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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ________ TO ________
COMMISSION FILE NUMBER: 1-12930
AGCO CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 58-1960019
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4205 RIVER GREEN PARKWAY, DULUTH, GEORGIA 30096
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code: (770) 813-9200
Securities registered pursuant to section 12(b) of the Act:
<TABLE>
<S> <C>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
Common Stock, ($0.01 par value) New York Stock Exchange
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of common stock held by non-affiliates of the
Registrant as of the close of business on March 12, 2001 was $585,453,526. As of
such date, there were 59,591,828 shares of the registrant's common stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement for the Annual Meeting of
Stockholders to be held on April 25, 2001 are incorporated by reference in Part
III.
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PART I
ITEM 1. BUSINESS
AGCO Corporation ("AGCO," "we," "us," or the "Company") was incorporated in
Delaware in April 1991. Our executive offices are located at 4205 River Green
Parkway, Duluth, Georgia 30096, and our telephone number is 770-813-9200. Unless
otherwise indicated, all references in this Form 10-K to the company include our
subsidiaries.
GENERAL
We are a leading manufacturer and distributor of agricultural equipment and
related replacement parts throughout the world. We sell a full range of
agricultural equipment, including tractors, combines, self-propelled sprayers,
hay tools, forage equipment and implements. Our products are widely recognized
in the agricultural equipment industry and are marketed under the following
brand names: AGCO(R), AGCO(R) Allis, Fendt, Massey Ferguson(R), Hesston(R),
White, GLEANER(R), New Idea(R), AGCOSTAR(R), Tye(R), Farmhand(R), Glencoe(R),
Spra-Coupe(R) and Willmar(R). We distribute our products through a combination
of approximately 7,750 independent dealers and distributors, associates and
licensees. In addition, we provide retail financing in North America, the United
Kingdom, France, Germany, Spain, Ireland and Brazil through our finance joint
ventures with Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A., "Rabobank
Nederland," which we refer to in this document as "Rabobank.".
We were organized in June 1990 by an investment group formed by management
to acquire the successor to the agricultural equipment business of
Allis-Chalmers, a company which began manufacturing and distributing
agricultural equipment in the early 1900s. Since our formation in June 1990, we
have grown substantially through a series of 18 acquisitions for consideration
aggregating approximately $1.4 billion. These acquisitions have allowed us to
broaden our product lines, expand our dealer network and establish strong market
positions in several new markets throughout North America, South America,
Western Europe and the rest of the world. We have achieved significant cost
savings and efficiencies from our acquisitions by eliminating duplicate
administrative, sales and marketing functions, rationalizing our dealer network,
increasing manufacturing capacity utilization and engineering common product
platforms for certain products. In addition, we are focusing our efforts on
long-term growth and profit improvement initiatives including developing new and
innovative products, expanding and strengthening our distribution network,
reducing product costs, maintaining a flexible production strategy, and
utilizing efficient asset management.
PENDING ACQUISITION OF AG-CHEM
In November 2000, we agreed to acquire Ag-Chem for $247 million in stock
and cash, subject to certain closing conditions. Ag-Chem manufactures and
distributes off-road equipment primarily for use in fertilizing agricultural
crops, applying crop protection chemicals, and to a lesser extent, for
industrial waste treatment applications and other industrial uses. Ag-Chem
generates a majority of its consolidated revenues from the sale of
self-propelled, three- and four-wheeled vehicles and related equipment for use
in the application of liquid and dry fertilizers and crop protection chemicals.
Ag-Chem manufactures equipment for use both prior to planting crops and after
crops emerge from the ground. Ag-Chem sells a majority of its products directly
to the end-users of the equipment, which include fertilizer dealers, farm
cooperatives, large growers, municipalities, waste disposal contractors and
mining and construction companies.
The acquisition agreement provides that we will acquire Ag-Chem in exchange
for a combination of cash and shares of our common stock. The value of this
combination will be $25.80 per share of Ag-Chem common stock, or approximately
$247 million, with at least one half of the consideration to be paid in cash. We
anticipate funding the cash component of the purchase price through borrowings
under our revolving credit facility. The composition of the combination of our
common stock and cash to be paid by us will depend upon the closing price of our
common stock on the trading day immediately prior to the closing. We expect to
close the acquisition of Ag-Chem in April 2001.
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TRANSACTION HISTORY
The following is a description of the major acquisitions that we have
completed since our formation:
Hesston Acquisition. In March 1991, we acquired Hesston Corporation,
a leading manufacturer and distributor of hay tools, forage equipment and
related replacement parts. The assets we acquired also included Hesston's
50% interest in a joint venture, Hay and Forage Industries, or HFI, between
Hesston and CNH Global N.V., which manufactures hay and forage equipment
for both parties. Hesston's net sales in its full fiscal year preceding the
acquisition were approximately $91.0 million. The acquisition enabled us to
provide our dealers with a more complete line of farm equipment and to
expand our dealer network.
White Tractor Acquisition. In May 1991, we acquired the White Tractor
Division of Allied Products Corporation. White Tractor's net sales in our
full fiscal year preceding the acquisition were approximately $58.3
million. As a result of our acquisition of White Tractor, we added a new
line of tractors to our product offerings and expanded our North America
dealer network.
Massey Ferguson North American Acquisition. In January 1993, we
entered into an agreement with Varity Corporation to be the exclusive
distributor in the United States and Canada of the Massey Ferguson line of
farm equipment. Concurrently, we acquired the North American distribution
operation of Massey Ferguson Group Limited from Varity. Net sales
attributable to Massey's North American distribution operation in the full
fiscal year preceding the acquisition were approximately $215.0 million.
Our acquisition of Massey North American provided us with access to another
leading brand name in the agricultural equipment industry and enabled us to
expand our dealer network.
White-New Idea Acquisition. In December 1993, we acquired the
White-New Idea Farm Equipment Division of Allied Products Corporation.
White-New Idea's net sales in 1993 were approximately $83.1 million. Our
acquisition of White-New Idea enabled us to offer a more complete line of
planters and spreaders and a broader line of hay and tillage equipment.
Agricredit-North America Acquisition. We acquired Agricredit
Acceptance Company, a retail finance company, from Varity in two separate
transactions. We acquired an initial 50% joint venture interest in
Agricredit in January 1993 and acquired the remaining 50% interest in
February 1994. Our acquisition of Agricredit enabled us to provide more
competitive and flexible financing alternatives to end users in North
America.
Massey Ferguson Acquisition. In June 1994, we acquired Massey from
Varity, including Massey's network of independent dealers and distributors
and associate and licensee companies outside the United States and Canada.
At the time of our the acquisition, Massey was one of the largest
manufacturers and distributors of tractors in the world with fiscal 1993
net sales of approximately $898.4 million (including net sales to us of
approximately $124.6 million). Our acquisition of Massey significantly
expanded our sales and distribution outside North America.
AgEquipment Acquisition. In March 1995, we further expanded our
product offerings through our acquisition of AgEquipment Group, a
manufacturer and distributor of farm implements and tillage equipment.
Through our acquisition of AgEquipment, we added three brands of
agricultural implements to our product line, including no-till and minimum
tillage products, distributed under the Tye, Farmhand and Glencoe brand
names.
Maxion Acquisition. In June 1996, we acquired the agricultural and
industrial equipment business of Iochpe-Maxion S.A. Iochpe-Maxion's
agricultural equipment business had 1995 sales of approximately $265.0
million and was our Massey Ferguson licensee in Brazil, manufacturing and
distributing agricultural tractors and combines under the Massey Ferguson
brand name, and industrial loader-backhoes under the Massey Ferguson and
Maxion brand names. This acquisition expanded our product offerings and
distribution network in South America, particularly in the significant
Brazilian agricultural equipment market.
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Western Combine Acquisition. In July 1996, we acquired certain assets
of Western Combine Corporation and Portage Manufacturing, Inc., our
suppliers of Massey Ferguson combines and other harvesting equipment sold
in North America. This acquisition provided us with access to advanced
technology and increased our profit margin on some of our combines and
harvesting equipment sold in North America.
Agricredit-North America Joint Venture. In November 1996, we sold a
51% interest in Agricredit to a wholly-owned subsidiary of Rabobank. We
retained a 49% interest in Agricredit and now operate Agricredit with
Rabobank as a joint venture. We have similar joint venture arrangements
with Rabobank with respect to our retail finance companies located in the
United Kingdom, France, Germany, Spain and Brazil. In July 2000, the
Agricredit joint venture was renamed AGCO Finance LLC.
Deutz Argentina Acquisition. In December 1996, we acquired the
operations of Deutz Argentina S.A. Deutz Argentina was a manufacturer and
distributor of agricultural equipment, engines and light duty trucks in
Argentina and other markets in South America with 1995 sales of
approximately $109.0 million. Our acquisition of Deutz Argentina
established us as a leading supplier of agricultural equipment in
Argentina. In February 1999, we sold our manufacturing operations in Haedo,
Argentina which will allow us to consolidate the assembly of tractors into
an existing facility in Brazil.
Fendt Acquisition. In January 1997, we acquired the operations of
Xaver Fendt GmbH & Co. KG, commonly referred to as "Fendt." Fendt, which
had 1996 sales of approximately $650.0 million, manufactures and
distributes tractors through a network of independent agricultural
cooperatives, dealers and distributors in Germany and throughout Europe and
Australia. With this acquisition, we have a leading market share in Germany
and France, two of Europe's largest agricultural equipment markets, with
one of the most technologically advanced line of tractors in the world. In
December 1997, we sold Fendt's caravan and motor home business in order to
focus on our core agricultural equipment business.
Dronningborg Acquisition. In December 1997, we acquired the remaining
68% of Dronningborg Industries a/s, which was our supplier of combine
harvesters sold under the Massey Ferguson brand name in Europe. Prior to
this acquisition, we owned 32% of this combine manufacturer. Dronningborg
develops and manufactures combine harvesters exclusively for us. Our
acquisition of Dronningborg enabled us to achieve certain synergies within
our worldwide combine manufacturing.
Argentina Engine Joint Venture. In December 1997, we sold 50% of
Deutz Argentina's engine production and distribution business to Deutz AG,
a global supplier of diesel engines in Cologne, Germany. We retained a 50%
interest in the engine business and now operate it with Deutz AG as a joint
venture. We believe that this joint venture will allow us to share in
research and development costs and provide us with access to advanced
technology.
MF Argentina Acquisition. In May 1998, we acquired the distribution
rights for the Massey Ferguson brand in Argentina. This acquisition
expanded our distribution network in the second largest market in South
America.
Spra-Coupe and Willmar Acquisitions. In July 1998, we acquired the
Spra-Coupe product line, a brand of agricultural self-propelled sprayers
sold primarily in North America. In October 1998, we acquired the Willmar
product line, a brand of agricultural self-propelled sprayers, spreaders
and loaders sold primarily in North America. These two products lines had
combined net sales of approximately $81.8 million in their respective full
fiscal years preceding these acquisitions. These acquisitions expanded our
product offerings to include a full line of self-propelled sprayers.
HFI Acquisition. In May 2000, we acquired from CNH-Global N.V. its
50% share in HFI. The acquisition terminated the joint venture agreement
with CNH, thereby providing us with sole ownership of the facility. HFI
develops and manufactures hay and forage equipment and implements that we
sell under various brand names. In 1999 and 2000, we announced our plan to
close our Coldwater, Ohio, Lockney, Texas and Independence, Missouri
manufacturing facilities and move the majority of production from these
facilities to HFI.
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PRODUCTS
Tractors
Our compact tractors are sold under the AGCO or Massey Ferguson brand name
and typically are used on small farms and in specialty agricultural industries,
such as dairies, landscaping and residential areas. We also offer a full range
of tractors in the utility tractor category, including both two-wheel and
all-wheel drive versions. We sell utility tractors under the Massey Ferguson,
Fendt, AGCO Allis and White brand names. The utility tractors are typically used
on small- and medium-sized farms and in specialty agricultural industries, such
as orchards and vineyards. In addition, we offer a full range of tractors in the
high horsepower segment ranging primarily from 100 to 425 horsepower. High
horsepower tractors typically are used on larger farms and on cattle ranches for
hay production. We sell high horsepower tractors under the Massey Ferguson,
Fendt, AGCO Allis, White and AGCOSTAR brand names. Tractors accounted for
approximately 63% of our net sales in 2000, 64% in 1999 and 62% in 1998.
Combines
We sell combines under the GLEANER, Massey Ferguson, Fendt and AGCO Allis
brand names. Depending on the market, GLEANER and Massey Ferguson combines are
sold with conventional or rotary technology, while the Fendt and AGCO Allis
combines utilize conventional technology. All combines are complemented by a
variety of crop-harvesting heads, available in different sizes, which are
designed to maximize harvesting speed and efficiency while minimizing crop loss.
Combines accounted for approximately 6% of our net sales in 2000, 7% in 1999 and
10% in 1998.
Hay Tools and Forage Equipment, Sprayers, Implements and Other Products
We sell hay tools and forage equipment primarily under the Hesston brand
name and, to a lesser extent, the New Idea, Massey Ferguson and AGCO Allis brand
names. In addition, we offer self-propelled agricultural sprayers that are less
than 500-gallons under the Spra-Coupe brand name and 500- to 1,200-gallon
self-propelled agricultural sprayers under the Willmar brand name.
We also distribute a wide range of implements, planters and other equipment
for our product lines. Tractor-pulled implements are used in field preparation
and crop management. Implements include disk harrows, which improve field
performance by cutting through crop residue, leveling seed beds and mixing
chemicals with the soil; heavy tillage, which breaks up soil and mixes crop
residue into topsoil, with or without prior disking; and field cultivators,
which prepare a smooth seed bed and destroy weeds. Tractor-pulled planters apply
fertilizer and place seeds in the field. Other equipment primarily includes
tractor-pulled manure spreaders, which fertilize fields with controlled
application of sludge or solid manure, and loaders, which are used for a variety
of tasks including lifting and transporting hay crops. We sell implements,
planters and other products under the Hesston, New Idea, Massey Ferguson, AGCO
Allis, Tye, Farmhand, Glencoe, Fendt and Willmar brand names. Hay tools and
forage equipment, sprayers, implements and other products accounted for
approximately 12% of our net sales in 2000, 10% in 1999 and 11% in 1998.
Through our Fieldstar brand precision farming system, we offer software and
hardware products that provide farmers with the capability to enhance
productivity by utilizing global positioning system (GPS) technology, yield
mapping, variable rate planting and application and site specific agriculture.
Many of our tractors, combines, planters, sprayers, tillage and other
application equipment are equipped to employ the Fieldstar system technology at
the customer's option.
Replacement Parts
In addition to sales of new equipment, our replacement parts business is an
important source of revenue and profitability for both us and our dealers. We
sell replacement parts for products sold under all of our brand names, many of
which are proprietary. These parts help keep farm equipment in use, including
products no longer in production. Since most of our products can be economically
maintained with parts and service for a period of ten to 20 years, each product
that enters the marketplace provides us with a potential long-term
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revenue stream. In addition, sales of replacement parts typically generate
higher gross margins and historically have been less cyclical than new product
sales. Replacement parts accounted for approximately 19% of our net sales in
2000, 19% in 1999 and 17% in 1998.
MARKETING AND DISTRIBUTION
We distribute products primarily through a network of independent dealers
and distributors. Our dealers are responsible for retail sales to the
equipment's end user in addition to after-sales service and support of the
equipment. Our distributors may sell our products through a network of dealers
supported by the distributor. Through our acquisitions and dealer development
activities, we have broadened our product line, expanded our dealer network and
strengthened our geographic presence in Western Europe, North America, South
America and the rest of the world. Our sales are not dependent on any specific
dealer, distributor or group of dealers.
Western Europe
We market fully assembled tractors and other equipment in most major
Western European markets directly through a network of approximately 2,900
independent Massey Ferguson and Fendt dealer outlets and agricultural
cooperatives. In addition, we sell through independent distributors and
associates in certain markets, which distribute through approximately 690 Massey
Ferguson and Fendt dealer outlets. In most cases, dealers carry competing or
complementary products from other manufacturers. Sales in Western Europe
accounted for approximately 49% of our net sales in 2000, 56% in 1999 and 46% in
1998.
North America
We market and distribute farm machinery, equipment and replacement parts to
farmers in North America through a network of dealers supporting approximately
6,300 dealer contracts. Each of our approximately 2,300 independent dealers
represents one or more of our brand names. Dealers may also handle competitive
and dissimilar lines of products. We intend to maintain the separate strengths
and identities of our brand names and product lines. Sales in North America
accounted for approximately 29% of our net sales in 2000, 26% in 1999 and 32% in
1998.
South America
We market and distribute farm machinery, equipment and replacement parts to
farmers in South America through several different networks. In Brazil and
Argentina, we distribute products directly to approximately 350 independent
dealers, primarily supporting the Massey Ferguson and AGCO Allis brand names. In
Brazil, federal laws are extremely protective of dealers and prohibit a
manufacturer from selling any of our products within Brazil, except through our
dealer network. Additionally, each dealer has the exclusive right to sell one
manufacturer's product in a designated territory and, as a result, no dealer may
represent more than one manufacturer. Outside of Brazil and Argentina, we sell
our products in South America through independent distributors. Sales in South
America accounted for approximately 10% of our net sales in 2000, 8% in 1999 and
11% in 1998.
Rest of the World
Outside Western Europe, North America and South America, we operate
primarily through a network of approximately 2,200 independent Massey Ferguson
and Fendt distributors and dealer outlets, as well as associates and licensees,
marketing our products and providing customer service support in approximately
100 countries in Africa, the Middle East, Eastern and Central Europe, Australia
and Asia. With the exception of Australia, where we directly support our dealer
network, we generally utilize independent distributors, associates and licensees
to sell our products. These arrangements allow us to benefit from local market
expertise to establish strong market positions with limited investment. In some
cases, we also sell agricultural equipment directly to governmental agencies.
Sales outside Western Europe, North America and South America accounted for
approximately 12% of our net sales in 2000, 10% in 1999 and 11% in 1998.
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In Western Europe and the rest of the world, associates and licensees
provide a significant distribution channel for our products and a source of low
cost production for certain Massey Ferguson products. Associates are entities in
which we have an ownership interest, most notably in India. Licensees are
entities in which we have no direct ownership interest, most notably in Pakistan
and Turkey. The associate or licensee generally has the exclusive right to
produce and sell Massey Ferguson equipment in its home country, but may not sell
these products in other countries. We generally license to these associates
certain technology, as well as the right to use Massey Ferguson's trade names.
We sell products to associates and licensees in the form of components used in
local manufacturing operations, tractor sets supplied in completely knocked down
form for local assembly and distribution, and fully assembled tractors for local
distribution only. In certain countries, our arrangements with associates and
licensees have evolved to where we principally are providing technology,
technical assistance and quality control. In these situations, licensee
manufacturers sell certain tractor models under the Massey Ferguson brand name
in the licensed territory and may also become a source of low cost production
for us.
Parts Distribution
In Western Europe, our parts operation is supported by master distribution
facilities in Desford, England, Ennery, France, and Marktoberdorf, Germany and
regional parts facilities in Spain, Denmark, Germany and Italy. We support our
sales of replacement parts in North America through our master parts warehouse
in Batavia, Illinois and regional warehouses throughout North America. In the
Asia/Pacific region, we support our parts operation through a master
distribution facility in Melbourne, Australia. In South America, replacement
parts are maintained and distributed primarily from our facilities in Brazil and
Argentina.
Dealer Support and Supervision
We believe that one of the most important criteria affecting a farmer's
decision to purchase a particular brand of equipment is the quality of the
dealer who sells and services the equipment. We provide significant support to
our dealers in order to improve the quality of our dealer network. We monitor
each dealer's performance and profitability, as well as establish programs that
focus on the continual dealer improvement. In North America, we also identify
open markets with the greatest potential for each brand and select an existing
dealer, or a new dealer, who would best represent the brand in that territory.
We protect each existing dealer's territory and will not place the same brand
with another dealer within that protected area. Internationally, we also focus
on the development of our dealers. We analyze, on an ongoing basis, the regions
of each country where market share is not acceptable. Based on this analysis, we
may add a dealer in a particular territory, or a nonperforming dealer may be
replaced or refocused on performance standards.
We believe that our ability to offer our dealers a full product line of
agricultural equipment and related replacement parts as well as our ongoing
dealer training and support programs, which focus on business and inventory
management, sales, marketing, warranty and servicing matters and products, help
ensure the vitality and increase the competitiveness of our dealer network. In
addition, we maintain dealer advisory groups to obtain dealer feedback on our
operations. We believe all of these programs contribute to the good relations we
generally enjoy with our dealers.
In addition, we have agreed to provide our dealers with competitive
products, terms and pricing. Dealers also are given volume sales incentives,
demonstration programs and other advertising to assist sales. Our competitive
sales programs, including retail financing incentives, and our policy for
maintaining parts and service availability with extensive product warranties are
designed to enhance our dealers' competitive position. Finally, a limited amount
of financial assistance is provided as part of developing new dealers in key
market locations. In general, dealer contracts are cancelable by either party
within certain notice periods.
WHOLESALE FINANCING
Primarily in the U.S. and Canada, we engage in the standard industry
practice of providing dealers with inventories of farm equipment for extended
periods. The terms of our wholesale finance agreements with our dealers vary by
region and product line, with fixed payment schedules on all sales. In the U.S.
and Canada,
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dealers typically are not required to make an initial down payment, and our
terms allow for an interest-free period generally ranging from one to 12 months,
depending on the product. We also provide financing to dealers on used equipment
accepted in trade. We retain a security interest in all new and used equipment
we finance.
Typically, the sales terms outside the U.S. and Canada are of a shorter
duration, generally ranging from 30 to 180 days. In many cases, we retain a
security interest in the equipment sold on extended terms. In certain
international markets, our sales are backed by letters of credit or credit
insurance.
For sales outside the U.S. and Canada, we do not normally charge interest
on outstanding receivables with our dealers and distributors. In the U.S. and
Canada, where approximately 28% of our net sales were generated in 2000,
interest is charged at or above prime lending rates on outstanding receivable
balances after interest-free periods. These interest-free periods vary by
product and range from one to 12 months with the exception of certain seasonal
products that bear interest after various periods depending on the timing of
shipment and the dealer's or distributor's sales during the preceding year. For
the year ended December 31, 2000, 20.7%, 5.2%, 1.3% and 0.8% of our net sales
had maximum interest-free periods ranging from one to six months, seven to 12
months, 13 to 20 months and 21 months or more. Actual interest-free periods are
shorter than above because the equipment receivable in the U.S. and Canada is
due immediately upon sale by the dealer or distributor to a retail customer.
Under normal circumstances, interest is not forgiven and interest-free periods
are not extended.
RETAIL FINANCING
Through our retail financing joint ventures located in North America, the
United Kingdom, France, Germany, Spain, Ireland and Brazil, we provide a
competitive and dedicated financing source to the end users of our products, as
well as equipment produced by other manufacturers. These retail finance
companies are owned 49% by us and 51% by a wholly-owned subsidiary of Rabobank.
We can tailor retail finance programs to prevailing market conditions and such
programs can enhance our sales efforts.
MANUFACTURING AND SUPPLIERS
Manufacturing and Assembly
We have consolidated the manufacture of our products in locations where
capacity, technology or local costs are optimized. Furthermore, we continue to
balance our manufacturing resources with externally-sourced machinery,
components and replacement parts to enable us to better control inventory and
supply of components. We believe that our manufacturing facilities are
sufficient to meet our needs for the foreseeable future.
Western Europe
Our manufacturing operations in Western Europe are performed in tractor
manufacturing facilities located in Coventry, England, Beauvais, France and
Marktoberdorf, Germany and a combine manufacturing facility in Randers, Denmark.
The Coventry facility produces tractors marketed under the Massey Ferguson, AGCO
Allis and White brand names ranging from 38 to 110 horsepower that are sold
worldwide in fully-assembled form or as CKD kits for final assembly by licensees
and associates. The Beauvais facility produces 70 to 225 horsepower tractors
marketed under the Massey Ferguson, AGCO Allis and White brand names. The
Marktoberdorf facility produces 50 to 260 horsepower tractors marketed under the
Fendt brand name. The Randers facility produces conventional combines under the
Massey Ferguson and Fendt brand names. We also assemble forklifts for sale to
third parties and manufacture hydraulics for our Fendt tractors and for sale to
third parties in our Kempten, Germany facility, and assemble cabs for our Fendt
tractors in Baumenheim, Germany. We have a joint venture with Renault
Agriculture S.A. for the manufacture of driveline assemblies for high horsepower
AGCO and Renault tractors at our facility in Beauvais. By sharing overhead and
engineering costs, this joint venture has resulted in a decrease in the cost of
these components.
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North America
In 1999 and 2000, we closed our hay and forage equipment, planter, loader,
implement and tractor manufacturing facility in Coldwater, Ohio, our planter and
implement manufacturing facility in Lockney, Texas, and our combine
manufacturing facility in Independence, Missouri. The majority of the production
in these facilities has been relocated to the HFI facility in Hesston, Kansas
with the exception of tractor production, which was moved to Beauvais, France,
and loaders and certain implements production, which was outsourced. We
completed the relocation in the first quarter of 2001.
Accordingly, our current manufacturing operations in North America are in
Hesston, Kansas, Willmar, Minnesota and Queretaro, Mexico. The Hesston facility
produces hay and forage equipment marketed under the Hesston, New Idea and
Massey Ferguson brand names, conventional and rotary combines under the GLEANER
and Massey Ferguson brand names, planters under the White brand name and
planters and tillage equipment under the Tye brand name. In Willmar, we produce
self-propelled sprayers marketed under the Spra-Coupe and Willmar brand names,
wheeled loaders marketed under the Willmar and Massey Ferguson brand names, and
dry fertilizer spreaders marketed under the Willmar brand name. In Queretaro, we
assemble tractors for distribution in the Mexican market.
South America
Our manufacturing operations in South America are located in Brazil. In
Canoas, Rio Grande do Sul, Brazil, we manufacture and assemble tractors, ranging
from 50 to 200 horsepower and industrial loader-backhoes. The tractors are sold
under the Massey Ferguson and AGCO Allis band names primarily in South America.
We also manufacture conventional combines marketed under the Massey Ferguson and
AGCO Allis brand names in Santa Rosa, Rio Grande do Sul, Brazil. Our Argentina
Engine Joint Venture manufactures diesel engines for our equipment and for sale
to third parties at a facility in San Luis, Argentina, which is owned by the
joint venture.
Third-Party Suppliers
We believe that managing the level of our company and dealer inventory is
critical to maintaining favorable pricing for our products. Unlike many of our
competitors, we externally source many of our products, components and
replacement parts. Our production strategy minimizes our capital investment
requirements and allows us greater flexibility to respond to changes in market
conditions.
We purchase some of the products we distribute from third-party suppliers.
We purchase standard and specialty tractors from SAME Deutz-Fahr Group S.p.A.
and distribute these tractors worldwide under the Massey Ferguson brand name. In
addition, we purchase some Massey Ferguson tractor models from a licensee in
Turkey and from Iseki & Company, Limited, a Japanese manufacturer. We also
purchase other tractors, implements and hay and forage equipment from various
third-party suppliers.
In addition to the purchase of machinery, third-party companies supply
significant components used in our manufacturing operations, such as engines. We
select third-party suppliers that we believe have the lowest cost, highest
quality and most appropriate technology. We also assist in the development of
these products or component parts based upon our own design requirements. Our
past experience with outside suppliers has been favorable. Although we are
currently dependent upon outside suppliers for several of our products, we
believe that, if necessary, we could identify alternative sources of supply
without material disruption to our business.
SEASONALITY
Generally, retail sales by dealers to farmers are highly seasonal and are a
function of the timing of the planting and harvesting seasons. To the extent
practicable, we attempt to ship products to our dealers and distributors on a
level basis throughout the year to reduce the effect of seasonal retail demands
on our manufacturing operations and to minimize our investment in inventory. Our
financing requirements are
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subject to variations due to seasonal changes in working capital levels, which
typically increase in the first half of the year and then decrease in the second
half of the year.
COMPETITION
The agricultural industry is highly competitive. We compete with several
large national and international full-line suppliers, as well as numerous
short-line and specialty manufacturers with differing manufacturing and
marketing methods. Our two principal competitors on a worldwide basis are Deere
& Company and CNH Global N.V. In certain Western European and South American
countries, we have regional competitors that have significant market share in a
single country or a group of countries.
We believe several key factors influence a buyer's choice of farm
equipment, including the strength and quality of a company's dealers, the
quality and pricing of products, dealer or brand loyalty, product availability,
the terms of financing and customer service. We believe that we have improved,
and we continually seek to improve, in each of these areas. Our primary focus is
increasing farmers' loyalty to our dealers and overall dealer organizational
quality in order to distinguish our company in the marketplace. See "Marketing
and Distribution."
ENGINEERING AND RESEARCH
We make significant expenditures for engineering and applied research to
improve the quality and performance of our products and to develop new products.
Our expenditures on engineering and research were approximately $45.6 million
(2.0% of net sales) in 2000, $44.6 million (1.8% of net sales) in 1999 and $56.1
million (1.9% of net sales) in 1998.
INTELLECTUAL PROPERTY
We own and have licenses to the rights under a number of domestic and
foreign patents, trademarks, trade names and brand names relating to our
products and businesses. We defend our patent, trademark and trade and brand
name rights primarily by monitoring competitors' machines and industry
publications and conducting other investigative work. We consider our
intellectual property rights, including our rights to use the AGCO, AGCO Allis,
Massey Ferguson, Fendt, GLEANER, White, Hesston, New Idea, AGCOSTAR, Tye,
Farmhand, Glencoe, Willmar, Spra-Coupe and Fieldstar trade and brand names
important in the operation of our businesses. However, we do not believe we are
dependent on any single patent, trademark or trade name or group of patents or
trademarks, trade names or brand names. AGCO, GLEANER, Hesston, Massey Ferguson,
AGCOSTAR, New Idea, Tye, Farmhand, Fendt, Glencoe, Spra-Coupe, Willmar and
Fieldstar are our registered trademarks.
ENVIRONMENTAL MATTERS AND REGULATION
We are subject to environmental laws and regulations concerning emissions
to the air, discharges of processed or other types of wastewater and the
generation, handling, storage, transportation, treatment and disposal of waste
materials. These laws and regulations are constantly changing, and the effects
that they may have on us in the future are impossible to predict with accuracy.
We have been made aware of possible solvent contamination at the HFI facility in
Hesston, Kansas. We are investigating the extent of any possible contamination
in conjunction with the appropriate state authorities. It is our policy to
comply with all applicable environmental, health and safety laws and
regulations, and we believe that any expense or liability we may incur in
connection with any noncompliance with any law or regulation or the cleanup of
any of our properties will not have a material adverse effect on us. We believe
that we are in compliance, in all material respects, with all applicable laws
and regulations.
The U.S. Environmental Protection Agency has issued regulations concerning
permissible emissions from off-road engines. We do not anticipate that the cost
of compliance with the regulations will have a material impact on us.
9
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Our international operations are also subject to environmental laws, as
well as various other national and local laws, in the countries in which we
manufacture and sell our products. We believe that we are in compliance with
these laws in all material respects that and the cost of compliance with these
laws in the future will not have a material adverse effect on us.
REGULATION AND GOVERNMENT POLICY
Domestic and foreign political developments and government regulations and
policies directly affect the agricultural industry in the U.S. and abroad and
indirectly affect the agricultural equipment business. The application or
modification of existing laws, regulations or policies or the adoption of new
laws, regulations or policies could have an adverse effect on our business.
We are subject to various national, federal, state and local laws affecting
our business, as well as a variety of regulations relating to such matters as
working conditions and product safety. A variety of state laws regulate our
contractual relationships with our dealers. These laws impose substantive
standards on the relationship between us and our dealers, including events of
default, grounds for termination, non-renewal of dealer contracts and equipment
repurchase requirements. Such state laws could adversely affect our ability to
rationalize our dealer network.
EMPLOYEES
As of December 31, 2000, we employed approximately 9,800 employees,
including approximately 2,400 employees in the U.S. and Canada. A majority of
our employees at our manufacturing facilities, both domestic and international,
are represented by collective bargaining agreements with expiration dates
ranging from 2001 to 2005. We currently do not expect any significant
difficulties in renewing these agreements.
FINANCIAL INFORMATION ON GEOGRAPHICAL AREAS
For financial information on geographic areas, see pages 56 and 57 of this
Form 10-K under the caption "Segment Reporting" which information is
incorporated herein by reference.
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ITEM 2. PROPERTIES
Our principal properties as of December 31, 2000 were as follows:
<TABLE>
<CAPTION>
LEASED OWNED
LOCATION DESCRIPTION PROPERTY (SQ. FT.) (SQ. FT.)
-------- -------------------- --------- ---------
<S> <C> <C> <C>
North America:
Duluth, Georgia............................. Corporate Headquarters 125,000
Coldwater, Ohio (A)......................... Manufacturing 1,490,000
Hesston, Kansas............................. Manufacturing 1,276,500
Independence, Missouri (A).................. Manufacturing 450,000
Lockney, Texas (A).......................... Manufacturing 190,000
Queretaro, Mexico........................... Manufacturing 13,500
Willmar, Minnesota.......................... Manufacturing 223,400
Kansas City, Missouri....................... Warehouse 425,000
Batavia, Illinois........................... Parts Distribution 310,200
International:
Coventry, United Kingdom.................... Regional Headquarters/Manufacturing 4,135,150
Beauvais, France (B)........................ Manufacturing 2,720,000
Marktoberdorf, Germany...................... Manufacturing 2,411,000
Baumenheim, Germany......................... Manufacturing 1,249,000
Kempten, Germany............................ Manufacturing 582,000
Randers, Denmark............................ Manufacturing 683,000
Haedo, Argentina............................ Parts Distribution/Sales Office 32,366
Noetinger, Argentina (A).................... Warehouse 152,820
San Luis, Argentina (C)..................... Manufacturing 57,860
Canoas, Rio Grande do Sul, Brazil........... Regional Headquarters/Manufacturing 452,400
Santa Rosa, Rio Grande do Sul, Brazil....... Manufacturing 297,100
Ennery, France.............................. Parts Distribution 861,000
Sunshine, Victoria, Australia............... Regional Headquarters 37,200
Tottenham, Victoria, Australia.............. Parts Distribution 180,000
Stoneleigh, United Kingdom.................. Training Facility/Office 38,000
</TABLE>
---------------
(A) We closed our production facilities in Coldwater, Ohio, Independence,
Missouri, Lockney, Texas and Noetinger, Argentina in 2000. The Coldwater,
Independence and Noetinger facilities currently are being marketed for sale.
(B) Includes the GIMA Joint Venture, in which we own a 50% interest.
(C) Owned by the Argentina Engine Joint Venture, in which the Company has a 50%
interest.
We consider each of our facilities to be in good condition and adequate for
its present use. We believe that we have sufficient capacity to meet our current
and anticipated manufacturing requirements.
ITEM 3. LEGAL PROCEEDINGS
We are a party to various legal claims and actions incidental to our
business. We believe that none of these claims or actions, either individually
or in the aggregate, is material to our business or financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
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EXECUTIVE OFFICERS OF THE REGISTRANT
The table below sets forth information as of March 21, 2001 with respect to
each person who is an executive officer of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITIONS
---- --- ---------
<S> <C> <C>
Robert J. Ratliff.......................... 69 Executive Chairman of the Board
John M. Shumejda........................... 55 President, Chief Executive Officer and
Director
Edward R. Swingle.......................... 59 Senior Vice President of Sales and
Marketing, North and South America
Adri Verhagen.............................. 59 Senior Vice President of Sales and
Marketing, Europe/Africa/Middle East and
East Asia/Pacific
Norman L. Boyd............................. 57 Senior Vice President of Corporate
Development
Stephen D. Lupton.......................... 56 Senior Vice President and General Counsel
Donald R. Millard.......................... 53 Senior Vice President and Chief Financial
Officer
Dexter E. Schaible......................... 51 Senior Vice President of Worldwide
Engineering and Development
</TABLE>
Robert J. Ratliff has been our Executive Chairman of the Board of Directors
since January 1999 and our Chairman of the Board of Directors since August 1993,
and a Director since June 1990. Mr. Ratliff previously served as our Chief
Executive Officer from January 1996 until November 1996 and from August 1997 to
February 1999, and our President and Chief Executive Officer from June 1990 to
January 1996. Mr. Ratliff is also a director of the National Association of
Manufacturers and the Equipment Manufacturers Institute. Mr. Ratliff is a member
of the Board of Councilors of the Carter Center.
John M. Shumejda has been a Director since February 1999. He has been our
Chief Executive Officer and President since February 1999. He served as our
President and Chief Operating Officer from January 1998 to February 1999 and
Executive Vice President of Technology and Manufacturing from February 1997 to
January 1998. Mr. Shumejda was President of Corporate Operations and Technology
from August 1996 to February 1997, Executive Vice President of Technology and
Development from January 1996 to August 1996 and Executive Vice President and
Chief Operating Officer from January 1993 to January 1996.
Edward R. Swingle has been Senior Vice President of Sales and Marketing,
North and South America since June 1999. Mr. Swingle was Senior Vice President
of Worldwide Marketing from September 1998 to May 1999, Vice President of
Special Projects from July 1998 to September 1998, Vice President of Parts,
North America from July 1996 to July 1998, Vice President of Parts, Americas
from February 1995 to July 1996 and Vice President of Marketing from May 1993 to
February 1995.
Adri Verhagen has been Senior Vice President of Sales and Marketing,
Europe/Africa/Middle East and East Asia/Pacific since June 1999. Mr. Verhagen
was Vice President of Sales, Europe/Africa/Middle East from September 1998 to
May 1999, Director/General Manager, East Asia/Pacific from October 1995 to
September 1998 and Managing Director, Massey Ferguson of Australia Ltd. from
July 1979 to October 1995.
Norman L. Boyd has been Senior Vice President of Corporate Development
since October 1998. Mr. Boyd was Vice President of Europe/Africa/Middle East
Distribution from February 1997 to September 1998, Vice President of Marketing,
Americas from February 1995 to February 1997 and Manager of Dealer Operations
from January 1993 to February 1995.
Stephen D. Lupton has been Senior Vice President and General Counsel since
June 1999. Mr. Lupton was Vice President of Legal Services, International from
October 1995 to May 1999, and Director of Legal Services, International from
June 1994 to October 1995. Mr. Lupton was Director of Legal Services of Massey
Ferguson from February 1990 to June 1994.
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Donald R. Millard has been Senior Vice President and Chief Financial
Officer since October 2000. Mr. Millard was previously President, Chief
Executive Officer and a director of Matria Heathcare, Inc. from October 1997
until October 2000. From October 1997 to October 1999 Mr. Millard served as
Chief Financial Officer of Matria Healthcare. Mr. Millard also served as Senior
Vice President -- Finance, Chief Financial Officer and Treasurer of Matria
Healthcare from March 1996 to October 1997. Mr. Millard is a director of First
Union Bank, Atlanta, Georgia, Coast Dental Services, Inc. and American
HomePatient, Inc.
Dexter E. Schaible has been Senior Vice President of Worldwide Engineering
and Development since October 1998. Mr. Schaible was Vice President of Worldwide
Product Development from February 1997 to October 1998, Vice President of
Product Development from October 1995 to February 1997 and Director of Product
Development from September 1993 to October 1995.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock is listed on the New York Stock Exchange ("NYSE") and
trades under the symbol AG. As of the close of business on March 12, 2001, the
closing stock price was $10.08, and there were 688 stockholders of record. The
following table sets forth, for the periods indicated, the high and low sales
prices for our common stock for each quarter within the last two fiscal years,
as reported on the NYSE.
<TABLE>
<CAPTION>
DIVIDENDS
(IN DOLLARS) HIGH LOW DECLARED
------------ ------ ------ ---------
<S> <C> <C> <C>
2000
First Quarter............................................. $13.88 $10.06 $ .01
Second Quarter............................................ 14.38 10.56 .01
Third Quarter............................................. 13.06 10.00 .01
Fourth Quarter............................................ 12.13 9.69 .01
</TABLE>
<TABLE>
<CAPTION>
DIVIDENDS
(IN DOLLARS) HIGH LOW DECLARED
------------ ------ ------ ---------
<S> <C> <C> <C>
1999
First Quarter............................................. $ 8.56 $ 6.06 $ .01
Second Quarter............................................ 12.94 6.31 .01
Third Quarter............................................. 13.50 8.69 .01
Fourth Quarter............................................ 14.13 9.94 .01
</TABLE>
We historically have paid a regular dividend of $0.01 per share per
quarter. However, under the indenture governing our 8 1/2% Senior Subordinated
Notes due 2006, we currently are unable to pay any cash dividends. There can be
no assurance that we will pay dividends in the future.
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ITEM. 6. SELECTED FINANCIAL DATA
The following tables present our selected consolidated financial data. The
data set forth below should be read together with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and our historical
consolidated financial statements and the related notes. Our operating data for
the fiscal years ended December 31, 2000, 1999, 1998, 1997 and 1996 and the
selected balance sheet data for the years then ended, are derived from our
audited consolidated financial statements, which were audited by Arthur Andersen
LLP, independent public accountants. The historical financial data may not be
indicative of our future performance.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Net sales.................................... $2,336.1 $2,436.4 $2,970.8 $3,253.9 $2,342.7
-------- -------- -------- -------- --------
Gross profit................................. 376.6 357.7 539.3 668.4 470.0
-------- -------- -------- -------- --------
Income from operations(1).................... 65.8 40.6 155.7 303.9 201.5
Net income (loss)(1)......................... $ 3.5 $ (11.5) $ 60.6 $ 168.7(2) $ 125.9(2)
Net income (loss) per common
share -- diluted(1)........................ $ 0.06 $ (0.20) $ 0.99 $ 2.71(2) $ 2.20(2)
Weighted average shares
outstanding -- diluted..................... 59.7 58.7 61.2 62.1 57.4
Dividends declared per common share.......... $ 0.04 $ 0.04 $ 0.04 $ 0.04 $ 0.04
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-----------------------------------------------------
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
(IN MILLIONS, EXCEPT NUMBER OF EMPLOYEES)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.................... $ 13.3 $ 19.6 $ 15.9 $ 31.2 $ 41.7
Working capital.............................. 603.9 764.0 1,029.9 884.3 750.5
Total assets................................. 2,104.2 2,273.2 2,750.4 2,620.9 2,116.5
Total debt................................... 570.2 691.7 924.2 727.4 567.1
Stockholders' equity......................... 789.9 829.1 982.1 991.6 774.6
OTHER DATA:
Number of employees.......................... 9,785 9,287 10,572 11,829 7,801
</TABLE>
---------------
(1) These amounts include restructuring and other infrequent expenses of $21.9
million, $24.5 million, $40.0 million, $18.2 million, and $22.3 million for
the years ended December 31, 2000, 1999, 1998, 1997 and 1996, respectively.
The effect of these expenses reduced net income per common share on a
diluted basis by $0.22, $0.26, $0.41, $0.19, and $0.25 for the years ended
December 31, 2000, 1999, 1998, 1997 and 1996, respectively. See Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- "Restructuring and Other Infrequent Expenses."
(2) Amounts for the years ended December 31, 1997 and 1996 under net income
(loss) include extraordinary losses, net of taxes, for the write-off of
unamortized debt costs related to the refinancing of our revolving credit
facility of $2.1 million, or $0.03 per share, in 1997 and $3.5 million, or
$0.06 per share in 1996.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
We are a leading manufacturer and distributor of agricultural equipment and
related replacement parts throughout the world. We sell a full range of
agricultural equipment, including tractors, combines, hay tools, sprayers,
forage equipment and implements. We distribute our products through a
combination of approximately 7,750 independent dealers, distributors, associates
and licensees. In addition, we provide retail financing in North America, the
United Kingdom, France, Germany, Spain, Ireland and Brazil through our finance
joint ventures with Rabobank.
RESULTS OF OPERATIONS
We record sales when we ship equipment and replacement parts to our
independent dealers, distributors or other customers. To the extent practicable,
we attempt to ship products to our dealers and distributors on a level basis
throughout the year to reduce the effect of seasonal demands on our
manufacturing operations and to minimize our investment in inventory. However,
retail sales by dealers to farmers are highly seasonal and are a function of the
timing of the planting and harvesting seasons. In certain markets, particularly
in North America, there is often a time lag, which varies based on the timing
and level of retail demand, between the date we record a sale and the date a
dealer sells the equipment to a retail customer. During this time lag between
the wholesale and retail sale, dealers may not return equipment to us unless we
terminate a dealer's contract or agree to accept returned products. Commissions
payable under our salesman incentive programs are paid at the time of retail
sale, as opposed to when products are sold to dealers.
The following table sets forth, for the periods indicated, the percentage
relationship to net sales of certain items included in our Consolidated
Statements of Operations:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
2000 1999 1998
----- ----- -----
<S> <C> <C> <C>
Net sales................................................... 100.0% 100.0% 100.0%
Cost of goods sold.......................................... 83.9 85.3 81.8
----- ----- -----
Gross profit.............................................. 16.1 14.7 18.2
Selling, general and administrative expenses................ 9.8 9.6 9.2
Engineering expenses........................................ 2.0 1.8 1.9
Restructuring and other infrequent expenses................. 0.9 1.0 1.4
Amortization of intangibles................................. 0.6 0.6 0.5
----- ----- -----
Income from operations.................................... 2.8 1.7 5.2
Interest expense, net....................................... 2.0 2.4 2.3
Other expense, net.......................................... 1.4 0.6 0.4
----- ----- -----
Income (loss) before income taxes, equity in net earnings
of affiliates.......................................... (0.6) (1.3) 2.5
Provision (benefit) for income taxes........................ (0.3) (0.4) 0.9
----- ----- -----
Income (loss) before equity in net earnings of
affiliates............................................. (0.3) (0.9) 1.6
Equity in net earnings of affiliates........................ 0.4 0.4 0.5
----- ----- -----
Net income (loss)......................................... 0.1% (0.5)% 2.1%
===== ===== =====
</TABLE>
2000 COMPARED TO 1999
Net income in 2000 was $3.5 million, or $0.06 per diluted share, compared
to a loss of $11.5 million, or $0.20 per diluted share, in 1999. Our results
included restructuring and other infrequent expenses ("restructuring expenses")
of $21.9 million, or $0.22 per diluted share, in 2000 and $24.5 million, or
$0.26 per diluted share, in 1999 associated with the closure of manufacturing
facilities announced in 1999 and 2000. In addition, the results for 2000
included an $8.0 million loss, or $0.08 per share, associated with the
completion of an accounts receivable securitization facility in January 2000
(see "Liquidity and Capital Resources"). Our
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results improved in 2000 primarily due to improved gross margins resulting from
cost of sales reductions achieved through facility rationalizations and other
initiatives.
Acquisitions
In May 2000, we acquired from CNH Global N.V. its 50% share in Hay and
Forage Industries ("HFI") for $10 million. This acquisition terminated a joint
venture agreement pursuant to which we and CNH each owned 50% interests in HFI,
thereby providing us with sole ownership. HFI develops and manufactures hay and
forage equipment and implements that we sell under various brand names.
Retail Sales
Demand for agricultural equipment in 2000 showed mixed results within the
major markets of the world compared to 1999. Low commodity prices caused by high
global commodity stocks and lower export demand for farm commodities have
continued to adversely affect worldwide demand for new equipment purchases over
the past two years.
In the United States and Canada, industry unit retail sales of tractors and
combines for 2000 increased approximately 8% and 5%, respectively, compared to
1999. Despite a lack of significant changes in commodity prices, there were
moderate improvements in the core agricultural segments of the industry, which
may have been influenced by aggressive pricing actions by competitors. Our unit
retail sales of tractors and combines in the United States and Canada decreased
in 2000 compared to 1999.
In Western Europe, industry unit retail sales of tractors for 2000 declined
approximately 8% compared to 1999. The reduction was experienced in all
significant Western European markets. Our unit retail sales in Western Europe in
2000 also declined compared to 1999. We have experienced favorable acceptance of
new tractor lines introduced in 1999 and 2000. However, retail unit sales of our
UK-built products have been negatively impacted by the weakness of the Euro
versus the British pound.
Industry unit retail sales of tractors in South America for 2000 increased
approximately 16% compared to 1999. In the major market of Brazil, industry
retail sales increased approximately 28%, with significant increases since June
2000 due to full availability of a supplemental Brazilian government subsidized
retail financing program. In the remaining South American markets, including
Argentina, retail unit sales decreased due to economic uncertainty and
tightening credit. Our unit retail sales of tractors in South America also
increased compared to 1999.
In most other international markets, our net sales were higher than the
prior year, particularly in the Middle East and Far East, primarily due to
improved industry demand.
Statements of Operations
Net sales for 2000 were $2.3 billion compared to $2.4 billion for 1999. Net
sales for 2000 decreased by approximately $181 million as a result of the
foreign currency translation effect of the weakening Euro and British pound in
relation to the U.S. dollar. Excluding the impact of currency translation, net
sales for 2000 were approximately 3% above 1999.
Regionally, net sales in North America increased by $51.7 million, or 8%,
compared to 1999. The increase was the result of our efforts in 1999 to lower
dealer inventory levels by reducing wholesale shipments to dealers. In the
Europe/Africa/Middle East region, net sales in 2000 decreased by $191.1 million,
or 13%, compared to 1999, primarily due to the negative impact of foreign
currency translation and industry declines in Western Europe. Net sales in South
America increased by $37.0 million, or 19%, compared to 1999, due to favorable
market conditions in Brazil. In the Asia/Pacific region, net sales increased by
$2.1 million, or 2%, compared to 1999, primarily due to improvements in market
demand in the Far East markets.
Gross profit was $376.6 million (16.1% of net sales) for 2000 compared to
$357.7 million (14.7% of net sales) for 1999. Gross margins improved in 2000
primarily due to cost reduction initiatives, including the impact of facility
rationalizations, and lower sales incentive costs, particularly on used
equipment. In addition,
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gross margins were negatively impacted in 1999 by a $5.0 million write-down of
production inventory related to closure of our Coldwater, Ohio and Lockney,
Texas manufacturing facilities.
Selling, general and administrative expenses ("SG&A expenses") for 2000
were $228.2 million (9.8% of net sales) compared to $233.2 million (9.6% of net
sales) for 1999. The increase as a percentage of net sales was due to lower
sales volume in 2000 compared to 1999. Engineering expenses for 2000 were $45.6
million (2.0% of net sales) compared to $44.6 million (1.8% of net sales) for
1999. The increase in engineering expenses was primarily due to the addition of
HFI's engineering expenses subsequent to our acquisition of HFI.
We recorded restructuring and other infrequent expenses of $21.9 million
and $24.5 million in 2000 and 1999, respectively. The restructuring expenses
related to the closing of its Coldwater, Ohio, Independence, Missouri, Lockney,
Texas and Noetinger, Argentina manufacturing facilities announced in 1999 and
2000. These restructuring expenses related to employee severance, facility
closure costs, the write-down of property, plant and equipment and production
transition costs. In addition, the restructuring expenses in 2000 were net of a
$3.0 million reduction related to a reversal of restructuring reserves
established in 1997. See "Restructuring and Other Infrequent Expenses" for
additional information.
Income from operations was $65.8 million for 2000 compared to $40.6 million
in 1999. Excluding restructuring expenses, operating income was $87.7 (3.8% of
net sales) in 2000 compared to $65.1 million (2.7% of net sales) in 1999.
Operating income increased primarily as a result of improved gross margins
primarily related to cost of sales reductions achieved in 2000. These
improvements were partially offset by the impact of currency translation that
reduced 2000 operating income by approximately $16.0 million.
Interest expense, net was $46.6 million in 2000 compared to $57.6 million
in 1999. The reduction in interest expense is due to a $200 million reduction in
outstanding debt as a result of the accounts receivable securitization
transaction completed during the first quarter of 2000 (see "Liquidity and
Capital Resources").
Other expense, net was $33.1 million in 2000 compared to $15.2 million in
1999. The increase in other expense is related to losses on sales of receivables
in connection with the establishment of the securitization facility in January
2000. We recorded losses totaling $20.3 million in 2000 including a loss of $7.1
million related to the initial funding of the securitization facility and $13.2
million related to subsequent sales of receivables on a revolving basis.
We recorded an income tax benefit of $7.6 million in 2000 compared to an
income tax benefit of $10.2 million in 1999. The tax benefit in 2000 included
the recognition of a United States tax credit carryback of approximately $2.0
million. At December 31, 2000, we had deferred tax assets of $180.6 million,
including $139.0 million related to net operating loss carryforwards. We have
established valuation allowances of $71.8 million primarily related to net
operating loss carryforwards where there is an uncertainty regarding their
realizability. These net operating losses are primarily in foreign jurisdictions
where it is more likely than not that the losses will expire unused.
Equity in earnings of affiliates was $9.8 million in 2000 compared to $10.5
million in 1999. Equity in earnings of our retail finance affiliates, which
represent the largest component of these earnings, was lower in 2000 due to
portfolio declines.
1999 COMPARED TO 1998
We recorded a net loss for 1999 of $11.5 million compared to net income of
$60.6 million for 1998. Net income (loss) per diluted share was $(0.20) for 1999
compared to $0.99 in 1998. Net income (loss) for 1999 and 1998 included
restructuring and other infrequent expenses of $24.5 million and $40.0 million,
or $0.26 and $0.41 per diluted share respectively. The results for 1999 were
negatively impacted by lower sales and operating margins caused by unfavorable
industry conditions, lower production, lower price realization and the negative
impact of currency translation compared to 1998.
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Acquisitions
In May 1998, we acquired the distribution rights for the Massey Ferguson
brand in Argentina. This acquisition expanded our distribution network in the
second largest market in South America.
In July 1998, we acquired the Spra-Coupe product line, a brand of
agricultural self-propelled sprayers sold primarily in North America. In October
1998, we acquired the Willmar product line, a brand of agricultural
self-propelled sprayers, spreaders and loaders sold primarily in North America.
The Spra-Coupe and Willmar acquisitions expanded our product offerings to
include a full line of self-propelled sprayers.
Retail Sales
Global demand for agricultural equipment continued to weaken in 1999 in
most major markets. The industry decline was primarily due to the continued
effects of high global commodity stocks and lower export demand for farm
commodities, which resulted in lower commodity prices. These conditions had the
effect of reducing farm income in most major markets thereby reducing demand for
new equipment purchases.
In the United States and Canada, industry unit retail sales of tractors
increased approximately 2% in 1999 over 1998, with significant increases in the
under 40 horsepower segment offsetting modest declines in the utility tractor
segment and significant declines in the high horsepower segment. Industry retail
sales of combines declined approximately 47% compared to 1998. Our retail sales
of tractors and combines decreased compared to the same period in 1998, with
competitive pricing affecting our sales relative to the industry.
In Western Europe, industry unit retail sales of tractors in 1999 increased
approximately 2% compared to 1998. Industry results were mixed with declines
experienced in Spain and Scandinavia offset by increases in France, the United
Kingdom, Germany and Italy. Our retail sales of tractors in 1999 were unchanged
from 1998. However, our retail sales were stronger compared to the industry in
the third and fourth quarters of 1999 due to the favorable acceptance of our new
Massey Ferguson high horsepower tractor line, which we introduced during the
first half of 1999 and, accordingly, had limited availability in the first half
of the year.
In South America, industry unit retail sales of tractors in 1999 decreased
approximately 15% compared to 1998. Industry results in 1999 were also mixed in
this region with slightly favorable industry results in Brazil offset by
significant industry declines in Argentina and the remaining South American
markets due to low commodity prices, tightening credit and economic uncertainty.
Our retail sales of tractors in South America declined consistent with the
industry decline.
In other international markets, industry and our unit retail sales of
tractors were lower than 1998 in most regions including the Middle East, Africa
and Eastern Europe.
Statement of Operations
Net sales for 1999 were $2.4 billion compared to $3.0 billion in 1998. This
decline primarily reflects lower retail demand in the majority of markets
throughout the world. In addition, net sales for 1999 were negatively impacted
by foreign currency translation due to the weakening of the Euro and the
Brazilian real against the U.S. dollar. Foreign currency translation had the
effect of reducing net sales by approximately $135.1 million in 1999 compared to
1998. Net sales for 1999 were positively impacted by approximately $36.0 million
due to our 1998 acquisitions of Massey Ferguson Argentina, Spra-Coupe and
Willmar, which were only partially included in the 1998 results. Excluding the
impact of currency translation and acquisitions, net sales decreased
approximately 15% compared to 1998.
On a regional basis, net sales in North America decreased $332.3 million,
or 34%, compared to 1998, primarily due to unfavorable market conditions and our
planned efforts to lower dealer inventories by generating wholesale sales to
dealers at a rate less than retail demand. The decline was partially offset by
the impact of the Willmar and Spra-Coupe acquisitions. In the
Europe/Africa/Middle East region, net sales in 1999 decreased $91.9 million, or
6%, compared to 1998 primarily due to lower sales outside Western Europe and the
negative impact of foreign currency translation. Net sales for 1999 in South
America decreased $118.5 million, or 37%, compared to 1998, primarily due to
unfavorable industry conditions outside of Brazil and the
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negative impact of foreign currency translation due to the devaluation of the
Brazilian real in January 1999. In the East Asia/Pacific region, net sales in
1999 increased $8.3 million, or 9%, compared to 1998, primarily due to improving
market conditions in Asia.
Gross profit was $357.7 million (14.7% of net sales) for 1999 compared to
$539.3 million (18.2% of net sales) for 1998. Gross profit margins declined due
to reduced production overhead absorption, lower price realization in certain
markets and an unfavorable mix of higher margin products. We reduced 1999
worldwide tractor and combine unit production by 16% compared to 1998 in
response to the weakening industry demand. Price realization in 1999 was
impacted by a more competitive global market environment and higher levels of
used dealer inventories in the North American market. We increased our sales
incentives costs in order to reduce used inventory levels and sell older
discontinued products. Gross profit in 1999 also included a one-time write-down
of production inventory of approximately $5.0 million which was recorded to cost
of goods sold and was related to the planned closure of our Coldwater, Ohio and
Lockney, Texas manufacturing facilities.
SG&A expenses were $233.2 million (9.6% of net sales) compared to $274.3
million (9.2% of net sales) in 1998. Engineering expenses were $44.6 million
(1.8% of net sales) compared to $56.1 million (1.9% of net sales) in 1998. The
$52.6 million decrease in SG&A and engineering expenses in 1999 was primarily a
result of our expense reduction initiatives implemented in late 1998, which
included reductions in our worldwide workforce and decreases in discretionary
spending levels. See "Restructuring and Other Infrequent Expenses" where the
initiatives are discussed.
Restructuring and other infrequent expenses were $24.5 million in 1999 and
$40.0 million in 1998. The 1999 restructuring expenses consisted of a write-down
of property, plant and equipment, severance and other costs related to the
permanent closure of certain production facilities. The 1998 restructuring
expenses consisted of severance and related costs associated with a reduction in
our worldwide workforce. See "Restructuring and Other Infrequent Expenses" for
further discussion.
Amortization of intangibles was $14.8 million for 1999 compared to $13.2
million for 1998. The increase is attributable to a full year of amortization of
our 1998 acquisitions.
Income from operations was $40.6 million for 1999 compared to $155.7
million in 1998. Excluding restructuring expenses in both years, income from
operations was $65.1 million in 1999 (2.7% of net sales) compared to $195.7
million (6.6% of net sales) in 1998. Operating income was negatively impacted in
1999 by lower sales and gross profit margins, partially offset by lower SG&A
expenses.
Interest expense, net was $57.6 million in 1999 compared to $67.7 million
in 1998. The lower expense in 1999 was primarily due to lower average debt
levels and lower effective interest rates on our outstanding borrowings.
Other expense, net was $15.2 million in 1999 compared to $13.7 million in
1998. The increase in other expense, net is primarily attributable to lower
miscellaneous income and higher discounts on sales of receivables.
We recorded an income tax benefit of $10.2 million in 1999 compared to a
provision of $27.5 million in 1998. Our effective tax rate increased in 1999
compared to 1998 due to an increase in losses incurred in certain foreign tax
jurisdictions for which no immediate tax benefit was recognized.
Equity in net earnings of affiliates was $10.5 million in 1999 compared to
$13.8 million in 1998. The reduction in earnings primarily related to decreased
earnings in our engine joint venture and slightly lower earnings in our retail
finance joint ventures.
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QUARTERLY RESULTS
The following table presents unaudited interim operating results. We
believe that the following information includes all adjustments (consisting only
of normal, recurring adjustments) that we consider necessary for a fair
presentation, in accordance with generally accepted accounting principles. The
operating results for any period are not necessarily indicative of results for
any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ -----------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
2000:
Net sales.......................................... $534.8 $640.8 $521.1 $639.4
Gross profit....................................... 77.1 105.0 90.3 104.2
Income (loss) from operations (1).................. 2.0 22.2 13.1 28.5
Net income (loss) (1).............................. (10.7) 4.1 2.4 7.7
Net income (loss) per common share -- diluted
(1)............................................. (0.18) 0.07 0.04 0.13
1999:
Net sales.......................................... $566.7 $689.8 $577.1 $602.8
Gross profit....................................... 79.0 111.7 97.9 69.1
Income (loss) from operations (1).................. 5.1 39.5 25.9 (29.9)
Net income (loss) (1).............................. (7.2) 15.5 7.5 (27.3)
Net income (loss) per common share -- diluted
(1)............................................. (0.12) 0.26 0.13 (0.46)
</TABLE>
---------------
(1) For 2000, quarters ending March 31, June 30, September 30 and December 31
include restructuring and other infrequent expenses of $1.9, $13.1, $4.5 and
$2.4, respectively, thereby reducing net income per common share on a
diluted basis by $0.02, $0.13, $0.05 and $0.02, respectively. The 1999
operating results include restructuring and other infrequent expenses of
$24.5 million, or $0.26 per share, for the three months ended December 31,
1999.
To the extent possible, we attempt to ship products to our dealers and
distributors on a level basis throughout the year to reduce the effect of
seasonal demands on our manufacturing operations and to minimize investments in
inventory. However, retail sales of agricultural equipment are highly seasonal,
with farmers traditionally purchasing agricultural equipment in the spring and
fall in conjunction with the major planting and harvesting seasons. Our net
sales and income from operations have historically been the lowest in the first
quarter and have increased in subsequent quarters as dealers increase inventory
in anticipation of increased retail sales in the third and fourth quarters.
RESTRUCTURING AND OTHER INFREQUENT EXPENSES
In the second quarter of 2000, we announced our plan to permanently close
our combine manufacturing facility in Independence, Missouri and relocate
existing production to our Hesston, Kansas manufacturing facility. The closure
of the Independence facility is a continuation of our strategy to reduce excess
manufacturing capacity in our North America plants which began in 1999 with the
announced closure of our Coldwater, Ohio and Lockney, Texas manufacturing
facilities. Due to declines in industry demand since 1998, we determined that
closure of these facilities and redeployment of the majority of production to
other existing facilities and the remaining production to third-party suppliers
was necessary to address the excess capacity in our U.S. manufacturing plants.
The manufacturing facility rationalization is expected to result in significant
cost savings and will improve the overall competitiveness of implements, hay
equipment, high horsepower tractors and combines produced in these plants. We
also announced closure of our Noetinger, Argentina manufacturing facility in
1999. This closure is consistent with our strategy to consolidate production in
South America. In 1998, the combine production in Noetinger was moved to our
combine manufacturing plant in Brazil. The remaining implement production and
other activities in Noetinger were determined to be insufficient to support the
cost of the facility. As a result, we determined that closure of the facility
and the outsourcing of future implement production would reduce costs of sales
in South America. We closed the Coldwater plant in 1999 and the Independence,
Lockney and Noetinger plants in 2000. The rationalization of
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these production facilities is expected to generate annual cost savings of $20
million to $25 million from the elimination of production overhead costs and
other efficiencies. We believe that we realized approximately half of these
savings in 2000 and expect to fully realize these savings in 2001. In connection
with these closures, we recorded restructuring and other infrequent expenses of
$24.9 million in 2000 and $24.5 million in 1999. The components of the expenses
are summarized in the following table:
<TABLE>
<CAPTION>
BALANCE AT
1999 2000 EXPENSES DECEMBER 31,
EXPENSE EXPENSE INCURRED 2000
------- ------- -------- ------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Employee severance............................... $ 1.9 $ 6.9 $ 6.9 $1.9
Facility closure costs........................... 7.7 5.4 9.2 3.9
Write-down of property, plant and equipment, net
of recoveries.................................. 14.9 1.3 16.2 --
Production transition costs...................... -- 11.3 11.3 --
----- ----- ----- ----
$24.5 $24.9 $43.6 $5.8
===== ===== ===== ====
</TABLE>
The severance costs relate to the termination of approximately 1,050
employees, substantially all of which had been terminated at December 31, 2000.
The facility closure costs include employee costs and other exit costs to be
incurred after operations ceased in addition to noncancelable operating lease
obligations. The write-down of property, plant and equipment consisted of $0.5
million in 2000 and $7.0 million in 1999 related to machinery and equipment and
$0.8 million in 2000 and $7.9 million in 1999 for building and improvements and
was based on the estimated fair value of the assets compared to their carrying
value. The production transition costs represent costs to relocate and integrate
production into other existing facilities. The remaining costs accrued at
December 31, 2000 are expected to be incurred in 2001. We expect to record an
additional $3.0 million in restructuring and other infrequent expenses in 2001
related to these closures. In addition to the restructuring and other infrequent
expenses, we recorded a one-time $5.0 million write-down of production inventory
in 1999, which was charged to cost of goods sold and was directly related to the
closures.
In 1998, we recorded restructuring and other infrequent expenses of $40.0
million primarily related to severance and related costs associated with the
reduction in our worldwide permanent workforce of approximately 1,400 employees.
These headcount reductions were made to address the negative market conditions
that adversely impacted demand in the majority of markets. We anticipated
reducing selling, general and administrative expenses by approximately $50
million from these headcount reductions in addition to reducing general spending
levels by improving productivity and eliminating non-essential projects. The
headcount reductions also partially mitigated the impact of lower production
levels in 1999, by adjusting manufacturing staff levels. In 1999, we achieved
the expected impacts from our initiatives. The components of the restructuring
expenses are as follows:
<TABLE>
<CAPTION>
BALANCE AT
1998 EXPENSES DECEMBER 31,
EXPENSE INCURRED 2000
------- -------- ------------
(IN MILLIONS)
<S> <C> <C> <C>
Severance............................................... $29.0 $27.8 $1.2
Pension and postretirement benefits..................... 7.2 7.2 --
Write-down of assets.................................... 3.8 3.8 --
----- ----- ----
$40.0 $38.8 $1.2
===== ===== ====
</TABLE>
The pension and postretirement benefits were related to costs associated
with the terminated employees. The write-down of assets related to the
cancellation of systems projects in order to reduce headcount and future
expenses. We expect the remaining reserve balance to be utilized in 2001.
In 1997, we recorded restructuring and other infrequent expenses of $18.2
million which consisted of (1) $15.0 million related to the restructuring of our
European operations and the integration of the Deutz Argentina and Fendt
operations, acquired in December 1996 and January 1997, respectively, and (2)
$3.2 million related to executive severance. The costs associated with the
restructuring and integration activities
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primarily related to the centralization and rationalization of certain
manufacturing, selling and administrative functions in addition to the
rationalization of a small portion of our European dealer network. These
restructuring and integration activities resulted in cost savings related to
manufacturing costs and selling, general and administrative expenses that we
believe we have achieved. In addition, the European dealer rationalization is
expected to improve long-term sales in certain markets. The components of the
expense are as follows:
<TABLE>
<CAPTION>
BALANCE AT
1997 EXPENSES RESERVES DECEMBER 31,
EXPENSE INCURRED RELEASED 2000
------- -------- -------- ------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Executive severance.............................. $ 3.2 $ 3.2 $ -- $ --
Other severance.................................. 9.5 9.5 -- --
Other restructuring costs........................ 0.5 0.5 -- --
Dealer termination costs......................... 5.0 2.0 3.0 --
----- ----- ---- ----
$18.2 $15.2 $3.0 $ --
===== ===== ==== ====
</TABLE>
In 2000, we reversed $3.0 million of restructuring expenses related to
dealer termination costs. While it is possible we could still incur costs
associated with these dealer terminations, we believe that it is no longer
probable these costs will be incurred.
AG-CHEM ACQUISITION
In November 2000, we entered into an agreement to acquire Ag-Chem Equipment
Co., Inc., a leading manufacturer and distributor of self-propelled fertilizer
and chemical sprayers for pre-emergent and post-emergent applications. Ag-Chem
had fiscal 2000 sales of $299 million. The agreement provides Ag-Chem
shareholders with a combination of cash and our common stock valued at $25.80
per Ag-Chem common share (for total consideration of approximately $247
million), with the precise proportions being determined based upon the closing
price for our common stock immediately prior to the closing. At or above $8.38
per share, the transaction is structured so that Ag-Chem shareholders receive
between 50% and 60% of the purchase price in cash (between $124 million and $148
million in the aggregate) and the remainder in stock. Below that price, we
generally can elect the amount of cash used, subject to a minimum of $12.90 per
Ag-Chem share ($124 million in the aggregate). The transaction is subject to
approval from Ag-Chem shareholders and is expected to close in April 2001.
Ag-Chem's net sales and income from operations are heavily concentrated in
February, March and April of each year, and these sales and income will not, for
the most part, be reflected in our 2001 results.
LIQUIDITY AND CAPITAL RESOURCES
Our financing requirements are subject to variations due to seasonal
changes in inventory and dealer and distributor receivable levels. Internally
generated funds are supplemented when necessary from external sources, primarily
our revolving credit facility. The current lending commitment under our existing
revolving credit facility is $765 million. Borrowings under the existing
revolving credit facility are limited to the sum of 90% of eligible accounts
receivable and 60% of eligible inventory. As of December 31, 2000, $314.2
million was outstanding under the existing revolving credit facility. Available
borrowings are subject to receivable and inventory borrowing base requirements
and the maintenance of the financial covenants included in the agreement.
In January 2000, we entered into a $250 million securitization facility
whereby certain U.S. wholesale accounts receivables are sold on a revolving
basis through a wholly-owned special purpose subsidiary to a third party. We
initially funded $200 million under the securitization facility and have
maintained this level of funding through subsequent receivables sales. The
proceeds from the funding were used to reduce outstanding borrowings under the
existing revolving credit facility. Our lending commitment under the existing
revolving credit facility was permanently reduced to $800 million, representing
a decrease of $200 million as a result of the initial proceeds received from the
securitization, was reduced by $35 million in connection with a
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subsequent increase in the U.S. securitization facility (in 2001), and will be
further reduced by any additional funding received from the U.S. securitization
facility. In conjunction with the closing of the U.S. securitization facility,
we recorded an initial one-time $8.0 million loss in the first quarter of 2000.
In March 1996, we issued $250.0 million of 8 1/2% senior subordinated notes
due 2006 at 99.139% of their principal amount. The indenture governing the notes
contains numerous covenants, including limitations on our ability to incur
additional indebtedness, to make investments, to make "restricted payments"
(including dividends), and to create liens. The indenture also requires us to
offer to repurchase the notes in the event of a change in control. Subsequent to
year-end, we were issued a notice of default by the trustee of the notes
regarding the violation of a covenant restricting the payments of dividends
during periods in 1999, 2000 and 2001 when an interest coverage ratio was not
met. During that period, we paid approximately $4.8 million in dividends based
upon our interpretation that we did not need to meet the interest coverage ratio
but, instead, an alternative total debt test. We issued preferred stock, which
is convertible to common stock, in a private placement with net proceeds that
exceed the amount of dividend payments, interest on those payments and related
expenses. We subsequently received sufficient waivers from the holders of the
notes for any violation of the covenant that might have resulted from the
dividend payments. In connection with the receipt of waivers, we paid a waiver
fee of approximately $2.5 million, which will be expensed in the first quarter
of 2001. Currently, we are prohibited from paying dividends until such time as
the interest coverage ratio in the indenture is met.
We currently are in the process of modifying our capital structure in order
to most efficiently meet our funding needs and replace our existing revolving
credit facility, which expires in January 2002. In addition, although we
currently are in compliance with the financial covenants under all of our
indebtedness, the financial covenants in our existing revolving credit facility
become more stringent at the end of the second quarter of 2001. As a result, we
currently do not anticipate being able to fulfill two of the financial covenants
contained in the facility, a limitation on the ratio of funded debt to EBITDA
and a minimum fixed charge coverage ratio. To address these issues, we have
entered into a commitment letter with Rabobank for a new revolving credit
facility, which we expect to close early in the second quarter of 2001. The new
facility is expected to permit borrowings of up to $350 million, to have a 4 1/2
year term, and to be secured by a majority of our assets, including a portion of
the capital stock of certain foreign subsidiaries. In addition, we are in the
process of offering $250 million in fixed rate senior notes for sale in a
private placement. The notes will mature in seven years and will have terms
substantially similar to our currently outstanding 8 1/2% senior subordinated
notes, except that they will not be subordinated. Finally, we intend to enter
into a new $100 million accounts receivable securitization facility in Europe.
These facilities and the notes are expected to provide us with sufficient
working capital on an ongoing basis to meet the needs of our business.
Our working capital requirements are seasonal, with investments in working
capital typically building in the first half of the year and then decreasing in
the second half of the year. We had $603.9 million of working capital at
December 31, 2000, compared to $764.0 million at December 31, 1999. The decrease
in working capital was primarily due to lower accounts receivable related to the
$200 million sale of accounts receivable through the U.S. securitization
facility.
Cash flow provided by operating activities was $174.4 million in 2000,
$233.7 million in 1999, and $11.2 million in 1998. The decrease in operating
cash flow in 2000 was primarily due to a reduction in our accounts receivable
and inventory levels. The accounts receivable reduction was created by the $200
million sale of accounts receivable through the U.S. securitization facility,
offset by other receivable increases due to higher fourth quarter sales in 2000,
higher dealer inventories of certain new products introduced in late 2000 and
planned increases in dealer inventories of certain products affected by
manufacturing facility rationalizations. The increase in operating cash flow in
1999 was primarily due to a reduction in accounts receivable and inventory
levels. In response to the industry decline, we decreased production levels in
order to reduce the level of dealer and our inventories.
Capital expenditures were $57.7 million, $44.2 million and $61.0 million in
2000, 1999 and 1998, respectively. Our capital expenditures are primarily to
support the development and enhancement of new and existing products as well as
facility and equipment improvements. The level of capital expenditures vary from
23
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year to year based on requirements to support new products, equipment
replacements and equipment and facility improvements. We currently estimate that
capital expenditures for 2001 will range from approximately $50 million to $60
million. Capital expenditures are expected to be funded from cash flows from
operations.
Our debt to capitalization ratio (total long-term debt divided by the sum
of total long-term debt and stockholders' equity) was 41.9% at December 31, 2000
compared to 45.5% at December 31, 1999. The decrease is attributable to a
reduction of indebtedness of $121.5 million primarily from proceeds from the
securitization facility offset to some extent by the negative cumulative
translation adjustment to equity of $40.5 million, primarily related to the
weakening of the Euro in relation to the U.S. dollar.
We believe that through our access to credit markets, available cash and
internally generated funds we will able to support our working capital, capital
expenditures and debt service requirements for the foreseeable future. In
addition, from time to time we review and will continue to review acquisition
and joint venture opportunities as well as changes in the capital markets. If we
were to consummate a significant acquisition or elect to take advantage of
favorable opportunities in the capital markets, we may supplement availability
or revise the terms under our revolving credit facility or complete public or
private offerings of equity or debt securities.
OUTLOOK
Our operations are subject to the cyclical nature of the agricultural
industry. Sales of our equipment have been and are expected to continue to be
affected by changes in net cash farm income, farm land values, weather
conditions, the demand for agricultural commodities and general economic
conditions.
Global demand for agricultural equipment in 2000 remained relatively weak
due to low commodity prices and weak industry fundamentals. No meaningful
changes in these factors are expected in 2001. As a result, we expect industry
retail demand in 2001 to be flat in the major markets of the world, with the
exception of Western Europe. Due to farm consolidation, CAP reform, and concerns
over BSE (mad cow disease) and other livestock diseases, industry demand in
Western Europe is currently expected to be 5% below 2000. The extent of the BSE
and other livestock diseases in Europe and the measures taken to control its
spreading could negatively impact this forecast. Based on our current industry
forecast and impacts of cost reduction initiatives, operating margins and
overall profitability in 2001 are expected to improve compared to 2000.
FOREIGN CURRENCY RISK MANAGEMENT
We have significant manufacturing operations in the United States, the
United Kingdom, France, Germany, Denmark and Brazil, and we purchase a portion
of our tractors, combines and components from third-party foreign suppliers,
primarily in various European countries and in Japan. We also sell products in
over 140 countries throughout the world. The majority of our revenue outside the
United States is denominated in the currency of the customer location with the
exception of sales in the Middle East, Africa and Asia which is primarily
denominated in British pounds, Euros or U.S. dollars (See "Segment Reporting" in
the Notes to Consolidated Financial Statements for sales by customer location).
Our most significant transactional foreign currency exposures are the British
pound in relation to the Euro and the British pound, Euro and the Canadian
dollar in relation to the U.S. dollar. Fluctuations in the value of foreign
currencies create exposures which can adversely affect our results of
operations.
We attempt to manage our transactional foreign exchange exposure by hedging
identifiable foreign currency cash flow commitments arising from receivables,
payables, and committed purchases and sales. Where naturally offsetting currency
positions do not occur, we hedge certain of our exposures through the use of
foreign currency forward contracts. Our hedging policy prohibits foreign
currency forward contracts for speculative trading purposes. Our translation
exposure resulting from translating the financial statements of foreign
subsidiaries into U.S. dollars is not hedged. Our most significant translation
exposures are the British pound, the Euro and the Brazilian real in relation to
the U.S. dollar. When practical, this translation impact is reduced by financing
local operations with local borrowings.
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The following is a summary of foreign currency forward contracts used to
hedge currency exposures. All contracts have a maturity of less than one year.
The net notional amounts and fair value gains or losses as of December 31, 2000
stated in U.S. dollars are as follows:
<TABLE>
<CAPTION>
NET
NOTIONAL AVERAGE FAIR
AMOUNT CONTRACT VALUE
BUY/(SELL) RATE* GAIN/(LOSS)
---------- -------- -----------
(IN MILLIONS)
<S> <C> <C> <C>
Australian dollar...................................... $ 3.0 1.88 $ 0.2
British pound.......................................... (78.4) 0.68 (1.8)
Danish krone........................................... (17.4) 8.08 (0.4)
Euro dollar............................................ 50.8 1.16 5.0
French franc........................................... (31.0) 7.06 (0.4)
German mark............................................ 1.1 2.15 --
Greek drachma.......................................... (2.5) 375.35 (0.1)
Japanese yen........................................... 13.1 109.15 (0.6)
Norwegian krone........................................ (6.2) 8.81 --
Swedish krona.......................................... (3.3) 9.40 --
Mexican peso........................................... 3.0 9.50 --
Canadian dollar........................................ (34.7) 1.52 (0.5)
Swiss franc............................................ (0.2) 1.63 --
------- -----
$(102.7) $ 1.4
======= =====
</TABLE>
---------------
* per U.S. dollar
Because these contracts were entered into for hedging purposes, the gains
and losses on the contracts would largely be offset by gains and losses on the
underlying firm commitment.
INTEREST RATES
We manage interest rate risk through the use of fixed rate debt and
interest rate swap contracts. We have fixed rate debt from our $250 million
8 1/2% senior subordinated notes due 2006. In addition, we entered into an
interest rate swap contract to further minimize the effect of potential interest
rate increases on floating rate debt in a rising interest rate environment. At
December 31, 2000, we had an interest rate swap contract outstanding with a
notional amount of $88.3 million which expires on December 31, 2001. The
interest rate swap has the effect of converting a portion of our floating rate
indebtedness to a fixed rate of 5.3%. Our floating rate exposure is related
primarily to our revolving credit facility, which is tied to changes in U.S. and
European LIBOR rates, and our securitization facility, for which losses on sales
of receivables vary based on U.S. LIBOR rates. Assuming a 10% increase in
interest rates, our interest expense, net, including the effect of the interest
rate swap contract for 2000, would have increased by approximately $2.1 million.
EURO CURRENCY
We have established the capability to trade in the common European currency
in all European locations. In addition, we have substantially completed the
transition to transacting and accounting for our European business in Euros. We
do not currently expect our competitive position (including pricing, purchasing
contracts and systems modifications) to be materially affected by the change to
the Euro.
ACCOUNTING CHANGES
In June 1999, the Financial Accounting Standards Board issued SFAS No. 137,
providing for a one year delay of the effective date of SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
establishes accounting and reporting standards for derivative instruments and
for hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities on the balance sheet and measure those instruments
at fair value. SFAS No. 133 requires that changes in a derivative's fair value
be recognized currently in earnings unless specific hedge accounting treatment
is met. In June 2000, the FASB issued SFAS No. 138 that amends the accounting
and reporting of derivatives under
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SFAS No. 133 to exclude, among other things, contracts for normal purchases and
normal sales. We adopted SFAS No. 133 on January 1, 2001. We have evaluated the
effect of this statement on our derivative instruments, which are primarily
interest rate swaps and foreign currency forward contracts and have determined
the cumulative effect as of January 1, 2001 resulted in a fair value asset, net
of taxes, of approximately $.5 million.
In December 1999, the SEC released Staff Accounting Bulletin No. 101,
"Revenue Recognition in Financial Statements." SAB 101 does not change existing
accounting literature on revenue recognition but rather explains the SEC's
general framework for revenue recognition. The SEC subsequently released SAB
101B deferring implementation of SAB 101 to the fourth quarter of 2000. We have
evaluated SAB 101 and believe that we are in compliance with this bulletin. As a
result, this bulletin had no effect on our results of operations or financial
position.
In May 2000, the Emerging Issues Task Force reached a final consensus on
Issue No. 00-14, "Accounting for Certain Sales Incentives," effective in the
fourth quarter of 2000. Issue No. 00-14 addresses the recognition, measurement
and income statement classification for sales incentives offered. It requires
that an entity recognize the cost of the sales incentive at the later of the
date at which the related revenue is recorded or the date at which the sales
incentive is offered. Issue No. 00-14 also requires that the reduction in or
refund of the selling price of the product resulting from any sales incentive be
classified as a reduction of revenue. We are in compliance with Issue No. 00-14
and it had no material effect on our expense classifications, operations or
financial position.
In September 2000, the EITF reached a final consensus on Issue No. 00-10,
"Accounting for Shipping and Handling Fees and Costs." Issue No. 00-10 is also
effective in the fourth quarter of 2000 and addresses the income statement
classification of amounts charged to customers for shipping and handling, as
well as costs incurred related to shipping and handling. The EITF concluded that
amounts billed to a customer in a sale transaction related to shipping and
handling should be classified as revenue. The EITF also concluded that if costs
incurred related to shipping and handling are significant and not included in
cost of sales, an entity should disclose both the amount of such costs and the
line item on the income statement that includes them. In connection with this
Issue, we reclassified certain revenue, cost of goods sold and SG&A expense
amounts in all periods presented in our Statements of Operations. The
reclassifications resulted in an increase in net sales of approximately $28.1,
$25.4 and $31.0 for 2000, 1999 and 1998, respectively, an increase in cost of
goods sold of $24.8, $21.8 and $27.4 for 2000, 1999 and 1998, respectively, and
an increase to SG&A expenses of $3.3, $3.6 and $3.6 for 2000, 1999 and 1998,
respectively. These reclassifications had no effect on our results of operations
or financial position.
Also in September 2000, the FASB issued SFAS No. 140, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities -- a Replacement of FASB Statement No. 125." SFAS No. 140 revises
the standards for accounting for securitizations and other transfers of
financial assets and collateral and requires certain disclosures. This statement
is effective for transfers and servicing of financial assets and extinguishments
of liabilities occurring after March 31, 2001. SFAS No. 140 is effective for
recognition and reclassification of collateral and for disclosures relating to
securitization transactions and collateral for fiscal years ending after
December 15, 2000. The adoption of SFAS No. 140 had no effect on our results of
operations or financial position.
FORWARD LOOKING STATEMENTS
Certain statements in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and elsewhere in this annual report on Form
10-K are forward looking, including certain statements set forth under the
headings "Results of Operations" and "Liquidity and Capital Resources." Forward
looking statements include our expectations with respect to factors that affect
net sales and income, restructuring and other infrequent expenses, future
capital expenditures, fulfillment of working capital needs, and plans with
respect to acquisitions. Although we believe that the statements it has made are
based on reasonable assumptions, they are based on current information and
beliefs and, accordingly, we can give no assurance that its statements will be
achieved. In addition, these statements are subject to factors that could cause
actual results to differ materially from those suggested by the forward looking
statements. These factors
26
28
include, but are not limited to, general economic and capital market conditions,
the demand for agricultural products, world grain stocks, crop production,
commodity prices, farm income, farm land values, government farm programs and
legislation, pervasive livestock diseases, the levels of new and used field
inventories, weather conditions, interest and foreign currency exchanges rates,
the conversion to the Euro, pricing and product actions taken by competitors,
customer access to credit, production disruptions, supply and capacity
constraints, cost reduction and control initiatives, research and development
efforts, labor relations, dealer and distributor actions, technological
difficulties, changes in environmental, international trade and other laws, and
political and economic uncertainty in various ares of the world. Further
information concerning factors that could significantly affect our results is
included in our filings with the Securities and Exchange Commission. We disclaim
any responsibility to update any forward looking statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Quantitative and Qualitative Disclosures about Market Risk information
required by this Item set forth under the captions "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Foreign Currency
Risk Management," "-- Interest Rates" and "-- Euro Currency" on pages 24 and 25
under Item 7 of this Form 10-K is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial statements of AGCO and its subsidiaries for the
year ended December 31, 2000 are included in this item:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.................... 28
Consolidated Statements of Operations for the years ended
December 31, 2000, 1999 and 1998.......................... 29
Consolidated Balance Sheets as of December 31, 2000 and
1999...................................................... 30
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 2000, 1999 and 1998.............. 31
Consolidated Statements of Cash Flows for the years ended
December 31, 2000, 1999 and 1998.......................... 32
Notes to Consolidated Financial Statements.................. 33
</TABLE>
The information under the heading "Quarterly Results" of Item 7 on page 20
of this Form 10-K is incorporated herein by reference.
The financial statements of AGCO Finance LLC (Agricredit Acceptance LLC)
included as Exhibit 99.1 to this Form 10-K are incorporated herein by reference.
27
29
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To AGCO Corporation:
We have audited the accompanying consolidated balance sheets of AGCO
CORPORATION AND SUBSIDIARIES as of December 31, 2000 and 1999 and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 2000. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of AGCO Corporation and
subsidiaries as of December 31, 2000 and 1999 and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2000 in conformity with accounting principles generally accepted in
the United States.
/s/ Arthur Andersen LLP
Atlanta, Georgia
March 29, 2001
28
30
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Net sales................................................... $2,336.1 $2,436.4 $2,970.8
Cost of goods sold.......................................... 1,959.5 2,078.7 2,431.5
-------- -------- --------
Gross profit.............................................. 376.6 357.7 539.3
Selling, general and administrative expenses................ 228.2 233.2 274.3
Engineering expenses........................................ 45.6 44.6 56.1
Restructuring and other infrequent expenses................. 21.9 24.5 40.0
Amortization of intangibles................................. 15.1 14.8 13.2
-------- -------- --------
Income from operations.................................... 65.8 40.6 155.7
Interest expense, net....................................... 46.6 57.6 67.7
Other expense, net.......................................... 33.1 15.2 13.7
-------- -------- --------
Income (loss) before income taxes and equity in net earnings
of affiliates............................................. (13.9) (32.2) 74.3
Income tax provision (benefit).............................. (7.6) (10.2) 27.5
-------- -------- --------
Income (loss) before equity in net earnings of affiliates... (6.3) (22.0) 46.8
Equity in net earnings of affiliates........................ 9.8 10.5 13.8
-------- -------- --------
Net income (loss)........................................... $ 3.5 $ (11.5) $ 60.6
======== ======== ========
Net income (loss) per common share:
Basic..................................................... $ 0.06 $ (0.20) $ 1.01
Diluted................................................... $ 0.06 $ (0.20) $ 0.99
Weighted average shares outstanding:
Basic..................................................... 59.2 58.7 59.7
======== ======== ========
Diluted................................................... 59.7 58.7 61.2
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
29
31
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
2000 1999
-------- --------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 13.3 $ 19.6
Accounts and notes receivable, net........................ 602.9 758.2
Inventories, net.......................................... 531.1 561.1
Other current assets...................................... 93.0 77.2
-------- --------
Total current assets.............................. 1,240.3 1,416.1
Property, plant and equipment, net.......................... 316.2 310.8
Investments in affiliates................................... 85.3 93.6
Other assets................................................ 176.0 140.1
Intangible assets, net...................................... 286.4 312.6
-------- --------
Total assets...................................... $2,104.2 $2,273.2
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable.......................................... $ 244.4 $ 244.2
Accrued expenses.......................................... 357.6 378.1
Other current liabilities................................. 34.4 29.8
-------- --------
Total current liabilities......................... 636.4 652.1
Long-term debt.............................................. 570.2 691.7
Postretirement health care benefits......................... 27.5 25.4
Other noncurrent liabilities................................ 80.2 74.9
-------- --------
Total liabilities................................. 1,314.3 1,444.1
-------- --------
Commitments and Contingencies (Note 11)
Stockholders' Equity:
Common stock; $0.01 par value, 150,000,000 shares
authorized, 59,589,428 and 59,579,559 shares issued and
outstanding in 2000 and 1999, respectively............. 0.6 0.6
Additional paid-in capital................................ 427.1 427.7
Retained earnings......................................... 622.9 621.9
Unearned compensation..................................... (1.4) (5.1)
Accumulated other comprehensive income (loss)............. (259.3) (216.0)
-------- --------
Total stockholders' equity........................ 789.9 829.1
-------- --------
Total liabilities and stockholders' equity........ $2,104.2 $2,273.2
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
30
32
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN MILLIONS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
ACCUMULATED OTHER COMPREHENSIVE
INCOME (LOSS)
----------------------------------------
ADDITIONAL ACCUMULATED
COMMON STOCK ADDITIONAL MINIMUM CUMULATIVE OTHER
------------------- PAID-IN RETAINED UNEARNED PENSION TRANSLATION COMPREHENSIVE
SHARES AMOUNT CAPITAL EARNINGS COMPENSATION LIABILITY ADJUSTMENT INCOME (LOSS)
---------- ------ ---------- -------- ------------ ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1997..................... 62,972,423 $0.6 $515.0 $577.6 $(20.0) $ 0.0 $ (81.6) $ (81.6)
Net income............... -- -- -- 60.6 -- -- -- --
Repurchases of common
stock.................. (3,487,200) -- (88.1) -- -- -- -- --
Stock options
exercised.............. 50,698 -- 0.4 -- -- -- -- --
Common stock dividends
($0.04 per common
share)............... -- -- -- (2.4) -- -- -- --
Amortization of unearned
compensation........... -- -- -- -- 8.9 -- -- --
Change in cumulative
translation
adjustment............. -- -- -- -- -- -- 11.1 11.1
---------- ---- ------ ------ ------ ----- ------- -------
Balance, December 31,
1998..................... 59,535,921 0.6 427.3 635.8 (11.1) -- (70.5) (70.5)
Net loss................. -- -- -- (11.5) -- -- -- --
Issuance of restricted
stock.................. 26,500 -- 0.2 -- (0.2) -- -- --
Stock options
exercised.............. 17,138 -- 0.2 -- -- -- -- --
Common stock dividends
($0.04 per common
share)............... -- -- -- (2.4) -- -- -- --
Amortization of unearned
compensation........... -- -- -- -- 6.2 -- -- --
Change in cumulative
translation
adjustment............. -- -- -- -- -- -- (145.5) (145.5)
---------- ---- ------ ------ ------ ----- ------- -------
Balance, December 31,
1999..................... 59,579,559 0.6 427.7 621.9 (5.1) -- (216.0) (216.0)
Net income............... -- -- -- 3.5 -- -- -- --
Forfeitures of restricted
stock.................. (29,833) -- (0.9) -- 0.2 -- -- --
Stock options
exercised.............. 39,702 -- 0.3 -- -- -- -- --
Common stock dividends
($0.04 per common
share)............... -- -- -- (2.5) -- -- -- --
Amortization of unearned
compensation........... -- -- -- -- 3.5 -- -- --
Additional minimum
pension liability...... -- -- -- -- -- (2.8) -- (2.8)
Change in cumulative
translation
adjustment............. -- -- -- -- -- -- (40.5) (40.5)
---------- ---- ------ ------ ------ ----- ------- -------
Balance, December 31,
2000..................... 59,589,428 $0.6 $427.1 $622.9 $ (1.4) $(2.8) $(256.5) $(259.3)
==== ====== ====== ====== ===== ======= =======
<CAPTION>
TOTAL
STOCKHOLDERS' COMPREHENSIVE
EQUITY INCOME (LOSS)
------------- -------------
<S> <C> <C>
Balance, December 31,
1997..................... $ 991.6
Net income............... 60.6 $ 60.6
Repurchases of common
stock.................. (88.1)
Stock options
exercised.............. 0.4
Common stock dividends
($0.04 per common
share)............... (2.4)
Amortization of unearned
compensation........... 8.9
Change in cumulative
translation
adjustment............. 11.1 11.1
------- -------
Balance, December 31,
1998..................... 982.1 71.7
=======
Net loss................. (11.5) (11.5)
Issuance of restricted
stock.................. --
Stock options
exercised.............. 0.2
Common stock dividends
($0.04 per common
share)............... (2.4)
Amortization of unearned
compensation........... 6.2
Change in cumulative
translation
adjustment............. (145.5) (145.5)
------- -------
Balance, December 31,
1999..................... 829.1 (157.0)
=======
Net income............... 3.5 3.5
Forfeitures of restricted
stock.................. (0.7)
Stock options
exercised.............. 0.3
Common stock dividends
($0.04 per common
share)............... (2.5)
Amortization of unearned
compensation........... 3.5
Additional minimum
pension liability...... (2.8) (2.8)
Change in cumulative
translation
adjustment............. (40.5) (40.5)
------- -------
Balance, December 31,
2000..................... $ 789.9 $ (39.8)
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
31
33
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
2000 1999 1998
------- ------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................... $ 3.5 $ (11.5) $ 60.6
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization............................. 51.6 55.8 57.6
Amortization of intangibles............................... 15.1 14.8 13.2
Amortization of unearned compensation..................... 3.0 6.2 8.9
Equity in net earnings of affiliates, net of cash
received............................................... (0.1) 2.4 (3.3)
Deferred income tax benefit............................... (37.6) (47.2) (22.4)
Loss on write-down of property, plant and equipment....... 1.3 14.9 --
Changes in operating assets and liabilities, net of
effects from purchase/sale of businesses:
Accounts and notes receivable, net..................... 127.8 194.3 17.7
Inventories, net....................................... 23.7 72.1 (17.3)
Other current and noncurrent assets.................... (9.9) (20.3) (1.2)
Accounts payable....................................... (0.6) (38.5) (87.7)
Accrued expenses....................................... (7.8) (3.5) (15.0)
Other current and noncurrent liabilities............... 4.4 (5.8) 0.1
------- ------- -------
Total adjustments................................. 170.9 245.2 (49.4)
------- ------- -------
Net cash provided by operating activities......... 174.4 233.7 11.2
------- ------- -------
Cash flows from investing activities:
Purchase of property, plant and equipment................. (57.7) (44.2) (61.0)
Proceeds from sale/leaseback of property.................. -- 18.7 --
Sale/(purchase) of businesses, net........................ (10.0) 6.0 (60.6)
Investments in unconsolidated affiliates.................. (2.0) (1.1) --
------- ------- -------
Net cash used for investing activities............ (69.7) (20.6) (121.6)
------- ------- -------
Cash flows from financing activities:
Proceeds from long-term debt.............................. 413.3 536.1 984.4
Repayments of long-term debt.............................. (520.8) (740.8) (798.9)
Proceeds from issuance of common stock.................... 0.3 -- 0.4
Repurchases of common stock............................... -- -- (88.1)
Dividends paid on common stock............................ (2.5) (2.4) (2.4)
------- ------- -------
Net cash provided by (used for) financing
activities...................................... (109.7) (207.1) 95.4
------- ------- -------
Effect of exchange rate changes on cash and cash
equivalents............................................ (1.3) (2.3) (0.3)
------- ------- -------
Increase (decrease) in cash and cash equivalents............ (6.3) 3.7 (15.3)
Cash and cash equivalents, beginning of period.............. 19.6 15.9 31.2
------- ------- -------
Cash and cash equivalents, end of period.................... $ 13.3 $ 19.6 $ 15.9
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
32
34
AGCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
AGCO Corporation ("AGCO" or the "Company") is a leading manufacturer and
distributor of agricultural equipment and related replacement parts throughout
the world. The Company sells a full range of agricultural equipment, including
tractors, combines, hay tools, sprayers, forage equipment and implements. The
Company's products are widely recognized in the agricultural equipment industry
and are marketed under the following brand names: AGCO Allis, Massey Ferguson,
Hesston, White, GLEANER, New Idea, AGCOSTAR, Tye, Farmhand, Glencoe, Fendt,
Spra-Coupe and Willmar. The Company distributes its products through a
combination of approximately 7,750 independent dealers, distributors, associates
and licensees. In addition, the Company provides retail financing in North
America, the United Kingdom, France, Germany, Spain, Ireland and Brazil through
its retail finance joint ventures with Cooperatieve Centrale
Raiffeisen-Boerenleenbank B.A., "Rabobank Nederland" (the "Retail Finance Joint
Ventures").
BASIS OF PRESENTATION
The consolidated financial statements represent the consolidation of all
majority owned companies. The Company records all affiliate companies
representing a 20%-50% ownership using the equity method of accounting. Other
investments representing an ownership of less than 20% are recorded at cost. All
significant intercompany transactions have been eliminated to arrive at the
consolidated financial statements.
Certain prior period amounts have been reclassified to conform with the
current period presentation. These reclassifications include the
reclassification of shipping and handling fees and costs in accordance with
Emerging Issues Task Force ("EITF") Issue No. 00-10, "Accounting for Shipping
and Handling Fees and Costs."
REVENUE RECOGNITION
Sales of equipment and replacement parts are recorded by the Company when
shipped and title and all risks of ownership have been transferred to the
independent dealer, distributor or other customer. Payment terms vary by market
and product with fixed payment schedules on all sales. The Company does not
offer consignment terms on any of its products. The terms of sale generally
require that a purchase order accompany all shipments. Title passes to the
dealer or distributor upon shipment and the risk of loss from damage, theft or
destruction of the equipment is the responsibility of the dealer or distributor.
The dealer or distributor may not return equipment or replacement parts while
its contract with the Company is in force. Replacement parts may be returned
only under promotional annual return programs. Provisions for returns under
these programs are made at the time of sale based on the terms of the program
and historical returns experience. The Company may provide certain sales
incentives to dealers and distributors. Provisions for sales incentives are made
at the time of sale for existing incentive programs. These provisions are
revised in the event of subsequent modification to the incentive program.
In the United States and Canada, all equipment sales are immediately due
upon a retail sale of the equipment by the dealer. If not already paid by the
dealer in the United States and Canada, installment payments are required
generally beginning 7 to 13 months after shipment with the remaining outstanding
equipment balance generally due within 12 to 24 months of shipment. Interest is
generally charged on the outstanding balance 4 to 13 months after shipment.
Sales terms of some highly seasonal products provide for payment and due dates
based on a specified date during the year regardless of the shipment date.
Payment in full for equipment in the United States and Canada are made on
average within twelve months of shipment. Sales of replacement parts are
generally payable within 30 days of shipment with terms for some larger seasonal
stock orders generally payable within 6 months of shipment.
33
35
AGCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In other international markets, equipment sales are payable in full within
30 to 180 days of shipment. Payment terms for some highly seasonal products have
a specific due date during the year regardless of the shipment date. Sales of
replacement parts are generally payable within 30 days of shipment with terms
for some larger seasonal stock orders generally payable within 6 months of
shipment.
In certain markets, particularly in North America, there is a time lag,
which varies based on the timing and level of retail demand, between the date
the Company records a sale and when the dealer sells the equipment to a retail
customer.
FOREIGN CURRENCY TRANSLATION
The financial statements of the Company's foreign subsidiaries are
translated into U.S. currency in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 52, "Foreign Currency Translation." Assets and
liabilities are translated to U.S. dollars at period-end exchange rates. Income
and expense items are translated at average rates of exchange prevailing during
the period. Translation adjustments are included in "Accumulated other
comprehensive income" in stockholders' equity. Gains and losses which result
from foreign currency transactions are included in the accompanying consolidated
statements of operations.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates. The estimates made by management primarily relate to receivable and
inventory allowances and certain accrued liabilities, principally relating to
reserves for volume discounts and sales incentives, warranty and insurance.
CASH AND CASH EQUIVALENTS
The Company considers all investments with an original maturity of three
months or less to be cash equivalents.
ACCOUNTS AND NOTES RECEIVABLE
Accounts and notes receivable arise from the sale of equipment and
replacement parts to independent dealers, distributors or other customers.
Payments due under the Company's terms of sale are not contingent upon the sale
of the equipment by the dealer or distributor to a retail customer. Under normal
circumstances, payment terms are not extended and equipment may not be returned.
In certain regions including the United States and Canada, the Company is
obligated to repurchase equipment and replacement parts upon cancellation of a
dealer or distributor contract. These obligations are required by national,
state or provincial laws and require the Company to repurchase dealer or
distributor's unsold inventory, including inventory for which the receivable has
already been paid.
For sales outside of the United States and Canada, the Company does not
normally charge interest on outstanding receivables with its dealers and
distributors. In the United States and Canada, where approximately 28% of the
Company's net sales were generated in 2000, interest is charged at or above
prime lending rates on outstanding receivable balances after interest-free
periods. These interest-free periods vary by product and range from 1 to 12
months with the exception of certain seasonal products which bear interest after
various periods depending on the timing of shipment and the dealer or
distributor's sales during the preceding year. For the year ended December 31,
2000, 20.7%, 5.2%, 1.3% and 0.8% of the Company's net sales had maximum
interest-free periods ranging from 1 to 6 months, 7 to 12 months, 13 to 20
months and 21 months or
34
36
AGCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
more, respectively. Actual interest-free periods are shorter than above because
the equipment receivable in the United States and Canada is due immediately upon
sale of the equipment by the dealer or distributor to a retail customer. Under
normal circumstances, interest is not forgiven and interest-free periods are not
extended.
Accounts and notes receivable are shown net of allowances for sales
incentive discounts available to dealers and for doubtful accounts. Accounts and
notes receivable allowances at December 31, 2000 and 1999 were as follows (in
millions):
<TABLE>
<CAPTION>
2000 1999
----- -----
<S> <C> <C>
Sales incentive discounts................................... $54.9 $53.6
Doubtful accounts........................................... 43.4 43.0
----- -----
$98.3 $96.6
===== =====
</TABLE>
The Company occasionally transfers certain accounts receivable to various
financial institutions. The Company records such transfers as sales of accounts
receivable when it is considered to have surrendered control of such receivables
under the provisions of SFAS No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities."
INVENTORIES
Inventories are valued at the lower of cost or market using the first-in,
first-out method. Market is net realizable value for finished goods and repair
and replacement parts. For work in process, production parts and raw materials,
market is replacement cost.
Inventory balances at December 31, 2000 and 1999 were as follows (in
millions):
<TABLE>
<CAPTION>
2000 1999
------ ------
<S> <C> <C>
Finished goods.............................................. $233.0 $248.4
Repair and replacement parts................................ 222.2 229.3
Work in process, production parts and raw materials......... 143.6 154.6
------ ------
Gross inventories........................................... 598.8 632.3
Allowance for surplus and obsolete inventories.............. (67.7) (71.2)
------ ------
Inventories, net............................................ $531.1 $561.1
====== ======
</TABLE>
35
37
AGCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost less accumulated
depreciation and amortization. Depreciation is provided on a straight-line basis
over the estimated useful lives of 10 to 40 years for buildings and
improvements, three to 15 years for machinery and equipment and three to 10
years for furniture and fixtures. Expenditures for maintenance and repairs are
charged to expense as incurred.
Property, plant and equipment at December 31, 2000 and 1999 consisted of
the following (in millions):
<TABLE>
<CAPTION>
2000 1999
------- -------
<S> <C> <C>
Land........................................................ $ 39.1 $ 40.0
Buildings and improvements.................................. 104.6 101.3
Machinery and equipment..................................... 258.0 263.1
Furniture and fixtures...................................... 55.3 47.4
------- -------
Gross property, plant and equipment......................... 457.0 451.8
Accumulated depreciation and amortization................... (140.8) (141.0)
------- -------
Property, plant and equipment, net.......................... $ 316.2 $ 310.8
======= =======
</TABLE>
INTANGIBLE ASSETS
Intangible assets at December 31, 2000 and 1999 consisted of the following
(in millions):
<TABLE>
<CAPTION>
2000 1999
------ ------
<S> <C> <C>
Goodwill.................................................... $285.0 $284.4
Trademarks.................................................. 66.0 66.0
Other....................................................... 4.9 4.0
Accumulated amortization.................................... (69.5) (41.8)
------ ------
Intangible assets, net...................................... $286.4 $312.6
====== ======
</TABLE>
The excess of cost over net assets acquired ("goodwill") is being amortized
to income on a straight-line basis over periods ranging from 10 to 40 years. The
Company also assigned values to certain acquired trademarks which are being
amortized to income on a straight-line basis over 40 years.
The Company periodically reviews the carrying values assigned to goodwill
and other intangible assets based on expectations of future cash flows and
operating income generated by the underlying tangible assets.
LONG-LIVED ASSETS
The Company reviews its long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. An impairment loss is recognized when the undiscounted future
cash flows estimated to be generated by the asset are not sufficient to recover
the unamortized balance of the asset. An impairment loss would be recognized
based on the difference between the carrying values and estimated fair value.
The estimated fair value will be determined based on either the discounted
future cash flows or other appropriate fair value methods with the amount of any
such deficiency charged to income in the current year. If the asset being tested
for recoverability was acquired in a business combination, intangible assets
resulting from the acquisition that are related to the asset are included in the
assessment. Estimates of future cash flows are based on many factors, including
current operating results, expected market trends and competitive influences.
The Company also evaluates the amortization periods assigned to its intangible
assets to determine whether events or changes in circumstances warrant revised
estimates of useful lives.
36
38
AGCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ACCRUED EXPENSES
Accrued expenses at December 31, 2000 and 1999 consisted of the following
(in millions):
<TABLE>
<CAPTION>
2000 1999
------ ------
<S> <C> <C>
Reserve for volume discounts and sales incentives........... $ 87.5 $ 88.2
Warranty reserves........................................... 58.7 66.1
Accrued employee compensation and benefits.................. 58.2 49.9
Accrued taxes............................................... 30.0 46.8
Other....................................................... 123.2 127.1
------ ------
$357.6 $378.1
====== ======
</TABLE>
WARRANTY RESERVES
The Company's agricultural equipment products are generally under warranty
against defects in material and workmanship for a period of one to four years.
The Company accrues for future warranty costs at the time of sale based on
historical warranty experience.
INSURANCE RESERVES
Under the Company's insurance programs, coverage is obtained for
significant liability limits as well as those risks required to be insured by
law or contract. It is the policy of the Company to self-insure a portion of
certain expected losses related primarily to workers' compensation and
comprehensive general, product and vehicle liability. Provisions for losses
expected under these programs are recorded based on the Company's estimates of
the aggregate liabilities for the claims incurred.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses are expensed as incurred and are included
in Engineering expenses in the Consolidated Statements of Operations.
ADVERTISING COSTS
The Company expenses all advertising costs as incurred. Cooperative
advertising costs are normally expensed at the time the revenue is earned.
Advertising expenses for the years ended December 31, 2000, 1999, and 1998
totaled approximately $7.9 million, $7.6 million and $9.5 million, respectively.
SHIPPING AND HANDLING EXPENSES
The Company accounts for shipping and handling fees and costs in accordance
with EITF 00-10. All shipping and handling fees charged to customers are
included as a component of net sales. Shipping and handling costs are included
as a part of cost of goods sold, with the exception of certain handling costs
included in selling, general and administrative expenses in the amount of $11.1
million, $11.9 million and $12.6 million for 2000, 1999 and 1998, respectively.
37
39
AGCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INTEREST EXPENSE, NET
Interest expense, net for the years ended December 31, 2000, 1999 and 1998
consisted of the following:
<TABLE>
<CAPTION>
2000 1999 1998
------ ------ ------
<S> <C> <C> <C>
Interest expense............................................ $ 60.3 $ 71.4 $ 81.5
Interest income............................................. (13.7) (13.8) (13.8)
------ ------ ------
$ 46.6 $ 57.6 $ 67.7
====== ====== ======
</TABLE>
NET INCOME PER COMMON SHARE
The computation, presentation and disclosure requirements for earnings per
share are presented in accordance with SFAS No. 128, "Earnings Per Share." Basic
earnings per common share is computed by dividing net income by the weighted
average number of common shares outstanding during each period. Diluted earnings
per share assumes exercise of outstanding stock options and vesting of
restricted stock into common stock during the periods outstanding when the
effects of such assumptions are dilutive.
A reconciliation of net income (loss) and the weighted average number of
common and common equivalent shares outstanding used to calculate basic and
diluted net income (loss) per common share for the years ended December 31,
2000, 1999 and 1998 is as follows (in millions, except per share data):
<TABLE>
<CAPTION>
2000 1999 1998
----- ------ -----
<S> <C> <C> <C>
Basic Earnings Per Share
Weighted average number of common shares outstanding...... 59.2 58.7 59.7
===== ====== =====
Net income (loss)........................................... $ 3.5 $(11.5) $60.6
===== ====== =====
Net income (loss) per share............................... $0.06 $(0.20) $1.01
===== ====== =====
Diluted Earnings Per Share
Weighted average number of common shares outstanding...... 59.2 58.7 59.7
Shares issued upon assumed vesting of restricted stock.... 0.4 -- 1.3
Shares issued upon assumed exercise of outstanding stock
options................................................ 0.1 -- 0.2
----- ------ -----
Weighted average number of common and common equivalent
shares outstanding..................................... 59.7 58.7 61.2
===== ====== =====
Net income (loss)........................................... $ 3.5 $(11.5) $60.6
===== ====== =====
Net income (loss) per share................................. $0.06 $(0.20) $0.99
===== ====== =====
</TABLE>
Stock options to purchase 1.4 million, 1.1 million, and 0.5 million shares
during 2000, 1999 and 1998, respectively, were outstanding but not included in
the calculation of weighted average shares outstanding because the option
exercise prices were higher than the market price of the Company's common stock
during the related periods.
COMPREHENSIVE INCOME
The Company reports comprehensive income, defined as the total of net
income and all other nonowner changes in equity and the components thereof in
the Consolidated Statements of Stockholders' Equity.
FINANCIAL INSTRUMENTS
The carrying amount of long-term debt under the Company's revolving credit
facility (Note 7) approximates fair value based on the borrowing rates currently
available to the Company for loans with similar
38
40
AGCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
terms and average maturities. At December 31, 2000, the estimated fair value of
the Company's 8.5% Senior Subordinated Notes (Note 7), based on its listed
market value, was $223.9 million compared to the carrying value of $248.6
million.
The Company enters into foreign exchange forward contracts to hedge the
foreign currency exposure of certain receivables, payables and committed
purchases and sales. These contracts are for periods consistent with the
exposure being hedged and generally have maturities of one year or less. At
December 31, 2000 and 1999, the Company had foreign exchange forward contracts
outstanding with gross notional amounts of $244.7 million and $348.2 million,
respectively. Gains and losses on foreign exchange forward contracts are
deferred and recognized in income in the same period as the hedged transaction.
As such, the Company has foreign forward exchange contracts with a market value
gain of approximately $1.4 million at December 31, 2000. These foreign exchange
forward contracts do not subject the Company's results of operations to risk due
to exchange rate fluctuations because gains and losses on these contracts
generally offset gains and losses on the exposure being hedged. The Company does
not enter into any foreign exchange forward contracts for speculative trading
purposes.
The Company entered into an interest rate swap contract to further minimize
the effect of potential interest rate increases on floating rate debt. At
December 31, 2000, the Company had an Euro denominated interest rate swap
contract outstanding with a notional amount of $88.3 million. This contract has
the effect of converting a portion of the Company's floating rate Euro
denominated indebtedness under its revolving credit facility (Note 7) to a fixed
interest rate of 5.3%. The interest rate swap contract expires on December 31,
2001. The fair value of the Company's interest rate swap agreement is the
estimated amount that the Company would receive or pay to terminate the
agreement at the reporting date, taking into account interest and currency
rates. At December 31, 2000, the Company estimates that the interest rate swap
agreement has a market value of approximately $0.8 million. The Company
anticipates holding the interest rate swap agreement through maturity.
The notional amounts of foreign exchange forward contracts and the interest
rate swap contract do not represent amounts exchanged by the parties and
therefore are not a measure of the Company's risk. The amounts exchanged are
calculated on the basis of the notional amounts and other terms of the
contracts. The credit and market risks under these contracts are not considered
to be significant.
Gains or losses are reported as part of sales or cost of sales depending on
whether the underlying contract was a sale or purchase of goods. If the contract
does not qualify as a firm commitment in accordance with SFAS No. 52, the
unrealized gains or losses on the derivative instrument are recorded immediately
in earnings at fair value. If the transactional hedge is terminated, the gain or
loss is recognized in income when the underlying transaction is recognized. At
December 31, 2000 and 1999, all outstanding contracts were related to firm
commitments.
ACCOUNTING CHANGES
In June 1999, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 137, providing for a one year delay of the effective date of SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
establishes accounting and reporting standards for derivative instruments and
for hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities on the balance sheet and measure those instruments
at fair value. SFAS No. 133 requires that changes in a derivative's fair value
be recognized currently in earnings unless specific hedge accounting treatment
is met. In June 2000, the FASB issued SFAS No. 138 that amends the accounting
and reporting of derivatives under SFAS No. 133 to exclude, among other things,
contracts for normal purchases and normal sales. The Company adopted SFAS No.
133 on January 1, 2001. The Company has evaluated the effect of this statement
on the Company's derivative instruments, which are primarily interest rate swaps
and foreign currency forward
39
41
AGCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
contracts and has determined the cumulative effect as of January 1, 2001
resulted in a fair value asset, net of taxes, of approximately $0.5 million.
In December 1999, the Securities and Exchange Commission ("SEC") released
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements." SAB 101 does not change existing accounting literature on revenue
recognition but rather explains the SEC's general framework for revenue
recognition. The SEC subsequently released SAB 101B deferring implementation of
SAB 101 to the fourth quarter of 2000. The Company has evaluated SAB 101 and
believes that it is in compliance with this bulletin. As a result, this bulletin
had no effect on results of operations or financial position of the Company.
In May 2000, the EITF reached a final consensus on Issue No. 00-14,
"Accounting for Certain Sales Incentives," effective in the fourth quarter of
2000. EITF 00-14 addresses the recognition, measurement and income statement
classification for sales incentives offered. It requires that an entity
recognize the cost of the sales incentive at the latter of the date at which the
related revenue is recorded or the date at which the sales incentive is offered.
EITF 00-14 also requires that the reduction in or refund of the selling price of
the product resulting from any sales incentive be classified as a reduction of
revenue. The Company is in compliance with this Issue and it had no material
effect on the Company's expense classifications, operations or financial
position.
In September 2000, the EITF reached a final consensus on Issue No. 00-10,
"Accounting for Shipping and Handling Fees and Costs." EITF 00-10 is also
effective in the fourth quarter of 2000 and addresses the income statement
classification of amounts charged to customers for shipping and handling, as
well as costs incurred related to shipping and handling. The EITF concluded that
amounts billed to a customer in a sale transaction related to shipping and
handling should be classified as revenue. The EITF also concluded that if costs
incurred related to shipping and handling are significant and not included in
cost of sales, an entity should disclose both the amount of such costs and the
line item on the income statement that includes them. In connection with this
Issue, the Company reclassified certain revenue, cost of goods sold and SG&A
expense amounts in all periods presented in its Statements of Operations. The
reclassifications resulted in an increase in net sales of approximately $28.1,
$25.4 and $31.0 for 2000, 1999 and 1998, respectively, an increase in cost of
goods sold of $24.8, $21.8 and $27.4 for 2000, 1999 and 1998, respectively, and
an increase to SG&A expenses of $3.3, $3.6 and $3.6 for 2000, 1999 and 1998,
respectively. These reclassifications had no effect on the Company's results of
operations or financial position.
Also in September 2000, the FASB issued SFAS No. 140, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities -- a Replacement of FASB Statement No. 125." SFAS No. 140 revises
the standards for accounting for securitizations and other transfers of
financial assets and collateral and requires certain disclosures. This statement
is effective for transfers and servicing of financial assets and extinguishments
of liabilities occurring after March 31, 2001. SFAS No. 140 is effective for
recognition and reclassification of collateral and for disclosures relating to
securitization transactions and collateral for fiscal years ending after
December 15, 2000. The adoption of SFAS No. 140 had no effect on the Company's
results of operations or financial position.
2. ACQUISITIONS AND DISPOSITIONS
ACQUISITIONS
In May 2000, the Company acquired from CNH Global N.V. ("CNH") its 50%
share in Hay and Forage Industries ("HFI") for $10 million. This agreement
terminated a joint venture agreement in which CNH and AGCO each owned 50%
interests in HFI, thereby providing AGCO with sole ownership of the facility.
HFI, located in Hesston, Kansas develops and manufactures hay and forage
equipment and implements that AGCO sells under various brand names. The acquired
assets and liabilities primarily consisted of technology, production
inventories, property, plant and equipment related to its manufacturing
40
42
AGCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
operations, accounts payable and accrued liabilities. The financial statements
of HFI, which were previously accounted for under the equity method of
accounting, were consolidated with the Company's financial statements as of the
date of the acquisition.
Effective October 1, 1998, the Company acquired the net assets of the
Willmar product line, a brand of agricultural self-propelled sprayers, spreaders
and loaders for approximately $33 million. The acquired assets and liabilities
primarily consisted of trademarks and trade names, technology, accounts
receivable, inventories, property, plant and equipment related to its
manufacturing operations, accounts payable and accrued expenses. Effective July
1, 1998, the Company acquired certain net assets related to the Spra-Coupe
product line, a brand of self-propelled sprayers for approximately $37.2
million. The acquired assets and liabilities primarily consisted of trademarks
and trade names, technology, accounts receivable, inventories, production
tooling and accrued liabilities.
The Company's acquisitions were accounted for as purchases in accordance
with Accounting Principles Board Opinion ("APB") No. 16, and, accordingly, each
purchase price has been allocated to the assets acquired and the liabilities
assumed based on the estimated fair values as of the acquisition dates. The
purchase price allocation for certain past acquisitions included liabilities
associated with certain costs to integrate the acquired businesses into the
Company's operations. In connection with the acquisition of Xaver Fendt GmbH in
1997, the Company established liabilities primarily related to severance and
other costs associated with the planned closure of certain sales and marketing
offices and parts distribution operations. The Spra-Coupe and Willmar
acquisition liabilities related to employee relocation and other costs to
integrate production into one manufacturing facility. The activity related to
these liabilities is summarized in the following table.
<TABLE>
<CAPTION>
BALANCE AT
LIABILITIES INCURRED INCURRED INCURRED INCURRED DECEMBER 31,
ESTABLISHED 1997 1998 1999 2000 2000
----------- -------- -------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Deutz Argentina headcount
reduction..................... $ 2.8 $2.8 $ -- $ -- $ -- $ --
Fendt sales office closure...... 2.6 -- 1.1 0.9 0.6 --
Fendt parts distribution
closure....................... 4.5 -- -- 0.9 0.3 3.3
Willmar/Spra-Coupe
integration................... 0.6 -- 0.2 0.2 0.2 --
----- ---- ---- ---- ---- ----
$10.5 $2.8 $1.3 $2.0 $1.1 $3.3
===== ==== ==== ==== ==== ====
</TABLE>
DISPOSITIONS
Effective February 5, 1999, the Company sold its manufacturing plant in
Haedo, Argentina (the "Haedo Sale") for approximately $19.0 million. The Company
received $12.3 million of the purchase price in December 1998 in the form of a
deposit and received the remaining balance in December 1999. The Haedo Sale
included property, plant and equipment at the facility in addition to the
transfer of hourly and salaried manufacturing employees. The Haedo Sale had no
material impact to the Company's 1999 results of operations.
PENDING ACQUISITION
In November 2000, AGCO entered into an agreement to acquire Ag-Chem
Equipment Company, Inc. ("Ag-Chem"), a leading manufacturer and distributor of
self-propelled fertilizer and chemical sprayers for pre-emergent and
post-emergent applications. Ag-Chem had sales of $299 million for the year ended
September 30, 2000. The merger agreement provides that AGCO will acquire Ag-Chem
and all of the outstanding Ag-Chem common stock in exchange for a combination of
cash and shares of AGCO common stock. The value of this combination will be
$25.80 per share of Ag-Chem common stock for total merger
41
43
AGCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
consideration of approximately $247 million. The combination of cash and stock
is dependent on the value of AGCO common stock at the closing date, but the
amount of common stock that AGCO will issue is limited to 11,800,000 shares. The
transaction is subject to approval from Ag-Chem shareholders and is expected to
close in April of 2001.
3. RESTRUCTURING AND OTHER INFREQUENT EXPENSES
The Company recorded restructuring and other infrequent expenses of $21.9
million, $24.5 million and $40 million in 2000, 1999 and 1998, respectively. The
2000 expense consisted of $24.9 million associated with the closure of certain
manufacturing facilities in the United States and Argentina and a credit of $3.0
million related to the reversal of reserves established in 1997. The 1999
expense also related to the manufacturing facility closures. The 1998 expense
was primarily related to the reduction in the Company's worldwide workforce.
MANUFACTURING FACILITY CLOSURES
In the second quarter of 2000, the Company announced its plan to
permanently close its combine manufacturing facility in Independence, Missouri
and relocate existing production to the Company's Hesston, Kansas manufacturing
facility. In the fourth quarter of 1999, the Company announced closure of the
Company's Coldwater, Ohio; Lockney, Texas; and Noetinger, Argentina
manufacturing facilities. The majority of production in these facilities is
being relocated to other existing AGCO facilities and the remaining production
is being outsourced to third party suppliers. The Company closed the Coldwater
plant in 1999 and the Independence, Lockney and Noetinger plants in 2000. The
Company believes that closure of these facilities did not have a significant
impact on 2000 or 1999 revenues. In connection with these closures, the Company
recorded restructuring and other infrequent expenses of $24.9 million in 2000
and $24.5 million in 1999. The components of the expenses are summarized in the
following table:
<TABLE>
<CAPTION>
BALANCE AT
1999 2000 EXPENSES DECEMBER 31,
EXPENSES EXPENSES INCURRED 2000
-------- -------- -------- ------------
<S> <C> <C> <C> <C>
Employee severance............................. $ 1.9 $ 6.9 $ 6.9 $1.9
Facility closure costs......................... 7.7 5.4 9.2 3.9
Write-down of property, plant and equipment,
net of recoveries............................ 14.9 1.3 16.2 --
Production transition costs.................... -- 11.3 11.3 --
----- ----- ----- ----
$24.5 $24.9 $43.6 $5.8
===== ===== ===== ====
</TABLE>
The severance costs relate to the termination of approximately 1,050
employees, substantially all of which had been terminated at December 31, 2000.
The facility closure costs include employee costs and other exit costs to be
incurred after operations ceased in addition to noncancelable operating lease
obligations. The write-down of property, plant and equipment represents the
impairment of assets resulting from the facility closures and was based on the
estimated fair value of the assets compared to their carrying value. The
write-down consisted of $0.5 million in 2000 and $7.0 million in 1999 related to
machinery and equipment and $0.8 million in 2000 and $7.9 million in 1999 for
building and improvements. The write-down, net of recoveries, consisted of $11.6
related to Coldwater, $1.9 million related to Independence and $2.7 million
related to Noetinger. The estimated fair value of the equipment and buildings
was determined based on current conditions in the applicable markets The
machinery, equipment and tooling have been or will be disposed of within a year
and the buildings and improvements are currently being marketed for sale. The
production transition costs, which are being expensed as incurred, represent
costs to relocate and integrate production into other existing AGCO facilities.
The remaining costs accrued at December 31, 2000 are expected to be incurred in
2001.
42
44
AGCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1998 EXPENSE
In 1998, the Company recorded restructuring and other infrequent expenses
of $40.0 million primarily related to severance and related costs associated
with the reduction in the Company's worldwide permanent workforce of
approximately 1,400 employees. The components of the restructuring expenses are
as follows:
<TABLE>
<CAPTION>
BALANCE AT
1998 EXPENSES DECEMBER 31,
EXPENSE INCURRED 2000
------- -------- ------------
<S> <C> <C> <C>
Severance............................................... $29.0 $27.8 $1.2
Pension and postretirement benefits..................... 7.2 7.2 --
Write-down of assets.................................... 3.8 3.8 --
----- ----- ----
$40.0 $38.8 $1.2
===== ===== ====
</TABLE>
The pension and postretirement benefits were related to costs associated
with the terminated employees. The write-down of assets related to the
cancellation of systems projects in order to reduce headcount and future
expenses. The Company expects the remaining reserve balance to be utilized in
2001.
1997 EXPENSE
In 1997, the Company recorded restructuring and other infrequent expenses
of $18.2 million which consisted of (i) $15.0 million related to the
restructuring of the Company's European operations and the integration of the
Deutz Argentina and Fendt operations, acquired in December 1996 and January
1997, respectively, and (ii) $3.2 million related to executive severance. The
costs associated with the restructuring and integration activities primarily
related to the centralization and rationalization of certain manufacturing,
selling and administrative functions in addition to the rationalization of a
small portion of the Company's European dealer network. The components of the
expense are as follows:
<TABLE>
<CAPTION>
BALANCE AT
1997 EXPENSES RESERVES DECEMBER 31,
EXPENSE INCURRED RELEASED 2000
------- -------- -------- ------------
<S> <C> <C> <C> <C>
Executive severance............................. $ 3.2 $ 3.2 $ -- $ --
Other severance................................. 9.5 9.5 -- --
Other restructuring costs....................... 0.5 0.5 -- --
Dealer termination costs........................ 5.0 2.0 3.0 --
----- ----- ---- ----
$18.2 $15.2 $3.0 $ --
===== ===== ==== ====
</TABLE>
In 2000, the Company reversed $3.0 million of restructuring expenses
related to dealer termination costs. While it is possible the Company could
still incur costs associated with these dealer terminations, the Company
believes that it is no longer probable these costs will be incurred.
4. ACCOUNTS RECEIVABLE SECURITIZATION
In January 2000, the Company entered into a $250 million asset backed
securitization facility whereby certain U.S. wholesale accounts receivables are
sold on a revolving basis through a wholly-owned special purpose subsidiary to a
third party (the "Securitization Facility"). The Company initially funded $200
million under the Securitization Facility and has maintained this level of
funding through subsequent receivable sales. The proceeds from the funding were
used to reduce outstanding borrowings under the Company's revolving credit
facility. In conjunction with the closing of the securitization transaction, the
Company recorded an initial one-time $8.0 million loss in the first quarter of
2000. The initial loss consists of $7.1 million for the difference between the
current and future value of the receivables sold and related transaction
expenses and $0.9 million for the write-off of certain unamortized debt issuance
costs due to the reduction in the lending
43
45
AGCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
commitment of the Company's revolving credit facility. The Company recorded
losses totaling $20.3 million in 2000, including the loss of $7.1 million
related to the initial funding of the Securitization Facility and $13.2 million
related to subsequent sales of receivables provided on a revolving basis. The
losses are determined by calculating the estimated present value of the
receivables sold compared to their carrying amount. The present value is based
on historical collection experience and a discount rate representing a spread
over LIBOR as prescribed under the terms of the Securitization Facility. For
2000, the losses were based on an average liquidation period of the portfolio of
approximately 6.2 months and an average discount rate, net of estimated interest
income, of 5.2%.
The Securitization Facility allows for the Company to sell eligible U.S.
wholesale accounts receivables on a revolving basis. At December 31, 2000, the
unpaid balance of accounts receivable sold were approximately $267.4 million. Of
this amount, approximately $6.2 million was past due at December 31, 2000. The
Company continues to service these receivables and maintains a retained interest
in the receivables. The Company received approximately $2.6 million in servicing
fees in 2000. The Company has not recorded a servicing asset or liability since
the cost to service the receivables approximates the servicing income. The
retained interest totaling approximately $67.4 million represents the excess of
receivables sold to the wholly-owned special purpose entity over the amount
funded to the Company. The retained interests in the receivables sold is
included in the caption "Accounts and notes receivable, net" in the accompanying
Consolidated Balance Sheet as of December 31, 2000. The fair value of the
retained interest is approximately $65.4 million compared to the carrying amount
of $67.4 million and is based on the present value of the receivables calculated
in a method consistent with the losses on sales of receivables discussed above
net of anticipated credit losses of approximately $7.6 million. Assuming an
increase in the average liquidation period from 6.2 months to 8 months and 10
months, the fair value of the retained interest would be lower by $0.8 million
and $1.7 million, respectively. Assuming an increase in discount rates, net of
estimated interest income, from 5.2% to 6.2% and 7.2%, the fair value of the
retained interest would be lower by $0.4 million and $0.8 million, respectively.
The receivables sold are collateralized by security interests in the equipment
sold to dealers. Credit losses on the receivables sold in 2000 were
approximately $0.4 million. For 2000, the Company received approximately $487.3
million from the wholly-owned special purpose entity. This amount consisted of
$200 million from the initial sale, $206.2 million related to proceeds from
subsequent sales of receivables, $2.6 million from servicing fees and $78.5 from
collections of receivables related to the Company's retained interest.
5. INVESTMENTS IN AFFILIATES
Investments in affiliates as of December 31, 2000 and 1999 were as follows
(in millions):
<TABLE>
<CAPTION>
2000 1999
----- -----
<S> <C> <C>
Retail finance joint ventures............................... $67.7 $63.0
Manufacturing joint ventures................................ 7.6 21.5
Other....................................................... 10.0 9.1
----- -----
$85.3 $93.6
</TABLE>
The manufacturing joint ventures as of December 31, 2000 consisted of joint
ventures with unrelated manufacturers to produce transmissions in Europe and
engines in South America. At December 31, 1999, manufacturing joint ventures
also included HFI, which was consolidated with the Company's financial
statements since the HFI acquisition (Note 2). The other joint ventures
represent minority investments in farm equipment manufacturers and licensees.
44
46
AGCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company's equity in net earnings of affiliates for 2000, 1999 and 1998
were as follows (in millions):
<TABLE>
<CAPTION>
2000 1999 1998
----- ----- -----
<S> <C> <C> <C>
Retail Finance Joint Ventures............................... $10.3 $11.0 $11.4
Other....................................................... (0.5) (0.5) 2.4
----- ----- -----
$ 9.8 $10.5 $13.8
</TABLE>
The manufacturing joint ventures of the Company primarily sell their
products to the joint venture partners at prices which result in operating at or
near breakeven on an annual basis.
Summarized combined financial information of the Retail Finance Joint
Ventures as of and for the years ended presented were as follows (in millions):
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------
2000 1999
-------- --------
<S> <C> <C>
Total assets................................................ $1,311.0 $1,402.8
Total liabilities........................................... 1,176.0 1,276.5
Partner's equity............................................ 135.0 126.3
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
------------------------
2000 1999 1998
------ ------ ------
<S> <C> <C> <C>
Revenues.................................................... $145.2 $144.1 $136.6
Costs....................................................... 112.8 109.3 102.2
------ ------ ------
Income before income taxes.................................. $ 32.4 $ 34.8 $ 34.4
====== ====== ======
</TABLE>
The majority of the assets of the Retail Finance Joint Ventures represent
finance receivables. The majority of the liabilities represent notes payable and
accrued interest.
6. INCOME TAXES
The Company accounts for income taxes under the provisions of SFAS No. 109,
"Accounting for Income Taxes." SFAS No. 109 requires recognition of deferred tax
assets and liabilities for the expected future tax consequences of events that
have been included in the financial statements or tax returns. Under this
method, deferred tax assets and liabilities are determined based on the
differences between the financial reporting and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse.
The sources of income (loss) before income taxes, equity in net earnings of
affiliates were as follows for the years ended December 31, 2000, 1999 and 1998
(in millions):
<TABLE>
<CAPTION>
2000 1999 1998
------- ------ -----
<S> <C> <C> <C>
United States............................................... $(109.3) $(96.9) $(9.4)
Foreign..................................................... 95.4 64.7 83.7
------- ------ -----
Income (loss) before income taxes, equity in net earnings of
affiliates................................................ $ (13.9) $(32.2) $74.3
======= ====== =====
</TABLE>
45
47
AGCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The provision (benefit) for income taxes by location of the taxing
jurisdiction for the years ended December 31, 2000, 1999 and 1998 consisted of
the following (in millions):
<TABLE>
<CAPTION>
2000 1999 1998
------ ------ ------
<S> <C> <C> <C>
Current:
United States:
Federal................................................ $ (7.4) $ (3.3) $ 0.6
State.................................................. (0.2) -- 0.2
Foreign................................................... 37.6 40.3 49.1
------ ------ ------
30.0 37.0 49.9
------ ------ ------
Deferred:
United States:
Federal................................................ (33.4) (31.2) (6.1)
State.................................................. (5.2) (4.1) (0.8)
Foreign................................................... 1.0 (11.9) (15.5)
------ ------ ------
(37.6) (47.2) (22.4)
------ ------ ------
Provision (benefit) for income taxes........................ $ (7.6) $(10.2) $ 27.5
====== ====== ======
</TABLE>
Certain foreign operations of the Company are subject to United States as
well as foreign income tax regulations. Therefore, the preceding sources of
income (loss) before income taxes by location and the provision (benefit) for
income taxes by taxing jurisdiction are not directly related.
A reconciliation of income taxes computed at the United States federal
statutory income tax rate (35%) to the provision (benefit) for income taxes
reflected in the Consolidated Statements of Operations for the years ended
December 31, 2000, 1999 and 1998 is as follows (in millions):
<TABLE>
<CAPTION>
2000 1999 1998
----- ------ -----
<S> <C> <C> <C>
Provision (benefit) for income taxes at United States
federal statutory rate of 35%............................. $(4.9) $(11.3) $26.0
State and local income taxes, net of federal income tax
benefit................................................... (4.3) (3.9) (0.4)
Taxes on foreign income which differ from the United States
statutory rate............................................ 0.6 (0.7) (0.3)
Foreign losses with no tax benefit.......................... 4.2 6.2 4.3
Benefit of foreign sales corporation........................ -- (0.5) (1.3)
Other....................................................... (3.2) -- (0.8)
----- ------ -----
$(7.6) $(10.2) $27.5
===== ====== =====
</TABLE>
For 2000, the Company has included in "Other" the recognition of a United
States tax credit carryback of approximately $2.0 million.
46
48
AGCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The significant components of the net deferred tax assets at December 31,
2000 and 1999 were as follows (in millions):
<TABLE>
<CAPTION>
2000 1999
------ ------
<S> <C> <C>
Deferred Tax Assets:
Net operating loss carryforwards.......................... $139.0 $116.9
Sales incentive discounts................................. 22.8 18.8
Inventory valuation reserves.............................. 8.3 10.1
Postretirement benefits................................... 8.2 8.2
Other..................................................... 74.1 76.3
Valuation allowance....................................... (71.8) (78.8)
------ ------
Total deferred tax assets......................... 180.6 151.5
------ ------
Deferred Tax Liabilities:
Tax over book depreciation................................ 24.2 46.2
Tax over book amortization of goodwill.................... 17.9 18.1
Other..................................................... 16.3 5.0
------ ------
Total deferred tax liabilities.................... 58.4 69.3
------ ------
Net deferred tax assets..................................... 122.2 82.2
Less: Current portion of deferred tax asset............... (33.1) (22.3)
------ ------
Noncurrent net deferred tax assets.......................... $ 89.1 $ 59.9
====== ======
</TABLE>
At December 31, 2000, the Company has recorded a net deferred tax asset of
$122.2 million which is included in "Other current assets" and "Other assets" in
the Consolidated Balance Sheet. Realization of the asset is dependent on
generating sufficient taxable income in future periods. Management believes that
it is more likely than not that the deferred tax asset will be realized. As
reflected in the preceding table, the Company established a valuation allowance
of $71.8 million and $78.8 million as of December 31, 2000 and 1999,
respectively. The majority of the valuation allowance relates to net operating
loss carryforwards in certain foreign entities where there is an uncertainty
regarding their realizability and will more likely than not expire unused. The
Company has net operating loss carryforwards of $354.8 million as of December
31, 2000, with expiration dates as follows: 2001 -- $25.9 million, 2002 -- $14.9
million, 2003 -- $16.6 million, 2004 -- $39.0 million, 2005 -- $24.1 million and
thereafter and unlimited -- $234.3 million. The Company paid income taxes of
$49.3 million, $6.1 million and $87.8 million for the years ended December 31,
2000, 1999 and 1998, respectively.
7. LONG-TERM DEBT
Long-term debt consisted of the following at December 31, 2000 and 1999 (in
millions):
<TABLE>
<CAPTION>
2000 1999
------ ------
<S> <C> <C>
Revolving credit facility................................... $314.2 $431.4
Senior Subordinated Notes................................... 248.6 248.5
Other long-term debt........................................ 7.4 11.8
------ ------
Total long-term debt.............................. $570.2 $691.7
====== ======
</TABLE>
The revolving credit facility is a multi-currency, unsecured line of credit
with a current lending commitment of $800 million expiring January 2002. The
lending commitment is subject to reduction by an amount equal to additional
funding from the Securitization Facility (Note 4). Aggregate borrowings
outstanding under the revolving credit facility are subject to a borrowing base
limitation and may not at any time exceed the sum of 90% of eligible accounts
receivable and 60% of eligible inventory. Interest accrues on
47
49
AGCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
borrowings outstanding under the revolving credit facility primarily at LIBOR
plus an applicable margin, as defined. For the year ended December 31, 2000,
interest rates on the outstanding borrowings, including the effect of the
interest rate swap contract (Note 1), ranged from 6.6% to 9.5%, and the weighted
average interest rate was 6.5%. Excluding the impact of the interest rate swap,
the weighted average interest rate was 6.6%. The revolving credit facility
contains certain covenants, including covenants restricting the incurrence of
indebtedness and the making of certain restrictive payments, including
dividends. In addition, the Company must maintain certain financial covenants
including, among others, a debt to capitalization ratio, a fixed charge coverage
ratio and a ratio of debt to cash flow, as defined. Availability under the
revolving credit facility is subject to receivable and inventory borrowing base
requirements and maintaining all financial covenants included in the agreement.
Approximately $189.9 million and $210.9 million of the revolving credit facility
were payable in Euros and approximately $70.7 million and $89.5 million were
denominated in Canadian dollars at December 31, 2000 and 1999, respectively.
Although the Company is in compliance with all financial covenants, the
financial covenants in the revolving credit facility become more stringent at
the end of the second quarter of 2001. As a result, the Company does not
anticipate being able to fulfill two of the financial covenants contained in the
facility, a limitation on the ratio of funded debt to EBITDA and a minimum fixed
charge coverage ratio. To address this issue, the Company has entered into a
commitment letter with Rabobank for a new revolving credit facility, which the
Company expects to close early in the second quarter of 2001. The new facility
is expected to permit borrowings of up to $350 million, to have a 4 1/2 year
term, and to be secured by a majority of the Company's assets, including a
portion of the capital stock of certain foreign subsidiaries. In addition, the
Company is in the process of offering $250 million in fixed rate senior notes
for sale in a private placement. The notes will mature in seven years and will
have terms substantially similar to the currently outstanding 8 1/2% senior
subordinated notes, except that they will not be subordinated. In addition, the
Company intends to enter into a new $100 million accounts receivable
securitization facility in Europe.
In 1996, the Company issued $250.0 million of 8.5% Senior Subordinated
Notes due 2006 (the "Notes") at 99.139% of their principal amount. The Notes are
unsecured obligations of the Company and are redeemable at the option of the
Company, in whole or in part, at any time on or after March 15, 2001 initially
at 104.25% of their principal amount, plus accrued interest, declining ratably
to 100% of their principal amount plus accrued interest, on or after March 15,
2003. The indenture governing the Notes contains numerous covenants, including
limitations on the Company's ability to incur additional indebtedness, to make
investments, to make "restricted payments" (including dividends), and to create
liens. The indenture also requires the Company to offer to repurchase the Notes
in the event of a change in control. Subsequent to year-end, the Company was
issued a notice of default by the trustee of the Notes regarding the violation
of a covenant restricting the payments of dividends during periods in 1999, 2000
and 2001 when an interest coverage ratio was not met. During that period, the
Company paid approximately $4.8 million in dividends based upon the Company's
interpretation that it did not need to meet the interest coverage ratio but,
instead, an alternative total debt test. The Company subsequently received
sufficient waivers from the holders of the Notes for any violation of the
covenant that might have resulted from the dividend payments. In connection with
the receipt of waivers, the Company paid a waiver fee of approximately $2.5
million, which will be expensed in the first quarter of 2001. Currently, the
Company is prohibited from paying dividends until such time as the interest
coverage ratio in the indenture is met.
48
50
AGCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 2000, the aggregate scheduled maturities of long-term debt
are as follows (in millions):
<TABLE>
<S> <C>
2002........................................................ $315.5
2003........................................................ 1.0
2004........................................................ 1.1
2005........................................................ 0.8
2006........................................................ 249.2
2007 and thereafter......................................... 2.6
------
$570.2
======
</TABLE>
Cash payments for interest were $46.5 million, $71.8 million and $77.4
million for the years ended December 31, 2000, 1999 and 1998, respectively.
The Company has arrangements with various banks to issue letters of credit
or similar instruments which guarantee the Company's obligations for the
purchase or sale of certain inventories and for potential claims exposure for
insurance coverage. At December 31, 2000, outstanding letters of credit totaled
$10.0 million, of which $0.6 million were issued under the revolving credit
facility.
8. EMPLOYEE BENEFIT PLANS
The Company has defined benefit pension plans covering certain employees
principally in the United States, the United Kingdom and Germany. The Company
also provides certain postretirement health care and life insurance benefits for
certain employees principally in the United States.
Net annual pension and postretirement cost and the measurement assumptions
for the plans for the years ended December 31, 2000, 1999 and 1998 are set forth
below (in millions):
<TABLE>
<CAPTION>
PENSION BENEFITS 2000 1999 1998
---------------- -------- ------ ------
<S> <C> <C> <C>
Service cost.............................................. $ 8.1 $ 8.0 $ 8.4
Interest cost............................................. 27.4 25.9 25.1
Expected return on plan assets............................ (30.6) (27.9) (29.7)
Amortization of prior service cost........................ 0.2 0.5 0.5
Amortization of net loss.................................. 0.6 1.1 --
Special termination benefits.............................. 0.5 -- 6.7
Curtailment loss.......................................... 1.4 -- --
-------- ------ ------
Net annual pension costs.................................. $ 7.6 $ 7.6 $ 11.0
======== ====== ======
Weighted average discount rate............................ 6.4% 6.4% 6.1%
Weighted average expected long-term rate of return on plan
assets.................................................. 7.3% 7.3% 7.6%
Rate of increase in future compensation................... 4.0-5.0% 4.0% 4.0%
</TABLE>
<TABLE>
<CAPTION>
POSTRETIREMENT BENEFITS 2000 1999 1998
----------------------- -------- ------ ------
<S> <C> <C> <C>
Service cost.............................................. $ 0.4 $ 0.9 $ 0.9
Interest cost............................................. 1.4 1.5 1.3
Amortization of transition and prior service cost......... -- (0.1) (0.6)
Amortization of unrecognized net gain..................... (0.4) (0.1) (0.8)
Special termination benefits.............................. -- -- 0.5
Curtailment gain.......................................... (1.4) -- --
-------- ------ ------
Net annual postretirement costs........................... $ -- $ 2.2 $ 1.3
======== ====== ======
Weighted average discount rate............................ 7.7% 7.8% 7.0%
======== ====== ======
</TABLE>
49
51
AGCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following tables set forth reconciliations of the changes in benefit
obligations, plan assets and funded status as of December 31, 2000 and 1999 (in
millions):
<TABLE>
<CAPTION>
POSTRETIREMENT
PENSION BENEFITS BENEFITS
----------------- ---------------
CHANGE IN BENEFIT OBLIGATION 2000 1999 2000 1999
---------------------------- ------- ------- ------ ------
<S> <C> <C> <C> <C>
Benefit obligation at beginning of year.............. $461.1 $443.4 $21.3 $22.3
Service cost......................................... 8.1 8.0 0.4 0.9
Interest cost........................................ 27.4 25.9 1.4 1.5
Plan participant contributions....................... 2.3 2.5 -- --
Actuarial (gain) loss................................ (2.1) 21.2 (2.4) (2.1)
Acquisitions......................................... -- -- 3.6 --
Curtailments......................................... 2.0 -- (1.7) --
Special termination benefits......................... 0.5 -- -- --
Benefits paid........................................ (22.6) (27.7) (1.6) (1.3)
Foreign currency exchange rate changes............... (32.4) (12.2) -- --
------ ------ ----- -----
Benefit obligation at end of year.................... $444.3 $461.1 $21.0 $21.3
====== ====== ===== =====
</TABLE>
<TABLE>
<CAPTION>
POSTRETIREMENT
PENSION BENEFITS BENEFITS
----------------- ---------------
CHANGE IN PLAN ASSETS 2000 1999 2000 1999
--------------------- ------- ------- ------ ------
<S> <C> <C> <C> <C>
Fair value of plan assets at beginning of year........ $426.8 $384.7 $ -- $ --
Actual return of plan assets.......................... 57.0 59.1 -- --
Employer contributions................................ 9.8 16.7 1.6 1.3
Plan participant contributions........................ 2.3 2.5 -- --
Benefits paid......................................... (22.6) (27.7) (1.6) (1.3)
Foreign currency exchange rate changes................ (30.3) (8.5) -- --
------ ------ ------ ------
Fair value of plan assets at end of year.............. $443.0 $426.8 $ -- $ --
====== ====== ====== ======
Funded status......................................... $ (1.2) $(34.3) $(21.0) $(21.3)
Unrecognized net obligation........................... -- 0.7 0.3 0.4
Unrecognized net loss (gain).......................... 14.1 46.7 (6.8) (4.9)
Unrecognized prior service cost....................... -- 1.7 0.2 0.4
------ ------ ------ ------
Net amount recognized................................. $ 12.9 $ 14.8 $(27.3) $(25.4)
====== ====== ====== ======
Amounts recognized in Consolidated Balance Sheets:
Prepaid benefit cost.................................. $ 33.3 $ 31.4 $ -- $ --
Accrued benefit liability............................. (17.6) (17.6) (27.3) (25.4)
Intangible asset...................................... -- 1.0 -- --
Additional minimum pension liability.................. (2.8) -- -- --
------ ------ ------ ------
Net amount recognized................................. $ 12.9 $ 14.8 $(27.3) $(25.4)
====== ====== ====== ======
</TABLE>
The aggregate projected benefit obligation, accumulated benefit obligation
and fair value of plan assets for pension plans with accumulated benefit
obligations in excess of plan assets were $52.2 million, $52.2 million and $31.9
million, respectively, as of December 31, 2000 and $32.2 million, $30.2 million
and $11.9 million, respectively, as of December 31, 1999.
50
52
AGCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
For measuring the expected postretirement benefit obligation, a 7.5% health
care cost trend rate was assumed for 2000, decreasing 0.75% per year to 5.0-
6.0% and remaining at that level thereafter. For 1999, a 8.25% health care cost
trend rate was assumed. Changing the assumed health care cost trend rates by one
percentage point each year and holding all other assumptions constant would have
the following effect to service and interest cost and the accumulated
postretirement benefit obligation at December 31, 2000 (in millions):
<TABLE>
<CAPTION>
ONE ONE
PERCENTAGE PERCENTAGE
POINT POINT
INCREASE DECREASE
---------- ----------
<S> <C> <C>
Effect on service and interest cost......................... $ -- $ --
Effect on accumulated benefit obligation.................... $1.6 $(1.3)
</TABLE>
The Company maintains defined contribution plans covering certain employees
primarily in the United States and United Kingdom. Under the plans, the Company
contributes a specified percentage of each eligible employee's compensation. The
Company contributed $1.6 million, $1.5 million and $1.6 million for the years
ended December 31, 2000, 1999 and 1998, respectively.
9. COMMON STOCK
At December 31, 2000, the Company had 150.0 million authorized shares of
common stock with a par value of $0.01, with 59.6 million shares of common stock
outstanding, 0.1 million shares reserved for issuance under the Company's 1991
Stock Option Plan (Note 10), 0.1 million shares reserved for issuance under the
Company's Nonemployee Director Stock Incentive Plan (Note 10) and 3.5 million
shares reserved for issuance under the Company's Long-Term Incentive Plan (Note
10).
In December 1997, the Company's Board of Directors authorized the
repurchase of up to $150.0 million of its outstanding common stock. In 1998, the
Company repurchased approximately 3.5 million shares of its common stock at a
cost of approximately $88.1 million. In 1999 and 2000, the Company did not
repurchase any of its common stock. The purchases are made through open market
transactions, and the timing and number of shares purchased depend on various
factors, such as price and other market conditions.
In April, 1994, the Company designated 300,000 shares of Junior Cumulative
Preferred Stock ("Junior Preferred Stock") in connection with the adoption of a
Stockholders' Rights Plan (the "Rights Plan"). Under the terms of the Rights
Plan, one-third of a preferred stock purchase right (a "Right") is attached to
each outstanding share of the Company's common stock. The Rights Plan contains
provisions that are designed to protect stockholders in the event of certain
unsolicited attempts to acquire the Company. Under the terms of the Rights Plan,
each Right entitles the holder to purchase one one-hundredth of a share of
Junior Preferred Stock, par value of $0.01 per share, at an exercise price of
$200 per share. The Rights are exercisable a specified number of days following
(i) the acquisition by a person or group of persons of 20% or more of the
Company's common stock or (ii) the commencement of a tender or exchange offer
for 20% or more of the Company's common stock. In the event the Company is the
surviving company in a merger with a person or group of persons that owns 20% or
more of the Company's outstanding stock, each Right will entitle the holder
(other than such 20% stockholder) to receive, upon exercise, common stock of the
Company having a value equal to two times the Right's exercise price. In
addition, in the event the Company sells or transfers 50% or more of its assets
or earning power, each Right will entitle the holder to receive, upon exercise,
common stock of the acquiring company having a value equal to two times the
Right's exercise price. The Rights may be redeemed by the Company at $0.01 per
Right prior to their expiration on April 27, 2004.
51
53
AGCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. STOCK INCENTIVE PLANS
NONEMPLOYEE DIRECTOR STOCK INCENTIVE PLAN
The Company's Nonemployee Director Stock Incentive Plan (the "Director
Plan") provides for restricted stock awards to nonemployee directors based on
increases in the price of the Company's common stock. The awarded shares are
earned in specified increments for each 15% increase in the average market value
of the Company's common stock over the initial base price established under the
plan. When an increment of the awarded shares is earned, the shares are issued
to the participant in the form of restricted stock which vests at the earlier of
12 months after the specified performance period or upon departure from the
board of directors. When the restricted shares are earned, a cash bonus equal to
40% of the value of the shares on the date the restricted stock award is earned
is paid by the Company to satisfy a portion of the estimated income tax
liability to be incurred by the participant.
At December 31, 2000, there were 10,500 shares awarded but not earned under
the Director Plan and 10,500 shares that have been earned but not vested under
the Director Plan.
LONG-TERM INCENTIVE PLAN
The Company's Long-Term Incentive Plan (the "LTIP") provides for restricted
stock awards to executives based on increases in the price of the Company's
common stock. The awarded shares may be earned over a five-year performance
period in specified increments for each 20% increase in the average market value
of the Company's common stock over the established initial base price. For all
restricted stock awards prior to 2000, earned shares are issued to the
participant in the form of restricted stock which generally carries a five-year
vesting period with one-third of each earned award vesting at the end of the
third, fourth and fifth year after each award is earned. In 2000, the LTIP was
amended to replace the vesting schedule with a nontransferability period for all
future grants. Accordingly for restricted stock awards in 2000 and all future
awards, earned shares are subject to a non-transferability period which expires
over a five-year period with the transfer restrictions lapsing in one-third
increments at the end of the third, fourth, and fifth year after each award is
earned. During the non-transferability period, participants will be restricted
from selling, assigning, transferring, pledging or otherwise disposing of any
earned shares, but earned shares are not subject to forfeiture. In the event a
participant terminates employment with the Company, the non-transferability
period is extended by two years. When the earned shares have vested and are no
longer subject to forfeiture, the Company is obligated to pay a cash bonus equal
to 40% of the value of the shares on the date the shares are earned in order to
satisfy a portion of the estimated income tax liability to be incurred by the
participant.
At the time the awarded shares are earned, the market value of the stock is
added to common stock and additional paid-in capital and an equal amount is
deducted from stockholders' equity as unearned compensation. The LTIP unearned
compensation and the amount of cash bonus to be paid when the awarded shares
become vested are amortized to expense ratably over the vesting period. For
awards granted in 2000 and in the future, the Company will record the entire
compensation expense relating to the earned shares and related cash bonus in the
period in which the award is earned. The Company recognized compensation expense
associated with the LTIP of $3.8 million, $8.5 million and $12.0 million for the
years ended December 31, 2000, 1999 and 1998, respectively, consisting of
amortization of the stock awards and the related cash bonus.
52
54
AGCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Additional information regarding the LTIP for the years ended December 31,
2000, 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
2000 1999 1998
---------- --------- ---------
<S> <C> <C> <C>
Shares awarded but not earned at January 1........... 1,046,000 927,500 965,000
Shares awarded....................................... 2,075,000 150,000 --
Shares forfeited or expired unearned................. (1,191,000) (16,500) (37,500)
Shares earned........................................ -- (15,000) --
---------- --------- ---------
Shares awarded but not earned at December 31......... 1,930,000 1,046,000 927,500
Shares available for grant........................... 1,600,000 1,234,000 1,367,500
---------- --------- ---------
Total shares reserved for issuance................... 3,530,000 2,280,000 2,295,000
========== ========= =========
Shares vested during year............................ 411,667 441,166 375,833
========== ========= =========
</TABLE>
In 2000, the LTIP was amended to increase the number of shares authorized
for issuance by 1,250,000 shares.
STOCK OPTION PLAN
The Company's Stock Option Plan (the "Option Plan") provides for the
granting of nonqualified and incentive stock options to officers, employees,
directors and others. The stock option exercise price is determined by the board
of directors except in the case of an incentive stock option for which the
purchase price shall not be less than 100% of the fair market value at the date
of grant. Each recipient of stock options is entitled to immediately exercise up
to 20% of the options issued to such person, and an additional 20% of such
options vest ratably over a four-year period and expire not later than ten years
from the date of grant.
Stock option transactions during the three years ended December 31, 2000,
1999 and 1998 were as follows:
<TABLE>
<CAPTION>
2000 1999 1998
------------ ------------ ------------
<S> <C> <C> <C>
Options outstanding at January 1............. 1,855,919 1,238,294 797,968
Options granted.............................. 802,000 701,700 586,700
Options exercised............................ (39,702) (17,138) (50,698)
Options canceled............................. (184,720) (66,937) (95,676)
------------ ------------ ------------
Options outstanding at December 31........... 2,433,497 1,855,919 1,238,294
============ ============ ============
Options available for grant at December 31... 123,438 740,718 1,375,481
============ ============ ============
Option price ranges per share:
Granted.................................... $11.63-13.13 $ 11.00 $ 8.31-27.00
Exercised.................................. 1.52-11.00 1.52-11.00 1.52-27.00
Canceled................................... 14.63-31.25 14.63-31.25 11.75-31.25
Weighted average option prices per share:
Granted.................................... $ 11.69 $ 11.00 $ 22.08
Exercised.................................. 8.12 3.09 9.52
Canceled................................... 18.66 23.15 23.78
Outstanding at December 31................. 15.19 16.90 20.39
</TABLE>
At December 31, 2000, the outstanding options had a weighted average
remaining contractual life of approximately 7.8 years and there were 1,192,605
options currently exercisable with option prices ranging from $1.52 to $31.25
and with a weighted average exercise price of $16.92.
53
55
AGCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table sets forth the exercise price range, number of shares,
weighted average exercise price, and remaining contractual lives by groups of
similar price and grant date:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
---------------------------- OPTIONS EXERCISABLE
WEIGHTED AVERAGE ----------------------------------
REMAINING WEIGHTED EXERCISABLE WEIGHTED
RANGE OF NUMBER CONTRACTUAL AVERAGE AS OF AVERAGE
EXERCISE PRICES OF SHARES LIFE (YEARS) EXERCISE PRICE DECEMBER 31, 2000 EXERCISE PRICE
--------------- --------- ---------------- -------------- ----------------- --------------
<S> <C> <C> <C> <C> <C>
$1.52-$1.52.................. 34,772 0.8 $ 1.52 34,772 $ 1.52
$2.50-$3.75.................. 57,700 1.7 $ 2.63 57,700 $ 2.63
$6.25-$6.25.................. 14,300 2.5 $ 6.25 14,300 $ 6.25
$11.00-$14.69................ 1,587,749 8.7 $11.72 562,029 $12.25
$18.25-$27.00................ 617,816 6.9 $23.13 426,936 $23.37
$31.25-$31.25................ 121,160 6.4 $31.25 96,868 $31.25
--------- ---------
2,433,497 1,192,605
</TABLE>
The Company accounts for all stock-based compensation awarded under the
Director Plan, the LTIP and the Option Plan as prescribed under APB No. 25,
"Accounting for Stock Issued to Employees" and also provides the disclosures
required under SFAS No. 123, "Accounting for Stock Based Compensation." ABP No.
25 requires no recognition of compensation expense for options granted under the
Option Plan. However, ABP No. 25 does require recognition of compensation
expense under the Director Plan and the LTIP.
For disclosure purposes only, under SFAS No. 123, the Company estimated the
fair value of grants under the Company's stock incentive plans using the
Black-Scholes pricing model. Based on this model, the weighted average fair
value of options granted under the Option Plan and the weighted average fair
value of awards granted under the Director Plan and the LTIP, including the
related cash bonus, were as follows (in millions):
<TABLE>
<CAPTION>
2000 1999 1998
----- ------ ------
<S> <C> <C> <C>
Director Plan............................................... $ -- $13.61 $43.47
LTIP........................................................ 8.50 12.13 --
Option Plan................................................. 6.23 7.07 12.18
</TABLE>
There were no awards under the LTIP in 1998 or in the Director Plan in
2000.
The fair value of the grants and awards are amortized over the vesting
period for stock options and earned awards under the Director Plan and LTIP and
over the performance period for unearned awards under the Director Plan and
LTIP. Based on applying the provisions of SFAS No. 123, pro forma net income,
net income per common share and the assumptions under the Black-Scholes pricing
model were as follows (in millions, except per share data):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
2000 1999 1998
------ ------ -----
<S> <C> <C> <C>
Net income (loss)........................................... $ (2.5) $(14.0) $57.4
Net income (loss) per common share -- diluted............... $(0.04) $(0.24) $0.94
Weighted average assumptions under Black-Scholes:
Expected life of options (years)............................ 5.6 7 7
Risk free interest rate..................................... 5.8% 5.9% 5.6%
Expected volatility......................................... 44.0% 61.0% 46.0%
Expected dividend yield..................................... 0.3% 0.4% 0.2%
</TABLE>
54
56
AGCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Because the SFAS No. 123 method of accounting has not been applied to
grants and awards prior to January 1, 1995, the resulting pro forma compensation
cost may not be representative of that expected in future years.
11. COMMITMENTS AND CONTINGENCIES
The Company leases land, buildings, machinery, equipment and furniture
under various noncancelable operating lease agreements. At December 31, 2000,
future minimum lease payments under noncancelable operating leases were as
follows (in millions):
<TABLE>
<S> <C>
2001........................................................ $13.0
2002........................................................ 11.2
2003........................................................ 9.8
2004........................................................ 8.1
2005........................................................ 7.2
Thereafter.................................................. 29.6
-----
$78.9
=====
</TABLE>
Total lease expense under noncancelable operating leases was $17.4 million,
$14.5 million and $15.9 million, for the years ended December 31, 2000, 1999 and
1998, respectively.
During 1999, the Company entered into a sale/leaseback transaction
involving certain real property. The proceeds from the transaction of $18.7
million were used to reduce the outstanding borrowings under the Revolving
Credit Facility. The terms of the lease require the Company to pay approximately
$2.0 million per year for the next fifteen years at which time the Company has
the option to extend the lease with annual payments ranging from $2.2 million to
$2.7 million. In accordance with SFAS No. 13, the Company has accounted for the
lease as an operating lease. The gain on sale of $2.4 million is being amortized
over the life of the operating lease.
At December 31, 2000, the Company was obligated under certain circumstances
to purchase through the year 2005 up to $19.6 million of equipment upon
expiration of certain operating leases between AGCO Finance LLC and Agricredit
Acceptance Canada Ltd, the Company's retail finance joint ventures in North
America, and end users. Management believes that any losses which might be
incurred on the resale of this equipment will not materially impact the
Company's financial position or results of operations.
The Company is party to various claims and lawsuits arising in the normal
course of business. It is the opinion of management, after consultation with
legal counsel, that those claims and lawsuits, when resolved, will not have a
material adverse effect on the financial position or results of operations of
the Company.
12. RELATED PARTY TRANSACTIONS
In addition to its retail finance joint ventures, Rabobank Nederland is the
principal agent and participant in the Company's revolving credit agreement and
the Securitization Facility. All transactions with the joint ventures and
Rabobank have been on an arms-length basis and have been based on prevailing
market conditions.
In 2000, the Company entered into supply agreements with SAME Deutz-Fahr
Group S.p.A. ("SDF") whereby SDF supplies certain orchard and vineyard tractors
and AGCO supplies SDF with combines in the European market beginning in 2001. At
December 31, 2000, SDF owns approximately 10% of AGCO's common stock, but has no
involvement in AGCO management. In management's opinion, all transactions
between the Company and SDF are done on an arms-length basis.
55
57
AGCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. SEGMENT REPORTING
The Company has four geographic reportable segments: North America, South
America, Europe/Africa/Middle East and Asia/Pacific. Each segment distributes a
full range of agricultural equipment and related replacement parts. The
accounting policies of the segments are the same as described in the summary of
significant accounting policies. The Company evaluates segment performance based
on income from operations. Sales for each segment are based on the location of
the third-party customer. All intercompany transactions between segments have
been eliminated. The Company's selling, general and administrative expenses and
engineering expenses are charged to each segment based on the region where the
expenses are incurred. As a result, the components of operating income for one
segment may not be comparable to another segment. Segment results for 2000, 1999
and 1998 are as follows (in millions):
<TABLE>
<CAPTION>
NORTH SOUTH EUROPE/AFRICA/ ASIA/
AMERICA AMERICA MIDDLE EAST PACIFIC CONSOLIDATED
------- ------- -------------- ------- ------------
<S> <C> <C> <C> <C> <C>
2000
Net Sales..................................... $684.9 $235.6 $1,317.2 $98.4 $2,336.1
Income (loss) from operations................. (15.3) 4.3 101.4 16.2 106.6
Depreciation and amortization................. 14.0 5.6 29.5 2.5 51.6
Assets........................................ 517.6 209.3 685.6 27.3 1,439.8
Capital expenditures.......................... 24.4 4.3 29.0 -- 57.7
1999
Net Sales..................................... $633.2 $198.6 $1,508.3 $96.3 $2,436.4
Income (loss) from operations................. (25.3) (14.1) 114.2 13.6 88.4
Depreciation and amortization................. 12.7 6.1 35.0 2.0 55.8
Assets........................................ 667.4 189.0 728.1 32.8 1,617.3
Capital expenditures.......................... 4.9 7.6 31.7 -- 44.2
1998
Net Sales..................................... $965.5 $317.1 $1,600.2 $88.0 $2,970.8
Income from operations........................ 57.0 13.5 134.6 15.8 220.9
Depreciation and amortization................. 14.3 8.9 32.9 1.5 57.6
Assets........................................ 876.7 260.9 922.5 30.2 2,090.3
Capital expenditures.......................... 14.5 6.4 40.1 -- 61.0
</TABLE>
A reconciliation from the segment information to the consolidated balances
for income from operations and assets is set forth below (in millions):
<TABLE>
<CAPTION>
2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Segment income from operations........................... $ 106.6 $ 88.4 $ 220.9
Restricted stock compensation expense.................... (3.8) (8.5) (12.0)
Restructuring and other infrequent expenses.............. (21.9) (24.5) (40.0)
Amortization of intangibles.............................. (15.1) (14.8) (13.2)
-------- -------- --------
Consolidated income from operations...................... $ 65.8 $ 40.6 $ 155.7
======== ======== ========
Segment assets........................................... $1,439.8 $1,617.3 $2,090.3
Cash and cash equivalents................................ 13.3 19.6 15.9
Receivables from affiliates.............................. 10.4 12.8 15.2
Investments in affiliates................................ 85.3 93.6 95.2
Other current and noncurrent assets...................... 269.0 217.3 163.3
Intangible assets........................................ 286.4 312.6 370.5
-------- -------- --------
Consolidated total assets................................ $2,104.2 $2,273.2 $2,750.4
======== ======== ========
</TABLE>
56
58
AGCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Net sales by customer location for the years ended December 31, 2000, 1999
and 1998 were as follows (in millions):
<TABLE>
<CAPTION>
2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Net Sales:
United States.......................................... $ 540.2 $ 495.6 $ 778.9
Canada................................................. 114.8 95.1 146.1
Germany................................................ 371.5 440.4 450.4
France................................................. 266.9 315.8 322.3
United Kingdom and Ireland............................. 109.0 135.4 120.9
Other Europe........................................... 418.2 481.4 541.7
South America.......................................... 235.6 198.6 317.1
Middle East............................................ 114.3 97.7 116.1
Asia................................................... 57.6 48.7 37.0
Australia.............................................. 40.8 47.6 51.0
Africa................................................. 37.3 37.6 48.8
Mexico, Central America and Caribbean.................. 29.9 42.5 40.5
-------- -------- --------
$2,336.1 $2,436.4 $2,970.8
======== ======== ========
</TABLE>
Net sales by product for the years ended December 31, 2000, 1999 and 1998
were as follows (in millions):
<TABLE>
<CAPTION>
2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Net sales:
Tractors............................................... $1,474.5 $1,550.3 $1,852.3
Combines............................................... 145.4 162.3 293.5
Other machinery........................................ 269.4 251.3 316.7
Replacement parts...................................... 446.8 472.5 508.3
-------- -------- --------
$2,336.1 $2,436.4 $2,970.8
======== ======== ========
</TABLE>
57
59
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
The information called for by Items 10, 11, 12 and 13, if any, will be
contained in our Proxy Statement for the 2001 Annual Meeting of Stockholders
which we intend to file on or about April 4, 2001.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
The information with respect to directors required by this item set forth
in our Proxy Statement for the 2001 Annual Meeting of Stockholders in the
sections entitled "Election of Directors" and "Directors Continuing in Office"
is incorporated herein by reference. The information under the heading
"Executive Officers of the Registrant" set forth on pages 12 and 13 of this Form
10-K is incorporated herein by reference. The information with respect to
executive officers required by this item set forth in our Proxy Statement for
the 2001 Annual Meeting of Stockholders in the section entitled "Section 16(a)
Beneficial Ownership Reporting Compliance" is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information with respect to executive compensation required by this
item set forth in our Proxy Statement for the 2001 Annual Meeting of
Stockholders in the sections entitled "Board of Directors and Certain Committees
of the Board," "Compensation Committee Interlocks and Insider Participation" and
"Executive Compensation" is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item set forth in our Proxy Statement for
the 2001 Annual Meeting of Stockholders in the section entitled "Principal
Holders of Common Stock" is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item set forth in our Proxy Statement for
the 2001 Annual Meeting of Stockholders in the section entitled "Certain
Relationships and Related Transactions" is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Form 10-K:
(1) The consolidated financial statements, notes to consolidated
financial statements and the Report of Independent Public Accountants for
AGCO Corporation and its subsidiaries are presented on pages 28 through 57
under Item 8 of this Form 10-K.
(2) The financial statements, notes to financial statements and the
Independent Auditors' Report for AGCO Finance LLC (formerly known as
Agricredit Acceptance LLC) included as Exhibit 99.1.
(3) Financial Statement Schedules:
The following Report of Independent Public Accountants and the Consolidated
Financial Statement Schedule of AGCO Corporation and its subsidiaries are
included herein on pages II-1 through II-3.
58
60
<TABLE>
<S> <C>
Schedule Description
Report of Independent Public Accountants on Financial
Statement Schedule
Schedule II Valuation and Qualifying Accounts
</TABLE>
Schedules other than that listed above have been omitted because the
required information is contained in the Notes to the Consolidated
Financial Statements or because such schedules are not required or are not
applicable.
(4) The following exhibits are filed or incorporated by reference as
part of this report.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S> <C>
3.1 -- Certificate of Incorporation of the Registrant incorporated
by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1996.
3.2 -- By-Laws of the Registrant incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1997.
4.1 -- Rights Agreement, as amended, between and among AGCO
Corporation and SunTrust Bank, as rights agent, dated as of
April 27, 1994 incorporated by reference to the Company's
Quarterly Report on Form 10-Q for the quarter ended March
31, 1994 and the Company's Form 8-A/A dated August 8, 1999.
4.2 -- Indenture between AGCO Corporation and SunTrust Bank, as
Trustee, dated as of March 20, 1996, incorporated by
reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1995.
10.1 -- 1991 Stock Option Plan, as amended, incorporated by
reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1998.*
10.2 -- Form of Stock Option Agreements (Statutory and Nonstatutory)
incorporated by reference to the Company's Registration
Statement on Form S-1 (No. 33-43437) dated April 16, 1992.*
10.3 -- Amended and Restated Long-Term Incentive Plan (LTIP III).*
10.4 -- Nonemployee Director Stock Incentive Plan, as amended
incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended December 31, 1997.*
10.5 -- Management Incentive Compensation Plan incorporated by
reference to the Company's Annual Report on Form 10-K for
the Year ended December 31, 1995.*
10.6 -- Second Amended and Restated Credit Agreement dated as of
March 12, 1999 among AGCO Corporation and certain of its
affiliates and various lenders, incorporated by reference to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1998.
10.7 -- Employment and Severance Agreement by and between AGCO
Corporation and Robert J. Ratliff incorporated by reference
to the Company's Annual Report on Form 10-K for the year
ended December 31, 1995.*
10.8 -- Employment and Severance Agreement by and between AGCO
Corporation and John M. Shumejda incorporated by reference
to the Company's Annual Report on Form 10-K for the year
ended December 31, 1995.*
10.9 -- Employment and Severance Agreement by and between AGCO
Corporation and Edward R. Swingle incorporated by reference
to the Company's Annual Report on Form 10-K for the year
ended December 31, 1999.*
10.10 -- Employment and Severance Agreement by and between AGCO
Corporation and Norman L. Boyd.*
10.11 -- Employment and Severance Agreement by and between AGCO
Corporation and Aaron D. Jones.*
</TABLE>
59
61
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S> <C>
10.12 -- Receivables Purchase Agreement dated as of January 27, 2000
among AGCO Corporation, AGCO Funding Corporation and
Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A., as
administrative agent, incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1999.
12.0 -- Statement re: Computation of Earnings to Combined Fixed
Charges.
21.0 -- Subsidiaries of the Registrant.
23.1 -- Consent of Arthur Andersen LLP, independent public
accountants.
23.2 -- Consent of KPMG LLP for the financial statements of AGCO
Finance LLC (formerly Agricredit Acceptance LLC).
24.0 -- Power of Attorney.
99.1 -- Financial statements of AGCO Finance LLC (formerly
Agricredit Acceptance LLC).
</TABLE>
---------------
* Management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K.
None.
60
62
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
AGCO Corporation
By: /s/ JOHN M. SHUMEJDA
------------------------------------
John M. Shumejda
President and Chief Executive
Officer
Dated: April 2, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ ROBERT J. RATLIFF* Chairman of the Board April 2, 2001
---------------------------------------------------
Robert J. Ratliff
/s/ JOHN M. SHUMEJDA President and Chief Executive April 2, 2001
--------------------------------------------------- Officer, Director (Principal
John M. Shumejda Executive Officer)
/s/ DONALD R. MILLARD Senior Vice President and Chief April 2, 2001
--------------------------------------------------- Financial Officer (Principal
Donald R. Millard Financial Officer and Principal
Accounting Officer)
/s/ HENRY J. CLAYCAMP* Director April 2, 2001
---------------------------------------------------
Henry J. Claycamp
/s/ WOLFGANG DEML* Director April 2, 2001
---------------------------------------------------
Wolfgang Deml
/s/ GERALD B. JOHANNESON* Director April 2, 2001
---------------------------------------------------
Gerald B. Johanneson
/s/ ANTHONY D. LOEHNIS* Director April 2, 2001
---------------------------------------------------
Anthony D. Loehnis
/s/ WOLFGANG SAUER* Director April 2, 2001
---------------------------------------------------
Wolfgang Sauer
/s/ W. WAYNE BOOKER* Director April 2, 2001
---------------------------------------------------
W. Wayne Booker
/s/ CURTIS E. MOLL* Director April 2, 2001
---------------------------------------------------
Curtis E. Moll
/s/ DAVID E. MOMOT* Director April 2, 2001
---------------------------------------------------
David E. Momot
/s/ HENDRIKUS VISSER* Director April 2, 2001
---------------------------------------------------
Hendrikus Visser
*By: /s/ STEPHEN D. LUPTON
---------------------------------------------
Stephen D. Lupton
Attorney-in-Fact
</TABLE>
61
63
ANNUAL REPORT ON FORM 10-K
ITEM 14(A)(2)
FINANCIAL STATEMENT SCHEDULE
YEAR ENDED DECEMBER 31, 2000
II-1
64
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
To AGCO Corporation:
We have audited in accordance with auditing standards generally accepted in
the United States, the consolidated balance sheets of AGCO CORPORATION AND
SUBSIDIARIES as of December 31, 2000 and 1999 and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 2000 and have issued our report
thereon dated March 29, 2001. Our audit was made for the purpose of forming an
opinion on the basic financial statements taken as a whole. The accompanying
Schedule II-Valuation and Qualifying Accounts is the responsibility of the
company's management and is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
/s/ Arthur Anderson LLP
Atlanta, Georgia
March 29, 2001
II-2
65
SCHEDULE II
AGCO CORPORATION AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
-----------------------
CHARGED
BALANCE AT CHARGED TO (CREDITED) BALANCE AT
BEGINNING ACQUIRED COSTS AND TO OTHER END OF
DESCRIPTION OF PERIOD BUSINESSES EXPENSES ACCOUNTS DEDUCTIONS PERIOD
----------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Year ended December 31, 2000
Allowances for sales incentive
discounts..................... $53.6 $ -- $ 79.6 $ -- $ (78.3) $54.9
----- ---- ------ ----- ------- -----
Year ended December 31, 1999
Allowances for sales incentive
discounts..................... $58.4 $ -- $ 80.3 $ -- $ (85.1) $53.6
===== ==== ====== ===== ======= =====
Year ended December 31, 1998
Allowances for sales incentive
discounts..................... $53.1 $1.4 $108.0 $ -- $(104.1) $58.4
===== ==== ====== ===== ======= =====
</TABLE>
<TABLE>
<CAPTION>
ADDITIONS
-----------------------
CHARGED
BALANCE AT CHARGED TO (CREDITED) BALANCE AT
BEGINNING ACQUIRED COSTS AND TO OTHER END OF
DESCRIPTION OF PERIOD BUSINESSES EXPENSES ACCOUNTS DEDUCTIONS PERIOD
----------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Year ended December 31, 2000
Allowances for doubtful
receivables................... $43.0 $ -- $ 2.5 $ -- $ (2.1) $43.4
----- ---- ------ ----- ------- -----
Year ended December 31, 1999
Allowances for doubtful
receivables................... $49.4 $ -- $ 3.8 $ -- $ (10.2) $43.0
===== ==== ====== ===== ======= =====
Year ended December 31, 1998
Allowances for doubtful
receivables................... $44.1 $0.6 $ 10.7 $ -- $ (6.0) $49.4
===== ==== ====== ===== ======= =====
</TABLE>
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE AT
BEGINNING ACQUIRED COSTS AND REVERSAL END OF
DESCRIPTION OF PERIOD BUSINESSES EXPENSES OF ACCRUAL DEDUCTIONS PERIOD
----------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Year ended December 31, 2000
Accruals of severance, relocation
and other integration costs... $22.2 $ -- $ 24.9 $(3.0) $ (33.8) $10.3
----- ---- ------ ----- ------- -----
Year ended December 31, 1999
Accruals of severance, relocation
and other integration costs... $35.0 $ -- $ 9.6(a) $ -- $ (22.4) $22.2
===== ==== ====== ===== ======= =====
Year ended December 31, 1998
Accruals of severance, relocation
and other integration costs... $12.4 $6.5 $ 32.8(b) $ -- $ (16.7) $35.0
===== ==== ====== ===== ======= =====
</TABLE>
---------------
(a) Excludes restructuring and other infrequent expenses related to the
writedown of property, plant and equipment of $14.9 million.
(b) Excludes restructuring and other infrequent expenses related to pension and
postretirement benefit expenses of $7.2 million
II-3
1
EXHIBIT 10.3
AGCO CORPORATION
AMENDED AND RESTATED LONG-TERM INCENTIVE PLAN (LTIP III)
SECTION I
PURPOSE
The AGCO Corporation Long-Term Incentive Plan (the "LTIP" or the "Plan") is
intended to be the primary long-term incentive vehicle for senior management.
While other managers and key employees are eligible to receive stock option
grants, participants in the LTIP do not receive stock options. The Plan is
designed to advance the interests of AGCO Corporation (the "Company") by
encouraging senior management to seek ways to improve efficiencies, spend
capital wisely, reduce debt and generate cash, all of which should combine to
cause stock price appreciation. The Plan is not subject to any provisions of the
Employee Retirement Income Security Act of 1974 ("ERISA") nor is it qualified
under Section 401(a) of the Internal Revenue Code of 1986, as amended (the
"Code").
The original Plan was adopted in 1993 and amended in 1997, with such
adoption and amendment approved by the Company's stockholders.
The Company's address is 4830 River Green Parkway, Duluth, Georgia 30136,
and its telephone number is (770) 813-9200.
SECTION II
ADMINISTRATION
a. The Plan is administered by the Compensation Committee of the Board of
Directors of the Company (the "Committee") consisting of not less than three
members of the Board of Directors. Each member of the Committee is selected
annually by the Board of Directors. Any member of the Committee may be removed
at any time, either with or without cause, and any vacancy on the Committee may
at any time be filled, by resolution adopted by the Board of Directors. All
members of the Committee are required to be "nonemployee directors" as defined
in Rule 16b-3 under the Securities Exchange Act of 1934, as amended (the
"Exchange Act") and "outside directors" within the meaning of Section
162(m)(4)(C)(i) of the Code. For additional information about the Committee,
participants should contact the Company at the address and telephone number
listed above.
b. The Committee, in its sole discretion, selects the participants and
determines: (i) when to grant a restricted stock award; and (ii) the base price
and the amount of Common Stock subject to each restricted stock award. The
Committee also has authority to construe and amend the Plan and all awards
granted under it, to prescribe, amend and rescind rules and regulations relating
to the Plan, to determine (subject to Sections VI and VII) the terms and
provisions of the awards granted under the Plan (which need not be identical)
and to make all other determinations necessary or advisable for administering
the Plan.
SECTION III
SHARES SUBJECT TO THE PLAN
a. Awards for a total of 6,000,000 shares of the Company's $.01 par value
Common Stock (the "Common Stock") may be granted pursuant to the terms of the
Plan. The Common Stock subject to the Plan may be unissued shares of Common
Stock or shares of issued Common Stock held in the Company's treasury, or both.
No individual may receive awards for over 1,000,000 shares of Common Stock over
the life of the Plan.
A-1
2
b. The number of shares of the Company's Common Stock available under the
Plan, the maximum number of shares for which awards may be granted to any one
individual and the number of shares of outstanding awards are subject to
appropriate adjustment by the Committee in accordance with Section IX.
c. If any award granted under the Plan expires or otherwise terminates for
any reason without having been earned in full, the forfeited stock again becomes
available for issuance under the Plan.
SECTION IV
DURATION, AMENDMENT, AND TERMINATION
a. Unless sooner terminated by the Board of Directors, the Plan will
terminate on December 31, 2009. The termination or any amendment of the Plan may
not impair or adversely affect, without the consent of the participants, the
rights of holders of outstanding awards. The Boards of Directors may amend or
terminate the Plan at any time, and from time to time.
b. The Board of Directors may, from time to time, amend the Plan without
stockholder approval except to the extent that stockholder approval is required
in order to comply with any applicable provision of the Code, ERISA or the rules
of the New York Stock Exchange or in order for compensation provided hereunder
to be treated as qualified performance-based compensation under applicable
Treasury Regulations.
SECTION V
ELIGIBILITY
Awards may be granted under the Plan only to executive officers and senior
managers of the Company or any of its subsidiaries as determined in the sole
discretion of the Committee. Members of the Committee are not eligible to
receive awards.
SECTION VI
TERMS AND CONDITIONS OF AWARDS
a. The LTIP provides opportunities for participants to earn shares of the
Company's Common Stock if performance goals and continued employment
requirements are met.
b. The LTIP operates over a five-year performance period. Under the LTIP,
each participant receives an award consisting of a contingent allocation of
shares which can be earned during the five-year performance period ("Contingent
Award"). The size of the participant's total share allocation is established to
provide a long-term incentive opportunity which is competitive with the
practices of a cross-section of U.S. industrial companies. If the share
allocation is not fully earned during the performance period, any remaining
opportunity is forfeited.
c. The share allocation of a Contingent Award is earned in the form of
shares of restricted stock in increments for each 20% increase in average stock
price (with the average calculated over 20 consecutive trading days) over the
base price set by the Committee (the fair market value of the stock at the time
the Contingent Award is made or, where the Committee deems appropriate and the
Contingent Award is made within 10 business days after a prior award has been
fully earned, the stock price at which such prior award has been fully earned);
accordingly, the stock price must double during a five-year period for the full
Contingent Award to be earned. A Contingent Award will be earned in the
following increments:
<TABLE>
<CAPTION>
% INCREASE CONTINGENT
IN STOCK PRICE AWARD EARNED
-------------- ----------------
<S> <C>
20%......................................................... 10%
40%......................................................... 25%
60%......................................................... 45%
80%......................................................... 70%
100%........................................................ 100%
</TABLE>
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d. Absent any action by the Committee to the contrary, when an increment of
a Contingent Award is earned, it will be awarded in the form of Common Stock
("Earned Shares").
e. The LTIP requires stock price appreciation to earn awards, and the
actual value of the award is determined at the time the award is earned. During
the performance period, participants shall neither receive dividends on, nor
have voting rights with respect to, their Contingent Award, and in addition,
they may not sell, transfer, pledge or otherwise dispose of such Contingent
Award. After shares become Earned Shares, participants shall receive dividends
on their Earned Shares and have full voting rights with respect to their Earned
Shares, but they may not sell, transfer, pledge or otherwise dispose of or
encumber such Earned Shares except as provided in Section XII(c).
f. In order to earn any increment of an award, the participant must
continue to be employed by the Company or a participating subsidiary, through
the date on which the applicable stock price increase (for the required twenty
(20) day period) is achieved. Upon termination of a participant's employment for
any reason, such participant's opportunity to earn any increment of an award,
which is unearned as of such date, shall be forfeited.
SECTION VII
CASH BONUS AWARDS
a. When an increment of a Contingent Award is earned, a cash payment
designed to satisfy a portion of the federal and state income tax obligations of
the participant is then payable by the Company to the participant. Cash bonus
awards will be made on or as soon as practicable following the last day of the
month that each award is earned. The cash bonus award shall be an amount equal
to 40% of the value of the Earned Shares on the date the stock award is earned.
b. The tax payment is provided to remove the necessity for the executive to
sell a significant portion of the stock earned under the LTIP to pay taxes. The
value of the tax payments is considered in determining the appropriate size of
the participant's share allocations.
SECTION VIII
DEATH, DISABILITY OR RETIREMENT OF PARTICIPANT
a. Upon the death or total disability of a participant, or upon retirement
at no earlier than age 65, the restrictions on resales of Earned Shares,
described in Section XII, shall lapse and be of no further force or effect.
b. Any unpaid cash bonus award associated with any Earned Shares, shall be
made to the estate of the deceased or the disabled or retired participant.
SECTION IX
ADJUSTMENTS
The Committee may adjust the number of shares of Common Stock under the
Plan at any time to reflect any change in the outstanding shares of Common Stock
through merger, consolidation, reorganization, recapitalization, stock dividend,
stock split, split-up, split-off, spin-off, combination of shares, exchange of
shares, or other like change in capital structure of the Company. With respect
to outstanding awards, such adjustment shall be made such that the participant
shall be made whole and suffer no dilution as a result of any change.
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SECTION X
FEDERAL INCOME TAX CONSEQUENCES
a. Contingent Award. An individual receiving a Contingent Award under the
Plan does not recognize taxable income on the date of grant of the Contingent
Award, assuming that no Code Section 83(b) election is made with respect to the
Contingent Award. An individual will ordinarily recognize taxable income on the
date that an increment of a Contingent Award becomes earned by such individual
based on the fair market value of the Common Stock on the date the award is
earned, and the Company will be entitled to a tax deduction at the same time and
in the same amount. Upon subsequent disposition, any further gain or loss is
taxable either as short-term or long-term capital gain or loss, depending upon
the length of time that the shares of Common Stock are held.
b. Dividends on Earned Shares. Any dividends paid on Earned Shares are
taxable to the individual recipient, and are deductible by the Company, as
ordinary compensation when paid, if no Code Section 83(b) election has been made
with respect to such stock.
c. Cash Bonus Awards. An individual receiving a cash bonus award under the
Plan must recognize ordinary income upon receipt of the award. The cash bonus
award is deductible by the Company in the year that the income is recognized by
the individual.
SECTION XI
CHANGE IN CONTROL
a. In the event of a Change in Control (as defined herein), the Company
will require any successor to fulfill the terms and conditions of the Plan in
the same manner and to the same extent that the Company would be required to
perform if no such succession had taken place. However, effective with the
Change in Control, the restrictions on resales of Earned Shares, described in
Section XII, shall lapse and be of nor further force or effect.
b. "Change in Control" shall mean change in the ownership of a corporation,
change in the effective control of a corporation or change in ownership of a
substantial portion of the corporation's assets, as described in Section 280G of
the Code, including the following:
(1) A change in the ownership of a corporation occurs on the date that
any one person, or more than one person acting as a group, acquires
ownership of stock of that corporation that, together with stock held by
such person or group, possess more than fifty percent (50%) of the total
fair market value or total voting power of the stock of such corporation
(unless any one person, or more than one person acting as a group, who is
considered to own more than fifty percent (50%) of the total fair market
value or total voting power of the stock of a corporation, acquires
additional stock).
(2) A change in the effective control of a corporation is presumed
(which presumption may be rebutted by the Committee) to occur on the date
that either: any one person, or more than one person acting as a group,
acquires (or has acquired during the twelve (12)-month period ending on the
date of the most recent acquisition by such person or persons) ownership of
stock of the corporation possessing twenty percent (20%) or more of the
total voting power of the stock of such corporation; or a majority of
members of the corporation's board of directors is replaced during any
twenty four (24)-month period by directors whose appointment or election is
not endorsed by a majority of the members of the corporation's board of
directors prior to the date of the appointment or election of such new
directors.
(3) A change in the ownership of a substantial portion of a
corporation's assets occurs on the date that any one person, or more than
one person acting as a group, acquires (or has acquired during the twelve
(12)-month period ending on the date of the most recent acquisition by such
person or persons) assets from the corporation that have a total fair
market value equal to or more than one-third of the total fair market value
of all of the assets of the corporation immediately prior to such
acquisition or acquisitions unless the assets are transferred to: a
stockholder of the corporation (immediately before the
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asset transfer) in exchange for or with respect to its stock; an entity,
fifty percent (50%) or more of the total value or voting power of which is
owned, directly or indirectly by the corporation; a person, or more than
one person acting as a group, that owns, directly or indirectly, fifty
percent (50%) or more of the total value or voting power of all of the
outstanding stock of the corporation; or an entity, at least fifty percent
(50%) of the total value or voting power is owned, directly or indirectly,
by a person, or more than one person acting as a group, that owns directly
or indirectly, fifty percent (50%) or more of the total value of voting
power of all of the outstanding stock of the corporation.
SECTION XII
RESTRICTIONS ON RESALES
a. An employee shall have no right to sell, assign, transfer, pledge or
otherwise dispose of or encumber interest in any right to receive shares of
Common Stock granted under the LTIP except by will or the laws of descent and
distribution; provided, that, with respect to any Earned Shares, the
restrictions set forth in this sentence shall lapse pursuant to the following
schedule: one-third of such Earned Shares may be disposed of on or after the
third anniversary of the date they were earned; an additional one-third may be
disposed of on the fourth anniversary thereof; and as of the fifth anniversary
of such earned date, the entire number of Earned Shares may be disposed of by
the participant; provided, further, that if the participant's employment is
terminated for any reason, other than those specified in Section VIII hereof,
the schedule set forth in the preceding portion of this sentence shall be
revised such that the transfer restrictions shall lapse in one-third increments
on each of the fifth, sixth, and seventh anniversaries, respectively, of the
applicable earned date.
b. Since the participants in the Plan would generally be considered
"affiliates" of the Company, as that term is defined in the Rules and
Regulations under the Securities Act of 1933 (the "Securities Act"), shares of
the Company's Common Stock acquired under awards may be subject to restrictions
on resale imposed by the Securities Act. Such shares could be resold under the
terms of Rule 144 of the Rules and Regulations, pursuant to another applicable
exemption, if any, from the registration requirements of the Securities Act, or
pursuant to an effective registration statement, should the Company elect to
prepare and file one with the Securities and Exchange Commission. Rule 144
limits the number of shares which may be sold by an affiliate within a
three-month period. An "affiliate," of the Company is defined by the Rules and
Regulations as a person that "directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with"
the Company. Directors, officers, substantial stockholders and others, who by
one means or another have the ability to exercise control over the Company, may
be deemed to be "affiliates." In connection with the awards, the Company may, in
order to ensure that resales are made in compliance with the Securities Act,
imprint a legend on certificates representing shares awarded to the effect that
the shares may not be resold in the absence of compliance with the applicable
restrictions or a determination that no restrictions are applicable.
c. Notwithstanding anything to the contrary herein, a participant may sell,
assign, transfer or otherwise dispose of all or any portion of the participants'
interest in any Earned Shares to any of the following: a revocable living trust
primarily for the benefit of the participant, an irrevocable trust in which the
participant is the settlor, or a partnership in which the participant is a
general partner, and in any event in compliance with applicable federal and
state securities laws.
SECTION XIII
MISCELLANEOUS
a. No award payable under the Plan shall be deemed salary or compensation
for the purpose of computing benefits under any employee benefit plan unless the
Company shall determine otherwise.
b. The Plan and the grant of awards shall be subject to all applicable
federal and state laws, rules and regulations and to such approval by any
governmental or regulatory agency as may be required.
c. The terms of the Plan shall be binding upon the Company and its
successors and assigns.
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d. Captions preceding the sections hereof are inserted solely as a matter
of convenience and in no way define or limit the scope or intent of any
provision hereof.
e. Nothing contained in this Plan shall prevent the Company from adopting
or continuing in effect other or additional compensation arrangements.
f. Participation in the Plan shall not give any participant any right to
remain in the employ of the Company, or any of its subsidiaries. Further, the
adoption of this Plan shall not be deemed to give any employee of the Company or
any other individual any right to be selected as a participant or to be granted
an award.
SECTION XIV
EFFECTIVE DATE
a. The Effective Date of this Amended and Restated Plan shall be February
1, 2000, subject to stockholder approval, and shall be applicable only to awards
granted after such Effective Date. The provisions of the prior Amended and
Restated Plan shall be effective for all prior grants. No awards will be granted
under the Plan after the expiration of ten years from the Effective Date.
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EXHIBIT 10.10
EMPLOYMENT AND SEVERANCE AGREEMENT
This Employment and Severance Agreement (the "Agreement") entered into
this 1st day of September 1999 by and between AGCO CORPORATION, a Delaware
corporation (the "Company"), and Norm L. Boyd (the "Executive"),
WITNESSETH:
In consideration of the mutual covenants and agreements hereinafter set
forth, the Company and the Executive do hereby agree as follows:
1. EMPLOYMENT.
(a) The Company hereby employs the Executive and the Executive
hereby agrees to serve the Company on the terms and conditions set forth herein.
(b) The employment term shall commence on September 1, 1999
and shall continue in effect until terminated in accordance with Section 5 or
any other provision of the Agreement.
2. POSITION AND DUTIES.
The Executive shall serve as an Executive Officer of the
Company and shall perform such duties and responsibilities as may from time to
time be prescribed by the Company's board of directors (the "Board"), provided
that such duties and responsibilities are consistent with the Executive's
position. The Executive shall perform and discharge faithfully, diligently and
to the best of his/her ability such duties and responsibilities and shall devote
all of his/her working time and efforts to the business and affairs of the
Company and its affiliates.
3. COMPENSATION.
(a) BASE SALARY. The Company shall pay to the Executive an
annual base salary ("Base Salary") of Two Hundred Nine Thousand Dollars
($209,000), payable in equal semi-monthly installments throughout the term of
such employment subject to Section 5 hereof and subject to applicable tax and
payroll deductions. The Company shall consider increases in the Executive's Base
Salary annually, and any such increase in salary implemented by the Company
shall become the Executive's Base Salary for purposes of this Agreement.
(b) INCENTIVE COMPENSATION. Provided Executive has duly
performed his/her obligations pursuant to this Agreement, the Executive shall be
entitled to participate in or receive benefits under the Management Incentive
Compensation Plan implemented by the Company.
(c) OTHER BENEFITS. During the term of this Agreement, the
Executive shall be entitled to participate in the long term incentive plan
implemented by the Company and any employee benefit plans and arrangements which
are available to senior executive officers of the Company, including, without
limitation, group health and life insurance, pension and savings and the Senior
Management Employment Policy.
(d) FRINGE BENEFITS. The Company shall pay or reimburse
Executive for all reasonable and necessary expenses incurred by him/her in
connection with his/her duties hereunder, upon submission by Executive to the
Company of such written evidence of such expense as the Company may require.
Throughout the term of this Agreement, the Company will provide Executive with
the use of a vehicle for purposes within the scope of his/her employment and
shall pay all expenses for fuel, maintenance and insurance in connection with
such use of the automobile. The Company further agrees that Executive
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shall be entitled to four (4) weeks of vacation in any year of the term of
employment hereunder. Nothing paid to the Executive under any such Company plans
or arrangements shall be deemed to be in lieu of compensation to the Executive
hereunder.
4. NON-DISCLOSURE, NON-COMPETITION AND NON-SOLICITATION COVENANTS.
(a) ACKNOWLEDGEMENTS. The Executive acknowledges that as an
Executive Officer of the Company (i) he/she frequently will be exposed to
certain "Trade Secrets" and "Confidential Information" of the Company (as those
terms are defined in Subsection 4(b)), (ii) his/her responsibilities on behalf
of the Company will extend to all geographical areas where the Company is doing
business, and (iii) any competitive activity on his/her part during the term of
his employment and for a reasonable period thereafter would necessarily involve
his/her use of the Company's Trade Secrets and Confidential Information and,
therefore, would unfairly threaten the Company's legitimate business interests,
including its substantial investment in the proprietary aspects of its business
and the goodwill associated with its customer base. Moreover, the Executive
acknowledges that, in the event of the termination of his/her employment with
the Company, he/she would have sufficient skills to find alternative,
commensurate work in his/her field of expertise that would not involve a
violation of any of the provisions of this Section 4. Therefore, the Executive
acknowledges and agrees that it is reasonable for the Company to require him/her
to abide by the covenants set forth in this Section 4. The parties acknowledge
and agree that if the nature of the Executive's responsibilities for or on
behalf of the Company and the geographical areas in which the Executive must
fulfill them materially change, the parties will execute appropriate amendments
to the scope of the covenants in this Section 4.
(b) DEFINITIONS. For purposes of this Section 4, the following
terms shall have the following meanings:
(i) "COMPETITIVE POSITION" shall mean (i) the Executive's
direct or indirect equity ownership (excluding equity ownership of less than one
percent (1%) or control of all or any portion of a Competitor, or (ii) any
employment, consulting, partnership, advisory, directorship, agency, promotional
or independent contractor arrangement between the Executive and any Competitor
whereby the Executive is required to perform executive level services
substantially similar to those that he will perform for the Company as an
Executive Officer.
(ii) "COMPETITOR" of the Company shall refer to any person or
entity engaged, wholly or partly, in the business of manufacturing and
distributing farm equipment machinery and replacement parts.
(iii) "CONFIDENTIAL INFORMATION" shall mean the proprietary
and confidential data or information of the Company, other than "Trade Secrets"
(as defined below), which is of tangible or intangible value to the Company and
is not public information or is not generally known or available to the
Company's competitors.
(iv) "TRADE SECRETS" shall mean information of the Company,
including, but not limited to, technical or non-technical data, formulas,
patterns, compilations, programs, devices, methods, techniques, drawings,
processes, financial data, financial plans, products plans, or lists of actual
or potential customers or suppliers, which: (a) derives economic value, actual
or potential, from not being generally known to, and not being readily
ascertainable by proper means by, other persons who can obtain economic value
from its disclosure or use; and (b) is the subject of efforts that are
reasonable under the circumstances to maintain its secrecy.
(v) "WORK PRODUCT" shall mean all work product, property,
data, documentation, "know-how", concepts or plans, inventions, improvements,
techniques, processes or information of any kind, relating to the Company and
its business prepared, conceived, discovered, developed or created by the
Executive for the Company or any of the Company's customers.
(c) NONDISCLOSURE; OWNERSHIP OF PROPRIETARY PROPERTY.
(i) The Executive hereby covenants and agrees that: (i) with
regard to information constituting a Trade Secret, at all times during the
Executive's employment with the Company and all times thereafter during which
such information continues to constitute a Trade Secret; and (ii) with regard to
any Confidential Information, at all times during the Executive's employment
with the Company and for three (3) years after the termination of the
Executive's employment with the Company, the Executive shall regard and treat
all information constituting a Trade Secret or Confidential Information as
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strictly confidential and wholly owned by the Company and will not, for any
reason in any fashion, either directly or indirectly, use, sell, lend, lease,
distribute, license, give, transfer, assign, show, disclose, disseminate,
reproduce, copy, appropriate or otherwise communicate any such information to
any party for any purpose other than strictly in accordance with the express
terms of this Agreement and other than as may be required by law.
(ii) To the greatest extent possible, any Work Product shall
be deemed to be "work made for hire" (as defined in the Copyright Act, 17
U.S.C.A. ss. 101 et seq., as amended) and owned exclusively by the Company. The
Executive hereby unconditionally and irrevocably transfers and assigns to the
Company all rights, title and interest the Executive may currently have or in
the future may have by operation of law or otherwise in or to any Work Product,
including, without limitation, all patents, copyrights, trademarks, service
marks and other intellectual property rights. The Executive agrees to execute
and deliver to the Company any transfers, assignments, documents or other
instruments which the Company may deem necessary or appropriate to vest complete
title and ownership of any Work Product, and all rights therein, exclusively in
the Company.
(iii) The Executive shall immediately notify the Company of
any intended or unintended, unauthorized disclosure or use of any Trade Secrets
or Confidential Information by the Executive or any other person of which the
Executive becomes aware. In addition to complying with the provisions of Section
4(c) (i) and 4 (c) (ii), the Executive shall exercise his best efforts to assist
the Company, to the extent the Company deems reasonably necessary, in the
procurement of any protection of the Company's rights to or in any of the Trade
Secrets or Confidential Information.
(iv) Immediately upon termination of the Executive's
employment with the Company, or at any point prior to or after that time upon
the specific request of the Company, the Executive shall return to the Company
all written or descriptive materials of any kind in the Executive's possession
or to which the Executive has access that constitute or contain any Confidential
Information or Trade Secrets, and the confidentiality obligations of this
Agreement shall continue until their expiration under the terms of this
Agreement.
(d) NON-COMPETITION. The Executive agrees that during his/her
employment, he/she will not, either directly or indirectly, alone or in
conjunction with any other party, (i) accept or enter into a Competitive
Position with a Competitor of the Company, or (ii) take any action in
furtherance of or in conjunction with a Competitive Position with a Competitor
of the Company. The Executive agrees that for two (2) years after any
termination of his employment with the Company, he/she will not, in the
"Restricted Territory" (as defined in the next sentence), either directly or
indirectly, alone or in conjunction with any other party, (A) accept or enter
into a Competitive Position with a Competitor of the Company, or (B) take any
action in furtherance of or in conjunction with a Competitive Position with a
Competitor of the Company. For purposes of this Section 4, "Restricted
Territory" shall refer to all geographical areas comprised within the fifty
United States of America, Western Europe, Brazil and Canada. The Executive and
the Company each acknowledge that the scope of the Restricted Territory is
reasonable because (1) the Company is conducting substantial business in all
fifty states (as well as several foreign countries), (2) the Executive occupies
one of the top executive positions with the Company, and (3) the Executive will
be carrying out his employment responsibilities in all locations where the
Company is doing business.
(e) NON-SOLICITATION OF CUSTOMERS. The Executive agrees that
during the term of his/her employment, he/she will not, either directly or
indirectly, along or in conjunction with any other party, solicit, divert or
appropriate or attempt to solicit, divert or appropriate any customer or
actively sought prospective customer of the Company for or on behalf of any
Competitor of the Company. The Executive agrees that for two (2) years after any
termination of his employment with the Company, he/she will not, in the
Restricted Territory, either directly or indirectly, alone or in conjunction
with any other party, for or on behalf of a Competitor of the Company, solicit,
divert or appropriate or attempt to solicit, divert or appropriate any customer
or actively sought prospective customer of the Company with whom he had
substantial contact during a period of time of up to, but no longer than,
eighteen (18) months prior to any termination of his/her employment with the
Company.
(f) NON-SOLICITATION OF COMPANY PERSONNEL. The Executive
agrees that, except to the extent that he/she is required to do so in connection
with his/her express employment responsibilities on behalf of the Company,
during the term of his/her employment he/she will not, either directly or
indirectly, alone or in conjunction with any other party, solicit or attempt to
solicit any employee, consultant, contractor or other personnel of the Company
to terminate, alter or lessen that party's affiliation with the Company or to
violate the terms of any agreement or understanding between such employee,
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consultant, contractor or other person and the Company. The Executive agrees
that for two (2) years after any termination of his/her employment with the
Company, and in the Restricted Territory, he/she will not, either directly or
indirectly, alone or in conjunction with any other party, solicit or attempt to
solicit any "material" or "key" (as those terms are defined in the next
sentence) employee, consultant, contractor or other personnel of the Company to
terminate, alter or lessen that party's affiliation with the Company or to
violate the terms of any agreement or understanding between such employee,
consultant, contractor or other person and the Company. For purposes of the
preceding sentence, "material" or "key" employees, consultants, contractors or
other personnel of the Company are those who have access to the Company's Trade
Secrets and Confidential Information and whose position or affiliation with the
Company is significant.
(g) REMEDIES. Executive agrees that damages at law for the
Executive's violation of any of the covenants in this Section 4 would not be an
adequate or proper remedy and that should the Executive violate or threaten to
violate any of the provisions of such covenants, the Company or its successors
or assigns shall be entitled to obtain a temporary or permanent injunction
against Executive in any court having jurisdiction prohibiting any further
violation of any such covenants, in addition to any award or damages,
compensatory, exemplary or otherwise, for such violation, if any.
(h) PARTIAL ENFORCEMENT. The Company has attempted to limit
the rights of the Executive to compete only to the extent necessary to protect
the Company from unfair competition. The Company, however, agrees that, if the
scope of enforceability of these restrictive covenants is in any way disputed at
any time, a court or other trier of fact may modify and enforce the covenant to
the extent that it believes to be reasonable under the circumstances existing at
the time.
5. TERMINATION.
(a) DEATH. The Executive's employment hereunder shall
terminate upon the death of the Executive, provided, however, that for purposes
of the payment of compensation and benefits to the Executive under this
Agreement the death of the Executive shall be deemed to have occurred ninety
(90) days from the last day of the month in which the death of the Executive
shall have occurred.
(b) INCAPACITY. The Company may terminate the Executive's
employment hereunder at the end of any calendar month by giving written Notice
of Termination to the Executive in the event of the Executive's incapacity due
to physical or mental illness which prevents the proper performance of the
duties of the Executive set forth herein or established pursuant hereto for a
substantial portion of any six (6) month period of the Executive's term of
employment hereunder. Any question as to the existence, extent or potentiality
of illness or incapacity of Executive upon which Company and Executive cannot
agree shall be determined by a qualified independent physician selected by the
Company and approved by Executive (or, if Executive is unable to give such
approval, by any adult member of the immediate family or the duly appointed
guardian of the Executive). The determination of such physician shall be
certified in writing to the Company and to the Executive and shall be final and
conclusive for all purposes of this Agreement.
(c) CAUSE. The Company may terminate the Executive's
employment hereunder for Cause by giving written Notice of Termination to the
Executive. For the purposes of this Agreement, the Company shall have "Cause" to
terminate the Executive's employment hereunder upon: (i) the Executive's
habitual drunkenness or chronic substance abuse; (ii) a willful failure by the
Executive to materially perform and discharge the duties and responsibilities of
the Executive hereunder; (iii) any breach by the Executive of the provisions of
Section 4 hereof; (iv) any misconduct by the Executive that is materially
injurious to the Company; or (v) a conviction of a felony involving the personal
dishonesty or moral turpitude of the Executive.
(d) WITHOUT CAUSE; GOOD REASON.
(i) The Company may terminate the Executive's employment
hereunder without Cause, by giving written Notice of termination to the
Executive.
(ii) The Executive may terminate his employment hereunder, by
giving written Notice of Termination to the Company. For the purposes of this
Agreement, the Executive shall have "Good Reason" to terminate his employment
hereunder upon (and without the written consent of the Executive) (a) a
reduction in the Executive's base salary or benefits
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received from the Company, other than in connection with an across-the-board
reduction in salaries and/or benefits for similarly situated employees of the
Company or pursuant to the Company's standard retirement policy; or (b) the
relocation of the Executive's full-time office to a location greater than fifty
(50) miles from the Company's current corporate office; or (c) a material breach
by the Company of this Agreement.
(e) NOTICE OF TERMINATION. Any termination by the Company
pursuant to the Subsections (b), (c) or (d)(i) above or by the Executive
pursuant to Subsection (d)(ii) above, shall be communicated by written Notice of
Termination from the party issuing such notice to the other party hereto. For
purposes of this Agreement, a "Notice of Termination" shall mean a notice which
shall indicate the specific termination provision of this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for such termination. A date of termination specified in the
Notice of Termination shall not be dated earlier than ninety (90) days from the
date such Notice is delivered or mailed to the applicable party.
(f) OBLIGATION TO PAY. Except upon voluntary termination by
the Executive without Good Reason and subject to Section 6 below, the Company
shall pay the compensation specified in this Subsection 5(f) to the Executive
for the period specified in this Subsection 5(f). The Company also will continue
insurance benefits during the remainder of the applicable period, including the
Severance Period set forth in this Subsection 5(f). If the Executive's
employment shall be terminated by reason of death, the estate of the Executive
shall be paid all sums otherwise payable to the Executive through the end of the
third month after the month in which the death of the Executive occurred and all
bonus or other incentive benefits accrued or accruable to the Executive through
the end of the month in which the death of the Executive occurred and the
Company shall have no further obligations to the Executive under this Agreement.
If the Executive's employment is terminated by reason of incapacity, the
Executive or the person charged with legal responsibility for the Executive's
estate shall be paid all sums otherwise payable to the Executive, including the
bonus and other benefits accrued or accruable to the Executive, through the date
of termination specified in the Notice of Termination, and the Company shall
have no further obligations to the Executive under this Agreement. If the
Executive's employment shall be terminated for Cause, the Company shall pay the
Executive his Base Salary through the date of termination specified in the
Notice of Termination and the Company shall have no further obligations to the
Executive under this Agreement. If the Executive's employment shall be
terminated by the Company, without cause, or by the Executive for Good Reason,
the Company shall (x) continue to pay the Executive the Base Salary (at the rate
in effect on the date of such termination) for a period of two (2) years
beginning as of the date of such termination (such two (2) year period being
referred to hereinafter as the "Severance Period") at such intervals as the same
would have been paid had the Executive remained in the active service of the
Company, and (y) pay the Executive a pro rata portion of the bonus or other
incentive benefits to which the Executive would have been entitled for the year
of termination, had the Executive remained employed for the entire year, which
incentive compensation shall be payable at the time incentive compensation is
payable generally under the applicable incentive plans. The executive shall have
no further right to receive any other compensation benefits or perquisites after
the date of termination of employment except as determined under the terms of
the employee benefit plans or programs of the Company or under applicable law.
6. CONDITIONS APPLICABLE TO SEVERANCE PERIOD; MITIGATION OF
DAMAGES
(a) If during the Severance Period, the Executive breaches his
obligations under Section 4 above, the Company may, upon written notice to the
Executive, terminate the Severance Period and cease to make any further payments
or provide any benefits described in Subsection 5(f).
(b) Although the Executive shall not be required to mitigate
the amount of any payment provided for in Subsection 5(f) by seeking other
employment, any such payments shall be reduced by any amounts which the
Executive receives or is entitled to receive from another employer with respect
to the Severance Period. The Executive shall promptly notify the Company in
writing in the event that other employment is obtained during the Severance
Period.
7. NOTICES. For the purpose of this Agreement, notices and all other
communications to either party hereunder provided for in the Agreement shall be
in writing and shall be deemed to have been duly given when delivered in person
or mailed by certified first-class mail, postage prepaid, addressed:
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in the case of the Company to:
AGCO Corporation
4205 River Green Parkway
Duluth, Georgia 30096
Attention: R. J. Ratliff
in the case of the Executive to:
----
----
----
----
or to such other address as either party shall designate by giving written
notice of such change to the other party.
8. ARBITRATION. Any claim, controversy, or dispute arising between the
parties with respect to this Agreement, to the maximum extent allowed by
applicable law, shall be submitted to and resolved by binding arbitration. The
arbitration shall be conducted pursuant to the terms of the Federal Arbitration
Act and (except as otherwise specified herein) the Commercial Arbitration Rules
of the American Arbitration Association in effect at the time the arbitration is
commenced. The venue for the arbitration shall be the Atlanta, Georgia offices
of the American Arbitration Association. Either party may notify the other party
at any time of the existence of an arbitrable controversy by delivery in person
or by certified mail of a Notice of Arbitrable Controversy. Upon receipt of such
a Notice, the parties shall attempt in good faith to resolve their differences
within fifteen (15) days after the receipt of such Notice. Notice to the Company
and the Executive shall be sent to the addresses specified in Section 7 above.
If the dispute cannot be resolved within the fifteen (15) day period, either
party may file a written Demand for Arbitration with the American Arbitration
Association's Atlanta, Georgia Regional Office, and shall send a copy of the
Demand for Arbitration to the other party. The arbitration shall be conducted
before a panel of three (3) arbitrators. The arbitrators shall be selected as
follows: (a) The party filing the Demand for Arbitration shall simultaneously
specify his or its arbitrator, giving the name, address and telephone number of
said arbitrator; (b) The party receiving such notice shall notify the party
demanding the arbitration of his or its arbitrator, giving the name, address and
telephone number of the arbitrator within five (5) days of the receipt of such
Demand for Arbitration; (c) A neutral person shall be selected through the
American Arbitration Association's arbitrator selection procedures to serve as
the third arbitrator. The arbitrator designated by any party need not be
neutral. In the event that any person fails or refuses timely to name his
arbitrator within the time specified in this Section 8, the American Arbitration
Association shall (immediately upon notice from the other party) appoint an
arbitrator. The arbitrators thus constituted shall promptly meet, select a
chairperson, fix the time, date(s), and place of the hearing, and notify the
parties. To the extent practical, the arbitrators shall schedule the hearing to
commence within sixty (60) days after the arbitrators have been impaneled. A
majority of the panel shall render an award within ten (10) days of the
completion of the hearing, which award may include an award of interest, legal
fees and costs of arbitration. The panel of arbitrators shall promptly transmit
an executed copy of the award to the respective parties. The award of the
arbitrators shall be final, binding and conclusive upon the parties hereto. Each
party shall have the right to have the award enforced by any court of competent
jurisdiction.
Executive initials: Company initials:
----------------- ---------
9. NO WAIVER. No provision of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is approved by the
Board and agreed to in a writing signed by the Executive and such officer as may
be specifically authorized by the Board. No waiver by either party hereto at any
time of any breach by the other party hereto of, or compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of any other provisions or conditions of this Agreement
at the same or at any prior or subsequent time.
10. SUCCESSORS AND ASSIGNS. The rights and obligations of the Company
under this Agreement shall inure to the benefit of and be binding upon the
successors and assigns of the Company and the Executive's rights under this
Agreement
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shall inure to the benefit of and be binding upon his heirs and executors.
Neither this Agreement or any rights or obligations of the Executive herein
shall be transferable or assignable by the Executive.
11. VALIDITY. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability of
any other provisions of this Agreement, which shall remain in full force and
effect. The parties intend for each of the covenants contained in Section 4 to
be severable from one another.
12. SURVIVAL. The provisions of Section 4 hereof shall survive the
termination of Executive's employment and shall be binding upon the Executive's
personal or legal representative, executors, administrators, successors, heirs,
distributee, devisees and legatees and the provisions of Section 5 hereof
relating to payments and termination of the Executive's employment hereunder
shall survive such termination and shall be binding upon the Company.
13. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
14. ENTIRE AGREEMENT. This Agreement constitutes the full agreement and
understanding of the parties hereto with respect to the subject matter hereof
and all prior or contemporaneous agreements or understandings are merged herein.
The parties to this Agreement each acknowledge that both of them and their
respective agents and advisors were active in the negotiation and drafting of
the terms of this Agreement.
15. GOVERNING LAW. The validity, construction and enforcement of this
Agreement, and the determination of the rights and duties of the parties hereto,
shall be governed by the laws of the State of Georgia.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement.
AGCO CORPORATION
By:
-------------------------------------------
Name:
-----------------------------------------
Title:
-------------------------------------
EXECUTIVE OFFICER
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EXHIBIT 10.11
EMPLOYMENT AND SEVERANCE AGREEMENT
This Employment and Severance Agreement (the "Agreement") entered into
this 1st day of September 1999 by and between AGCO CORPORATION, a Delaware
corporation (the "Company"), and Aaron D. Jones (the "Executive"),
WITNESSETH:
In consideration of the mutual covenants and agreements hereinafter set
forth, the Company and the Executive do hereby agree as follows:
1. EMPLOYMENT.
(a) The Company hereby employs the Executive and the Executive
hereby agrees to serve the Company on the terms and conditions set forth herein.
(b) The employment term shall commence on September 1, 1999
and shall continue in effect until terminated in accordance with Section 5 or
any other provision of the Agreement.
2. POSITION AND DUTIES.
The Executive shall serve as an Executive Officer of the
Company and shall perform such duties and responsibilities as may from time to
time be prescribed by the Company's board of directors (the "Board"), provided
that such duties and responsibilities are consistent with the Executive's
position. The Executive shall perform and discharge faithfully, diligently and
to the best of his/her ability such duties and responsibilities and shall devote
all of his/her working time and efforts to the business and affairs of the
Company and its affiliates.
3. COMPENSATION.
(a) BASE SALARY. The Company shall pay to the Executive an
annual base salary ("Base Salary") of Two Hundred Twenty Thousand, One Hundred
Sixty-Four Dollars ($220,164), payable in equal semi-monthly installments
throughout the term of such employment subject to Section 5 hereof and subject
to applicable tax and payroll deductions. The Company shall consider increases
in the Executive's Base Salary annually, and any such increase in salary
implemented by the Company shall become the Executive's Base Salary for purposes
of this Agreement.
(b) INCENTIVE COMPENSATION. Provided Executive has duly
performed his/her obligations pursuant to this Agreement, the Executive shall be
entitled to participate in or receive benefits under the Management Incentive
Compensation Plan implemented by the Company.
(c) OTHER BENEFITS. During the term of this Agreement, the
Executive shall be entitled to participate in the long term incentive plan
implemented by the Company and any employee benefit plans and arrangements which
are available to senior executive officers of the Company, including, without
limitation, group health and life insurance, pension and savings and the Senior
Management Employment Policy.
(d) FRINGE BENEFITS. The Company shall pay or reimburse
Executive for all reasonable and necessary expenses incurred by him/her in
connection with his/her duties hereunder, upon submission by Executive to the
Company of such written evidence of such expense as the Company may require.
Throughout the term of this Agreement, the Company will provide Executive with
the use of a vehicle for purposes within the scope of his/her employment and
shall pay all expenses for fuel, maintenance and insurance in connection with
such use of the automobile. The Company further agrees that Executive shall be
entitled to four (4) weeks of vacation in any year of the term of employment
hereunder. Nothing paid to the
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Executive under any such Company plans or arrangements shall be deemed to be in
lieu of compensation to the Executive hereunder.
4. NON-DISCLOSURE, NON-COMPETITION AND NON-SOLICITATION COVENANTS.
(a) ACKNOWLEDGEMENTS. The Executive acknowledges that as an
Executive Officer of the Company (i) he/she frequently will be exposed to
certain "Trade Secrets" and "Confidential Information" of the Company (as those
terms are defined in Subsection 4(b)), (ii) his/her responsibilities on behalf
of the Company will extend to all geographical areas where the Company is doing
business, and (iii) any competitive activity on his/her part during the term of
his employment and for a reasonable period thereafter would necessarily involve
his/her use of the Company's Trade Secrets and Confidential Information and,
therefore, would unfairly threaten the Company's legitimate business interests,
including its substantial investment in the proprietary aspects of its business
and the goodwill associated with its customer base. Moreover, the Executive
acknowledges that, in the event of the termination of his/her employment with
the Company, he/she would have sufficient skills to find alternative,
commensurate work in his/her field of expertise that would not involve a
violation of any of the provisions of this Section 4. Therefore, the Executive
acknowledges and agrees that it is reasonable for the Company to require him/her
to abide by the covenants set forth in this Section 4. The parties acknowledge
and agree that if the nature of the Executive's responsibilities for or on
behalf of the Company and the geographical areas in which the Executive must
fulfill them materially change, the parties will execute appropriate amendments
to the scope of the covenants in this Section 4.
(b) DEFINITIONS. For purposes of this Section 4, the following
terms shall have the following meanings:
(i) "COMPETITIVE POSITION" shall mean (i) the Executive's
direct or indirect equity ownership (excluding equity ownership of less than one
percent (1%) or control of all or any portion of a Competitor, or (ii) any
employment, consulting, partnership, advisory, directorship, agency, promotional
or independent contractor arrangement between the Executive and any Competitor
whereby the Executive is required to perform executive level services
substantially similar to those that he will perform for the Company as an
Executive Officer.
(ii) "COMPETITOR" of the Company shall refer to any person or
entity engaged, wholly or partly, in the business of manufacturing and
distributing farm equipment machinery and replacement parts.
(iii) "CONFIDENTIAL INFORMATION" shall mean the proprietary
and confidential data or information of the Company, other than "Trade Secrets"
(as defined below), which is of tangible or intangible value to the Company and
is not public information or is not generally known or available to the
Company's competitors.
(iv) "TRADE SECRETS" shall mean information of the Company,
including, but not limited to, technical or non-technical data, formulas,
patterns, compilations, programs, devices, methods, techniques, drawings,
processes, financial data, financial plans, products plans, or lists of actual
or potential customers or suppliers, which: (a) derives economic value, actual
or potential, from not being generally known to, and not being readily
ascertainable by proper means by, other persons who can obtain economic value
from its disclosure or use; and (b) is the subject of efforts that are
reasonable under the circumstances to maintain its secrecy.
(v) "WORK PRODUCT" shall mean all work product, property,
data, documentation, "know-how", concepts or plans, inventions, improvements,
techniques, processes or information of any kind, relating to the Company and
its business prepared, conceived, discovered, developed or created by the
Executive for the Company or any of the Company's customers.
(c) NONDISCLOSURE; OWNERSHIP OF PROPRIETARY PROPERTY.
(i) The Executive hereby covenants and agrees that: (i) with
regard to information constituting a Trade Secret, at all times during the
Executive's employment with the Company and all times thereafter during which
such information continues to constitute a Trade Secret; and (ii) with regard to
any Confidential Information, at all times during the Executive's employment
with the Company and for three (3) years after the termination of the
Executive's employment with the Company, the Executive shall regard and treat
all information constituting a Trade Secret or Confidential Information as
strictly confidential and wholly owned by the Company and will not, for any
reason in any fashion, either directly or
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indirectly, use, sell, lend, lease, distribute, license, give, transfer, assign,
show, disclose, disseminate, reproduce, copy, appropriate or otherwise
communicate any such information to any party for any purpose other than
strictly in accordance with the express terms of this Agreement and other than
as may be required by law.
(ii) To the greatest extent possible, any Work Product shall
be deemed to be "work made for hire" (as defined in the Copyright Act, 17
U.S.C.A. ss. 101 et seq., as amended) and owned exclusively by the Company. The
Executive hereby unconditionally and irrevocably transfers and assigns to the
Company all rights, title and interest the Executive may currently have or in
the future may have by operation of law or otherwise in or to any Work Product,
including, without limitation, all patents, copyrights, trademarks, service
marks and other intellectual property rights. The Executive agrees to execute
and deliver to the Company any transfers, assignments, documents or other
instruments which the Company may deem necessary or appropriate to vest complete
title and ownership of any Work Product, and all rights therein, exclusively in
the Company.
(iii) The Executive shall immediately notify the Company of
any intended or unintended, unauthorized disclosure or use of any Trade Secrets
or Confidential Information by the Executive or any other person of which the
Executive becomes aware. In addition to complying with the provisions of Section
4(c) (i) and 4 (c) (ii), the Executive shall exercise his best efforts to assist
the Company, to the extent the Company deems reasonably necessary, in the
procurement of any protection of the Company's rights to or in any of the Trade
Secrets or Confidential Information.
(iv) Immediately upon termination of the Executive's
employment with the Company, or at any point prior to or after that time upon
the specific request of the Company, the Executive shall return to the Company
all written or descriptive materials of any kind in the Executive's possession
or to which the Executive has access that constitute or contain any Confidential
Information or Trade Secrets, and the confidentiality obligations of this
Agreement shall continue until their expiration under the terms of this
Agreement.
(d) NON-COMPETITION. The Executive agrees that during his/her
employment, he/she will not, either directly or indirectly, alone or in
conjunction with any other party, (i) accept or enter into a Competitive
Position with a Competitor of the Company, or (ii) take any action in
furtherance of or in conjunction with a Competitive Position with a Competitor
of the Company. The Executive agrees that for two (2) years after any
termination of his employment with the Company, he/she will not, in the
"Restricted Territory" (as defined in the next sentence), either directly or
indirectly, alone or in conjunction with any other party, (A) accept or enter
into a Competitive Position with a Competitor of the Company, or (B) take any
action in furtherance of or in conjunction with a Competitive Position with a
Competitor of the Company. For purposes of this Section 4, "Restricted
Territory" shall refer to all geographical areas comprised within the fifty
United States of America, Western Europe, Brazil and Canada. The Executive and
the Company each acknowledge that the scope of the Restricted Territory is
reasonable because (1) the Company is conducting substantial business in all
fifty states (as well as several foreign countries), (2) the Executive occupies
one of the top executive positions with the Company, and (3) the Executive will
be carrying out his employment responsibilities in all locations where the
Company is doing business.
(e) NON-SOLICITATION OF CUSTOMERS. The Executive agrees that
during the term of his/her employment, he/she will not, either directly or
indirectly, along or in conjunction with any other party, solicit, divert or
appropriate or attempt to solicit, divert or appropriate any customer or
actively sought prospective customer of the Company for or on behalf of any
Competitor of the Company. The Executive agrees that for two (2) years after any
termination of his employment with the Company, he/she will not, in the
Restricted Territory, either directly or indirectly, alone or in conjunction
with any other party, for or on behalf of a Competitor of the Company, solicit,
divert or appropriate or attempt to solicit, divert or appropriate any customer
or actively sought prospective customer of the Company with whom he had
substantial contact during a period of time of up to, but no longer than,
eighteen (18) months prior to any termination of his/her employment with the
Company.
(f) NON-SOLICITATION OF COMPANY PERSONNEL. The Executive
agrees that, except to the extent that he/she is required to do so in connection
with his/her express employment responsibilities on behalf of the Company,
during the term of his/her employment he/she will not, either directly or
indirectly, alone or in conjunction with any other party, solicit or attempt to
solicit any employee, consultant, contractor or other personnel of the Company
to terminate, alter or lessen that party's affiliation with the Company or to
violate the terms of any agreement or understanding between such employee,
consultant, contractor or other person and the Company. The Executive agrees
that for two (2) years after any termination of
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his/her employment with the Company, and in the Restricted Territory, he/she
will not, either directly or indirectly, alone or in conjunction with any other
party, solicit or attempt to solicit any "material" or "key" (as those terms are
defined in the next sentence) employee, consultant, contractor or other
personnel of the Company to terminate, alter or lessen that party's affiliation
with the Company or to violate the terms of any agreement or understanding
between such employee, consultant, contractor or other person and the Company.
For purposes of the preceding sentence, "material" or "key" employees,
consultants, contractors or other personnel of the Company are those who have
access to the Company's Trade Secrets and Confidential Information and whose
position or affiliation with the Company is significant.
(g) REMEDIES. Executive agrees that damages at law for the
Executive's violation of any of the covenants in this Section 4 would not be an
adequate or proper remedy and that should the Executive violate or threaten to
violate any of the provisions of such covenants, the Company or its successors
or assigns shall be entitled to obtain a temporary or permanent injunction
against Executive in any court having jurisdiction prohibiting any further
violation of any such covenants, in addition to any award or damages,
compensatory, exemplary or otherwise, for such violation, if any.
(h) PARTIAL ENFORCEMENT. The Company has attempted to limit
the rights of the Executive to compete only to the extent necessary to protect
the Company from unfair competition. The Company, however, agrees that, if the
scope of enforceability of these restrictive covenants is in any way disputed at
any time, a court or other trier of fact may modify and enforce the covenant to
the extent that it believes to be reasonable under the circumstances existing at
the time.
5. TERMINATION.
(a) DEATH. The Executive's employment hereunder shall
terminate upon the death of the Executive, provided, however, that for purposes
of the payment of compensation and benefits to the Executive under this
Agreement the death of the Executive shall be deemed to have occurred ninety
(90) days from the last day of the month in which the death of the Executive
shall have occurred.
(b) INCAPACITY. The Company may terminate the Executive's
employment hereunder at the end of any calendar month by giving written Notice
of Termination to the Executive in the event of the Executive's incapacity due
to physical or mental illness which prevents the proper performance of the
duties of the Executive set forth herein or established pursuant hereto for a
substantial portion of any six (6) month period of the Executive's term of
employment hereunder. Any question as to the existence, extent or potentiality
of illness or incapacity of Executive upon which Company and Executive cannot
agree shall be determined by a qualified independent physician selected by the
Company and approved by Executive (or, if Executive is unable to give such
approval, by any adult member of the immediate family or the duly appointed
guardian of the Executive). The determination of such physician shall be
certified in writing to the Company and to the Executive and shall be final and
conclusive for all purposes of this Agreement.
(c) CAUSE. The Company may terminate the Executive's
employment hereunder for Cause by giving written Notice of Termination to the
Executive. For the purposes of this Agreement, the Company shall have "Cause" to
terminate the Executive's employment hereunder upon: (i) the Executive's
habitual drunkenness or chronic substance abuse; (ii) a willful failure by the
Executive to materially perform and discharge the duties and responsibilities of
the Executive hereunder; (iii) any breach by the Executive of the provisions of
Section 4 hereof; (iv) any misconduct by the Executive that is materially
injurious to the Company; or (v) a conviction of a felony involving the personal
dishonesty or moral turpitude of the Executive.
(d) WITHOUT CAUSE; GOOD REASON.
(i) The Company may terminate the Executive's employment
hereunder without Cause, by giving written Notice of termination to the
Executive.
(ii) The Executive may terminate his employment hereunder, by
giving written Notice of Termination to the Company. For the purposes of this
Agreement, the Executive shall have "Good Reason" to terminate his employment
hereunder upon (and without the written consent of the Executive) (a) a
reduction in the Executive's base salary or benefits received from the Company,
other than in connection with an across-the-board reduction in salaries and/or
benefits for
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similarly situated employees of the Company or pursuant to the Company's
standard retirement policy; or (b) the relocation of the Executive's full-time
office to a location greater than fifty (50) miles from the Company's current
corporate office; or (c) a material breach by the Company of this Agreement.
(e) NOTICE OF TERMINATION. Any termination by the Company
pursuant to the Subsections (b), (c) or (d)(i) above or by the Executive
pursuant to Subsection (d)(ii) above, shall be communicated by written Notice of
Termination from the party issuing such notice to the other party hereto. For
purposes of this Agreement, a "Notice of Termination" shall mean a notice which
shall indicate the specific termination provision of this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for such termination. A date of termination specified in the
Notice of Termination shall not be dated earlier than ninety (90) days from the
date such Notice is delivered or mailed to the applicable party.
(f) OBLIGATION TO PAY. Except upon voluntary termination by
the Executive without Good Reason and subject to Section 6 below, the Company
shall pay the compensation specified in this Subsection 5(f) to the Executive
for the period specified in this Subsection 5(f). The Company also will continue
insurance benefits during the remainder of the applicable period, including the
Severance Period set forth in this Subsection 5(f). If the Executive's
employment shall be terminated by reason of death, the estate of the Executive
shall be paid all sums otherwise payable to the Executive through the end of the
third month after the month in which the death of the Executive occurred and all
bonus or other incentive benefits accrued or accruable to the Executive through
the end of the month in which the death of the Executive occurred and the
Company shall have no further obligations to the Executive under this Agreement.
If the Executive's employment is terminated by reason of incapacity, the
Executive or the person charged with legal responsibility for the Executive's
estate shall be paid all sums otherwise payable to the Executive, including the
bonus and other benefits accrued or accruable to the Executive, through the date
of termination specified in the Notice of Termination, and the Company shall
have no further obligations to the Executive under this Agreement. If the
Executive's employment shall be terminated for Cause, the Company shall pay the
Executive his Base Salary through the date of termination specified in the
Notice of Termination and the Company shall have no further obligations to the
Executive under this Agreement. If the Executive's employment shall be
terminated by the Company, without cause, or by the Executive for Good Reason,
the Company shall (x) continue to pay the Executive the Base Salary (at the rate
in effect on the date of such termination) for a period of two (2) years
beginning as of the date of such termination (such two (2) year period being
referred to hereinafter as the "Severance Period") at such intervals as the same
would have been paid had the Executive remained in the active service of the
Company, and (y) pay the Executive a pro rata portion of the bonus or other
incentive benefits to which the Executive would have been entitled for the year
of termination, had the Executive remained employed for the entire year, which
incentive compensation shall be payable at the time incentive compensation is
payable generally under the applicable incentive plans. The executive shall have
no further right to receive any other compensation benefits or perquisites after
the date of termination of employment except as determined under the terms of
the employee benefit plans or programs of the Company or under applicable law.
6. CONDITIONS APPLICABLE TO SEVERANCE PERIOD; MITIGATION OF DAMAGES
(a) If during the Severance Period, the Executive breaches his
obligations under Section 4 above, the Company may, upon written notice to the
Executive, terminate the Severance Period and cease to make any further payments
or provide any benefits described in Subsection 5(f).
(b) Although the Executive shall not be required to mitigate
the amount of any payment provided for in Subsection 5(f) by seeking other
employment, any such payments shall be reduced by any amounts which the
Executive receives or is entitled to receive from another employer with respect
to the Severance Period. The Executive shall promptly notify the Company in
writing in the event that other employment is obtained during the Severance
Period.
7. NOTICES. For the purpose of this Agreement, notices and all other
communications to either party hereunder provided for in the Agreement shall be
in writing and shall be deemed to have been duly given when delivered in person
or mailed by certified first-class mail, postage prepaid, addressed:
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in the case of the Company to:
AGCO Corporation
4205 River Green Parkway
Duluth, Georgia 30096
Attention: R. J. Ratliff
in the case of the Executive to:
----
----
----
----
or to such other address as either party shall designate by giving written
notice of such change to the other party.
8. ARBITRATION. Any claim, controversy, or dispute arising between the
parties with respect to this Agreement, to the maximum extent allowed by
applicable law, shall be submitted to and resolved by binding arbitration. The
arbitration shall be conducted pursuant to the terms of the Federal Arbitration
Act and (except as otherwise specified herein) the Commercial Arbitration Rules
of the American Arbitration Association in effect at the time the arbitration is
commenced. The venue for the arbitration shall be the Atlanta, Georgia offices
of the American Arbitration Association. Either party may notify the other party
at any time of the existence of an arbitrable controversy by delivery in person
or by certified mail of a Notice of Arbitrable Controversy. Upon receipt of such
a Notice, the parties shall attempt in good faith to resolve their differences
within fifteen (15) days after the receipt of such Notice. Notice to the Company
and the Executive shall be sent to the addresses specified in Section 7 above.
If the dispute cannot be resolved within the fifteen (15) day period, either
party may file a written Demand for Arbitration with the American Arbitration
Association's Atlanta, Georgia Regional Office, and shall send a copy of the
Demand for Arbitration to the other party. The arbitration shall be conducted
before a panel of three (3) arbitrators. The arbitrators shall be selected as
follows: (a) The party filing the Demand for Arbitration shall simultaneously
specify his or its arbitrator, giving the name, address and telephone number of
said arbitrator; (b) The party receiving such notice shall notify the party
demanding the arbitration of his or its arbitrator, giving the name, address and
telephone number of the arbitrator within five (5) days of the receipt of such
Demand for Arbitration; (c) A neutral person shall be selected through the
American Arbitration Association's arbitrator selection procedures to serve as
the third arbitrator. The arbitrator designated by any party need not be
neutral. In the event that any person fails or refuses timely to name his
arbitrator within the time specified in this Section 8, the American Arbitration
Association shall (immediately upon notice from the other party) appoint an
arbitrator. The arbitrators thus constituted shall promptly meet, select a
chairperson, fix the time, date(s), and place of the hearing, and notify the
parties. To the extent practical, the arbitrators shall schedule the hearing to
commence within sixty (60) days after the arbitrators have been impaneled. A
majority of the panel shall render an award within ten (10) days of the
completion of the hearing, which award may include an award of interest, legal
fees and costs of arbitration. The panel of arbitrators shall promptly transmit
an executed copy of the award to the respective parties. The award of the
arbitrators shall be final, binding and conclusive upon the parties hereto. Each
party shall have the right to have the award enforced by any court of competent
jurisdiction.
Executive initials: Company initials:
----------------- ---------
9. NO WAIVER. No provision of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is approved by the
Board and agreed to in a writing signed by the Executive and such officer as may
be specifically authorized by the Board. No waiver by either party hereto at any
time of any breach by the other party hereto of, or compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of any other provisions or conditions of this Agreement
at the same or at any prior or subsequent time.
10. SUCCESSORS AND ASSIGNS. The rights and obligations of the Company
under this Agreement shall inure to the benefit of and be binding upon the
successors and assigns of the Company and the Executive's rights under this
Agreement
6
7
shall inure to the benefit of and be binding upon his heirs and executors.
Neither this Agreement or any rights or obligations of the Executive herein
shall be transferable or assignable by the Executive.
11. VALIDITY. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability of
any other provisions of this Agreement, which shall remain in full force and
effect. The parties intend for each of the covenants contained in Section 4 to
be severable from one another.
12. SURVIVAL. The provisions of Section 4 hereof shall survive the
termination of Executive's employment and shall be binding upon the Executive's
personal or legal representative, executors, administrators, successors, heirs,
distributee, devisees and legatees and the provisions of Section 5 hereof
relating to payments and termination of the Executive's employment hereunder
shall survive such termination and shall be binding upon the Company.
13. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
14. ENTIRE AGREEMENT. This Agreement constitutes the full agreement and
understanding of the parties hereto with respect to the subject matter hereof
and all prior or contemporaneous agreements or understandings are merged herein.
The parties to this Agreement each acknowledge that both of them and their
respective agents and advisors were active in the negotiation and drafting of
the terms of this Agreement.
15. GOVERNING LAW. The validity, construction and enforcement of this
Agreement, and the determination of the rights and duties of the parties hereto,
shall be governed by the laws of the State of Georgia.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement.
AGCO CORPORATION
By:
---------------------------------------------
Name:
-------------------------------------------
Title:
---------------------------------------
EXECUTIVE OFFICER
7
1
EXHIBIT 12.0
AGCO CORPORATION AND SUBSIDIARIES
STATEMENT RE: COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES
(IN MILLIONS, EXCEPT RATIO DATA)
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------
2000 1999 1998 1997 1996
----- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Fixed Charges Computation:
Interest expense.................................. $56.6 $ 69.1 $ 79.7 $ 69.1 $ 45.2
Interest component of rent expense(a)............. 5.8 4.8 5.3 5.6 5.4
Proportionate share of fixed charges of 50%-owned
affiliates..................................... 1.4 2.5 2.8 1.8 2.0
Amortization of debt cost......................... 3.7 2.3 1.7 1.6 1.4
----- ------ ------ ------ ------
Total fixed charges....................... $67.5 $ 78.7 $ 89.5 $ 78.1 $ 54.0
===== ====== ====== ====== ======
Earnings Computation:
Pretax earnings................................... $(4.2) $(19.2) $ 84.8 $245.7 $171.6
Fixed charges..................................... 67.5 78.7 89.5 78.1 54.0
----- ------ ------ ------ ------
Total earnings as adjusted................ $63.3 $ 59.5 $174.3 $323.8 $225.6
===== ====== ====== ====== ======
Ratio of earnings to combined fixed
charges................................. --(b) --(b) 1.9:1 4.2:1 4.2:1
===== ====== ====== ====== ======
</TABLE>
(a) The interest factor was calculated to be one-third of rental expenses and
is considered to be a representative interest factor.
(b) The dollar amount of the deficiency, based on a one-to-one coverage ratio,
is $19.2 million for 1999 and $4.2 million for 2000.
1
EXHIBIT 21.0
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
NAME OF SUBSIDIARY STATE OR JURISDICTION OF
INCORPORATION
--------------------------------------------------------------------------------
<S> <C>
AGCO Corporation Delaware
AGCO AB Sweden
AGCO Acceptance Corporation Delaware
AGCO Argentina SA Argentina
AGCO Australia, Ltd. Australia
AGCO Canada, Ltd. Canada
AGCO Danmark AS Denmark
AGCO de Mexico SA de CV Mexico
AGCO do Brazil Brazil
AGCO Export Corp. Barbados
AGCO France SA France
AGCO GmbH & Co. Germany
AGCO Holding BV Netherlands
AGCO Iberia SA Spain
AGCO International, Ltd. United Kingdom
AGCO Ltd. United Kingdom
AGCO Manufacturing Ltd. United Kingdom
AGCO Pension Trust Ltd. United Kingdom
AGCO Romania SRL Romania
AGCO SA France
AGCO Services, Ltd. United Kingdom
AGCO Vertriebs GmbH Germany
AGCO Verwaltungs GmbH Germany
Agricredit Acceptance Canada, Ltd. Canada
Araus SA Argentina
Dania Finans A/S Denmark
Dronningborg Industries AS Denmark
Eikmaskin AS Norway
Fendt GmbH Germany
Fendt Italiana GmbH Italy
Hesston Ventures Corp. Kansas
Indamo SA Argentina
Kemptener Maschinenfabrik GmbH Germany
Massey Ferguson Corp. Delaware
Massey Ferguson de Mexico, SA de CV Mexico
Massey Ferguson Europa BV Netherlands
Massey Ferguson Executive Pension Trust Ltd. United Kingdom
Massey Ferguson SPA Italy
Massey Ferguson Staff Pension Trust Ltd. United Kingdom
Massey Ferguson Works Pension Trust Ltd. United Kingdom
Terramec SA Argentina
Wohungsbau GmbH Germany
Agri Acquisition Corp. Delaware
AGCO Ventures LLC Delaware
Farmec S.p.A. Italy
Hay & Forage Industries Delaware
</TABLE>
1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our reports included (or incorporated by reference) in this Form 10-K into
AGCO Corporation's previously filed Registration Statements on Form S-8 (File
No. 333-75591, File No. 333-75589 and File No. 333-04707).
Arthur Andersen LLP
/s/ Arthur Andersen LLP
Atlanta, Georgia
March 29, 2001
1
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
The Managing Board
AGCO Finance LLC (formerly Agricredit Acceptance LLC):
We consent to the inclusion of our reports dated January 26, 2001 and January
28, 2000, with respect to the financial statements of AGCO Finance LLC as of and
for the years ended December 31, 2000 and 1999 and the financial statements of
Agricredit Acceptance LLC as of and for the years ended December 31, 1999 and
1998, respectively, which reports appear in the December 31, 2000 annual report
on Form 10-K of AGCO Corporation.
/s/ KPMG LLP
--------------------------------------
KPMG LLP
Des Moines, Iowa
March 30, 2001
1
EXHIBIT 24.0
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below, hereby constitutes and appoints John M. Shumejda, Donald R.
Millard and Stephen D. Lupton his true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for him and in
his name, place and stead, in any and all capacities, to sign the annual
report on Form 10-K of AGCO Corporation for the fiscal year ended December
31, 2000 and any or all amendments or supplements thereto, and to file the
same with all exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each
and every act and thing necessary or appropriate to be done with respect to
the Form 10-K or any amendments or supplements thereto in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or his substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.
Date: March 29, 2001
/s/ W. Wayne Booker /s/ Curtis E. Moll
--------------------------------- ---------------------------------
W. Wayne Booker Curtis E. Moll
/s/ D. E. Momot
/s/ Henry J. Claycamp ---------------------------------
--------------------------------- David E. Momot
Henry J. Claycamp
/s/ Robert J. Ratliff
/s/ Wolfgang Deml ---------------------------------
--------------------------------- Robert J. Ratliff
Wolfgang Deml
/s/ Wolfgang Sauer
---------------------------------
/s/ Gerald B. Johanneson Wolfgang Sauer
---------------------------------
Gerald B. Johanneson
/s/ John M. Shumejda
/s/ Anthony D. Loehnis ---------------------------------
--------------------------------- John M. Shumejda
Anthony D. Loehnis
/s/ Hendrikus Visser
---------------------------------
Hendrikus Visser
1
EXHIBIT 99.1
AGCO FINANCE LLC
FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND 1999
(WITH INDEPENDENT AUDITORS' REPORT THEREON)
1
2
INDEPENDENT AUDITORS' REPORT
The Managing Board of
AGCO Finance LLC:
We have audited the accompanying balance sheets of AGCO Finance LLC as of
December 31, 2000 and 1999, and the related statements of operations, changes in
members' equity, and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted 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 misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of AGCO Finance LLC as of
December 31, 2000 and 1999, and the results of its operations and its cash flows
for the years then ended in conformity with accounting principles generally
accepted in the United States of America.
KPMG LLP
Des Moines, Iowa
January 26, 2001
2
3
AGCO FINANCE LLC
BALANCE SHEETS
<TABLE>
<CAPTION>
2000 1999
-------- --------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Finance receivables, net.................................... $646,684 $746,809
Wholesale notes receivable.................................. 48,365 58,681
Crop input receivables...................................... 15,256 26,911
-------- --------
710,305 832,401
Allowance for credit losses................................. (17,046) (16,055)
-------- --------
Net receivables................................... 693,259 816,346
Cash and cash equivalents................................... 5,693 6,527
Due from AGCO Corporation................................... 3,735 2,282
Due from affiliates......................................... 2,550 3,279
Prepaid expenses and other assets........................... 2,460 1,505
Property, plant and equipment, net of accumulated
depreciation.............................................. -- 1,916
-------- --------
Total assets...................................... $707,697 $831,855
======== ========
LIABILITIES AND MEMBERS' EQUITY
Liabilities:
Notes payable and accrued interest........................ $610,259 $733,723
Accounts payable and accrued liabilities.................. 10,872 11,293
Dealer and manufacturers reserves......................... 9,321 9,875
-------- --------
Total liabilities................................. 630,452 754,891
-------- --------
Members' equity:
Members' equity........................................... 46,843 46,843
Retained Earnings......................................... 30,402 30,121
-------- --------
Total members' equity............................. 77,245 76,964
-------- --------
Contingencies
Total liabilities and members' equity............. $707,697 $831,855
======== ========
</TABLE>
See accompanying notes to financial statements.
3
4
AGCO FINANCE LLC
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
------- -------
(IN THOUSANDS)
<S> <C> <C>
Interest Income:
Finance and other receivables............................. $59,115 $61,195
Incentive reimbursements from AGCO Corporation............ 19,595 22,728
Short-term investments and trading securities............. 1,646 (699)
------- -------
Total interest income............................. 80,356 83,224
Interest expense............................................ 42,466 44,197
Dealer volume bonus......................................... 1,117 1,026
------- -------
Net margin........................................ 36,773 38,001
Provision for credit losses................................. 4,564 5,075
------- -------
Net margin after provision for credit losses...... 32,209 32,926
General and administrative expense.......................... 15,928 14,904
------- -------
Net income........................................ $16,281 $18,022
======= =======
</TABLE>
See accompanying notes to financial statements.
4
5
AGCO FINANCE LLC
STATEMENTS OF CHANGES IN MEMBERS' EQUITY
YEARS ENDED DECEMBER 31, 2000 AND 1999
<TABLE>
<CAPTION>
MEMBERS' RETAINED
EQUITY EARNINGS TOTAL
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at December 31, 1998................................ $46,843 $ 30,849 $ 77,692
Net income.................................................. -- 18,022 18,022
Dividend.................................................... -- (18,750) (18,750)
------- -------- --------
Balance at December 31, 1999................................ 46,843 30,121 76,964
Net income.................................................. -- 16,281 16,281
Dividend.................................................... -- (16,000) (16,000)
------- -------- --------
Balance at December 31, 2000................................ $46,843 $ 30,402 $ 77,245
======= ======== ========
</TABLE>
See accompanying notes to financial statements.
5
6
AGCO FINANCE LLC
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 16,281 $ 18,022
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 283 395
Provision for credit losses............................ 4,564 5,075
Changes in:
Due to/from affiliates............................... (724) (3,957)
Prepaid expenses and other others.................... (954) 1,549
Dealer and manufacturers reserves.................... (554) 367
Accrued interest payable............................. (1,983) (340)
Accounts payable and accrued liabilities............. (421) 259
--------- ---------
Net cash provided by operating activities......... 16,492 21,370
--------- ---------
Cash flows from investing activities:
Purchase of property, plant and equipment................. (177) (1,027)
Proceeds from sale of property, plant and equipment....... 1,809 --
Finance receivables, wholesale notes and crop input
receivables originated................................. (449,442) (531,420)
Principal collected on finance receivables, wholesale
notes and crop input receivables....................... 567,965 553,705
--------- ---------
Net cash provided by investing activities......... 120,155 21,258
--------- ---------
Cash flows from financing activities:
Proceeds from issuance of notes payable................... 32,535 106,995
Principal payments on notes payable....................... (154,016) (130,507)
Dividend paid............................................. (16,000) (18,750)
--------- ---------
Net cash used in financing activities............. (137,481) (42,262)
--------- ---------
(Decease) increase in cash and cash equivalents... (834) 366
Cash and cash equivalents at beginning of year.............. 6,527 6,161
--------- ---------
Cash and cash equivalents at end of year.................... $ 5,693 $ 6,527
========= =========
Supplemental disclosures of cash flow information --
Cash paid for interest.................................... $ 43,641 $ 44,419
========= =========
</TABLE>
See accompanying notes to financial statements.
6
7
AGCO FINANCE LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND 1999
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
The financial statements include the accounts of AGCO Finance LLC (the
Company), a limited liability corporation, formerly known as Agricredit
Acceptance LLC. The Company conducts operations as Agricredit Acceptance Company
and its primary businesses are retail financing of agricultural and industrial
equipment, wholesale financing of agricultural equipment, and crop input
financing throughout the United States. The Company is a joint venture owned 51%
by De Lage Landen Finance Inc. (DLL) a wholly owned subsidiary of Cooperative
Centrale Raiffeisen-Boerenleenbank B.A. (Rabobank Nederland) and owned 49% by
AGCO Finance Corporation, a wholly owned subsidiary of AGCO Corporation (AGCO).
The Company restructured its business, assets and operations as of July 1,
2000, selling its property, plant and equipment at net book value to a new
company, also known as Agricredit Acceptance LLC (Agricredit), which is a wholly
owned subsidiary of DLL. On July 1, 2000 Agricredit also hired substantially all
employees of the Company. The Company then entered into a servicing agreement
with Agricredit to provide substantially all general and administrative services
to the Company (see note 2).
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from these
estimates. The most significant estimate made by management relates to the
Company's allowance for credit losses.
INTEREST AND FINANCE FEES
Interest income from the finance receivables, wholesale notes receivable,
and crop input receivables is recognized using the effective interest method.
Late charges are credited to income when received. Accrual of interest and
finance fees is suspended when collection is deemed doubtful. Income is
recognized on a cash basis after a receivable is put on non-accrual status.
ORIGINATION COSTS
Origination fees are not charged on finance receivables. Direct costs
incurred in the origination of finance receivables are deferred and amortized to
income over the estimated term of the finance receivables on a straight-line
basis, which does not differ materially from the effective interest method.
Direct costs of originating wholesale notes receivable and crop input
receivables are expensed as incurred, as such costs are not significant.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents for financial reporting purposes include cash and
short-term investments with maturities at purchase of three months or less.
7
8
AGCO FINANCE LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
PROPERTY, PLANT, AND EQUIPMENT
Property, plant and equipment is stated at cost and depreciated on a
straight-line basis over the useful life of the asset. The following useful
lives are used for depreciation purpose:
<TABLE>
<S> <C>
Computer equipment.......................................... 3 years
Furniture and fixtures...................................... 5 years
Computer software........................................... 5 years
5 years (life of the
Leasehold improvements...................................... lease)
</TABLE>
For the years ended December 31, 2000 and 1999, depreciation expense was
$283,000 and $395,000, respectively. On June 30, 2000, the Company sold all
property, plant and equipment to Agricredit.
ALLOWANCE FOR CREDIT LOSSES
The allowance for credit losses is management's estimate of the amount
considered adequate to absorb probable losses in the portfolio based on
management's evaluation of the current risk characteristics of the receivable
portfolio, the fair value of the underlying collateral and prior credit loss
experience, as well as the impact of current economic conditions. A provision
for credit losses is charged to operations based on management's periodic
evaluation of these risks. In the opinion of management, the allowance for
credit losses is adequate.
The Company's charge-off policy is based on a specific review for all
receivables. Certain receivables are secured by recourse agreements with dealers
and manufacturers.
DEALER AND MANUFACTURERS RESERVES
Under certain recourse agreements with dealers and manufacturers, the
Company retains a portion of the proceeds of equipment financing transactions.
The amounts retained are used to absorb specific losses on the related finance
receivables and any unused portion of the reserve is ultimately refundable to
the dealer or manufacturer. The total amount retained is limited to a percentage
of the outstanding portfolio and the Company pays interest to the dealer and
manufacturer at the prime interest rate on amounts retained.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company utilizes interest rate swaps as part of an overall interest
rate risk management strategy. Interest rate swaps are used principally as a
tool to manage the interest sensitivity of the Company's balance sheet. The
contracts represent an exchange of interest payment streams based on an
agreed-upon notional principal amount with at least one stream based on a
specified floating-rate index. The underlying principal balances of the asset or
liabilities are not affected. Net settlement amounts are reported as adjustments
to interest income or expense, as appropriate.
Interest rate swaps are subject to credit and market risk. The Company
evaluates the risks associated with interest rate swaps in much the same way it
evaluates the risks associated with on-balance sheet financial instruments.
However, unlike on-balance sheet financial instruments, where the risk of credit
loss is represented by the notional value or principal, the risk of credit loss
associated with interest rate swaps is generally a small fraction of the
notional value. The Company attempts to limit its credit risk by dealing with
creditworthy counterparties. Affiliated companies are the counterparties for all
of the Company's interest rate swap agreements.
Interest rate swaps which are not hedges of specific assets, liabilities or
commitments are accounted for as trading securities. Interest rate swaps
accounted for as trading securities are carried at fair value with the changes
in market value reflected in the income statement.
8
9
AGCO FINANCE LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Statement of Financial Accounting Standards (SFAS 133), Accounting for
Derivative Instruments and Hedging Activities, as amended by SFAS 137,
Accounting for Derivative Instruments and Hedging Activities -- Deferral of the
Effective Date of FASB Statement No. 133, and SFAS 138, Accounting for Certain
Derivative Instruments and Certain Hedging Activities, are effective for the
Company as of January 1, 2001. These statements require that an entity recognize
all derivatives as either assets or liabilities measured at fair value. The
accounting for changes in the fair value of a derivative depends on the use of
the derivative. Adoption of these new accounting standards by the Company will
result in an adjustment to other accumulated comprehensive loss (a component of
members' equity) of approximately $3.2 million to recognize the accumulated loss
based on the market value of the interest rate swaps on January 1, 2001. The
adoption will also impact assets and liabilities recorded on the balance sheet.
INCOME TAXES
No tax provision is provided for the Company as the entity is a limited
liability corporation whose members are required to include their respective
share of profits and losses in their individual income tax returns.
(2) TRANSACTIONS WITH AFFILIATES
The accompanying statements of operations reflect interest income from AGCO
for incentive reimbursements related to finance and wholesale receivables with
below-market interest rates or interest-waiver periods, which totaled
$19,595,000 and $22,728,000 for the years ended December 31, 2000 and 1999,
respectively.
In connection with the origination of certain receivables the Company, at
the selling dealer's request, pays AGCO directly for the underlying equipment
being financed in order to satisfy outstanding obligations between the dealers
and AGCO. Such payments for the years ended December 31, 2000 and 1999 totaled
$141,342,000 and $150,995,000, net of discounts.
All amounts due to or from AGCO related to the above transactions are
separately stated in the accompanying balance sheets and are generally settled
between the Company and AGCO on a current basis.
The Company has an agreement to provide management services to a DLL
affiliated company. The agreement provides for a management fee based upon the
affiliated company's number of contracts and dollar amount of receivables
outstanding. The fees paid to the Company by the affiliated company totaled
$2,321,000 and $1,919,000 for the years ended December 31, 2000 and 1999,
respectively. The fees received have been offset against general and
administrative expense in the accompanying statements of operations. See note 7
also for affiliated notes payable, interest rate swap agreements, and related
interest expense.
For the period July 1, 2000 through December 31, 2000 the Company paid
Agricredit a servicing agreement (see note 1) fee based on Agricredit's good
faith estimate of the costs incurred, which totaled $8,200,000, and is included
in general and administrative expense in the accompanying statements of
operations. The monthly servicing fee for calendar year 2001 and each calendar
year thereafter will be determined based on the monthly average receivables
outstanding prior to projected allowance for credit losses, but excluding
projected charge-offs.
9
10
AGCO FINANCE LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(3) FINANCE RECEIVABLES
Finance receivables consist of the following at December 31, 2000 and 1999
(in thousands):
<TABLE>
<CAPTION>
2000 1999
--------- ---------
<S> <C> <C>
Retail notes................................................ $ 533,950 $ 557,817
Sales finance contracts..................................... 234,768 315,533
--------- ---------
768,718 873,350
Unearned interest and discounts............................. (122,034) (126,541)
--------- ---------
$ 646,684 $ 746,809
========= =========
</TABLE>
Interest rates on retail notes and sales finance contracts including
affiliated discounts ranged from 9.0% to 13.0% with a weighted average rate of
10.03% at December 31, 2000.
Non-accrual finance receivables, net of related unearned interest and
discounts, totaled $17,758,000 and $19,517,000 at December 31, 2000 and 1999,
respectively. The allowance for losses related to these finance receivables was
$7,062,000 and $7,353,000 at December 31, 2000 and 1999, respectively. The
average amount of non-accrual finance receivables, net of related unearned
interest and discounts, for the years ended December 31, 2000 and 1999 were
$18,638,000 and $17,714,000, respectively. The accrual of interest and finance
fees, which was suspended on these receivables, was $977,000 and $1,000,000 for
the years ended December 31, 2000 and 1999, respectively.
At December 31, 2000, contractual maturities of gross finance receivables
are as follows (in thousands):
<TABLE>
<S> <C>
2001........................................................ $276,692
2002........................................................ 205,895
2003........................................................ 152,658
2004........................................................ 85,518
2005........................................................ 40,623
Thereafter.................................................. 7,332
--------
$768,718
========
</TABLE>
The Company provides financing for agricultural and industrial equipment to
customers throughout the United States; the receivables are secured by the
equipment financed and additional property if considered necessary by
management. Although the Company has a diversified receivable portfolio, a
substantial portion of its debtors' ability to repay their borrowings is
dependent upon the agricultural business economic sector. In addition, at
December 31, 2000 and 1999, approximately 80% of the net finance receivables
relate to the financing of products sold by AGCO dealers and distributors.
Concentrations of gross finance receivables by type of equipment financed
at December 31, 2000 and 1999 are as follows (in thousands):
<TABLE>
<CAPTION>
2000 1999
-------- --------
<S> <C> <C>
Tractor..................................................... $338,216 $399,095
Combine..................................................... 184,844 200,951
Industrial.................................................. 22,957 27,818
Forestry.................................................... 31,102 37,359
Other....................................................... 191,599 208,127
-------- --------
$768,718 $873,350
======== ========
</TABLE>
10
11
AGCO FINANCE LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(4) WHOLESALE NOTES RECEIVABLE
Agreements have been entered into with certain manufacturers of
agricultural and industrial equipment to provide financing for the
manufacturers' qualified distributors and dealers. These wholesale notes
receivable are generally for terms of less than one year, with interest at the
prime rate plus 1.0% to 3.0%, secured by both the underlying equipment and a
manufacturers' reserve, and contain certain recourse provisions back to the
manufacturers.
(5) CROP INPUT RECEIVABLES
Agreements have been entered into with certain distributors of crop
protection products, fertilizer, and seed to provide financing for their
customers (the producers). The financing is offered in a discretionary operating
line of credit to be utilized by the producers to fund agricultural operating
expenses associated with crop production (crop input receivables). These crop
input receivables generally have a maturity of one year or less, with variable
interest rates at the prime rate plus .25% to 3%. The crop input receivables are
collateralized by obtaining a first security interest in all crops, government
payments and crop insurance. Additional collateral is obtained if considered
necessary by management. The Company is indemnified for certain loans that are
with full recourse back to the distributor which has sole responsibility for all
collection activity and associated costs.
(6) ALLOWANCE FOR CREDIT LOSSES
The following is a summary of the activity in the allowance for credit
losses on finance and other receivables for the years ended December 31, 2000
and 1999, (in thousands):
<TABLE>
<CAPTION>
2000 1999
------- -------
<S> <C> <C>
Balance at beginning of period.............................. $16,055 $16,142
Provision for credit losses................................. 4,564 5,075
Charge-offs................................................. (6,688) (6,081)
Recoveries.................................................. 3,115 919
------- -------
Balance at end of period.................................... $17,046 $16,055
======= =======
</TABLE>
(7) NOTES PAYABLE
Under a revolving credit agreement with Rabobank Nederland, the parent of
DLL, dated June 30, 2000 (the Credit Agreement), the Company can borrow a
maximum of $1,500,000,000. The commitment under the Credit Agreement is reduced
by 105% of the outstanding borrowings ($1,000,000,000 at December 31, 2000) of
its sister company, Agricredit Acceptance Canada, Ltd., up to $100,000,000
Canadian dollars. The notes funded under the Credit Agreement at December 31,
2000, have maturities ranging from 30 to 32 days. The interest rate on the notes
is established, subject to the terms of the note, at the lender's base lending
rate (based on LIBOR) plus .10%. Interest rates on the notes payable outstanding
at December 31, 2000, ranged from 6.7475 to 6.75%, with a weighted-average
interest rate of 6.7476%. The Credit Agreement contains certain financial
covenants that the Company must maintain, including minimum specified net worth
and borrowing base requirements. As of December 31, 2000 and 1999, $610,007,000
and $731,487,500, respectively, was outstanding under the Credit Agreement and
unused commitment was $769,096,000 and $210,544,000, respectively, reduced for
the borrowings of Agricredit Acceptance Canada Ltd.
Of the total outstanding borrowings at December 31, 2000, $610,007,000 was
funded by De Lage Landen Ireland Company (DLL Ireland). The Credit Agreement was
amended and restated as of June 30, 2000 and subsequently expired on July 31,
2000; however, the Credit Agreement allows for automatic extension for an
additional thirty day periods unless Rabobank Nederland in its sole discretion
elects not to grant such
11
12
AGCO FINANCE LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
extension. The notes payable under the amended and restated Credit Agreement are
secured by the finance receivables, wholesale notes receivable, and crop input
receivables.
The Company has entered into interest rate swap agreements with DLL Ireland
on portions of its short-term borrowings. The swap agreements require the
payment of fixed rates and receipt of floating rates of interest based on LIBOR.
The Company enters into the swap agreements in order to more closely match the
interest rates and maturities of the borrowings to those of the receivables
being funded. The differential to be paid or received on the swap agreements is
recognized as an adjustment to interest expense. At December 31, 2000, the total
notional principal amounts of the agreements were $604 million paying fixed
rates ranging from 4.61% to 7.53% and with notional principal amounts of $323
million, $244 million, $34 million, and $3 million, terminating in 2001, 2002,
2003, and 2004, respectively. For the years ended December 31, 2000 and 1999,
the swaps increased the Company's interest expense by $2,283,000 and $3,518,000,
respectively. The interest expense resulted from the Company exchanging its
short term borrowing rate to approximately a two year borrowing rate to better
match the maturity of the fixed rate notes receivable.
As part of its interest rate risk management policy, the Company previously
entered into certain interest rate swap agreements which were not hedges of
specific assets, liabilities, or commitments and were accounted for as trading
securities. In December 1999, the Company terminated these swaps and recorded a
reduction of fair value of $2,200,000. Interest income exclusive of fair value
adjustments for these swaps the years ended December 31, 2000 and 1999 was $0
and $1,129,000, respectively.
The following is a summary of aggregate annual maturities of notes payable
and accrued interest payable on notes payable and interest rate swap agreements
at December 31, 2000 (in thousands):
<TABLE>
<S> <C>
Notes payable in 2001....................................... $610,007
Accrued interest payable on notes payable and interest rate
swap agreements........................................... 252
--------
$610,259
========
</TABLE>
In December 1999, the Company entered into a Deposit Agreement with DLL
Ireland. Under the terms of the Deposit Agreement, DLL Ireland has agreed to
advance monies under the Credit Agreement to the Company provided such proceeds
are deposited with DLL Ireland. The amount of borrowing outstanding and the
related deposit at December 31, 2000 totaled $98,472,000. Right of offset exists
under the Deposit Agreement; therefore, these amounts are not reflected in the
Company's balance sheet. During 2000, the deposit account bore a weighted
average fixed interest rate of 6.29%. The interest rate on the borrowings is
adjusted monthly and was 6.81% at December 31, 2000. The deposit and the related
borrowings will be reduced in annual amounts ranging from $8,000,000 to
$11,500,000 in August of each year for the next 10 years.
(8) FAIR VALUE OF FINANCIAL INSTRUMENTS
In determining the estimated fair values of the Company's financial
instruments, the estimates, methods, and assumptions utilized are as follows:
- Cash and cash equivalents. The carrying amount for cash and cash
equivalents approximates the fair value because of the short-term nature
of the instruments.
- Finance receivables. The fair value of finance receivables is calculated
by discounting scheduled cash flows through the estimated maturity using
estimated market discount rates that reflect the credit and interest rate
risk inherent in the portfolio. The estimated maturity is based on
historical experience with repayments, modified, as required, by an
estimate of the effect of current economic and lending conditions. The
effect of nonperforming finance receivables is considered in assessing
the credit risk inherent in the fair value estimate. At December 31, 2000
and 1999 the Company estimated the fair
12
13
AGCO FINANCE LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
value of its net finance receivable portfolio to be approximately
$661,678,000 and $756,370,000, respectively.
- Wholesale notes receivable, crop input receivables, and dealer
reserves. The carrying amount for wholesale notes receivable, crop input
receivables, and dealer reserves approximates fair value as interest on
the obligations is at a variable rate and due to the short-term nature of
the instruments.
- Notes payable. Rates currently available for debt with similar terms and
remaining maturities are used to estimate fair value of existing debt. At
December 31, 2000 and 1999 the Company estimated the fair value of notes
payable (including accrued interest payable) to be approximately
$609,971,000 and $731,359,000, respectively.
- Interest rate swaps. The estimated fair value of the Company's interest
rate swap agreements related to notes payable, and the depository account
was at an unrealized loss of approximately $3,177,000 and $740,000 at
December 31, 2000 and 1999, respectively.
LIMITATIONS
Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial instrument.
Because no market exists for a significant portion of the Company's financial
instruments, fair value estimates are based on judgments regarding future
expected loss experience, current economic conditions, risk characteristics of
various financial instruments, and other factors. These estimates are subjective
in nature and involve uncertainties and matters of significant judgment and,
therefore, cannot be determined with precision. Changes in assumptions could
significantly affect the estimates.
(9) PENSION PLAN
The Company sponsors a defined contribution savings plan for its eligible
employees. Under the plan employees can contribute 2% to 12% of their base pay
and the Company will contribute up to 3% if the employee contributed at least
3%. The Company contributions vest immediately to the employee. In addition, the
plan has a profit sharing component whereby the Company can contribute, to the
Plan from 0% to 3% of the employee's base salary based on established
profitability criteria for the Company. For the years ended December 31, 2000
and 1999, the expense under the plan was $199,000 and $365,000, respectively.
(10) CONTINGENCIES
The Company is involved in various claims and legal actions arising in the
ordinary course of business. Although the ultimate outcome of these matters
cannot be ascertained at this time, it is the opinion of management that the
ultimate resolution will not have a material impact on the balance sheet or
results of operations of the Company.
13
14
AGRICREDIT ACCEPTANCE LLC
FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
(WITH INDEPENDENT AUDITORS' REPORT THEREON)
14
15
INDEPENDENT AUDITORS' REPORT
The Managing Board of
Agricredit Acceptance LLC:
We have audited the accompanying balance sheets of Agricredit Acceptance
LLC as of December 31, 1999 and 1998, and the related statements of operations,
changes in members' equity, and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Agricredit Acceptance LLC as
of December 31, 1999 and 1998, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
KPMG LLP
Des Moines, Iowa
January 28, 2000
15
16
AGRICREDIT ACCEPTANCE LLC
BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Finance receivables, net.................................... $746,809 $759,205
Crop input receivables...................................... 26,911 36,207
Wholesale notes receivable.................................. 58,681 64,436
-------- --------
832,401 859,848
Allowance for credit losses................................. (16,055) (16,142)
-------- --------
Net receivables................................... 816,346 843,706
Cash and cash equivalents................................... 6,527 6,161
Due from AGCO Corporation................................... 2,282 1,306
Due from affiliates......................................... 3,279 298
Prepaid expenses and other assets........................... 1,505 3,054
Property, plant and equipment, net of accumulated
depreciation.............................................. 1,916 1,284
-------- --------
Total assets...................................... $831,855 $855,809
======== ========
LIABILITIES AND MEMBERS' EQUITY
Liabilities:
Notes payable and accrued interest........................ $733,723 $757,575
Accounts payable and accrued liabilities.................. 11,293 11,034
Dealer and manufacturers reserves......................... 9,875 9,508
-------- --------
Total liabilities................................. 754,891 778,117
-------- --------
Members' equity:
Members' equity........................................... 46,843 46,843
Retained Earnings......................................... 30,121 30,849
-------- --------
Total members' equity............................. 76,964 77,692
-------- --------
Contingencies
Total liabilities and members' equity............. $831,855 $855,809
======== ========
</TABLE>
See accompanying notes to financial statements.
16
17
AGRICREDIT ACCEPTANCE LLC
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
------- -------
(IN THOUSANDS)
<S> <C> <C>
Interest income:
Finance and other receivables............................. $61,195 $64,996
Incentive reimbursements from AGCO Corporation............ 22,728 18,708
Short-term investment and trading securities.............. (699) 2,997
------- -------
Total interest income............................. 83,224 86,701
Interest expense............................................ 44,197 43,603
Dealer volume bonus......................................... 1,026 1,857
------- -------
Net margin........................................ 38,001 41,241
Provision for credit losses................................. 5,075 4,791
------- -------
Net margin after provision for credit losses...... 32,926 36,450
General and administrative expense.......................... 14,904 13,288
------- -------
Net income........................................ $18,022 $23,162
======= =======
</TABLE>
See accompanying notes to financial statements.
17
18
AGRICREDIT ACCEPTANCE LLC
STATEMENTS OF CHANGES IN MEMBERS' EQUITY
YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
MEMBERS' RETAINED
EQUITY EARNINGS TOTAL
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at December 31, 1997................................ $46,843 $ 18,687 $ 65,530
Net income.................................................. -- 23,162 23,162
Dividend.................................................... -- (11,000) (11,000)
------- -------- --------
Balance at December 31, 1998................................ 46,843 30,849 77,692
Net income.................................................. -- 18,022 18,022
Dividend.................................................... -- (18,750) (18,750)
------- -------- --------
Balance at December 31, 1999................................ $46,843 $ 30,121 $ 76,964
======= ======== ========
</TABLE>
See accompanying notes to financial statements.
18
19
AGRICREDIT ACCEPTANCE LLC
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 18,022 $ 23,162
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 395 157
Provision for credit losses............................ 5,075 4,791
Changes in:
Due to/from affiliates............................... (3,957) (13,085)
Prepaid expenses and other assets.................... 1,549 (1,706)
Dealer reserves...................................... 367 376
Accrued interest payable............................. (340) (4,261)
Accounts payable and accrued liabilities............. 259 (2,655)
--------- ---------
Net cash provided by operating activities......... 21,370 6,779
--------- ---------
Cash flows from investing activities:
Purchase of fixed assets.................................. (1,027) (1,155)
Finance receivables, wholesale notes and crop input
receivables originated................................. (531,420) (638,727)
Principal collected on finance receivables, wholesale
notes and crop input receivables....................... 553,705 530,189
--------- ---------
Net cash provided by (used in) investing
activities...................................... 21,258 (109,693)
--------- ---------
Cash flows from financing activities:
Proceeds from issuance of notes payable................... 106,995 258,064
Principal payments on notes payable....................... (130,507) (145,216)
Dividend paid............................................. (18,750) (11,000)
--------- ---------
Net cash (used in) provided by financing
activities...................................... (42,262) 101,848
--------- ---------
Increase (decrease) in cash and cash
equivalents..................................... 366 (1,066)
Cash and cash equivalents at beginning of year.............. 6,161 7,227
--------- ---------
Cash and cash equivalents at end of year.................... $ 6,527 $ 6,161
========= =========
Supplemental disclosures of cash flow information --
Cash paid for interest.................................... $ 44,419 $ 47,127
========= =========
</TABLE>
See accompanying notes to financial statements.
19
20
AGRICREDIT ACCEPTANCE LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
The financial statements include the accounts of Agricredit Acceptance LLC
(the Company), a limited liability corporation. The Company conducts operations
as Agricredit Acceptance Company and its primary businesses are retail financing
of agricultural and industrial equipment, wholesale financing of agricultural
equipment, and crop input financing throughout the United States. The Company is
a joint venture owned 51% by De Lage Landen Finance Inc. (DLL) a wholly owned
subsidiary of Cooperative Centrale Raiffeisen-Boerenleenbank B.A. (Rabobank
Nederland) and owned 49% by AGCO Finance Corporation, a wholly owned subsidiary
of AGCO Corporation (AGCO).
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates. The most
significant estimate made by management relates to the Company's allowance for
credit losses.
INTEREST AND FINANCE FEES
Interest income from the finance receivables, wholesale notes receivable,
and crop input receivables is recognized using the effective interest method.
Late charges are credited to income when received. Accrual of interest and
finance fees is suspended when collection is deemed doubtful. Income is
recognized on a cash basis after a receivable is put on non-accrual status.
ORIGINATION COSTS
Origination fees are not charged on finance receivables. Direct costs
incurred in the origination of finance receivables are deferred and amortized to
income over the estimated term of the finance receivables on a straight-line
basis, which does not differ materially from the effective interest method.
Direct costs of originating wholesale notes receivable and crop input
receivables are expensed as incurred, as such costs are not significant.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents for financial reporting purposes include cash and
short-term investments with maturities at purchase of three months or less.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost and depreciated on a
straight-line basis over the useful life of the asset. The following useful
lives are used for depreciation purpose:
<TABLE>
<S> <C>
Computer equipment.......................................... 3 years
Furniture and fixtures...................................... 5 years
Computer software........................................... 5 years
Leasehold improvements...................................... 5 years (life of the lease)
</TABLE>
20
21
AGRICREDIT ACCEPTANCE LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
For the years ended December 31, 1999 and 1998, depreciation expense was
$395,000 and $157,000, respectively.
ALLOWANCE FOR CREDIT LOSSES
The allowance for credit losses is management's estimate of the amount
considered adequate to absorb probable losses in the portfolio based on
management's evaluation of the current risk characteristics of the receivable
portfolio, the fair value of the underlying collateral and prior credit loss
experience, as well as the impact of current economic conditions. A provision
for credit losses is charged to operations based on management's periodic
evaluation of these risks. In the opinion of management, the allowance for
credit losses is adequate.
The Company's charge-off policy is based on a specific review for all
receivables. Certain receivables are secured by recourse agreements with dealers
and manufacturers.
DEALER AND MANUFACTURERS RESERVES
Under certain recourse agreements with dealers and manufacturers, the
Company retains a portion of the proceeds of equipment financing transactions.
The amounts retained are used to absorb specific losses on the related finance
receivables and any unused portion of the reserve is ultimately refundable to
the dealer or manufacturer. The total amount retained is limited to a percentage
of the outstanding portfolio and the Company pays interest to the dealer and
manufacturer at the prime interest rate on amounts retained.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company utilizes interest rate swaps as part of an overall interest
rate risk management strategy. Interest rate swaps are used principally as a
tool to manage the interest sensitivity of the Company's balance sheet. The
contracts represent an exchange of interest payment streams based on an
agreed-upon notional principal amount with at least one stream based on a
specified floating-rate index. The underlying principal balances of the asset or
liabilities are not affected. Net settlement amounts are reported as adjustments
to interest income or expense, as appropriate.
Interest rate swaps are subject to credit and market risk. The Company
evaluates the risks associated with interest rate swaps in much the same way it
evaluates the risks associated with on-balance sheet financial instruments.
However, unlike on-balance sheet financial instruments, where the risk of credit
loss is represented by the notional value or principal, the risk of credit loss
associated with interest rate swaps is generally a small fraction of the
notional value. The Company attempts to limit its credit risk by dealing with
creditworthy counterparties. Affiliated companies are the counterparties for all
of the Company's interest rate swap agreements.
Interest rate swaps which are not hedges of specific assets, liabilities or
commitments are accounted for as trading securities. Interest rate swaps
accounted for as trading securities are carried at fair value with the changes
in market value reflected in the income statement.
INCOME TAXES
No tax provision is provided for the Company as the entity is a limited
liability corporation whose members are required to include their respective
share of profits and losses in their individual income tax returns.
21
22
AGRICREDIT ACCEPTANCE LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 133 (FAS 133), Accounting for
Derivative Instruments and Hedging Activities. In July, 1999 the FASB issued FAS
137, Deferral of the Effective Date of FASB Statement No. 133, that defers the
effective date for implementation of FAS 133 to no later than January 1, 2001
for the Company's financial statements. The Company has determined that the
implementation of this statement will not have a material impact on the
financial statements.
(2) TRANSACTIONS WITH AFFILIATES
The accompanying statements of operations reflect interest income from AGCO
for incentive reimbursements related to finance and wholesale receivables with
below-market interest rates or interest-waiver periods, which totaled
$22,728,000 and $18,708,000 for the years ended December 31, 1999 and 1998,
respectively.
In connection with the origination of certain receivables the Company, at
the selling dealer's request, pays AGCO directly for the underlying equipment
being financed in order to satisfy outstanding obligations between the dealer
and AGCO. Such payments for the years ended December 31, 1999 and 1998 totaled
$150,995,000 and $187,855,000, net of discounts.
All amounts due to or from AGCO related to the above transactions are
separately stated in the accompanying balance sheets and are generally settled
between the Company and AGCO on a current basis.
The Company has an agreement to provide management services to a DLL
affiliated company. The agreement provides for a management fee based upon the
affiliated company's number of contracts and dollar amount of receivables
outstanding. The fees paid to the Company by the affiliated company totaled
$1,919,000 and $1,425,000 for the years ended December 31, 1999 and 1998,
respectively. The fees received have been offset against general and
administrative expense in the accompanying statements of operations. See note 7
also for affiliated notes payable, interest rate swap agreements, and related
interest expense.
(3) FINANCE RECEIVABLES
Finance receivables consist of the following at December 31, 1999 and 1998
(in thousands):
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Retail notes................................................ $ 557,817 $ 551,378
Sales finance contracts..................................... 315,533 342,076
--------- ---------
873,350 893,454
Unearned interest and discounts............................. (126,541) (134,249)
--------- ---------
$ 746,809 $ 759,205
========= =========
</TABLE>
Interest rates on retail notes and sales finance contracts including
affiliated discounts ranged from 9.0% to 13.0% with a weighted average rate of
9.53% at December 31, 1999.
Non-accrual finance receivables, net of related unearned interest and
discounts, totaled $19,517,000 and $15,911,000 at December 31, 1999 and 1998,
respectively. The allowance for losses related to these finance receivables was
$7,353,000 and $6,700,000 at December 31, 1999 and 1998, respectively. The
average amount of non-accrual finance receivables, net of related unearned
interest and discounts, for the years ended December 31, 1999 and 1998 were
$17,714,000 and $10,630,000, respectively. The accrual of interest and finance
fees, which was suspended on these receivables, was $1,000,000 and $788,000 for
the years ended December 31, 1999 and 1998, respectively.
22
23
AGRICREDIT ACCEPTANCE LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1999, contractual maturities of gross finance receivables
are as follows (in thousands):
<TABLE>
<S> <C>
2000........................................................ $341,011
2001........................................................ 222,377
2002........................................................ 158,333
2003........................................................ 97,199
2004........................................................ 45,818
Thereafter.................................................. 8,612
--------
$873,350
========
</TABLE>
The Company provides financing for agricultural and industrial equipment to
customers throughout the United States; the receivables are secured by the
equipment financed and additional property if considered necessary by
management. Although the Company has a diversified receivable portfolio, a
substantial portion of its debtors' ability to repay their borrowings is
dependent upon the agricultural business economic sector. In addition, at
December 31, 1999 and 1998, approximately 80% of the net finance receivables
relate to the financing of products sold by AGCO dealers and distributors.
Concentrations of gross finance receivables by type of equipment financed
at December 31, 1999 and 1998 (in thousands):
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Tractor..................................................... $399,095 $414,833
Combine..................................................... 200,951 202,820
Industrial.................................................. 27,818 30,582
Forestry.................................................... 37,359 35,994
Other....................................................... 208,127 209,225
-------- --------
$873,350 $893,454
======== ========
</TABLE>
(4) CROP INPUT RECEIVABLES
Agreements have been entered into with certain distributors of crop
protection products, fertilizer, and seed to provide financing for their
customers (the producers). The financing is offered in a discretionary operating
line of credit to be utilized by the producers to fund agricultural operating
expenses associated with crop production (crop input receivables). These crop
input receivables generally have a maturity of one year or less, with variable
interest rates at the prime rate plus .25% to 3%. The crop input receivables are
collateralized by obtaining a first security interest in all crops, government
payments and crop insurance. Additional collateral is obtained if considered
necessary by management. The Company is indemnified for certain loans that are
with full recourse back to the distributor which has sole responsibility for all
collection activity and associated costs.
(5) WHOLESALE NOTES RECEIVABLE
Agreements have been entered into with certain manufacturers of
agricultural and industrial equipment to provide financing for the
manufacturers' qualified distributors and dealers. These wholesale notes
receivable are generally for terms of less than one year, with interest at the
prime rate plus 1.0% to 3.0%, secured by both the underlying equipment and a
manufacturers' reserve, and contain certain recourse provisions back to the
manufacturers.
23
24
AGRICREDIT ACCEPTANCE LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(6) ALLOWANCE FOR CREDIT LOSSES
The following is a summary of the activity in the allowance for credit
losses on finance and other receivables for the years ended December 31, 1999
and 1998, (in thousands):
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Balance at beginning of period.............................. $16,142 $15,688
Provision for credit losses................................. 5,075 4,791
Charge-offs................................................. (6,081) (5,015)
Recoveries.................................................. 919 678
------- -------
Balance at end of period.................................... $16,055 $16,142
======= =======
</TABLE>
(7) NOTES PAYABLE
Under a revolving credit agreement with Rabobank Nederland, the parent of
DLL, dated November 1, 1996 (the Credit Agreement), the Company can borrow a
maximum of $1,000,000,000. The commitment under the Credit Agreement is reduced
by 105% of the outstanding borrowings of its sister company, Agricredit
Acceptance Canada, Ltd., up to $100,000,000 Canadian dollars. The notes funded
under the Credit Agreement at December 31, 1999, have maturities ranging from 4
to 31 days. The interest rate on the notes is established, subject to the terms
of the note, at the lender's base lending rate (based on LIBOR) plus .10%.
Interest rates on the notes payable outstanding at December 31, 1999, ranged
from 6.0234% to 6.5812%, with a weighted-average interest rate of 6.3491%. The
Credit Agreement contains certain financial covenants that the Company must
maintain, including minimum specified net worth and borrowing base requirements.
As of December 31, 1999 and 1998, $731,487,500 and $755,000,000, respectively,
was outstanding under the Credit Agreement and unused commitment was
$210,544,000 and $215,786,000, respectively, reduced for the borrowings of
Agricredit Acceptance Canada Ltd.
Of the total outstanding borrowings, $731,487,500 was funded by De Lage
Landen Ireland Company (DLL Ireland). The Credit Agreement expired on December
31, 1996; however, the Credit Agreement allows for automatic extension for an
additional thirty day periods unless Rabobank Nederland in its sole discretion
elects not to grant such extension. The notes payable under the Credit Agreement
are secured by the finance receivables, wholesale notes receivable, and crop
input receivables.
The Company has entered into interest rate swap agreements with DLL Ireland
on portions of its short-term borrowings. The swap agreements require the
payment of fixed rates and receipt of floating rates of interest based on LIBOR.
The Company enters into the swap agreements in order to more closely match the
interest rates and maturities of the borrowings to those of the receivables
being funded. The differential to be paid or received on the swap agreements is
recognized as an adjustment to interest expense. At December 31, 1999, the total
notional principal amounts of the agreements were $738 million paying fixed
rates ranging from 4.43% to 6.67% and with notional principal amounts of $349
million, $292 million, $85 million, $11 million, and $1 million terminating in
2000, 2001, 2002, 2003, and 2004, respectively. For the years ended December 31,
1999 and 1998, the swaps increased the Company's interest expense by $3,518,000
and $3,098,000, respectively. The interest expense resulted from the Company
exchanging its short term borrowing rate to approximately a two year borrowing
rate to better match the maturity of the fixed rate notes receivable.
As part of its interest rate risk management policy, the Company previously
entered into certain interest rate swap agreements which were not hedges of
specific assets, liabilities, or commitments and were accounted for as trading
securities. At December 31, 1998, the notional amount of these swaps was
$101,000,000 and the fair value recorded was $2,200,000. In December 1999, the
Company terminated these swaps and recorded a reduction of fair value of
$2,200,000. Interest income exclusive of fair value adjustments for these swaps
the years ended December 31, 1999 and 1998 was $1,129,000 and $735,000,
respectively.
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25
AGRICREDIT ACCEPTANCE LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The following is a summary of aggregate annual maturities of notes payable
and accrued interest payable on notes payable and interest rate swap agreements
at December 31, 1999 (in thousands):
<TABLE>
<S> <C>
Notes payable in 2000....................................... $731,488
Accrued interest payable on notes payable and interest rate
swap agreements........................................... 2,235
--------
$733,723
========
</TABLE>
In December 1999, the Company entered into a Deposit Agreement with DLL
Ireland. Under the terms of the Deposit Agreement, DLL Ireland has agreed to
advance monies under the Credit Agreement to the Company provided such proceeds
are deposited with DLL Ireland. The amount of borrowing outstanding and the
related deposit at December 31, 1999 totaled $100,000,000. Right of offset
exists under the Deposit Agreement; therefore, these amounts are not reflected
in the Company's balance sheet. The deposit account bears a fixed interest rate
of 6.1978%. The interest rate on the borrowings is adjusted monthly and was
6.5813% at December 31, 1999. The deposit and the related borrowings will be
reduced in annual amounts ranging from $8,000,000 to $11,500,000 in August of
each year for the next 10 years.
(8) FAIR VALUE OF FINANCIAL INSTRUMENTS
In determining the estimated fair values of the Company's financial
instruments, the estimates, methods, and assumptions utilized are as follows:
- Cash and cash equivalents. The carrying amount for cash and cash
equivalents approximates the fair value because of the short-term nature
of the instruments.
- Finance receivables. The fair value of finance receivables is calculated
by discounting scheduled cash flows through the estimated maturity using
estimated market discount rates that reflect the credit and interest rate
risk inherent in the portfolio. The estimated maturity is based on
historical experience with repayments, modified, as required, by an
estimate of the effect of current economic and lending conditions. The
effect of nonperforming finance receivables is considered in assessing
the credit risk inherent in the fair value estimate. At December 31, 1999
and 1998 the Company estimated the fair value of its net finance
receivable portfolio to be approximately $756,370,000 and $767,457,000,
respectively.
- Crop input receivables, wholesale notes receivable, and dealer
reserves. The carrying amount for crop input receivables, wholesale
notes receivable, and dealer reserves approximates fair value as interest
on the obligations is at a variable rate and due to the short-term nature
of the instruments.
- Notes payable. Rates currently available for debt with similar terms and
remaining maturities are used to estimate fair value of existing debt. At
December 31, 1999 and 1998 the Company estimated the fair value of notes
payable (including accrued interest payable) to be approximately
$731,359,000 and $755,207,000, respectively.
- Interest rate swaps. The estimated fair value of the Company's interest
rate swap agreements related to notes payable, and the depository account
was at an unrealized loss of approximately $740,000 at December 31, 1999
and an unrealized net gain of approximately $2,200,000 at December 31,
1998.
LIMITATIONS
Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial instrument.
Because no market exists for a significant portion of the Company's financial
instruments, fair value estimates are based on judgments regarding future
expected loss experience, current economic conditions, risk characteristics of
various financial instruments, and other
25
26
AGRICREDIT ACCEPTANCE LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
factors. These estimates are subjective in nature and involve uncertainties and
matters of significant judgment and, therefore, cannot be determined with
precision. Changes in assumptions could significantly affect the estimates.
(9) PENSION PLAN
The Company sponsors a defined contribution savings plan for its eligible
employees. Under the plan employees can contribute 2% to 12% of their base pay
and the Company will contribute up to 3% if the employee contributed at least
3%. The Company contributions vest immediately to the employee. In addition, the
plan has a profit sharing component whereby the Company can contribute, to the
Plan from 0% to 3% of the employee's base salary based on established
profitability criteria for the Company. For the years ended December 31, 1999
and 1998, the expense under the plan was $365,000 and $371,000, respectively.
(10) CONTINGENCIES
The Company is involved in various claims and legal actions arising in the
ordinary course of business. Although the ultimate outcome of these matters
cannot be ascertained at this time, it is the opinion of management that the
ultimate resolution will not have a material impact on the balance sheet or
results of operations of the Company.
26