SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report: July 13, 1994
VARITY CORPORATION
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(Exact name of registrant as specified in charter)
Delaware 1-5190 22-3091314
- - ---------------------------- ------------ ------------------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
672 Delaware Avenue, Buffalo, New York 14209
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(Address of Principal executive offices) (Zip Code)
Registrant's telephone number: (716) 888-8000
This document consists of 11 pages
Item: 2. Disposition of Assets
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(a) On June 29, 1994, Varity Corporation (the Company) completed the
previously announced sale of the stock of Massey Ferguson Group
Limited and certain assets which collectively comprise its
worldwide Massey Ferguson (MF) farm equipment business to AGCO
Corporation (AGCO) for $310 million in cash and 500,000 shares of
AGCO common stock. The transaction excluded cash and
indebtedness as well as certain liabilities primarily pertaining
to pension and retiree medical benefits for all former North
American MF employees, for which the Company will continue to be
responsible. The nature and amount of consideration was
determined by arms-length negotiations between representatives of
the Company and AGCO.
The Company has had an ongoing relationship with AGCO. In 1993,
the Company appointed AGCO exclusive distributor of farm
equipment in North America for MF and sold to AGCO substantially
all of the net assets, primarily dealer accounts receivable and
inventories, of MF's North American operations as well as a 50%
interest in Agricredit Acceptance Corporation (Agricredit), MF's
North American retail finance business. In 1994, AGCO purchased
the remaining 50% of Agricredit.
In connection with the current sale, the Perkins Group, a wholly-
owned subsidiary of the Company, entered into a long-term supply
agreement with AGCO for the continued use of Perkins diesel
engines in MF products.
Item: 7. Financial Statements
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(b) Pro forma financial information.
(c) Exhibit
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Supplemental Agreement between and among AGCO Corporation and
Varity Holdings Limited, Varity GmbH, Massey Ferguson GmbH,
Massey Ferguson Industries Limited, Massey Ferguson (Delaware),
Inc. and Varity Corporation as of June 28, 1994.
2
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION (UNAUDITED)
On June 29, 1994, the Company completed the previously announced sale of
the stock of Massey Ferguson Group Limited and certain assets which collectively
comprise its worldwide Massey Ferguson farm equipment business to AGCO for $310
million in cash and 500,000 shares of AGCO common stock. The transaction
excluded cash and indebtedness as well as certain liabilities primarily
pertaining to pension and retiree medical benefits for all former North American
Massey Ferguson employees, for which the Company will continue to be
responsible.
The following unaudited pro forma consolidated financial information has
been presented assuming that the divestiture had been completed as of February
1, 1993 for the consolidated statements of operations information, and as of
April 30, 1994 for the consolidated balance sheet information.
The pro forma consolidated financial information is provided for
informational purposes only and may not be indicative of the results that would
have occurred if the transaction had been effected on the dates indicated or
which may be obtained in the future. The pro forma consolidated financial
information and accompanying notes should be read in conjunction with the
consolidated financial statements and notes thereto included in the Company's
Form 10-Q for the fiscal quarter ended April 30, 1994.
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VARITY CORPORATION
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED APRIL 30, 1994
(Unaudited)
(Dollars in millions except per share amounts)
Pro Forma Pro Forma
Adjustments Adjusted
for Farm for Farm
Equipment Equipment
Actual Divestiture Divestiture
------------ ------------- -----------
TOTAL SALES AND REVENUES $ 505.8 $ 20.2 (a) $ 526.0
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EXPENSES:
Cost of goods sold 417.0 17.9 (a) 434.2
(0.7)(b)
Marketing, general and administration 38.6 38.6
Engineering and product development 20.5 20.5
Interest, net 5.9 (2.8)(c) 4.4
1.3 (d)
Exchange gains (1.6) (1.6)
Other income, net (0.8) (0.8)
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479.6 15.7 495.3
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INCOME BEFORE INCOME TAXES, EARNINGS OF ASSOCIATED
COMPANIES AND DISCONTINUED OPERATION 26.2 4.5 30.7
Income tax provision (4.6) (4.6)
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INCOME BEFORE EARNINGS OF ASSOCIATED COMPANIES AND
DISCONTINUED OPERATION 21.6 4.5 26.1
Equity in earnings of associated companies 3.4 3.4
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INCOME BEFORE DISCONTINUED OPERATION 25.0 4.5 29.5
Earnings from discontinued operation 4.4 4.4
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NET INCOME $ 29.4 $ 4.5 $ 33.9
============ ============ ===========
Income attributable to common stockholders $ 28.8 $ 33.3
Earnings per common share:
Before discontinued operation $ 0.55 $ 0.65
Discontinued operation 0.10 0.10
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Net income $ 0.65 $ 0.75
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See Notes to Pro Forma Consolidated Financial Information.
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VARITY CORPORATION
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED JANUARY 31, 1994
(Unaudited)
(Dollars in millions except per share amounts)
Pro Forma Pro Forma
Discontinue Adjustments Adjusted
Farm for Farm for Farm
Equipment Restated Equipment Equipment
Actual Segment Actual Divestiture Divestiture
---------------- --------- ---------------- ----------- -----------
TOTAL SALES AND REVENUES $ 2,725.8 $ (898.4) $ 1,827.4 $ 71.0 (a) $ 1,898.4
---------------- --------- ---------------- ----------- -----------
EXPENSES:
Cost of goods sold 2,261.3 (746.4) 1,514.9 63.2 (a) 1,575.2
(2.9)(b)
Marketing, general and administration 277.2 (126.9) 150.3 150.3
Engineering and product development 81.4 (15.9) 65.5 65.5
Interest, net 35.8 (3.8) 32.0 (12.5)(c) 24.5
5.0 (d)
Exchange (gains) losses 0.3 (1.9) (1.6) (1.6)
Other income, net (2.7) (0.2) (2.9) (2.9)
---------------- --------- ---------------- ----------- -----------
2,653.3 (895.1) 1,758.2 52.8 1,811.0
---------------- --------- ---------------- ----------- -----------
INCOME BEFORE INCOME TAXES, EARNINGS OF
ASSOCIATED COMPANIES, DISCONTINUED OPERATION,
EXTRAORDINARY LOSS AND CUMULATIVE EFFECT OF
CHANGES IN ACCOUNTING PRINCIPLES 72.5 (3.3) 69.2 18.2 87.4
Income tax provision (12.6) 1.0 (11.6) (11.6)
---------------- --------- ---------------- ----------- -----------
INCOME BEFORE EARNINGS OF ASSOCIATED COMPANIES,
DISCONTINUED OPERATION, EXTRAORDINARY LOSS
AND CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING
PRINCIPLES 59.9 (2.3) 57.6 18.2 75.8
Equity in earnings of associated companies 16.4 (4.9) 11.5 11.5
---------------- --------- ---------------- ----------- -----------
INCOME BEFORE DISCONTINUED OPERATION,
EXTRAORDINARY LOSS AND CUMULATIVE EFFECT
OF CHANGES IN ACCOUNTING PRINCIPLES 76.3 (7.2) 69.1 18.2 87.3
Earnings from discontinued operation 7.2 7.2 7.2
---------------- --------- ---------------- ----------- -----------
INCOME BEFORE EXTRAORDINARY LOSS AND CUMULATIVE
EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES 76.3 76.3 18.2 94.5
Extraordinary loss (1.7) (1.7) (1.7)
Cumulative effect of changes in accounting
principles (146.1) (146.1) (146.1)
---------------- --------- ---------------- ----------- -----------
NET LOSS $ (71.5) $ - $ (71.5) $ 18.2 $ (53.3)
================ ========= ================ =========== ===========
Loss attributable to common stockholders $ (81.9) $ (81.9) $ (63.7)
Per share data:
Before discontinued operation, extraordinary
loss and cumulative effect of changes in
accounting principles:
Primary $ 1.80 $ 1.60 $ 2.09
Fully diluted $ 1.73 $ 1.56 $ 1.98
Discontinued operation:
Primary $ - $ 0.20 $ 0.20
Fully diluted $ - $ 0.17 $ 0.17
Extraordinary loss:
Primary $ (0.05) $ (0.05) $ (0.05)
Fully diluted $ (0.05)* $ (0.05)* $ (0.05)*
Cumulative effect of changes in
accounting principles:
Primary $ (3.98) $ (3.98) $ (3.98)
Fully diluted $ (3.98)* $ (3.98)* $ (3.98)*
Net loss:
Primary $ (2.23) $ (2.23) $ (1.74)
Fully diluted $ (2.23)* $ (2.23)* $ (1.74)*
* Anti-dilutive
See Notes to Pro Forma Consolidated Financial Information.
5
VARITY CORPORATION
PRO FORMA CONSOLIDATED BALANCE SHEET
APRIL 30, 1994
(Unaudited)
(Dollars in millions)
Pro Forma Pro Forma
Adjustments Adjusted
for Farm for Farm
Equipment Equipment
Actual Divestiture Divestiture
------------ --------------- ------------
Assets
Current assets:
Cash and cash equivalents $ 58.7 $ 144.5 (e) $ 203.2
Marketable securities 54.2 18.5 (f) 72.7
Receivables 342.9 10.0 (g) 352.9
Inventories 140.6 140.6
Prepaid expenses and other 18.3 18.3
Net assets of discontinued operation 175.5 (165.5)(h) 0.0
(10.0)(g)
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Total current assets 790.2 (2.5) 787.7
Investments in associated and other companies 97.7 97.7
Fixed assets, net 560.6 560.6
Other assets and intangibles 336.6 336.6
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$ 1,785.1 $ (2.5) $ 1,782.6
============ ============ ============
Liabilities
Current liabilities:
Notes payable $ 57.5 $ (57.5)(e) $ 0.0
Current portion of long-term debt 5.4 (5.4)(e) 0.0
Accounts payable and accrued liabilities 507.8 507.8
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Total current liabilities 570.7 (62.9) 507.8
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Non-current liabilities:
Long-term debt 178.3 (30.2)(e) 148.1
Other long-term liabilities 371.3 (60.0)(e) 357.6
55.0 (i)
(8.7)(j)
------------ ------------ ------------
Total non-current liabilities 549.6 (43.9) 505.7
------------ ------------ ------------
Stockholders' equity:
Preferred stock 6.8 6.8
Common stock 637.6 637.6
Contributed surplus 656.3 656.3
Deficit (532.5) 23.2 (k) (509.3)
Foreign currency translation adjustment (73.7) 57.4 (l) (16.3)
Pension liability adjustment (28.5) 15.0 (i) (4.8)
8.7 (j)
Unrealized gains (losses) on marketable securities (1.2) (1.2)
------------ ------------ ------------
Total stockholders' equity 664.8 104.3 769.1
------------ ------------ ------------
$ 1,785.1 $ (2.5) $ 1,782.6
============ ============ ============
See Notes to Pro Forma Consolidated Financial Information.
6
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL
INFORMATION (UNAUDITED)
(a) To reflect sales of Perkins' diesel engines to MF as third party under the
long-term supply agreement with AGCO. Such sales were previously accounted
for as intercompany and accordingly were eliminated in consolidation. It
is impractical to determine the precise gross margin on such sales and as a
result, the actual gross margin realized in future periods in all
likelihood will be different than that used for pro forma purposes.
(b) To record the benefit of reduced pension expense resulting from planned
contributions to underfunded pension plans, principally in the Company's
automotive products segment. A portion of the proceeds from the sale is
intended to fund such contributions. (See adjustment (e)).
(c) To reflect the reduction in interest expense associated with the debt that
would have been repaid based on the intended use of proceeds of $310
million and to reflect interest income earned on residual cash proceeds.
For pro forma purposes the debt paydown was made on subordinated debt with
interest rates ranging from 4.75% to 13.75% and senior debt with interest
rates ranging from 5.0% to 9.75%. In addition, a portion of the remaining
proceeds would have been used to repay short-term borrowings. Residual
proceeds, after planned contributions to underfunded pension plans and the
planned purchase of annuity contracts for MF pension plans, are reported as
interest earning cash. No tax effect is recorded as any net increase in
pretax income would have been offset through the use of tax loss
carryforwards.
(d) To recognize interest accretion on residual postretirement benefits
retained by the Company.
(e) Represents the application of $310 million of proceeds arising from the
sale, including $60 million to be contributed to underfunded pension plans
and $13 million to be used to purchase insurance contracts to annuitize
vested benefits under retained MF pension plans. In accordance with
certain provisions in the purchase and sale agreement, approximately $78
million in cash is to be received from AGCO within 49 days from closing,
which for pro forma purposes has been assumed to have been received.
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(f) To record the AGCO common stock consideration received in connection with
the sale. These securities are available-for-sale as defined in Statement
of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." For pro forma purposes, it has
been assumed that there has not been any change in the underlying share
price of AGCO's common stock, and the price as of June 29, 1994 has been
used as a surrogate in the balance sheet as of April 30, 1994.
(g) To record receivables arising from the sale of Perkins' diesel engines to
MF as third party under the long-term supply agreement with AGCO. Such
receivables were previously accounted for as intercompany and accordingly
were eliminated in consolidation.
(h) To eliminate the net MF assets sold to AGCO.
(i) To record the accrual of additional expenses and liabilities relating to
the sale, including previously unrecognized actuarial losses in connection
with retained postretirement benefits, professional fees and other
liabilities for retained obligations. (See (k) below).
(j) To reduce the additional minimum pension liability and corresponding
stockholders' equity reduction, relating primarily to the automotive
products segment, due to planned contributions to underfunded pension
plans. (See adjustment (e)).
(k) To record the gain from the sale of the farm equipment business. The pro
forma consolidated statements of operations exclude the $23.2 million gain
arising from the sale.
(l) To eliminate previously deferred foreign currency translation losses in
connection with the sale of MF. (See (k) above).
8
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
VARITY CORPORATION
(Registrant)
By: /s/ Kevin C. Shanahan
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Kevin C. Shanahan
Vice President,
Controller (Principal
Accounting Officer)
Date: July 13, 1994
9
SUPPLEMENTAL AGREEMENT Item: 7. (c)
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THIS SUPPLEMENTAL AGREEMENT (the "Supplement") is made and entered into as
of the 28th day of June, 1994, between and among AGCO CORPORATION ("Buyer") and
VARITY HOLDINGS LIMITED ("VHL"), VARITY GmbH ("Varity GmbH"), MASSEY-FERGUSON
GmbH ("MF GmbH"), MASSEY FERGUSON INDUSTRIES LIMITED ("MFIL"), MASSEY-FERGUSON
(DELAWARE), INC. ("MFDI") and VARITY CORPORATION ("Varity") (VHL, Varity GmbH,
MF GmbH, MFIL, MFDI and Varity are sometimes hereinafter referred to
individually as a "Seller" and collectively as the "Sellers").
W I T N E S S E T H :
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WHEREAS, Buyer and Sellers are parties to that certain Purchase and Sale
Agreement, dated as of April 26, 1994 (the "Purchase Agreement");
WHEREAS, Buyer and Sellers desire to amend the Purchase Agreement in
accordance with the terms and conditions contained herein;
NOW, THEREFORE, in consideration of the premises and of other good and
valuable consideration, Buyer and Sellers hereby agree as follows:
1. The Purchase Agreement is hereby amended by including in the
definition of "MFGL Shares" (contained in the second recital thereof) all of the
issued and outstanding 'A' Deferred MFGL Shares.
2. The Purchase Agreement is further amended by deleting the last two
sentences of Section 5.7(c) thereof in their entirety and inserting in lieu
thereof the following:
"Any amount paid by Sellers to repay the MF Loans at the Closing
shall be paid by Buyer to VHL twenty-eight (28) days after the
Closing."
3. The Purchase Agreement is further amended by deleting Section 5.13
thereof (titled "Redemption of 'A' Deferred MFGL Shares") in its entirety.
4. In consideration of VHL not redeeming the 'A' Deferred MFGL Shares
prior to the "Closing" (as defined in the Purchase Agreement), and thereby
leaving $36,885,042 of additional cash in MFGL, Buyer hereby agrees that: (a) on
or before August 17, 1994, Buyer shall pay to VHL the sum of $36,885,042 plus
interest (accruing on a daily basis at an annual rate of four and five
sixteenths percent); and (b) on the day after the Closing, Buyer shall deliver
to VHL a letter of credit substantially in the form attached hereto as Exhibit A
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and incorporated herein by reference in the amount of $36,885,042 to secure its
payment obligations pursuant to subsection (a) above.
10
5. VHL hereby submits to the non-exclusive jurisdiction of any state or
federal court located in the State of New York for the purposes of all legal
proceedings arising out of or relating to the Purchase Agreement or this
Supplement.
6. Except as specifically amended herein, all terms and conditions
contained in the Purchase Agreement shall remain in full force and effect. This
Supplement shall be governed by the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused their duly authorized
representatives to execute this Supplement as of the day and year first above
written.
AGCO CORPORATION VARITY HOLDINGS LIMITED
By: /s/ Allen W. Ritchie By: /s/ Frederick J. Chapman
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Allen W. Ritchie, Senior
Vice President and Chief Title: Treasurer
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Financial Officer
VARITY GMBH MASSEY-FERGUSON GMBH
By: /s/ Beat Landis By: /s/ Stephen Lupton
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Title: Managing Director Title: Geschaeftsfuehrer
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MASSEY FERGUSON INDUSTRIES MASSEY-FERGUSON (DELAWARE), INC.
LIMITED
By: /s/ Kenneth L. Walker By: /s/ Kenneth L. Walker
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Title: Secretary Title: Secretary
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VARITY CORPORATION
By: /s/ Kenneth L. Walker
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Title: VP & Secretary
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