 --------------------------------------------- | Total liabilities 354,3 322,6 | 234,7 | --------------------------------------------- TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES 545,0 369,8 | 298,0 ============================================= See accompanying notes to the combined financial statements.
VALTRA GROUP 4 COMBINED STATEMENTS OF CASH FLOWS (AMOUNTS IN MILLIONS OF EURO) SUCCESSOR PREDECESSOR ---------------------------------------------------------------- YEAR ENDED PERIOD FROM JULY 1 | PERIOD FROM YEAR ENDED DECEMBER 31, TO DECEMBER 31, | JANUARY 1 TO DECEMBER 31, 2003 2002 | JUNE 30, 2002 2001 ---------------------------------|------------------------------ | CASH FLOWS FROM OPERATING ACTIVITIES: | Net profit before taxation, and extraordinary item 52,4 21,9 | 17,3 18,3 Adjustments for: | Depreciation and amortization 11,5 5,1 | 5,8 11,1 Financial items 3,9 2,2 | 3,1 7,7 Investment income (0,5) - | - 0,1 -------------------------------|-------------------------- Cash generated from operations before change in net working | capital 67,3 29,2 | 26,2 37,2 -------------------------------|-------------------------- | CHANGE IN NET WORKING CAPITAL: | Increase (-) / decrease (+) in trade and other receivables (11,9) 17,4 | (9,7) (0,3) Increase (-) / decrease (+) in inventories (20,6) (0,4) | (18,1) (7,0) Decrease (-) / increase (+) in trade payables 45,1 (9,1) | 17,0 18,9 -------------------------------|-------------------------- Cash generated from operations 79,9 37,1 | 15,4 48,8 -------------------------------|-------------------------- | Interest paid (7,9) (3,7) | (3,8) (8,1) Interest received 4,1 0,1 | - 0,9 Income taxes paid (6,8) (1,9) | (0,7) (8,1) -------------------------------|-------------------------- NET CASH FROM OPERATING ACTIVITIES 69,3 31,6 | 10,9 33,5 -------------------------------|-------------------------- | CASH FLOWS FROM INVESTING ACTIVITIES: | Purchase of property, plant and equipment (22,6) (9,1) | (5,2) (15,0) Proceeds from sale of property, plant and equipment 0,7 0,7 | - 0,3 -------------------------------|-------------------------- NET CASH USED IN INVESTING ACTIVITIES (21,9) (8,4) | (5,2) (14,7) -------------------------------|-------------------------- | CASH FLOWS FROM FINANCING ACTIVITIES: | Proceeds from long-term borrowings 76,3 - | 7,3 21,2 Payment of long-term borrowings - (44,5) | - (15,2) Proceeds from short-term loans 10,9 33,4 | - 10,9 Payment of short-term loans (13,6) - | (6,0) - Paid group contributions (24,9) - | (13,6) (26,7) -------------------------------|-------------------------- NET CASH FROM (USED IN) FINANCING ACTIVITIES 48,7 (11,1) | (12,3) (9,8) -------------------------------|-------------------------- NET INCREASE (+) /DECREASE (-) IN CASH AND CASH EQUIVALENTS 96,1 12,1 | (6,6) 9,0 ========================================================= CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD 30,3 18,2 24,8 15,8 CASH AND CASH EQUIVALENTS AT END OF PERIOD 126,4 30,3 18,2 24,8 See accompanying notes to the combined financial statements.
VALTRA GROUP 5 NOTES TO COMBINED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES DESCRIPTION OF BUSINESS Valtra Group ("Valtra" and "Group") is owned by KONE Corporation, a publicly listed company in Finland ("KONE") and develops, manufactures and sells tractors and diesel engines for off-road vehicles. Valtra provides its customers the opportunity to order a tractor, which is produced according to the end customer's specification at the factory, with a large number of options, accessories and different colors. The tractors are sold in most of the markets using dealer networks. However, in certain markets, Valtra has its own direct sales force, which has the authority to accept trade-in tractors and sell them. Spare parts sales are also part of Valtra's business. Service of tractors is handled by the dealers and, in the case of direct sales, mainly by third party service contractors. In most of the markets, sales financing is offered to the end customers. In some markets, sales financing is also offered to dealers. Independent third party finance companies provide these financing services to customers. KONE has signed an agreement to sell the Valtra Group to AGCO Corporation. The transaction was closed on January 5, 2004. BASIS OF PREPARATION The combined financial statements of Valtra have been prepared in conformity with accounting principles generally accepted in Finland ("Finnish GAAP"). Finnish GAAP differs in certain significant respects from accounting principles generally accepted in the United States of America ("US GAAP"). Information relating to the nature and effect of such differences is presented in Note 18. The preparation of the combined financial statements in conformity with Finnish GAAP requires the Group's management to make a number of estimates and assumptions relating to the reported amount of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the combined financial statements and the reported amounts of revenues and expenses during the period. Significant items subject to such estimates and assumptions include the carrying amount of property, plant and equipment, valuation allowances for receivables, inventories, deferred income tax assets, valuation of derivative instruments and assets and obligations related to employee benefits. Actual results could differ from those estimates. PRINCIPLES OF COMBINATION The legal structure for Valtra Group differs in certain respects from the combined group shown in these financial statements. Finnish GAAP does not have specific rules for combination. The combination is prepared to generally present the historical financial statements of the combined businesses to be acquired, and does not necessarily reflect the legal organization of Valtra Group. The combined financial statements include the financial statements of Valtra Oy, a company registered in Finland, and its greater than 50 % owned subsidiaries as well as four companies which were under common control of KONE and managed and operated by Valtra, collectively the "Group". These companies are Valtra USA, Inc, Partek Holding, Inc, Tracfin Holding Oy and Valtra do Brasil Ltda. Valtra do Brasil Ltda and Tracfin Holding Oy have during 2003 been sold from Valtra Oy to another KONE company. The sales proceeds amounting to (Euro) 40,1 million received has been shown as current
VALTRA GROUP 6 NOTES TO COMBINED FINANCIAL STATEMENTS non-interest bearing liabilities. During 2002, KONE acquired Partek Corporation, a publicly listed company in Finland ("Partek"), the owner of Valtra, in a business combination accounted for as purchase. Accordingly, the financial statements before and after the acquisition may not be comparable in all material respects. A vertical black line has been inserted to distinguish between the Predecessor (before KONE acquisition) and Successor Companies (after KONE acquisition). The Group's combined financial statements are prepared by combining the assets, liabilities and results of operations of companies listed in note 9 as these companies are managed and operated on a combined basis. All inter company transactions have been eliminated in combination. The difference between the acquisition cost of the shares of a subsidiary and the equity at the time of acquisition is allocated to fixed assets to the extent that their current value exceeds the book value. In this calculation, appropriations, net of tax, are included in equity. The excess value allocated to fixed assets is depreciated according to the depreciation plan of the underlying fixed asset item. The remaining difference is carried as goodwill, which is amortized over its expected useful life, 5-20 years. Entities in which the Group owns less that 50 % (note 9) but have significant influence are accounted for by the equity method in the combined financial statements. TRANSACTIONS DENOMINATED IN FOREIGN CURRENCIES Foreign currency transactions are recorded at the exchange rates prevailing at the time of transaction. At the end of the accounting period receivables and liabilities are translated at the rates prevailing on the balance sheet date. Exchange rate differences related to sales and purchases are treated as adjustments to the underlying items. Exchange rate gains and losses associated with financing are entered as net amount under financial income and expenses. The reporting currency of the Group is Euro, which is also the functional currency of the parent company. The income statements of foreign subsidiaries are translated at the average exchange rates for the accounting period, and the balance sheets are translated at the closing rate on the balance sheet date. All translation differences arising from the combination of foreign subsidiaries and associated companies are credited or charged directly to retained earnings in the combined financial statements. DERIVATIVE FINANCIAL INSTRUMENTS The business operations of the Group give rise to certain exposures related to currency exchange rates. These risks are managed to minimize their impact on the Group's profitability and financial position. The Group considers its derivative financial instruments to be a hedge when certain criteria are met. For a non-Euro currency derivative instrument to qualify as a hedge, the instrument must be related to a non-Euro currency asset, liability, or commitment, or a portfolio of assets, liabilities and commitments, the characteristics of which have been identified; involve the same currency as the hedged item; and reduce the exposure to the risk of non-Euro currency exchange movements on the Group's operations. Gains and losses on forward exchange contracts and currency swaps that are designated and effective as hedges are deferred and recognized in income or as adjustments of carrying amounts
VALTRA GROUP 7 NOTES TO COMBINED FINANCIAL STATEMENTS when the hedged transaction occurs. The interest component determined at the inception of the contract is accrued as interest income and expense over the contract term. The Group does not use derivative financial instruments for speculative purposes. REVENUE RECOGNITION Sales are recorded upon delivery of products or performance of services. Net sales consist of gross sales revenues reduced by certain items including indirect sales taxes and sales discounts. The Group estimates and records provisions for cash discounts, quantity rebates, sales returns and allowances and original warranties in the period the sale is reported based on its historical experience. The Group has guaranteed certain financing arrangements between end customer and financial institutions. The revenues have been recognized and a provision for expected future guarantee losses has been set up based on historical experience. CASH AND CASH EQUIVALENTS Cash and cash equivalents consist of cash on hand and balances with banks and highly liquid short-term investments. For purposes of the combined statement of cash flows, the Group considers all highly liquid investments to be cash equivalents. ACCOUNTS RECEIVABLE Accounts receivable are recorded at historical cost, less a provision for doubtful accounts. Management considers current information and events regarding the debtors' ability to repay their obligations, and makes a provision against amounts due when it is probable that the full amount will not be collected. INVENTORIES Inventories are stated at the lower of cost or net realizable value using the first-in, first out method. The cost of inventories includes a proportionate share of overhead arising from the purchase and production of the goods. Cost includes direct manufacturing, labor and materials, variable overhead and full absorption of manufacturing overhead. IMPAIRMENT OF FIXED ASSETS Impairment of property, plant and equipment and other tangible assets is recognized if the estimated future cash flows generated by the fixed asset is expected to be permanently lower than the historical cost, net of depreciation. The amount of impairment is calculated as the difference between the estimated future revenue generated and the historical cost, net of depreciation and recorded as an expense. Fixed assets may be revalued upwards to recover amounts previously recorded as impairment. INTANGIBLE ASSETS Other intangibles assets include capitalized expenditures related primarily to software licensees and leasehold improvements and are amortized over 3 to 10 years.
VALTRA GROUP 8 NOTES TO COMBINED FINANCIAL STATEMENTS FIXED ASSETS AND DEPRECIATION Property, plant and equipment are stated at the historical cost less accumulated depreciation. Depreciation on plant and equipment is calculated using the straight-line method over the estimated useful lives of the assets according to plan as follows: Buildings........................................ 15-40 years Machinery and equipment.......................... 3-10 years Other tangible assets............................ 5-30 years Gains and losses on the disposal of fixed assets are included in operating income and expenses. LONG-TERM INVESTMENTS Long-term investments include investments, which are recorded at their historical cost less impairment of permanent decreases in value. LEASING Operating and financial lease payments are treated as rentals. Annual leasing charges on the basis of existing leasing agreements are shown in the notes. RESEARCH AND DEVELOPMENT Research and development costs are expensed in the financial period during which they have been incurred. WARRANTY COSTS The estimated warranty costs on goods delivered to customers are charged to earnings and included in accrued expenses in the balance sheet. PENSION ARRANGEMENTS Statutory and supplementary pension obligations in Finland are covered through a compulsory pension insurance policy. Payments to pension insurance institutions are recorded in amounts determined by the insurance institutions according to certain prescribed actuarial assumptions and other rulings pursuant to the Finnish Employees' Act. Group companies outside of Finland have pension obligations arranged and pension liabilities recorded in accordance with the local regulations and practice. Costs of pensions are recorded as they are earned. Changes in uncovered pension liabilities are entered in the income statement. The pension liability is included in the balance sheet.
VALTRA GROUP 9 NOTES TO COMBINED FINANCIAL STATEMENTS INCOME TAXES Income taxes in the income statement include taxes of the Group companies for the financial period, calculated in accordance with local regulations, as well as adjustments to prior year taxes and deferred taxes. Deferred tax assets and liabilities are determined for timing differences arising when revenues and expenses are recorded in different accounting periods for accounting and taxation purposes. Currently enacted tax rate is used in determination of deferred tax income. The balance sheet includes all deferred tax liabilities and the probable realizable amount of deferred tax assets. No deferred tax liability is recognized for undistributed earnings of subsidiaries. EXTRAORDINARY ITEMS Extraordinary items include group contributions. For tax purposes in Finland, profits and losses of companies within a group are combined through group contributions. Group contributions are treated as an expense for the contribution provider and as income for the beneficiary. APPROPRIATIONS Appropriations comprise voluntary provisions and the temporary differences related to the depreciation of the tax basis as compared to the book basis of fixed assets. Accumulated appropriations are divided into tax liability and shareholders' equity. The change in appropriations, net of the tax liability, is included in the earnings for the year.
VALTRA GROUP 10 NOTES TO COMBINED FINANCIAL STATEMENTS (AMOUNTS IN MILLIONS OF EURO EXCEPT FOR PERSONNEL DATA) 2. GEOGRAPHICAL AREA DATA SUCCESSOR PREDECESSOR ------------------------------------------------------------------------------- YEAR ENDED PERIOD FROM JULY 1 | PERIOD FROM YEAR ENDED DECEMBER 31, TO DECEMBER 31 | JANUARY 1 TO DECEMBER 31, 2003 2002 | JUNE 30, 2002 2001 -----------------------------------------|-------------------------------------- | Net sales by geographical area | Finland 225,2 89,7 | 105,4 180,0 Other EU 287,2 134,7 | 142,1 252,3 Other Europe 72,5 27,8 | 22,6 36,0 North America 31,0 15,8 | 12,8 22,9 South America 183,6 81,2 | 91,0 174,2 Other countries 52,9 30,2 | 8,4 20,1 -----------------------------------------|----------------------------------- Total 852,4 379,4 | 382,3 685,5 ============================================================================= SUCCESSOR PREDECESSOR ------------------------------------------------------------------------------- YEAR ENDED PERIOD FROM JULY 1 | PERIOD FROM YEAR ENDED DECEMBER 31, TO DECEMBER 31 | JANUARY 1 TO DECEMBER 31, 2003 2002 | JUNE 30, 2002 2001 -----------------------------------------|------------------------------------- | Personnel expenses by geographical area | Finland 64,8 31,0 | 30,6 57,0 Other EU 8,4 4,3 | 3,9 9,0 Other Europe 2,9 1,6 | 1,4 2,8 South America 10,8 4,6 | 6,4 12,6 Other countries 2,3 1,1 | 1,1 0,8 -----------------------------------------|---------------------------------- Total 89,2 42,6 | 43,4 82,2 ============================================================================ SUCCESSOR PREDECESSOR ------------------------------------------------------------------------------- YEAR ENDED PERIOD FROM JULY 1 | PERIOD FROM YEAR ENDED DECEMBER 31, TO DECEMBER 31 | JANUARY 1 TO DECEMBER 31, 2003 2002 | JUNE 30, 2002 2001 -----------------------------------------|------------------------------------- | Personnel on average by geographical area | Finland 1598 1528 | 1499 1467 Other EU 161 153 | 153 168 Other Europe 48 41 | 42 42 South America 766 739 | 737 739 Other countries 37 29 | 27 14 -----------------------------------------|----------------------------------- Total 2610 2490 | 2458 2430 =============================================================================
VALTRA GROUP 11 NOTES TO COMBINED FINANCIAL STATEMENTS (AMOUNTS IN MILLIONS OF EURO EXCEPT FOR PERSONNEL DATA) 3. PERSONNEL EXPENSES SUCCESSOR PREDECESSOR -------------------------------------------------------------------- YEAR ENDED PERIOD FROM JULY 1 | PERIOD FROM YEAR ENDED DECEMBER 31, TO DECEMBER 31 | JANUARY 1 TO DECEMBER 31, 2003 2002 | JUNE 30, 2002 2001 ------------------------------------|------------------------------- | Wages and salaries | Salaries and payments to Board Members and | Managing Directors 2,1 0,9 | 1,1 1,7 To others 69,4 32,5 | 32,8 60,7 Bonus to Board Members and Managing Directors 0,3 0,3 | - 0,1 ------------------------------------|--------------------------- Wages and salaries, total 71,8 33,7 | 33,9 62,5 ------------------------------------|--------------------------- Other personnel expenses | Pension expenses 9,5 4,9 | 4,1 7,7 Other personnel expenses 7,9 4,0 | 5,4 12,0 ------------------------------------|--------------------------- Total 17,4 8,9 | 9,5 19,7 ------------------------------------|--------------------------- | Personnel expenses, total 89,2 42,6 | 43,4 82,2 ================================================================ SUCCESSOR PREDECESSOR -------------------------------------------------------------------- YEAR ENDED PERIOD FROM JULY 1 | PERIOD FROM YEAR ENDED DECEMBER 31, TO DECEMBER 31 | JANUARY 1 TO DECEMBER 31, 2003 2002 | JUNE 30, 2002 2001 ------------------------------------|------------------------------- | Personnel | On average 2 610 2 490 | 2 458 2 430 At year end 2 612 2 508 | 2 547 2 395 DISMISSAL The dismissal time is both for the company and the CEO six months. If the company dismisses the CEO, he will be paid in addition to the salary for the dismissal period a compensation for dismissal, which will correspond to six months fixed monetary salary. 4. DEPRECIATION AND AMORTIZATION SUCCESSOR PREDECESSOR -------------------------------------------------------------------- YEAR ENDED PERIOD FROM JULY 1 | PERIOD FROM YEAR ENDED DECEMBER 31, TO DECEMBER 31 | JANUARY 1 TO DECEMBER 31, 2003 2002 | JUNE 30, 2002 2001 ------------------------------------|------------------------------- | Depreciation and amortization by function | Production 7,7 3,6 | 3,9 6,9 Selling and marketing 1,5 0,7 | 0,8 1,7 Research and development 0,4 0,2 | 0,2 0,4 Administration 1,9 0,6 | 0,9 2,1 ------------------------------------|--------------------------- Total 11,5 5,1 | 5,8 11,1 ================================================================ SUCCESSOR PREDECESSOR -------------------------------------------------------------------- YEAR ENDED PERIOD FROM JULY 1 | PERIOD FROM YEAR ENDED DECEMBER 31, TO DECEMBER 31 | JANUARY 1 TO DECEMBER 31, 2003 2002 | JUNE 30, 2002 2001 ------------------------------------|------------------------------- | Depreciation and amortization by category | Intangible rights 0,4 0,2 | 0,3 0,5 Other capitalised expenditure 0,3 0,3 | 0,2 0,4 Buildings and constructions 2,1 0,9 | 1,0 1,6 Machinery and equipment 8,6 3,7 | 4,2 8,4 Other tangible assets 0,1 - | 0,1 0,2 ------------------------------------|--------------------------- Total 11,5 5,1 | 5,8 11,1 ================================================================
VALTRA GROUP 12 NOTES TO COMBINED FINANCIAL STATEMENTS (AMOUNTS IN MILLIONS OF EURO EXCEPT FOR PERSONNEL DATA) 5. OTHER OPERATING INCOME AND EXPENSES SUCCESSOR PREDECESSOR -------------------------------------------------------------------- YEAR ENDED PERIOD FROM JULY 1 | PERIOD FROM YEAR ENDED DECEMBER 31, TO DECEMBER 31 | JANUARY 1 TO DECEMBER 31, 2003 2002 | JUNE 30, 2002 2001 ------------------------------------|------------------------------- | Other operating income | Rental income 0,3 0,1 | 0,1 0,2 Profit on sale of fixed assets 0,5 - | 0,1 0,1 Other income 3,2 1,1 | 1,9 1,3 ------------------------------------|--------------------------- Total 4,0 1,2 | 2,1 1,6 ================================================================ SUCCESSOR PREDECESSOR -------------------------------------------------------------------- YEAR ENDED PERIOD FROM JULY 1 | PERIOD FROM YEAR ENDED DECEMBER 31, TO DECEMBER 31 | JANUARY 1 TO DECEMBER 31, 2003 2002 | JUNE 30, 2002 2001 ------------------------------------|------------------------------- | Other operating expenses | Loss on sale of fixed assets - - | - 0,2 Wages for term of notice in connection | with restructuring 0,1 0,1 | 0,1 - Service fee expenses 2,0 0,4 | 0,5 0,7 Other expenses 1,4 0,8 | 0,9 1,4 ------------------------------------|--------------------------- Total 3,5 1,3 | 1,5 2,3 ================================================================ 6. OTHER FINANCIAL ITEMS SUCCESSOR PREDECESSOR -------------------------------------------------------------------- YEAR ENDED PERIOD FROM JULY 1 | PERIOD FROM YEAR ENDED DECEMBER 31, TO DECEMBER 31 | JANUARY 1 TO DECEMBER 31, 2003 2002 | JUNE 30, 2002 2001 ------------------------------------|------------------------------- | Exchange rate differences (0,3) 0,2 | (0,8) (2,1) Other financial income 0,1 0,4 | 0,6 1,5 Other financial expenses (1,5) (0,8) | (0,8) (0,4) ------------------------------------|--------------------------- Total (1,7) (0,2) | (1,0) (1,0) ================================================================ 7. INCOME TAXES SUCCESSOR PREDECESSOR -------------------------------------------------------------------- YEAR ENDED PERIOD FROM JULY 1 | PERIOD FROM YEAR ENDED DECEMBER 31, TO DECEMBER 31 | JANUARY 1 TO DECEMBER 31, 2003 2002 | JUNE 30, 2002 2001 -------------------------------------|------------------------------ | Income taxes | Direct taxes for the year 16,5 2,1 | 4,2 4,9 Direct taxes from previous years 0,5 0,1 | - (0,1) Change in deferred tax asset / liability - 1,4 | (0,2) (4,8) -------------------------------------|-------------------------- Total 17,0 3,6 | 4,0 - ================================================================ SUCCESSOR PREDECESSOR -------------------------------------------------------------------- AT AT | AT DECEMBER 31, 2003 DECEMBER 31, 2002 | JUNE 30, 2002 ----------------------------------------|--------------------------- | Deferred tax asset | From consolidation entries 5,0 4,9 | 5,8 From valuation and matching differences 1,5 1,9 | 2,4 Offset against liabilities (0,3) (0,3) | (0,3) ----------------------------------------|----------------------- Total 6,2 6,5 | 7,9 ================================================================ SUCCESSOR PREDECESSOR -------------------------------------------------------------------- AT AT | AT DECEMBER 31, 2003 DECEMBER 31, 2002 | JUNE 30, 2002 ----------------------------------------|--------------------------- | Deferred tax liability | From appropriations 0,3 0,4 | 0,3 From consolidation entries - - | 0,1 Offset against receivables (0,3) (0,3) | (0,3) ----------------------------------------|----------------------- Total - 0,1 | 0,1 ================================================================
VALTRA GROUP 13 NOTES TO COMBINED FINANCIAL STATEMENTS (AMOUNTS IN MILLIONS OF EURO EXCEPT FOR PERSONNEL DATA) 8. FIXED ASSETS Advanced Other Machinery Other payments and capitalised Buildings and and tangible construction expenditure Land constructions equipment assets in progress -------------------------------------------------------------------- PREDECESSOR Historical cost as at January 1, 2002 5,4 2,7 34,2 114,2 1,0 4,6 Translation differences (0,7) (0,5) (3,7) (13,3) - (0,1) Capital expenditures 0,1 - 0,1 1,5 - 3,4 Disposals and other decreases - - - (0,1) - - Transfers between line items - - 0,3 1,4 - (1,8) ---------------------------------------------------------------- Historical cost as at June 30, 2002 4,8 2,2 30,9 103,7 1,0 6,1 Accumulated depreciation and amortization as at January 1, 2002 (3,2) - (11,0) (81,5) (0,8) - Translation differences 0,5 - 1,1 9,9 - - Depreciation and amortization during the year (0,5) - (0,9) (3,8) (0,1) - ---------------------------------------------------------------- Accumulated depreciation and amortization as at December 31, 2002 (3,2) - (10,8) (75,4) (0,9) - CARRYING VALUE AS AT JUNE 30, 2002 1,6 2,2 20,1 28,3 0,1 6,1 ================================================================ SUCCESSOR Historical cost as at July 1, 2002 4,8 2,2 30,9 103,7 1,0 6,1 Translation differences (0,4) (0,3) (2,4) (8,1) - - Capital expenditures 0,2 - - 5,3 - 4,0 Disposals and other decreases - (0,5) - (0,2) - - Transfers between line items - - 2,6 2,5 - (5,1) ---------------------------------------------------------------- Historical cost as at December 31, 2002 4,6 1,4 31,1 103,2 1,0 5,0 Accumulated depreciation and amortization as at June 1, 2002 (3,2) - (10,8) (75,4) (0,9) - Translation differences 0,3 - 0,8 6,5 - - Depreciation and amortization during the year (0,5) - (1,0) (4,1) - - Other changes - - - 0,1 - - ---------------------------------------------------------------- Accumulated depreciation and amortization as at December 31, 2002 (3,4) - (11,0) (72,9) (0,9) - CARRYING VALUE AS AT DECEMBER 31, 2002 1,2 1,4 20,1 30,3 0,1 5,0 ================================================================
VALTRA GROUP 14 NOTES TO COMBINED FINANCIAL STATEMENTS (AMOUNTS IN MILLIONS OF EURO EXCEPT FOR PERSONNEL DATA) Advanced Other Machinery Other payments and capitalised Buildings and and tangible construction expenditure Land constructions equipment assets in progress -------------------------------------------------------------------- Historical cost as at January 1, 2003 4,6 1,4 31,1 103,2 1,0 5,0 Translation differences - - 0,1 - - 0,1 Capital expenditures 0,4 - - 6,6 - 17,3 Disposals and other decreases - - (0,1) (0,1) - - Transfers between line items 0,2 - 5,5 9,3 - (17,2) Other changes 0,6 - - - - - ---------------------------------------------------------------- Historical cost as at December 31, 2003 5,8 1,4 36,6 119,0 1,0 5,2 Accumulated depreciation and amortization as at January 1, 2003 (3,4) - (11,0) (72,9) (0,9) - Translation differences - - - (0,1) 0,1 - Depreciation and amortization during the year (0,7) - (2,1) (8,6) (0,1) - Other changes - - - - - - ---------------------------------------------------------------- Accumulated depreciation and amortization as at December 31, 2003 (4,1) - (13,1) (81,6) (0,9) - CARRYING VALUE AS AT DECEMBER 31, 2003 1,7 1,4 23,5 37,4 0,1 5,2 ================================================================ Investments in equity Investment method in other investees shares PREDECESSOR SHARES AND PARTICIPATIONS Historical cost as at January 1, 2002 1,5 0,2 Capital expenditures - 0,1 ---------------------- Historical cost as at June 30, 2002 1,5 0,3 CARRYING VALUE AS AT JUNE 30, 2002 1,5 0,3 ====================== SUCCESSOR Historical cost as at July 1, 2002 1,5 0,3 Increase 0,1 - Disposals - (0,2) ---------------------- Historical cost as at December 31, 2002 1,6 0,1 CARRYING VALUE AS AT DECEMBER 31, 2002 1,6 0,1 ====================== Historical cost as at January 1, 2003 1,6 0,1 ---------------------- Historical cost as at December 31, 2003 1,6 0,1 CARRYING VALUE AS AT DECEMBER 31, 2003 1,6 0,1 ======================
VALTRA GROUP 15 NOTES TO COMBINED FINANCIAL STATEMENTS (AMOUNTS IN MILLIONS OF EURO EXCEPT FOR PERSONNEL DATA) 9. SHARES AND PARTICIPATIONS, COMPANIES AND OPERATIONS COMBINED IN COMBINED FINANCIAL STATEMENTS DECEMBER 31, 2003 Group Subsidiaries holding % Sales and production companies: Sisu Diesel Oy, Finland 100,0 Valtra Norge AS, Norge 100,0 Valtra Danmark A/S, Danmark 100,0 Valtra Vertriebs GmbH, Germany 100,0 Valtra Tractors (UK) Limited, Great Britain 100,0 Valtra Tracteurs France S.A.S., France 100,0 Valtra Tractores S.A., Spain 100,0 Valtractor-Comercia de Tractores, Portugal 100,0 Valtra GesmbH, Austria 100,0 Valtra Sp.z.o.o., Poland 100,0 Valtra Argentina Tractores SA, Argentina 99,9 Valtratractores Mexico S.A. de CV, Mexico 99,9 Valtra Canada Inc., Canada 100,0 Valtra Tractors (A&NZ), Pty. Ltd, Australia 100,0 Tecnoagro Maquinas Agricolas Ltda, Brasil 99,9 Dormant companies: Valtra Eastern Ventures Oy Ab , Finland 100,0 VTP-Tractores SA, Portugal 100,0 Sisu Tractors Tanzania Ltd, Tansania 100,0 Avelux S/A , Uruguay 100,0 Associated companies: Valtra Traktor Ab, Sweden 40,0 Valtra Traktoren Ag, Switzerland 35,0 Operations combined into Valtra Group: Valtra USA, Inc, USA Partek Holding Inc, USA Valtra do Brasil Ltda, Brasil Tracfin Holding Oy, Finland Other companies (28), shareholding less than 20 % and Valtra does not have significant influence or control.
VALTRA GROUP 16 NOTES TO COMBINED FINANCIAL STATEMENTS (AMOUNTS IN MILLIONS OF EURO EXCEPT FOR PERSONNEL DATA) 10. LONG-TERM AND SHORT-TERM RECEIVABLES SUCCESSOR PREDECESSOR ---------------------------------------------------------- AT AT | AT DECEMBER 31, 2003 DECEMBER 31, 2002 | JUNE 30, 2002 -----------------------------------------|---------------- | Long term receivables: | Loan receivable 0,3 1,6 | 1,0 ========================================================== SUCCESSOR PREDECESSOR ---------------------------------------------------------- AT AT | AT DECEMBER 31, 2003 DECEMBER 31, 2002 | JUNE 30, 2002 -----------------------------------------|---------------- | Short term receivables: | Associated companies | Accounts receivable 3,4 4,9 | 4,9 =========================================|============ | Other companies | Accounts receivable 84,8 71,4 | 84,5 Loan receivable 2,4 74,3 | - Other receivables 110,7 4,0 | - Deferred tax asset 6,2 6,5 | 7,9 Prepaid expenses and accrued income 21,5 18,1 | 21,9 -----------------------------------------|------------ 225,6 174,3 | 114,3 | Short term receivables, total 229,0 179,2 | 119,2 ====================================================== Other receivables at December 31, 2003 includes a group contribution receivable of (Euro) 110,5 million from KONE companies. Short-term loan receivable at December 31, 2002 include (Euro) 74.3 million receivable from Valtra's parent company. Interest rate is variable based on 3 months Libor +0,6%
VALTRA GROUP 17 NOTES TO COMBINED FINANCIAL STATEMENTS (AMOUNTS IN MILLIONS OF EURO EXCEPT FOR PERSONNEL DATA) 11. SHAREHOLDERS' EQUITY Share Share premium Retained Total capital account earnings (deficit) ----------------------------------------------------- PREDECESSOR Balance at January 1, 2001 69,1 43,6 54,7 (29,2) Currency translation adjustments (5,6) - - (5,6) Net result for the period 4,7 - - 4,7 ---------------------------------------------- Balance at December 31, 2001 68,2 43,6 54,7 (30,1) ============================================== Balance at January 1, 2002 68,2 43,6 54,7 (30,1) Currency translation adjustments (18,2) - - (18,2) Net result for the period 13,3 - - 13,3 ---------------------------------------------- Balance at June 30, 2002 63,3 43,6 54,7 (35,0) ============================================== SUCCESSOR Balance at July 1, 2002 63,3 43,6 54,7 (35,0) Currency translation adjustments (9,7) - - (9,7) Net result for the period (6,4) - - (6,4) ---------------------------------------------- Balance at December 31, 2002 47,2 43,6 54,7 (51,1) ============================================== Balance at January 1, 2003 47,2 43,6 54,7 (51,1) Currency translation adjustments (2,4) - - (2,4) Transfer from share premium account to retained earnings - - (27,7) 27,7 Net result for the period 145,9 - - 145,9 ---------------------------------------------- Balance at December 31, 2003 190,7 43,6 27,0 120,1 ============================================== In accordance with Finnish Companies Act, companies can cover its accumulated deficit with share premium. Valtra Oy transferred (Euro) 27,7 million from share premium account to retained earnings. 12. LONG-TERM LIABILITIES SUCCESSOR PREDECESSOR ----------------------------------------------------------- AT AT | AT DECEMBER 31, 2003 DECEMBER 31, 2002 | JUNE 30, 2002 ----------------------------------------------------------- | Subordinated loan 76,5 74,2 | - Other interest-bearing liabilities 0,7 0,9 | 45,4 Other non interest-bearing liabilities - 1,5 | 0,9 ------------------------------------------------------- Total 77,2 76,6 | 46,3 ======================================================= Subordinated loans amounted (Euro) 76,5 million and (Euro) 74,2 million as of December 31, 2003 and December 31, 2002, respectively. Loans have no maturity date and not endorsed by any guarantee or other security. Loans are subordinate to the Group's other obligations and repayment can be made only if distributable and non-distributable equity are in compliance with Finnish companies Act. Interest payments on the subordinated loan can be only made from distributable equity as required by Finnish Companies Act before the payment of dividend. The interest on the subordinated loan is variable based on 6 months Euribor plus 1 % Interest payables to subordinated loans are added to loan principal at the end of June and December each year. SUCCESSOR PREDECESSOR ----------------------------------------------------------- AT AT | AT DECEMBER 31, 2003 DECEMBER 31, 2002 | JUNE 30, 2002 ----------------------------------------------------------- | Repayments of long-term liabilities after 5 years | Other interest-bearing liabilities - 0,9 | 8,0 =======================================================
VALTRA GROUP 18 NOTES TO COMBINED FINANCIAL STATEMENTS (AMOUNTS IN MILLIONS OF EURO EXCEPT FOR PERSONNEL DATA) 13. SHORT-TERM INTEREST-BEARING LIABILITIES SUCCESSOR PREDECESSOR ----------------------------------------------------------- AT AT | AT DECEMBER 31, 2003 DECEMBER 31, 2002 | JUNE 30, 2002 ----------------------------------------------------------- | Other short-term liabilities 88,6 91,3 | 57,9 ======================================================= Other short-term interest bearing liabilities include non-current loan (Euro) 88,5 million from the parent company of Valtra. 14. SHORT-TERM NON INTEREST-BEARING LIABILITIES SUCCESSOR PREDECESSOR ----------------------------------------------------------- AT AT | AT DECEMBER 31, 2003 DECEMBER 31, 2002 | JUNE 30, 2002 ----------------------------------------------------------- | Other companies | Accounts payable 59,4 59,0 | 70,3 Advances received 5,5 3,9 | 0,3 Other non interest bearing liabilities 43,1 - | - Other accrued expenses and deferred income 80,5 91,8 | 59,9 ------------------------------------------------------- Short-term non interest-bearing liabilities, total 188,5 154,7 | 130,5 ======================================================= 15. ACCRUED EXPENSES AND DEFERRED INCOME SUCCESSOR PREDECESSOR ----------------------------------------------------------- AT AT | AT DECEMBER 31, 2003 DECEMBER 31, 2002 | JUNE 30, 2002 ----------------------------------------------------------- | Related to | Group contribution payable - 28,6 | - Purchases 0,1 0,2 | 1,9 Sales related items 10,0 6,9 | 10,7 Personnel costs 11,9 11,1 | 12,5 Warranties 15,9 11,3 | 9,0 Financial items 0,1 0,2 | 1,2 Taxes 18,8 7,0 | 1,2 Other 23,7 26,5 | 23,4 ------------------------------------------------------- Total 80,5 91,8 | 59,9 =======================================================
VALTRA GROUP 19 NOTES TO COMBINED FINANCIAL STATEMENTS (AMOUNTS IN MILLIONS OF EURO EXCEPT FOR PERSONNEL DATA) 16. PLEDGED ASSETS AND CONTINGENT LIABILITIES SUCCESSOR PREDECESSOR ----------------------------------------------------------- AT AT | AT DECEMBER 31, 2003 DECEMBER 31, 2002 | JUNE 30, 2002 ----------------------------------------------------------- | Contingent liabilities | Guarantees | Subsidiaries - 0,4 | 0,4 Others for customer finance 7,7 10,3 | 13,8 Discounted bills 0,1 - | - Other contingent liabilities | for customer finance 7,3 7,6 | 5,8 contingent liabilities by Finnish VAT regulations 2,2 1,1 | 0,7 ------------------------------------------------------- Total contingent liabilities 17,3 19,4 | 20,7 ======================================================= LEASING CONTRACTS SUCCESSOR PREDECESSOR ----------------------------------------------------------- AT AT | AT DECEMBER 31, 2003 DECEMBER 31, 2002 | JUNE 30, 2002 ----------------------------------------------------------- | Rental payments for leasing contract are as follows: | Next year 1,3 1,2 | 1,6 Later on 1,7 1,6 | 0,8 ------------------------------------------------------- Total 3,0 2,8 | 2,4 ======================================================= PURCHASE COMMITMENT The Company has entered into an agreement to purchase district heat from a Supplier's heating plant on land leased from the Company and located at the Company's premises. Another company has jointly agreed to purchase 37,5 % of the supply. The monthly payments depend on a variety of factors including; consumer price on firewood for heat production, cost index for road transportation of goods and consumer price of fuel oil. The agreement is effective for 15 years starting from the first supply date of June 2003, after original term 1 year termination period. The Company and a third party that is also party to the district heat purchase agreement are jointly obliged to purchase the heating plant from the Supplier if the heat supply agreement is terminated or at the conclusion of the agreement. The Company's liability relating to the purchase obligation is dependent on the usage ratio between users of the heating plant, which is currently 62,5% for the Company. The purchase price is dependent upon time of purchase and depreciation but has a minimum purchase price of (Euro) 183.750. Current value of the heating plant is estimated at (Euro) 735.000 as at December 31, 2003 and represents the estimated value that would be paid if termination were to occur as of December 31, 2003. 17. DERIVATIVE INSTRUMENTS SUCCESSOR PREDECESSOR ----------------------------------------------------------- AT AT | AT DECEMBER 31, 2003 DECEMBER 31, 2002 | JUNE 30, 2002 ----------------------------------------------------------- | NOMINAL VALUES | Foreign exchange forward contracts 62,0 66,7 | 66,3 | MARKET VALUES | Foreign exchange forward contracts 0,7 0,3 | 0,3
VALTRA GROUP 20 NOTES TO COMBINED FINANCIAL STATEMENTS (AMOUNTS IN MILLIONS OF EURO EXCEPT FOR PERSONNEL DATA) 18. SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN FINLAND AND GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN THE UNITED STATES The combined financial statements of the Group have been prepared in conformity with Finnish GAAP, which differs in certain significant respects from US GAAP. The Group's combined financial statements are prepared by combining the assets, liabilities and results of operations of the companies listed in Note 9 to the combined financial statements as these companies are managed and operated on a combined basis. Combined financial statements do not reflect the legal organization of the Group. The nature and effect of the application of US GAAP to the net income, balance sheet and shareholders' equity are set out in the tables below: SUCCESSOR PREDECESSOR ---------------------------------------------------------------- PERIOD FROM | JULY 1 TO | PERIOD FROM DECEMBER 31, | JANUARY 1 TO 2002 | JUNE 30, 2002 (for Finnish GAAP) | (for Finnish GAAP) PERIOD FROM PERIOD FROM AUGUST 1 | PERIOD FROM JANUARY 1 JANUARY 1 TO TO DECEMBER 31, 2002 | TO JULY 31, 2002 NOTES DECEMBER 31, 2003 (for US GAAP) | (for US GAAP) ----------------------------------------------------------------------- | Net income (loss) in accordance with | Finnish GAAP 145,9 (6,4) | 13,3 US GAAP adjustments: | Revenue recognition a) (0,4) (0,1) | (0,1) Derivatives and hedging activities b) (0,3) (0,4) | 1,4 Employee benefit plans c) (1,8) (0,8) | (1,1) Deferred taxes d) (31,9) 43,6 | (0,5) Provisions e) (3,8) 4,5 | 1,1 Push down basis of accounting f) (15,7) (9,4) | (1,7) Group contribution g) (110,5) 24,7 | - Acquisition date h) - (3,1) | 3,1 Tax effect of US GAAP adjustments 1,8 1,2 | (1,9) ------------------------------------------------------- Net (loss) income in accordance with US GAAP (16,7) 53,8 | 13,6 =======================================================
VALTRA GROUP 21 NOTES TO COMBINED FINANCIAL STATEMENTS (AMOUNTS IN MILLIONS OF EURO EXCEPT FOR PERSONNEL DATA) PREDECESSOR FINNISH GAAP IMPACT OF JULY US GAAP BALANCE SHEET 2002 US GAAP BALANCE SHEET NOTES JUNE 30, 2002 h) ADJUSTMENTS JULY 31, 2002 --------------------------------------------------------------------- Balance sheet as of June 30, 2002 / July 31, 2002 Intangible assets 1,6 (0,1) - 1,5 Land f) 2,2 (0,1) 1,1 3,2 Building and constructions f) 20,1 (1,0) 13,6 32,7 Machinery and equipment f)i) 28,3 (1,9) 5,1 31,5 Other tangible assets 0,1 - - 0,1 Advance payments and construction in progress 6,1 1,0 - 7,1 Other non-current assets 2,8 - - 2,8 Inventories 99,4 (10,4) - 89,0 Other current assets a)b)j) 111,3 (11,0) 4,5 104,8 Cash and bank balances 18,2 0,5 - 18,7 Non-current liabilities c) (46,2) - (12,5) (58,7) Current liabilities e)i)j) (188,4) 19,4 1,1 (167,9) Deferred tax assets and liabilities, net d) 7,8 (0,2) 1,7 9,3 -------------------------------------------------------- Shareholders' equity 63,3 (3,8) 14,6 74,1 ======================================================== SUCCESSOR FINNISH GAAP US GAAP US GAAP NOTES BALANCE SHEET ADJUSTMENTS BALANCE SHEET ----------------------------------------------------- Balance sheet as of December 31, 2002 Goodwill f) - 39,7 39,7 Intangible assets 1,2 - 1,2 Customer relationships f) - 20,6 20,6 Technologies f) - 36,8 36,8 Dealership networks f) - 41,0 41,0 Tradenames and trademarks f) - 32,7 32,7 Land f) 1,4 2,1 3,5 Building and constructions f) 20,1 36,2 56,3 Machinery and equipment f)i) 30,3 38,2 68,5 Other tangible assets f) 0,1 - 0,1 Advance payments and construction in progress 5,0 - 5,0 Other non-current assets 3,3 - 3,3 Inventories 98,9 - 98,9 Other current assets a)b)j)k) 172,7 (73,8) 98,9 Cash and bank balances 30,3 - 30,3 Non-current liabilities c)k) (76,5) 60,9 (15,6) Current liabilities e)i)j) (246,0) 7,6 (238,4) Deferred tax assets and liabilities, net d) 6,4 (16,1) (9,7) --------------------------------------- Shareholders' equity 47,2 225,9 273,1 =======================================
VALTRA GROUP 22 NOTES TO COMBINED FINANCIAL STATEMENTS (AMOUNTS IN MILLIONS OF EURO EXCEPT FOR PERSONNEL DATA) FINNISH GAAP US GAAP US GAAP SUCCESSOR NOTES BALANCE SHEET ADJUSTMENTS BALANCE SHEET --------- --------------------------------------------------------------- Balance sheet as of December 31, 2003 Goodwill f) - 39,9 39,9 Intangible assets 1,7 - 1,7 Customer relationships f) - 18,7 18,7 Technologies f) - 31,7 31,7 Dealership networks f) - 36,7 36,7 Tradenames and trademarks f) - 32,5 32,5 Land f) 1,4 2,1 3,5 Building and constructions f) 23,5 36,2 59,7 Machinery and equipment f) i) 37,4 34,1 71,5 Other tangible assets f) 0,1 - 0,1 Advance payments and construction in progress 5,2 - 5,2 Other non-current assets 2,0 - 2,0 Inventories 118,3 - 118,3 Other current assets a) j) 222,8 16,4 239,2 Cash and bank balances 126,4 - 126,4 Non-current liabilities c) k) (77,2) 61,4 (15,8) Current liabilities e) i) j) k) (277,1) (47,1) (324,2) Deferred tax assets and liabilities, net d) 6,2 (52,2) (46,0) ------ ----- ------ Shareholders' equity 190,7 210,4 401,1 ------ ----- ------ a) REVENUE RECOGNITION Under Finnish GAAP revenue is recognized when the product has been delivered or the service rendered. Valtra has recognized revenues upon delivery of products or performance of services, net of sales taxes and discounts. For the period from January 1, 2002 to June 30, 2002, the period from July 1, 2002 to December 31, 2002, and for the year ended December 31, 2003 Valtra billed (Euro) 60 million, (Euro) 68 million, and (Euro) 130 million, respectively, of VAT which was remitted to the applicable government authorities. Under US GAAP revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the seller's price to buyer is fixed or determinable, and collectibility is reasonably assured. Under US GAAP, sales of equipment and replacement parts are recorded by the Group when title and risks of ownership have been transferred to independent dealer, distributor or other customer. In addition, any costs or losses expected in connection with estimated returns are accrued in the financial statements as required in Statement of Financial Accounting Standards ("SFAS") No. 48 Revenue Recognition When Right of Return Exists. Provisions for returns are made at the time of sales based on historical returns experience. The net change in this reserve between periods impacted net income by (Euro) (0,1) million, (Euro) (0,1) million, and (Euro) (0,4) million, respectively, for the period from January 1, 2002 to July
VALTRA GROUP 23 NOTES TO COMBINED FINANCIAL STATEMENTS (AMOUNTS IN MILLIONS OF EURO EXCEPT FOR PERSONNEL DATA) 31, 2002, the period from August 1, 2002 to December 31, 2002, and for the year ended December 31, 2003, respectively. b) DERIVATIVES AND HEDGING ACTIVITIES Under Finnish GAAP, for a foreign currency derivative instrument (i.e. foreign currency exchange contracts and foreign currency option contracts) to qualify as a hedge, the instrument must: (a) be related to a foreign currency asset, liability or firm commitment, or a portfolio of assets, liabilities and firm commitments, the characteristics of which have been identified; (b) involve the same currency as the hedged item; and (c) reduce the risk of foreign currency exchange movements on a company's operations. Gains and losses on forward foreign exchange contracts and currency swaps and foreign currency option contracts that are designated as hedges of firm commitments are deferred and recognized in income as the hedged transaction occurs. Gains and losses on foreign currency options that are designated as effective hedges of firm commitments are deferred and recognized in income as the hedged transaction occurs. Where derivatives are held for speculative purposes, common practice is to record only unrealized losses in the income statement and leave the unrealized gains unrecognized. No derivative instruments are held for speculative or trading purposes by the Group. The accounting principles with respect to accounting for foreign currency derivatives as described above under Finnish GAAP are consistent with US GAAP prior to January 1, 2001. Effective on January 1, 2001, for US GAAP purposes, the Group adopted the principles of SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended by SFAS No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities, which requires that an entity recognize all derivatives as either assets or liabilities on the balance sheet measured at fair value. The accounting for changes in the fair value of a derivative depends on the use of the derivative. Derivatives that are not designated as part of a hedging relationship must be adjusted to fair value through income. Certain conditions must be met in order to designate a derivative as a hedge including assessment and documentation of the following: - - Objective of the derivative; - - Nature of the risk being hedged; - - Derivative hedging instrument; - - Hedged item; - - For the hedge of a firm commitment, a reasonable method for recognizing in earnings the hedged firm commitment; and - - How the entity will assess hedge effectiveness and measure hedge ineffectiveness. If the derivative is a designated hedge, depending on the nature of the hedge, the effective portion of the hedge's change in fair value is either (1) offset against the change in fair value of the hedged asset, liability or firm commitment through income or (2) held in equity until the hedged item is
VALTRA GROUP 24 NOTES TO COMBINED FINANCIAL STATEMENTS (AMOUNTS IN MILLIONS OF EURO EXCEPT FOR PERSONNEL DATA) recognized in income. The ineffective portion of a hedge's change in fair value is immediately recognized in income. The documentation for the Group's derivative instruments does not meet all of the requirements of SFAS 133. Therefore, the Group has recorded all changes in the fair value of all derivative instruments directly to earnings. During the period from January 1, 2002 to July 31, 2002, the period from August 1, 2002 to December 31, 2002, and for the year ended December 31, 2003, the Group recorded the change in the fair value of these agreements, (Euro) 1,4 million, (Euro) (0,4) million, and (Euro) (0,3) million, respectively, through earnings as these hedging relationships did not qualify for hedge accounting in accordance with SFAS No. 133. c) EMPLOYEE BENEFIT PLANS Pensions and other postretirement benefits In Finland statutory and supplementary pension obligations (The Finnish statutory employment scheme, "TEL") are covered through a compulsory pension insurance policy. The TEL consists of pension obligations and future disability pensions. The TEL is a national pension system in which all Finnish private sector employers participate. The TEL pension is partly funded, but at present it is fundamentally funded as pay-as-you-go. The pay-as-you-go costs of an employer do not depend on the pensions paid to the former employees of Valtra Finland. Instead, the yearly premium depends on the wages of current workforce and is a certain percentage of these wages. Payments to pension insurance institutions are recorded at amounts determined by insurance institutions according to prescribed actuarial assumptions and other rulings pursuant to the Finnish Employment Pension Act. The disability pension part of the "TEL" is funded at the time when the event resulting in a disability pension takes place. Under the TEL, an employer does not have a direct responsibility for the unfunded part of the TEL pension. The unfunded part of the TEL pension is comparable to the U.S. concept of a multiemployer plan and is treated as such by the Group. Group companies outside of Finland have pension obligations arranged and pension liabilities recorded in accordance with local regulations and practice. Changes in uncovered pension obligations are recorded as an expense and the related pension liability is included as a provision. Under US GAAP, pension expense is recorded on an accrual basis and reflected in the income statement over the working lives of the employees provided with such benefits. Under US GAAP defined benefit pension plan accounting, plan assets are valued on a market related basis and liabilities are valued under a specified actuarial methodology, including market related valuation assumptions. Changes in the funding status not reflected in the balance sheet that fall outside a 10% corridor are recognized systematically and gradually over subsequent periods. The valuation must be as of the balance sheet date or at a date not more than three months prior to the balance sheet date. The companies within the Group have various pension schemes in accordance with local conditions and practices of the countries in which they operate. The Group operates defined-benefit schemes with retirement, disability, death and termination income benefits in Finland, Norway and France. The total active membership of these defined benefit schemes was approximately 1,500 as at December 31, 2001, July 31, December 31, 2002, and December 31, 2003, respectively.
VALTRA GROUP 25 NOTES TO COMBINED FINANCIAL STATEMENTS (AMOUNTS IN MILLIONS OF EURO EXCEPT FOR PERSONNEL DATA) Under US GAAP, SFAS No. 87, Employers' Accounting for Pensions, certain elements of the Finnish TEL, primarily related to the disability plan as well as pension plans in other countries, result in accounting for the plans as defined benefit plans. An actuarial valuation of the defined benefit plans has been carried out by an independent, professionally qualified actuary using the Projected Unit method. The principal actuarial assumptions adopted for the valuation for Finnish TEL and foreign pension plans at the valuation date were as follows: Finnish December 31, July 31, December 31, 2003 2002 2002 2001 Discount rate........................ 5,5% 5,8% 5,8% 5,8% Rate of compensation increase........ 3,5% 4,0% 4,0% 4,0% Expected return on plan assets....... NA NA NA NA Foreign December 31, July 31, December 31, 2003 2002 2002 2001 Discount rate........................ 5,25% 6,0% 5,7% 5,7% Rate of compensation increase........ 3,0% 3,0% 3,0% 3,0% Expected return on plan assets....... NA NA NA NA It was not feasible to apply SFAS No. 87 on the effective date specified in the standard for the pension schemes. SFAS No. 87 calculations were made for the first time for these schemes as of December 31, 2000. The amount of the liabilities that were recorded directly to equity in the opening balance sheet January 1, 2001 under US GAAP for these schemes was (Euro) 8,2 million and the amortization period used for the transitional liability was 15 years beginning January 1, 1987, the effective date of SFAS No. 87. Based on actuarial calculations the SFAS 87 liability as of 31 July 2002, 31 December 2002 and 31 December 2003 amounted to (Euro) 12,5 million, (Euro) 13,2 million and (Euro) 15,1 million. Total adjustment of (Euro) (1,1) million, (Euro) (0,8) million and (Euro) (1,8) million have been made to net income for the period from January 1, 2002 to July 31, 2002, for the period August 1, 2002 to December 31, 2002 and for the period ended December 31, 2003 respectively.
VALTRA GROUP 26 NOTES TO COMBINED FINANCIAL STATEMENTS (AMOUNTS IN MILLIONS OF EURO EXCEPT FOR PERSONNEL DATA) d) DEFERRED INCOME TAXES Under Finnish GAAP the company has adopted the income statement approach under which deferred taxes are based on timing differences. Timing differences arise when revenues and expenses are recorded in different accounting periods for accounting and taxation purposes. For US GAAP purposes, deferred taxes are based on temporary differences. Temporary differences arise when the amount of the tax bases of assets or liabilities and their reported amounts in financial statements differ. Deferred tax liabilities on purchase accounting adjustments described in note f) as of August 1, 2002, amounted to (Euro) 66 million, as of December 31, 2002 to (Euro) 62 million, and as of December 31, 2003 to (Euro) 57 million. Under US GAAP, deferred taxes are provided on all temporary differences between the financial statement basis and tax basis of investments in subsidiaries, unless an exception applies. Under Finnish GAAP, no deferred taxes have been provided on such differences. Total adjustments of (Euro) (0,5) million, (Euro) 43,5 million, and (Euro) (31,9) million have been made to net income for the period from January 1, 2002 to July 31, 2002, for the period August 1, 2002 to December 31, 2002, and for the year ended December 31, 2003, respectively. Adjustments of (Euro) 1,7 million, (Euro) (16,1) million, and (Euro) (52,2) million have been to the balance sheet as of July 31, 2002, December 31, 2002, and December 31, 2003, respectively. e) RESTRUCTURING COSTS AND OTHER PROVISIONS For disposals initiated prior to December 31, 2002, the recognition of restructuring costs under US GAAP was as specified under EITF 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (Including Certain Costs Incurred in a Restructuring), which required that a liability be recognized at the date of an entity's commitment to an exit plan. This is usually the date on which management, having appropriate level of authority, committed to the restructuring plan, identified all significant actions, including the method of disposition and the expected date of completion, and, in the case of employee terminations, specified the severance arrangements and communicated them to employees. For disposals initiated after December 31, 2002, companies are required to apply the provisions of SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities, which requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. In certain respects under Finnish GAAP, the Group has recognized certain provisions that would not qualify under US GAAP. Accordingly, under US GAAP, non-qualifying provisions related primarily to future costs without any present or constructive obligation as a result of past events have been reversed. The Group accounted for all restructuring initiatives prior to December 31, 2002 under EITF 94-3. The adjustment for provisions not meeting the US GAAP criteria amounted to (Euro) 3,6 million, (Euro) 6,6 million and (Euro) 3,0 million as of 31 July 2002, 31 December 2002 and 31 December 2003. The impact on the net income for the period January 1, 2002 to July 31, 2002,
VALTRA GROUP 27 NOTES TO COMBINED FINANCIAL STATEMENTS (AMOUNTS IN MILLIONS OF EURO EXCEPT FOR PERSONNEL DATA) the period from August 1, 2002 to December 31, 2002 and for the year ended December 31, 2003 amounted to (Euro) 1,1 million, (Euro) 4,5 million and (Euro) (3,8) million respectively. f) PUSH DOWN BASIS OF ACCOUNTING Under Finnish GAAP, the cost of a company acquired in a purchase business combination includes direct costs of acquisition. The excess of the cost of the acquired company over the amounts assigned to identifiable assets, based upon the value of the assets less the liabilities assumed, is recorded as goodwill. However, the concept of allocating the purchase consideration based on the estimated fair values of acquired tangible and intangible assets and liabilities assumed is less specific in Finnish GAAP than in US GAAP. Generally, tangible assets are recorded at fair value, while other assets acquired and liabilities assumed are recorded at net book rather than fair value, as required under US GAAP. In addition, under Finnish GAAP, goodwill from acquisitions is not required to be "pushed down" to the underlying businesses as required under SEC Staff Accounting Bulletin No. 73, Push Down Basis of Accounting Required in Certain Limited Circumstances. Under US GAAP, business combinations prior to June 30, 2001 were accounted for in accordance with Accounting Principles Bulletin ("APB") No. 16, Business Combinations. In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 141, Business Combinations and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 requires that acquired intangible assets are required to be recognized and reported separately from goodwill. SFAS No. 142 requires that goodwill no longer be amortized, but instead tested for impairment at least annually. In addition, SFAS No. 142 requires recognized intangible assets with a definite useful life to be amortized over their respective estimated useful lives and reviewed for impairment in accordance with SFAS No. 144, Accounting for the Impairment of Disposal of Long-Lived Assets. Any recognized intangible assets determined to have indefinite useful lives will not be amortized, but instead tested for impairment in accordance with SFAS No. 142 until its life is determined to no longer be indefinite. SFAS No. 142 was applied starting with fiscal years beginning after December 15, 2001. Under Finnish GAAP, goodwill arising from acquisitions is generally capitalized and amortized over the estimated useful life, not to exceed 20 years. Under US GAAP, prior to January 1, 2002, goodwill and all identifiable intangible assets arising from acquisitions were capitalized and amortized over their estimated useful lives. A useful life of 20 years was also utilized by the Group for goodwill amortization purposes under US GAAP prior to January 1, 2002, when amortization ceased. ACQUISITION OF VALTRA BUSINESS BY PARTEK In April 1997, Partek Corporation acquired Sisu Corporation, the parent company of Valtra. The acquisition was paid through a combination of cash and the issuance of new shares. The purchase consideration allocated to the Valtra Group was approximately (Euro) 90 million as determined by the fair value of the Group as a percentage of the fair value for the entire Sisu Corporation. For US GAAP purposes, Partek's acquisition of Sisu was accounted for under APB No. 16 as a purchase. Under Finnish GAAP, all assets acquired and liabilities were recognized at cost. In accordance with US GAAP, the purchase price was allocated to the fair value of assets acquired and liabilities assumed. The acquisition of Sisu resulted in negative goodwill for the Valtra Group of
VALTRA GROUP 28 NOTES TO COMBINED FINANCIAL STATEMENTS (AMOUNTS IN MILLIONS OF EURO EXCEPT FOR PERSONNEL DATA) approximately (Euro) 1 million which was allocated proportionately to reduce the values initially assigned to long-lived assets. PARTEK ACQUISITION BY KONE In 2002, KONE acquired Partek, which included the Group, with a public tender offer. Under Finnish GAAP KONE consolidated Partek as of July 1, 2002. For purposes of Finnish GAAP, the acquisition date for accounting purposes can be pushed back to the most recent interim period. Under US GAAP, the acquisition date is considered to be August 23, 2002 as this is the date that KONE gained effective control as determined under US GAAP. However, an acquisition date of August 1, 2002 has been used for US GAAP accounting purposes because this followed the end of the most recent accounting period that fell between the initiation and consummation of the transaction. A purchase price of approximate (Euro) 255 million was allocated to the Group based upon the appraised enterprise value of the Group in relation to the enterprise fair value of Partek. Under US GAAP, the combined financial statements of the Group as of the acquisition date reflect the new basis for accounting established for the Group's acquired assets and liabilities assumed based upon the fair values at August 1, 2002. Identified intangibles acquired in the acquisition, along with their estimated useful lives, include the following (in (Euro) millions): Customer relationships 21,4 11 years Acquired Technology 36,6 8 years Dealer Network 42,7 10 years Sisu Tradenames and Trademarks 1,8 10 years Valtra Tradenames and Trademarks 30,9 indefinite Diesel Technology 2,2 4,5 years ----- 135,6 In addition, the Company recorded goodwill of approximately (Euro) 42 million that is not amortized under US GAAP but tested for impairment at least annually. g) GROUP CONTRIBUTION Finland does not apply any tax consolidation. In Finland, profits and losses of companies within a group are combined through group contributions. Group contributions require recording into the accounts. Under Finnish GAAP, group contributions are treated as an expense for the contribution provider and as income for the beneficiary. The parent company in the combined Valtra Group, Valtra Oy paid a group contribution of (Euro) 24,7 million in the period from August 1 to December 31, 2002 to a company within Partek Group, and received a group contribution of (Euro) 110,5 million in the year ended
VALTRA GROUP 29 NOTES TO COMBINED FINANCIAL STATEMENTS (AMOUNTS IN MILLIONS OF Euro EXCEPT FOR PERSONNEL DATA) December 31, 2003 from a company within KONE, which were recorded as extraordinary items under Finnish GAAP Under US GAAP, contributions paid are presented as dividends and a reduction of shareholders' equity and contributions received are presented as a capital contributions and an increase of shareholders' equity. h) ACQUISITION DATE As discussed above, there are different acquisition dates for accounting purposes under Finnish GAAP and US GAAP. As a result of the difference in acquisition dates for the acquisition of Partek by KONE, an adjustment of (Euro) 3,1 million has been made to the income statement for the period from January 1, 2002 to June 30, 2002 to properly state the results of the predecessor company under US GAAP for the period from January 1, 2002 to July 31, 2002. This amount has been reduced from the successor company income statement under Finnish GAAP for the period from July 1, 2002 to December 31, 2002 to properly state the results of the successor company under US GAAP for the period from August 1, 2002 to December 31, 2002. i) LEASING Under Finnish GAAP classification of leases into finance or operating leases is optional. The Group has historically treated all lease agreements as operating leases. Under US GAAP, SFAS No. 13, Accounting For Leases, classifies leases as either operating or capital leases. Under US GAAP, a lease meeting detailed criteria must be treated as a capital lease. The lessee records a capital lease as an asset and an obligation at an amount equal to the lesser of the present value of the minimum lease payments at the beginning of the lease term or the fair value of the leased property. Under US GAAP those leasing agreements which qualify as a capital lease have been adjusted in the US GAAP reconciliation. j) SALE OF RECEIVABLES Under Finnish GAAP, receivables sold to independent finance companies have been derecognized; however under US GAAP, sales of certain receivables in the United States, Canada and Germany do not meet the criteria of SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, for derecognition. Therefore, (Euro) 1,8 million, (Euro) 0,7 million, and (Euro) 13,2 million was reflected as a financial asset and obligation at July 31, 2002, December 31, 2002, and December 31, 2003, respectively, in the balance sheet but did not materially affect net income. k) RECLASSIFICATIONS Subordinated loan from Valtra's parent company (Euro) 74,2 million, presented under Finnish GAAP as a non-current liability, and corresponding loan receivable (Euro) 74,2 million, presented under Finnish GAAP as current receivable, has been removed from the December 31, 2002 US GAAP balance sheet as no cash transaction had occurred before December 31, 2002.
VALTRA GROUP 30 NOTES TO COMBINED FINANCIAL STATEMENTS (AMOUNTS IN MILLIONS OF EURO EXCEPT FOR PERSONNEL DATA) As at December 31, 2003 subordinated loan from Valtra's parent company (Euro) 76,5 million, presented under Finnish GAAP as a non-current liability, has been reclassified in US GAAP balance sheet from non-current to current liabilities. The combined financial statements include the financial statements of Valtra Oy and its wholly and over 50% owned subsidiaries as well as four companies which were under common control of KONE and managed and operated by Valtra. Those companies are Valtra USA, Inc, Partek Holding, Inc, Tracfin Holding Oy and Valtra do Brasil Ltda. During 2003, Valtra do Brasil Ltda and Tracfin Holding Oy were sold from Valtra Oy to another KONE company. For the entities sold from Valtra Oy to KONE, but included in the combined financial statements, the sales have been eliminated and the proceeds of (Euro) 40,1 million received have been presented as current other non-interest bearing liabilities in Finnish GAAP balance sheet. Under US GAAP, this amount has been reclassified to retained earnings. l) CASH FLOW STATEMENTS Combined statements of cash flows are prepared in accordance with Finnish GAAP using International Accounting Standards ("IAS") No. 7, Cash Flow Statements, as amended, which is not materially different from US GAAP. Cash and cash equivalents consist of cash on hand and balances with banks and other liquid short-term investments with original maturity of less than three months. m) CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME According to SFAS No. 130, Reporting Comprehensive Income, comprehensive income generally encompasses all changes in shareholders' equity, except those arising from transactions with owners. Under Finnish GAAP, the Group's comprehensive income differs from the net income only by the amount of the foreign currency translation differences credited or charged to shareholders' equity for the period. Comprehensive income under Finnish GAAP is as follows (in (Euro) millions): SUCCESSOR | PREDECESSOR --------------------------------------|------------------------------- YEAR ENDED PERIOD FROM JULY 1 | PERIOD FROM YEAR ENDED DECEMBER 31, TO DECEMBER 31 | JANUARY 1 TO DECEMBER 31, 2003 2002 | JUNE 30, 2002 2001 --------------------------------------|------------------------------- | Net income under Finnish GAAP 145,9 (6,4) | 13,3 4,7 Other comprehensive income | Foreign currency translation adjustment (2,4) (9,7) | (18,2) (5,6) ----- ----- | ----- ---- Comprehensive income 143,5 (16,1) | (4,9) (0,9) ===== ===== | ===== ====
EXHIBIT 99.2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF THE VALTRA GROUP Valtra is a global tractor and off-road diesel engine manufacturer. Valtra sells its Valtra brand tractors and Sisu brand engines in over 70 countries. Valtra has leading market positions in the Nordic region and in Latin America and is the fifth largest tractor producer in the world. Valtra focuses on the high horsepower tractor segment and produces a majority of the components of its tractors, including engines, transmissions, cabs, rear axles and hydraulics. Valtra was acquired by Kone Corporation in a business combination in August 2002. For Finnish GAAP, the acquisition date was accounted for as of July 1, 2002. Accordingly, a vertical black line has been inserted in the accompanying financial statements to designate the Predecessor and Successor companies. For purposes of Management's Discussion and Analysis of Financial Condition and Results of Operations, the Predecessor and Successor information has been combined, and the analysis is based on amounts as determined under Finnish GAAP. STATEMENTS OF OPERATIONS YEAR ENDED DECEMBER 31, 2003 COMPARED TO YEAR ENDED DECEMBER 31, 2002 Net sales for the year ended December 31, 2003 were (Euro) 852.4 million compared to (Euro) 761.7 million for the year ended December 31, 2002, increasing by (Euro) 90.7 million, or approximately 11.9%. The increase was primarily attributable to improved sales performance in a majority of markets in both the tractor and diesel engine segments. The introduction of new products and an increase in the number of higher horsepower tractors sold contributed to overall improved sales performance. Availability of the Brazilian government subsidized financing program, FINAME, helped to support stronger demand in the Brazilian market during 2003. Gross profit was (Euro) 157.0 million (18.4% of net sales) during the year ended December 31, 2003 compared to (Euro) 137.4 million (18.0% of net sales) during the year ended December 31, 2002. Gross margins improved due to a favorable mix of products sold. Selling, marketing and administrative expenses for the year ended December 31, 2003 were (Euro) 84.2 million (9.9% of net sales) compared to (Euro) 81.1 million (10.6% of net sales) during the year ended December 31, 2002. Selling, marketing and administrative expenses as a percentage of sales decreased between periods primarily due to cost cutting initiatives carried out during 2003. Research and development expenses for the year ended December 31, 2003 were (Euro) 17.0 million (2.0% of net sales) compared to (Euro) 12.2 million (1.6% of net sales) during the year ended December 31, 2002.
Net income for the year ended December 31, 2003 was (Euro) 145.9 million compared to (Euro) 6.9 million for the year ended December 31, 2002. The primary reason for the increase between years was due to group contributions (intercompany dividends within Kone Corporation's Finnish companies) received during the fourth quarter of 2003. Year ended December 31, 2002 Compared to Year Ended December 31, 2001 Net sales for the year ended December 31, 2002 were (Euro) 761.7 million compared to (Euro) 685.5 million during 2001, increasing by (Euro) 76.2 million, or approximately 11.1%. The increase was primarily attributable to improved sales performance in Sweden, Norway and markets outside of Europe, principally in Brazil. Sisu Diesel had record net sales with increases to all customer groups. Gross profit was (Euro) 137.4 million (18.0% of net sales) in 2002 compared to (Euro) 122.2 million (17.8% of net sales) for 2001. Gross margins improved slightly due to improved capacity utilization. Selling, marketing and administrative expenses for 2002 were (Euro) 81.1 million (10.6% of net sales) compared to (Euro) 82.3 million (12.0% of net sales) for 2001. Selling, marketing and administrative expenses decreased between periods primarily due to favorable foreign currency translation impacts. Research and development expenses during 2002 were (Euro) 12.2 million (1.6% of net sales) compared to (Euro) 13.3 million (1.9% of net sales) for 2001. Net income for the year ended December 31, 2002 was (Euro) 6.9 million compared to (Euro) 4.7 million for the year ended December, 31, 2001.
LIQUIDITY AND CAPITAL RESOURCES Valtra had (Euro) 196.6 million in working capital at December 31, 2003 as compared with (Euro) 62.4 million at December 31, 2002 due to cash received related to intercompany contributions in the fourth quarter of 2003. Cash flows provided by operating activities were (Euro) 69.3 million for the year ended December 31, 2003 compared to (Euro) 42.5 million for the year ended December 31, 2002. Capital expenditures for the year ended December 31, 2003 were (Euro) 22.6 million compared to (Euro) 14.3 million for the comparable period in 2002. The increase in capital expenditures was primarily related to factory expansions in the Company's two Finnish manufacturing facilities.
. . . EXHIBIT 99.3 INDEX TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION Unaudited Pro Forma Combined Financial Information P-2 Unaudited Pro Forma Combined Statement of Operations P-3 Notes to Unaudited Pro Forma Combined Statement of Operations P-4 Unaudited Pro Forma Combined Balance Sheet P-6 Notes to Unaudited Pro Forma Combined Balance Sheet P-7 P-1
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION The following unaudited pro forma combined financial information is based on our historical financial statements, adjusted to give effect to the following: - our acquisition of Valtra; - the refinancing of our existing $350.0 million revolving credit facility with a new $300.0 million revolving credit facility and a new $450.0 million term loan facility, which occurred on January 5, 2004; - interim bridge financing of approximately $100.0 million, which occurred on January 5, 2004; and - the issuance of $201.3 million 1 3/4% convertible senior subordinated notes issued on December 23, 2003. The pro forma combined statement of operations data for the year ended December 31, 2003 gives effect to the above transactions as if the transactions occurred as of January 1, 2003. The pro forma combined balance sheet data gives effect to the above transactions as if the transactions had occurred on December 31, 2003. The pro forma combined balance sheet has been presented with separate subtotals to show the effect of the Valtra acquisition and the borrowings under the bridge financing as well as the new revolving credit and term loan facilities. The pro forma combined statement of operations has been presented with separate subtotals to show the effect of the Valtra acquisition and the borrowings under the bridge financing as well as the new revolving credit facility, term loan facility and convertible senior subordinated notes. The pro forma adjustments are described in the accompanying notes and are based on available information and assumptions that our management believes are reasonable. The pro forma financial statements do not purport to represent our results of operations or financial position for any future period or as of any date. The pro forma financial statements should be read in conjunction with our historical consolidated financial statements and the related notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in our Annual Report on Form 10-K for the year ended December 31, 2003, and Valtra's historical combined financial statements and the related notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in this document. The Valtra acquisition will be accounted for in accordance with Statement of Financial Accounting Standards, or SFAS, No. 141, "Business Combinations," and accordingly, we will allocate the purchase price to the assets acquired and liabilities assumed based on their respective fair values as of the closing of the acquisition which will be determined based on valuations and other studies that are currently in process. A preliminary allocation of the purchase price has been made to major categories of assets and liabilities in the accompanying pro forma combined financial information based on estimates and preliminary results of valuations and studies performed to date. The actual allocation of the purchase price and the resulting effect on income from operations may differ materially from the pro forma amounts included herein. Except as explained in the notes to the Unaudited Pro Forma Combined Balance Sheet, we have assumed that the current recorded book value of Valtra's assets and liabilities approximate their fair value. Once we can further analyze Valtra's detailed asset records, we will make an allocation of the purchase price to these assets based on detailed valuations, which may change the amounts of currently recorded book values of Valtra's assets and liabilities thereby changing the amount of goodwill reflected in these pro forma financial statements. In addition, we will review the estimated remaining lives of the assets, which may affect the resulting depreciation and amortization relating to these assets, and accordingly, may affect net income and the pro forma results of operations included herein. During 2002, Kone Corporation acquired Partek Corporation, which included Valtra. Under Finnish GAAP, Kone was not required to push down goodwill to the Valtra businesses acquired, nor was it required to record the fair values of intangible assets acquired. As part of the conversion to US GAAP, the combined financial statements of the Valtra Group were modified to reflect the new basis for accounting established for the acquired assets and liabilities based upon the fair values at August 1, 2002 in accordance with SFAS No. 141. P-2
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 2003 (IN MILLIONS, EXCEPT PER SHARE DATA) Pro Forma Pro Forma Acquisition Financing Pro Forma AGCO Valtra Adjustments Adjustments Combined -------- -------- ----------- ----------- --------- Net sales $3,495.3 $ 962.4 $ (11.5)(3) $ -- $4,446.2 Cost of goods sold 2,878.9 789.8 0.1 (1) -- 3,662.3 (1.2)(2) (11.5)(3) 4.3 (5) 3.4 (7) (1.5)(8) -------- -------- -------- ------- -------- Gross profit 616.4 172.6 (5.1) -- 783.9 Selling, general and administrative expenses 331.6 101.4 1.2 (2) -- 428.2 (0.1)(4) (4.3)(5) (1.6)(8) Engineering expenses 71.4 19.6 (0.7)(8) -- 90.3 Restricted stock compensation expense 0.6 -- -- -- 0.6 Restructuring and other infrequent expenses 27.6 -- 0.1 (4) -- 27.7 Amortization of intangibles 1.7 13.0 (0.1)(9) -- 14.6 -------- -------- -------- ------- -------- Income from operations 183.5 38.6 0.4 -- 222.5 Interest expense, net 60.0 2.6 -- 34.8 (11) 97.4 Other expense, net 25.2 1.7 (0.1)(1) -- 26.8 -------- -------- -------- ------- -------- Income before income taxes and equity in net earnings of affiliates 98.3 34.3 0.5 (34.8) 98.3 Income tax provision (benefit) 41.3 53.1 (38.6)(6) (12.2)(12) 43.8 0.2 (10) -------- -------- -------- ------- -------- Income (loss) before equity in net earnings of affiliates 57.0 (18.8) 38.9 (22.6) 54.5 Equity in net earnings of affiliates 17.4 0.1 -- -- 17.5 -------- -------- -------- ------- -------- Net income (loss) $ 74.4 $ (18.7) $ 38.9 $ (22.6) $ 72.0 ======== ======== ======== ======= ======== Net income per common share: Basic $ 0.99 $ 0.96 ======== ======== Diluted $ 0.98 $ 0.95 ======== ======== Weighted average number of common and common equivalent shares outstanding: Basic 75.2 75.2 ======== ======== Diluted 75.6 75.6 ======== ======== See Notes to Unaudited Pro Forma Combined Statement of Operations. P-3
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS (1) To reclassify Valtra's exchange gains and losses on purchases and sales from cost of goods sold to other expense, net to conform with our presentation. (2) To reclassify Valtra's bad debt expense from cost of goods sold to selling, general and administrative expenses to conform with our presentation. (3) To eliminate sales and purchases between Valtra and AGCO during the year. (4) To reclassify restructuring expenses from selling, general and administrative expenses to restructuring and other infrequent expenses to conform with our presentation. (5) To reclassify shipping and handling costs from selling, general and administrative expenses to cost of goods sold to conform to our presentation. (6) To eliminate the reversal of a deferred tax asset associated with the sale of Valtra's Brazilian operations internally within Kone Corporation. (7) To reflect the non-recurring charge resulting from the write-up of inventories to their estimated fair value. See Note 4 to the Unaudited Pro Forma Combined Balance Sheet. (8) To reflect the change in depreciation expense from adjusting certain property, plant and equipment to estimated fair market value. (9) To reflect the change in the amortization of certain identifiable intangible assets resulting from the preliminary purchase price allocation of the net assets acquired in the acquisition assuming the following estimated fair values (in millions) and amortization periods (see Note 6 to the Unaudited Pro Forma Combined Balance Sheet): Technology and know-how $ 46.7 3 to 7 years Tradenames 1.0 10 years Trademarks 36.9 indefinite Dealer Network 56.2 10 years Customer relationships 16.1 10 years -------- $ 156.9 ======== (10) To reflect an income tax provision for the net pro forma acquisition adjustments. (11) To adjust interest expense in connection with the issuance of the 1 3/4% convertible senior subordinated notes, the bridge loan financing, and the new revolving credit and term loan facilities as follows (in millions): Elimination of historical interest expense on the revolving credit facility at a weighted average borrowing rate of 4.4% $(11.1) Elimination of amortization of revolving credit facility deferred financing costs (1.7) Elimination of amortization of bridge loan deferred commitment fee financing costs (2.0) Interest resulting from new revolving credit facility at a weighted average borrowing rate of 3.5% 11.6 Interest resulting from new term loan facility at a weighted average borrowing rate of 3.8% 17.2 Interest resulting from 1 3/4% convertible senior subordinated notes 3.5 Interest resulting from bridge loan facility at a weighted average borrowing rate of 8.375% 8.4 Amortization of the estimated deferred financing costs associated with the term loan facility and the 1 3/4% convertible senior subordinated notes 2.6 Amortization of the estimated deferred financing costs associated with the bridge loan financing 4.1 Amortization of the estimated deferred financing costs associated with the new revolving credit facility. The pro forma adjustment excludes the write-off of unamortized debt issuance costs related to the existing revolving credit facility of approximately $0.5 million as of December 31, 2003, which was recorded upon the closing of the new revolving credit facility 2.2 ------ $ 34.8 ====== P-4
(12) To reflect an income tax provision for the net pro forma adjustments related to the issuance of the 1 3/4% convertible senior subordinated notes, the bridge loan financing, and the new revolving credit and term loan facilities. P-5
UNAUDITED PRO FORMA COMBINED BALANCE SHEET AS OF DECEMBER 31, 2003 (IN MILLIONS) Pro Forma Pro Forma Acquisition Financing Pro Forma AGCO Valtra(1) Adjustments Adjustments Combined -------- -------- ----------- ----------- --------- ASSETS Current Assets: Cash and cash equivalents $ 147.0 $ 159.2 $ (159.2)(3) $ -- $ -- (147.0)(9) Accounts and notes receivable, net 553.6 295.9 (3.2)(2) -- 706.9 (139.4)(3) Inventories, net 803.6 149.1 3.7 (4) -- 956.4 Other current assets 180.3 13.1 -- -- 193.4 -------- -------- -------- -------- -------- Total current assets 1,684.5 617.3 (445.1) -- 1,856.7 Property, plant and equipment, net 434.2 178.6 (7.3)(5) -- 605.5 Investment in affiliates 91.6 2.0 -- -- 93.6 Deferred tax assets 147.5 -- -- -- 147.5 Other assets 63.8 0.4 -- 14.8 (11) 79.0 Intangible assets, net 417.8 200.9 296.7 (6)(9) -- 915.4 -------- -------- -------- -------- -------- Total assets $2,839.4 $ 999.2 $ (155.7) $ 14.8 $3,697.7 ======== ======== ======== ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable $ 393.2 $ 74.8 $ (3.2)(2) $ -- $ 464.8 Accrued expenses 490.2 101.4 -- -- 591.6 Other current liabilities 45.7 298.0 (280.1)(3)(7) -- 79.3 15.7 (9) -------- -------- -------- -------- -------- Total current liabilities 929.1 474.2 (267.6) -- 1,135.7 Long-term debt 711.1 0.9 617.0 (10) 15.3 (11) 1,344.3 Pensions and postretirement health care benefits 197.5 19.0 -- -- 216.5 Other noncurrent liabilities 95.6 -- -- -- 95.6 -------- -------- -------- -------- -------- Total liabilities 1,933.3 494.1 349.4 15.3 2,792.1 Stockholders' Equity: Common stock 0.8 54.9 (54.9)(8) -- 0.8 Additional paid-in capital 590.3 34.0 (34.0)(8) -- 590.3 Retained earnings 635.0 530.3 (530.3)(8) (0.5)(12) 634.5 Unearned compensation (0.5) -- -- -- (0.5) Accumulated other comprehensive loss (319.5) (114.1) 114.1 (8) -- (319.5) -------- -------- -------- -------- -------- Total stockholders' equity 906.1 505.1 (505.1) (0.5) 905.6 -------- -------- ------- -------- -------- Total liabilities and stockholders' equity $2,839.4 $ 999.2 $ (155.7) $ 14.8 $3,697.7 ======== ======== ======== ======== ======== See Notes to Unaudited Pro Forma Combined Balance Sheet. P-6
NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET (1) Represents the combined balance sheet of Valtra as of December 31, 2003. Certain accounts have been reclassified to conform to our presentation. (2) To eliminate receivables and payables outstanding as of December 31, 2003 related to sales and purchases made between AGCO and Valtra. (3) To eliminate cash and cash equivalents as well as certain interest bearing assets and liabilities that will not be acquired or assumed by AGCO per the terms of the purchase agreement with Kone Corporation. (4) To adjust Valtra inventories to their estimated fair value. (5) To adjust certain property, plant and equipment to estimated fair values based on preliminary valuations and studies performed to date. (6) To adjust certain identifiable intangible assets to preliminary estimated values based upon independent appraisal valuations performed to date. (7) To eliminate deferred tax liabilities that will not be transferred to AGCO. (8) To reflect the elimination of Valtra's historical stockholders' equity. (9) To reflect goodwill from the preliminary purchase price allocation of the net assets acquired related to the acquisition as follows (in millions): Purchase price (Euro 600.6 million at Euro 1.2595/US$1.0 as of December 31, 2003) * $ 756.4 Estimated transaction fees and expenses 8.5 ------- Total purchase price 764.9 Actual book value of Valtra net assets as of December 31, 2003 (505.1) Increase in inventories to estimated fair value (3.7) Decrease in property, plant and equipment to estimated fair value 7.3 Increase in identifiable intangible assets to estimated fair value (6.3) Net assets not assumed 17.6 Tax impact on certain acquired intangibles 15.7 ------- Estimated fair value of net assets acquired (474.5) ------- Estimated goodwill $ 290.4 ======= (*) As of January 5, 2004 the exchange rate was Euro 1.2585/US$1.0 resulting in a purchase price of approximately $755.9 million. The purchase price was Euro 622.0 million on January 5, 2004, which included Euro 21.4 million of cash acquired. The unaudited pro forma balance sheet reflects the net purchase price of Euro 600.6 million, and therefore does not reflect cash acquired. The unaudited pro forma balance sheet also reflects the use of cash on hand of $147.0 million to finance the purchase of Valtra in addition to the issuance of debt (see Note 10). (10) To reflect the net change in long-term debt associated with the following (in millions): Borrowing under bridge loan financing $ 100.0 Borrowing under new revolving credit facility and term loan facility 533.2 Valtra long-term liabilities not assumed (0.9) Deferred fees in connection with the acquisition financing (15.3) ------- $ 617.0 ======= (11) To reflect the following (in millions): Deferred debt issuance fees and expenses in connection with bridge loan financing $ 1.6 Deferred debt issuance fees and expenses in connection with the new revolving credit facility and term loan facility 13.7 ------- Deferred fees associated with the acquisition financing 15.3 Write-off of unamortized debt issuance costs associated with the existing revolving credit facility (0.5) ------- $ 14.8 ======= P-7
(12) To reduce retained earnings for the after-tax effect of a $0.5 million writedown of unamortized debt issuance costs associated with the refinancing of the existing revolving credit facility. P-8
EXHIBIT 99.4 Independent Auditors' Consent The Board of Directors Valtra, Inc.: We consent to the incorporation by reference in the registration statements (No. 333-85404, No. 333-85400, No. 333-75591, No. 333-75589, No. 333-04707, No. 33-91686, No. 33-83104, No. 33-63802, No. 333-104352 and No. 333-113560) on Form S-8 or Form S-3 of AGCO Corporation of our report dated March 12, 2004, with respect to the combined balance sheets of Valtra Group as of June 30, 2002 and December 31, 2002 and 2003, and the related combined statements of operations and cash flows for the year ended December 31, 2001 and the periods from January 1, 2002 to June 30, 2002 (Predecessor) and July 1, 2002 to December 31, 2002 (Successor), and for the year ended December 31, 2003, which report appears in the Form 8-K of AGCO Corporation dated March 24, 2004. KPMG WIDERI OY AB /s/ Solveig Tornroos-Huhtamaki Authorized Public Accountant Helsinki, Finland March 23, 2004