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EXHIBIT 13.0

AGCO CORPORATION

1999 FINANCIAL REVIEW

CONTENTS

Selected Financial Data ................................................... Page 1
Management's Discussion and Analysis ...................................... Page 3-15
Report of Independent Public Accountants .................................. Page 15
Financial Statements ...................................................... Page 16-19
Notes To Financial Statements ............................................. Page 20-41

AGCO CORPORATION
SELECTED FINANCIAL DATA
IN MILLIONS, EXCEPT PER SHARE DATA AND NUMBER OF EMPLOYEES

YEAR ENDED DECEMBER 31, 1999 1998 1997 1996 1995(1)
- ----------------------- ---------- ---------- ---------- ---------- ----------

OPERATING RESULTS
Net sales and revenues .................... $ 2,413.3 $ 2,941.4 $ 3,224.4 $ 2,317.5 $ 2,125.0
Gross profit .............................. 356.4 537.3 666.8 470.3 440.7
Income from operations(2) ................. 42.9 157.3 307.0 206.1 216.6
Net income (loss)(2) ...................... (11.5) 60.6 168.7(3) 125.9(3) 129.1
Net income (loss) per common
share - diluted(2)(4) ................. $ (0.20) $ 0.99 $ 2.71(3) $ 2.20(3) $ 2.31
Weighted average shares
outstanding - diluted(4) .............. 58.7 61.2 62.1 57.4 56.6
Dividends declared per common share(4) .... $ 0.04 $ 0.04 $ 0.04 $ 0.04 $ 0.02
OTHER FINANCIAL DATA
Working capital ........................... $ 733.9 $ 1,029.9 $ 884.3 $ 750.5 $ 485.5
Total assets .............................. 2,273.2 2,750.4 2,620.9 2,116.5 2,162.9
Long-term debt ............................ 691.7 924.2 727.4 567.1 568.9(5)
Stockholders' equity ...................... 829.1 982.1 991.6 774.6 588.9
Number of employees ....................... 9,287 10,572 11,829 7,801 5,548

(1) AGCO sold a 51% joint venture interest in its retail finance
subsidiary, Agricredit-North America, effective November 1, 1996.
Accordingly, Agricredit-North America is reflected on the equity basis
of accounting for the years ended December 31, 1996, 1997, 1998 and
1999. The above table includes the consolidated results of
Agricredit-North America for the year ended December 31, 1995. If the
Company's 100% interest in Agricredit-North America were reflected on
the equity basis of accounting for the year ended December 31, 1995,
total revenues would be $2,068.4 million, total assets would be
$1,628.6 million, and long-term debt would be $415.9 million. Gross
profit and Income from operations for 1995 are for the equipment
operations only and exclude the results of Agricredit-North America.

(2) These amounts include restructuring and other infrequent expenses of
$24.5 million, $40.0 million, $18.2 million, $22.3 million and $6.0
million for the years ended December 31, 1999, 1998, 1997, 1996 and
1995, respectively. The effect of these expenses reduced net income per
common share on a diluted basis by $0.26, $0.41, $0.19, $0.25 and $0.07
for the years ended December 31, 1999, 1998, 1997, 1996 and 1995,
respectively. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Restructuring and other
infrequent Expenses."

(3) Includes extraordinary loss, net of taxes, of $2.1 million, or $0.03
per share, and $3.5 million, or $0.06 per share, for the write-off of
unamortized debt costs related to the refinancing of the Company's
revolving credit facility in 1997 and 1996, respectively.

(4) Net income per common share - diluted, weighted average shares
outstanding - diluted and dividends declared per common share have been
restated for all periods to reflect all stock splits.

(5) Includes $37.6 million of the Company's 6.5% Convertible Subordinated
Debentures, which were subsequently converted into common stock during
1996.

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AGCO CORPORATION

TRADING AND DIVIDEND INFORMATION (1)

DIVIDENDS DIVIDENDS
(IN DOLLARS) HIGH LOW DECLARED (IN DOLLARS) HIGH LOW DECLARED
- ------------ --------- --------- --------- -------------- ---------- ---------- ---------

1999 1998
First Quarter $ 8 9/16 $ 6 1/16 $ .01 First Quarter $30 9/16 $26 15/16 $ .01
Second Quarter 12 15/16 6 5/16 .01 Second Quarter 29 7/16 20 7/16 .01
Third Quarter 13 1/2 8 11/16 .01 Third Quarter 20 11/16 6 7/16 .01
Fourth Quarter 14 1/8 9 15/16 .01 Fourth Quarter 10 3/8 5 3/4 .01

(1) The Company's stock trades on the New York Stock Exchange under the
symbol AG. As of February 29, 2000, there were approximately 783
stockholders of record.

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AGCO CORPORATION

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

Sales are recorded by the Company when equipment and replacement parts
are shipped by the Company to its independent dealers, distributors or other
customers. To the extent practicable, the Company attempts to ship products to
its dealers and distributors on a level basis throughout the year to reduce the
effect of seasonal demands on its manufacturing operations and to minimize its
investment in inventory. However, 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 the Company records 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 the Company unless the Company terminates a
dealer's contract or agrees to accept returned products. Commissions payable
under the Company's salesman incentive programs are paid at the time of 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 the Company's
Consolidated Statements of Operations:

YEAR ENDED DECEMBER 31, 1999 1998 1997
- ----------------------- ------ ------ ------

Net sales ....................................................... 100.0% 100.0% 100.0%
Cost of goods sold .............................................. 85.2 81.7 79.3
----- ----- -----
Gross profit .................................................. 14.8 18.3 20.7
Selling, general and administrative expenses .................... 9.6 9.2 8.5
Engineering expenses ............................................ 1.8 1.9 1.7
Restructuring and other infrequent expenses ..................... 1.0 1.4 0.6
Amortization of intangibles ..................................... .6 .5 .4
----- ----- -----
Income from operations ........................................ 1.8 5.3 9.5
Interest expense, net ........................................... 2.4 2.3 1.7
Other expense, net .............................................. 0.7 0.5 0.2
----- ----- -----
Income (loss) before income taxes, equity in net
earnings of affiliates and extraordinary loss ............... (1.3) 2.5 7.6
Provision (benefit) for income taxes ............................ (0.4) 0.9 2.7
----- ----- -----
Income (loss) before equity in net earnings of
affiliates and extraordinary loss ........................... (0.9) 1.6 4.9
Equity in net earnings of affiliates ............................ 0.4 0.5 0.4
----- ----- -----
Income (loss) before extraordinary loss ....................... (0.5) 2.1 5.3
Extraordinary loss, net of taxes ................................ -- -- (0.1)
----- ----- -----
Net income (loss) ............................................. (0.5)% 2.1% 5.2%
===== ===== =====

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1999 COMPARED TO 1998

The Company recorded a net loss for 1999 of $11.5 million compared to
net income of $60.6 million for 1998. Net income (loss) per common share on a
diluted basis was $(0.20) for 1999 compared to $0.99 in 1998. Net income (loss)
for 1999 and 1998 included restructuring and other infrequent expenses
("restructuring expenses") of $24.5 million and $40.0 million, or $0.26 and
$0.41 per common share on a diluted basis, respectively (see "Restructuring and
Other Infrequent Expenses"). 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 as compared to 1998.

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 have 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. Company retail
sales of tractors and combines decreased compared to the same period in 1998,
with competitive pricing affecting the Company's 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. Company retail sales of tractors in 1999 were
unchanged from 1998. However, the Company's retail sales were stronger compared
to the industry in the third and fourth quarters of 1999 due to the favorable
acceptance of the Company's new Massey Ferguson high horsepower tractor line,
which was 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.
Company retail sales of tractors in South America were comparable to the
industry decline.

In other international markets, industry and Company 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 $2,413.3 million compared to $2,941.4 million
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 the Company's 1998 acquisitions of MF 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 14.6%
compared to 1998.

On a regional basis, net sales in North America decreased $327.9
million, or 34.8%, compared to 1998, primarily due to unfavorable market
conditions and the Company's 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 $90.3 million, or 5.7%, 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 $118.2

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million, or 37.5%, compared to 1998, primarily due to unfavorable industry
conditions outside of Brazil and the 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 9.5%,
compared to 1998, primarily due to improving market conditions in Asia.

Gross profit was $356.4 million (14.8% of net sales) for 1999 compared
to $537.3 million (18.3% 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. The Company
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. The Company increased its
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 the Company's Coldwater,
Ohio and Lockney, Texas manufacturing facilities.

Selling, general and administrative expenses (SG&A expenses) were
$229.6 million (9.6% of net sales) compared to $270.7 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). The $52.6 million decrease in
SG&A and engineering expenses in 1999 was primarily a result of the Company's
expense reduction initiatives implemented in late 1998, which included
reductions in the Company's worldwide workforce and decreases in discretionary
spending levels. See "Restructuring and other infrequent Expenses" where the
initiatives are discussed.

Restructuring 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 the Company's
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 the Company's 1998 acquisitions.

Income from operations was $42.9 million for 1999 compared to $157.3
million in 1998. Excluding restructuring expenses in both years, income from
operations was $67.4 million in 1999 (2.8% of net sales) compared to $197.3
million (6.7% 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 the Company's outstanding
borrowings.

Other expense, net was $17.5 million in 1999 compared to $15.3 million
in 1998. The increase in other expense, net is primarily attributable to lower
miscellaneous income and higher discounts on sales of receivables.

The Company recorded an income tax benefit of $10.2 million in 1999
compared to a provision of $27.5 million in 1998. The Company's 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. At December 31, 1999 the Company had deferred tax assets of $151.5
million including $116.9 million related to net operating loss carryforwards.
The Company has established valuation allowances of $78.8 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 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 the Company's engine joint venture and slightly lower
earnings in the Company's retail finance joint ventures.

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1998 COMPARED TO 1997

The Company recorded net income for 1998 of $60.6 million compared to
$168.7 million for 1997. Net income per common share on a diluted basis was
$0.99 for 1998 compared to $2.71 in 1997. Net income for 1998 and 1997 included
restructuring expenses of $40.0 million and $18.2 million, or $0.41 and $0.19
per common share on a diluted basis, respectively (see "Restructuring and Other
Infrequent Expenses"). In addition, net income for 1997 included an
extraordinary loss of $2.1 million, or $0.03 per share on a diluted basis, for
the write-off of unamortized debt costs related to the refinancing of the
Company's revolving credit facility (see "Liquidity and Capital Resources"). The
results for 1998 were negatively impacted by lower sales and operating margins
caused by unfavorable industry conditions, lower production, lower price
realization and the negative impact of foreign currency translation.

ACQUISITIONS AND DIVESTITURES

The Company completed the following transactions in late 1997 and 1998
which impacted the Company's results in 1998:

- In December 1997, the Company acquired the remaining 68% of
Dronningborg Industries a/s (the "Dronningborg Acquisition"),
the Company's supplier of combine harvesters sold under the
Massey Ferguson brand name in Europe. The Company previously
owned 32% of this combine manufacturer which developed and
manufactured combine harvesters exclusively for AGCO. The
Dronningborg Acquisition enabled the Company to achieve
certain synergies within its worldwide combine manufacturing.

- In December 1997, the Company sold 50% of Deutz Argentina's
engine production and distribution business to Deutz AG, a
global supplier of diesel engines. This joint venture (the
"Engine Joint Venture") allows the Company to share in
research and development costs and gain access to advanced
technology.

- In December 1997, the Company sold its Fendt caravan and motor
home business in order to focus on its core agricultural
equipment business (the "Fendt Caravan Sale").

- In May 1998, the Company acquired the distribution rights for
the Massey Ferguson brand in Argentina (the "MF Argentina
Acquisition"). The MF Argentina Acquisition expanded the
Company's distribution network in the second largest market in
South America.

- In July 1998, the Company acquired the Spra-Coupe product
line, a brand of agricultural self-propelled sprayers sold
primarily in North America (the "Spra-Coupe Acquisition"). In
October 1998, the Company acquired the Willmar product line, a
brand of agricultural self-propelled sprayers, spreaders and
loaders sold primarily in North America (the "Willmar
Acquisition"). The Spra-Coupe and Willmar Acquisitions
expanded the Company's product offerings to include a full
line of self-propelled sprayers.

RETAIL SALES

Global demand for agricultural equipment weakened significantly in the
second half of 1998 in most major markets. The industry decline was primarily
due to the effects of high global commodity stocks and lower export demand for
farm commodities, which resulted in lower commodity prices. In many markets,
this impact offset relatively favorable industry demand in the first half of the
year.

In the United States and Canada, industry unit retail sales of tractors
increased approximately 4% in 1998 over 1997, despite declining in the second
half of the year. Industry retail sales of combines declined approximately 4%
compared to 1997. Company retail sales of tractors were slightly higher than in
1997, and Company retail sales of combines were below the prior year. The
Company's combine sales were negatively impacted relative to the industry
primarily due to lower 1998 pre-season sales and new product introductions by
competitors.

In Western Europe, industry unit retail sales of tractors in 1998
decreased approximately 3% compared to 1997. Industry results were mixed with
significant declines experienced in the United Kingdom and Scandinavia offset by
increases in Germany and Italy. Company retail sales of tractors decreased in
1998 compared to 1997. The Company's retail sales were negatively impacted by
sales declines of the Massey Ferguson high horsepower tractors and aggressive
pricing in this segment of the market.

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In South America, industry unit retail sales of tractors in 1998
decreased approximately 5% compared to 1997. Industry results in 1998 were also
mixed in this region with favorable industry results in Brazil offset by
industry declines in Argentina and the remaining South American markets. Company
retail sales of tractors were slightly below 1997, thereby outperforming the
market primarily due to favorable acceptance of new product introductions.

In other international markets, industry unit retail sales of tractors
were lower than in 1997, particularly in Asia and Africa. The Company also
experienced lower retail sales in these markets.

STATEMENT OF OPERATIONS

Net sales for 1998 were $2,941.4 million compared to $3,224.4 million
in 1997. This decline primarily reflects lower retail demand in the majority of
markets throughout the world. Net sales for 1998 were also negatively impacted
by approximately $85.4 million due to the Fendt Caravan Sale and Engine Joint
Venture divestitures and approximately $53.7 million from the negative impact on
foreign currency translation due to the strengthening of the U.S. dollar against
most European currencies. Net sales for 1998 were positively impacted by
approximately $40.4 million from the Dronningborg, MF Argentina, Spra-Coupe and
Willmar Acquisitions. Excluding the impact of currency translation, acquisitions
and divestitures, net sales decreased approximately 5.7% compared to 1997.

On a regional basis, net sales in North America decreased $15.7
million, or 1.6%, compared to 1997, primarily due to unfavorable market
conditions which particularly impacted sales of combines and replacement parts
in the second half of the year. In the Europe/Africa/Middle East region, net
sales in 1998 declined $183.6 million, or 10.3%, compared to 1997 primarily due
to unfavorable industry conditions, the impact of the Fendt Caravan Sale, and
the negative impact of foreign currency translation. Net sales in South America
decreased $19.0 million, or 5.7%, in 1998 compared to 1997, primarily due to the
impact of the Engine Joint Venture and the negative impact of foreign currency
translation. In the East Asia/Pacific region, net sales declined $64.7 million,
or 42.5%, for 1998 compared to 1997, primarily due to depressed industry
conditions resulting from the Asian currency devaluation and the negative impact
of currency translation.

Gross profit was $537.3 million (18.3% of net sales) for 1998, compared
to $666.8 million (20.7% of net sales) for 1997. Gross profit margins were
negatively impacted by reduced production overhead absorption, lower price
realization in the majority of markets and unfavorable foreign currency exchange
primarily relating to the weakening of the Canadian dollar in relation to the
U.S. dollar and the strengthening of the British pound compared to other
European currencies. The Company reduced 1998 worldwide tractor and combine unit
production by 13% compared to 1997 in response to the weakening industry demand.
Price realization in 1998 was impacted by a more competitive market environment
and higher discounts to liquidate older, slower-moving inventory.

SG&A expenses were $270.7 million (9.2% of net sales) in 1998 compared
to $275.4 million (8.5% of net sales) in 1997. As a percentage of net sales,
SG&A expenses were higher in 1998 due to the lower sales volumes and Year 2000
costs recorded in 1998 (see "Year 2000"). Engineering expenses were $56.1 (1.9%
of net sales) compared to $54.1 million (1.7% of net sales). As a percentage of
net sales, engineering expenses were higher in 1998 primarily due to lower sales
volumes and higher expenses due to the Dronningborg Acquisition.

Restructuring expenses were $40.0 million in 1998 and $18.2 million in
1997. The 1998 restructuring expenses consisted of severance and related costs
associated with a reduction in the Company's worldwide workforce. The 1997
restructuring expenses primarily related to the restructuring of the Company's
European operations, the integration of the Company's Argentina and Fendt
operations and executive severance costs. See "Restructuring and Other
Infrequent Expenses" for further discussion.

Amortization of intangibles was $13.2 million for 1998 compared to
$12.1 million for 1997 due to increased amortization for the Company's
acquisitions completed in late 1997 and during 1998.

Income from operations was $157.3 million for 1998 compared to $307.0
million in 1997. Excluding restructuring expenses in both years, income from
operations was $197.3 million in 1998 (6.7% of net sales) compared to $325.2
million (10.1% of net sales) in 1998. Operating income was negatively impacted
in 1998 by lower sales and gross profit margins.

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Interest expense, net was $67.7 million in 1998 compared to $53.5
million in 1997. The higher expense in 1998 was primarily due to additional
borrowings to fund the Company's acquisitions, common stock repurchases and
higher levels of working capital.

Other expense, net was $15.3 million in 1998 compared to $7.8 million
in 1997. The increase in other expense, net primarily relates to increased
hedging costs and foreign exchange losses.

The Company recorded an income tax provision of $27.5 million in 1998
compared to a provision of $87.5 million in 1997. The Company's effective tax
rate increased in 1998 compared to 1997 due to a change in the mix of income to
jurisdictions with higher tax rates.

Equity in net earnings of affiliates was $13.8 million in 1998 compared
to $12.6 million in 1997. The increase in earnings primarily related to
increased earnings in the Company's retail finance joint ventures and earnings
from the Engine Joint Venture.

QUARTERLY RESULTS

The following table presents unaudited interim operating results of the
Company. The Company believes that the following information includes all
adjustments (consisting only of normal, recurring adjustments) that the Company
considers necessary for a fair presentation, in accordance with generally
accepted accounting principles. The operating results for any interim period are
not necessarily indicative of results for any future period. (In millions,
except per share data.)

THREE MONTHS ENDED MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
- ------------------ -------- ------- ------------ -----------

1999:
Net sales ............................................... $ 561.6 $ 683.5 $ 570.5 $ 597.7
Gross profit ............................................ 79.0 111.1 97.1 69.2
Income (loss) from operations(1) ........................ 5.6 39.9 26.5 (29.1)
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)

1998:
Net sales ............................................... $ 701.5 $ 816.1 $ 665.7 $ 758.1
Gross profit ............................................ 144.5 156.5 131.2 105.1
Income (loss) from operations(1) ........................ 64.9 70.1 42.6 (20.3)
Net income (loss)(1) .................................... 32.7 32.3 17.9 (22.3)
Net income (loss) per common share - diluted(1) ......... 0.52 0.52 0.30 (0.37)

(1) The 1999 and 1998 operating results include restructuring expenses of
$24.5 and $40.0 million, or $0.26 and $0.42 per share, for the three
months ended December 31, 1999 and 1998, respectively.

To the extent possible, the Company attempts to ship products to its
dealers on a level basis throughout the year to reduce the effect of seasonal
demands on its manufacturing operations and to minimize 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. The
Company's net sales and income from operations have historically been the lowest
in the first quarter and have increased in subsequent quarters as dealers
increase inventory in anticipation of increased retail sales in the third and
fourth quarters.

RESTRUCTURING AND OTHER INFREQUENT EXPENSES

In the fourth quarter of 1999, the Company announced its plan to close
its Coldwater Ohio; Lockney, Texas; and Noetinger, Argentina manufacturing
facilities. The closure of the two facilities in the United States is consistent
with the Company's efforts to continue to resize its operations to current
industry demand which has declined significantly since the middle of 1998. In
order to address the excess capacity in the U.S. manufacturing plants, it was
determined that closure of these facilities

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and redeployment of the majority of production to other existing AGCO facilities
and the remaining production to third party suppliers would improve the cost
structure and future competitiveness of implements, hay equipment and high
horsepower tractors produced in these plants. The Noetinger, Argentina closure
is consistent with the Company's strategy to consolidate production in South
America. In 1998, the combine production in Noetinger was moved to the Company's
combine manufacturing plant in Brazil. The remaining implement production and
other activities in Noetinger was determined to be insufficient to support the
cost of the facility. As a result, it was determined that the closure of the
facility and the outsourcing of future implement production would reduce costs
of sales in South America. The Company closed the Coldwater facility in 1999 and
expects to close the Lockney and Noetinger facility in 2000. The rationalization
of the Company's production facilities is expected to generate cost savings of
$10 million to $15 million from the elimination of production overhead costs
beginning in the year 2000. The Company believes that the closure of these
facilities will not have a significant impact on future revenues.

In connection with the closures, the Company recorded restructuring and
other infrequent expenses of $24.5 million, or $.26 per share on a diluted
basis. The components of the expenses are summarized in the following table (in
millions).

RESTRUCTURING AND BALANCE AT
OTHER INFREQUENT EXPENSES DECEMBER 31,
EXPENSES INCURRED 1999
----------------- -------- ------------

Employee severance ............................... $ 1.9 $ 0.5 $ 1.4
Facility closure costs ........................... 7.7 0.9 6.8
Write-down of property, plant and equipment ...... 14.9 14.9 --
----- ----- -----
$24.5 $16.3 $ 8.2
===== ===== =====

The $1.9 million of employee severance costs relate to the termination
of approximately 580 production employees and 100 production staff employees of
which approximately 490 employees have been terminated as of December 31, 1999.
The $7.7 million of facility closure costs include employee and other exit costs
to be incurred after operations cease in addition to noncancelable operating
lease obligations. The write-down of property, plant and equipment consisted of
$7.0 million related to machinery and equipment and $7.9 million for buildings
and improvements and was based on the estimated fair value of the assets
compared to their carrying value. The remaining costs accrued at December 31,
1999 are expected to be paid in year 2000. The Company also expects to incur an
additional $8.0 million of restructuring and other infrequent expenses in 2000
related to these closures. These costs relate to severance and costs to
integrate the production from these facilities into other existing AGCO
facilities. These expenses will be recorded as incurred in 2000. In addition to
the restructuring and other infrequent expenses, the Company recorded a one-time
$5.0 million write-down of production inventory which was charged to cost of
goods sold and was directly related to the closures.

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. These headcount reductions were made to address
the negative market conditions which adversely impacted demand in the majority
of markets. The Company anticipated reducing selling, general and administrative
expenses by approximately $50 million from these headcount reductions in
addition to reduction in general spending levels from improved productivity and
the elimination of non-essential projects. The headcount reductions also
partially mitigated the impact of lower production levels in 1999, by adjusting
manufacturing staff levels. In 1999, the Company achieved the expected impacts
from its initiatives.

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. These restructuring and
integration activities resulted in cost savings related to manufacturing costs
and selling, general and administrative expenses. In addition, the European
dealer rationalization is expected to improve long-term sales in certain
markets.

9
11

LIQUIDITY AND CAPITAL RESOURCES

The Company's financing requirements are subject to variations due to
seasonal changes in company and dealer inventory levels. Internally generated
funds are supplemented when necessary from external sources, primarily the
Company's revolving credit facility. In January 1997, the Company established a
five-year unsecured revolving credit facility (the "Revolving Credit Facility"),
which is the Company's primary source of financing. As of December 31, 1999, the
lending commitment under the Revolving Credit Facility was $1.0 billion.
Borrowings under the Revolving Credit Facility may not exceed the sum of 90% of
eligible accounts receivable and 60% of eligible inventory. As of December 31,
1999, approximately $431.4 million was outstanding under the Revolving Credit
Facility and available borrowings, based on the lending commitment of $1.0
billion, were approximately $568.3 million, subject to the accounts receivable
and inventory borrowing base requirements.

In January 2000, the Company entered into a $250 million asset backed
securitization facility whereby certain U.S. wholesale accounts receivable are
sold through a wholly-owned special purpose subsidiary to a third party (the
"Securitization Facility"). Funding under the Securitization Facility is
provided on a revolving basis and is dependent upon the level of U.S. dealer
wholesale receivables eligible to be sold through the facility. The Company
initially funded $200 million under the Securitization Facility which was used
to reduce outstanding borrowings under the Revolving Credit Facility. The $1.0
billion lending commitment under the Revolving Credit Facility was permanently
reduced by the $200 million initial proceeds received from the Securitization
Facility and will be further reduced by any additional funding received from the
Securitization Facility. The Securitization Facility provides the Company with
several benefits, including a lower cost of borrowings and a one-time
acceleration of cash flow with a corresponding reduction in outstanding debt.
This transaction is consistent with the Company's objective of reducing its
leverage and diversifying its capital sources at the lowest cost possible. In
conjunction with the closing of the securitization transaction, the Company
recorded a loss in January 2000 on the sale of the receivables of approximately
$8 million. The loss represents the difference between the current and future
value of the receivables sold, related transaction expenses and the write-off of
certain unamortized debt issuance costs due to the reduction in the lending
commitment of the Revolving Credit Facility.

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 outstanding borrowings under the Revolving Credit
Facility.

In March 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 sale of the Notes provided the Company with subordinated capital and
replaced a portion of its floating rate debt with longer term fixed rate debt.

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, 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 depends on various factors, such
as price and other market conditions.

Total long-term debt for the Company was $691.7 million at December 31,
1999 compared to $924.2 million at December 31, 1998. The Company's debt to
capitalization ratio (total long-term debt divided by the sum of total long-term
debt and stockholders' equity) was 45.5% at December 31, 1999 compared to 48.5%
at December 31, 1998. The decrease in the debt to capitalization ratio was
primarily due to a reduction in long-term debt of $232.5 million, offset to some
extent by a negative cumulative translation adjustment to equity of $145.5
million compared to 1998, due to the devaluation of the Brazilian real and a
weakening of the Euro relative to the U.S. dollar.

The Company's working capital requirements are seasonal, with
investments in working capital typically building in the first half of the year
and then reducing in the second half of the year. The Company had $733.9 million
of working capital as of December 31, 1999 compared to $1,029.9 million as of
December 31, 1998. The decrease in working capital was primarily due to lower
accounts receivable and inventories, resulting from the decrease in net sales in
1999 compared to 1998, the effect of foreign currency translation and the
planned reduction of North America dealer inventories by producing below retail
demand.

Cash flow provided by operating activities was $233.7 million in 1999,
$11.2 million in 1998 and $100.0 million in 1997. The increase in operating cash
flow in 1999 was primarily due to a reduction in accounts receivable and
inventory levels offset to some

10
12

extent by lower net income. The improved cash flow in 1999 reflects the impact
of the Company's initiatives to reduce receivables and inventory levels. In
response to the industry decline and to reduce the level of dealer and Company
inventories, worldwide unit production of tractors and combines was 16% lower
than 1998. The decrease in operating cash flow for 1998 compared to 1997 was
primarily due to lower net income, lower provision for deferred taxes, primarily
due to the utilization of net operating loss carryforwards in 1997 and lower
accounts payable. This impact was offset to some extent by a lower use of cash
for accounts receivable and inventory in 1998 compared to 1997, primarily due to
the Company lowering production levels in the second half of 1998 in response to
the weakening industry conditions.

Capital expenditures were $44.2 million in 1999, $61.0 million in 1998
and $72.1 million in 1997. For all years, the Company's capital expenditures
related to the development and enhancement of new and existing products as well
as facility and equipment improvements. The decreases in capital expenditures in
1999 compared to 1998 and 1998 compared to 1997 was primarily due to lower
capital requirements for new products and facility improvements. The Company
currently estimates that aggregate capital expenditures for 2000 will range from
approximately $50 million to $60 million and will primarily be used to support
the development and enhancement of new and existing products. Capital
expenditures for 2000 are expected to be funded with cash flows from operations.

During 1999, the Company's Board of Directors declared dividends of
$0.04 per share of common stock. The declaration and payment of future dividends
will be at the sole discretion of the Board of Directors and will depend upon
the Company's results of operations, financial condition, cash requirements,
future prospects, limitations imposed by the Company's credit facilities and
other factors deemed relevant by the Company's Board of Directors.

The Company believes that available borrowings under the Revolving
Credit Facility, funding under the Securitization Facility, available cash and
internally generated funds will be sufficient to support its working capital,
capital expenditures and debt service requirements for the foreseeable future.

The Company from time to time reviews and will continue to review
acquisition and joint venture opportunities as well as changes in the capital
markets. If the Company were to consummate a significant acquisition or elect to
take advantage of favorable opportunities in the capital markets, the Company
may supplement availability or revise the terms under its credit facilities or
complete public or private offerings of equity or debt securities.

OUTLOOK

The Company's operations are subject to the cyclical nature of the
agricultural industry. Sales of the Company's equipment have been and are
expected to continue to be affected by changes in net cash farm income, farm
land values, weather conditions, the demand for agricultural commodities and
general economic conditions.

Global demand for agricultural equipment in 1999 remained weak due to
low commodity prices and reduced commodity export demand. These factors are
expected to continue in 2000, which will adversely impact farm income, and
consequently, lower the demand for agricultural equipment. As a result,
worldwide retail demand in 2000 is expected to be between 0% and 5% below 1999
levels. Net sales in 2000 are expected to be slightly below 1999 levels due to
the forecasted decline in retail demand and the anticipated negative currency
translation impact of the strengthening U.S. dollar compared to European
currencies. Despite these conditions, the Company expects production to increase
marginally due to inventory corrections made in 1999. As a result of the
increased production and the Company's cost reduction initiatives, operating
margins and overall profitability in 2000 are expected to improve compared to
1999.

FOREIGN CURRENCY RISK MANAGEMENT

The Company has significant manufacturing operations in the United
States, the United Kingdom, France, Germany, Denmark and Brazil, and it
purchases a portion of its tractors, combines and components from third party
foreign suppliers, primarily in various European countries and in Japan. The
Company also sells products in over 140 countries throughout the world. The
majority of the Company's 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 Note 8 "Segment

11
13

Reporting" for sales by customer location). The Company's 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 the Company's results of operations.

The Company attempts to manage its 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, the Company hedges certain of its
exposures through the use of foreign currency forward contracts. The Company's
hedging policy prohibits foreign currency forward contracts for speculative
trading purposes. The Company's translation exposure resulting from translating
the financial statements of foreign subsidiaries into U.S. dollars is not
hedged. The Company's 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.

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,
1999 stated in U.S. dollars are as follows (in millions):

NET
NOTIONAL AVERAGE FAIR
AMOUNT CONTRACT VALUE
BUY/(SELL) RATE* GAIN/(LOSS)
---------- -------- -----------

Australian dollar ............ $ 7.0 1.57 $ 0.2
British pound ................ (32.4) 0.63 (0.8)
Danish krone ................. 9.6 7.37 --
Euro currency ................ 280.9 0.97 (6.0)
French franc ................. (6.8) 6.25 0.3
German mark .................. 1.5 1.90 --
Greek drachma ................ (6.3) 323.77 0.1
Japanese yen ................. 0.6 113.31 0.1
Norwegian krone .............. 0.7 7.09 (0.1)
Swedish krona ................ 2.4 4.83 (1.1)
------- ------- -------
$ 257.2 $ (7.3)
======= =======

* 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

The Company manages interest rate risk through the use of fixed rate debt and
interest rate swap contracts. The Company has fixed rate debt from its $250
million 8.5% Senior Subordinated Notes due 2006. In addition, the Company
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, 1999, the Company had an interest rate swap
contract outstanding with a notional amount of $94.3 million which expires on
December 31, 2001. The interest rate swap has the effect of converting a portion
of the Company's floating rate indebtedness to a fixed rate of 5.1%. The
Company's floating rate debt is primarily the Revolving Credit Facility, which
is tied to changes in U.S. and European libor rates. Assuming a 10% increase in
interest rates, the Company's interest expense, net, including the effect of the
interest rate swap contract for 1999, would have increased by approximately $3.6
million.

YEAR 2000

The Company assessed the impact of the Year 2000 issue on its reporting
systems and operations. Based on its assessment, the Company developed a Year
2000 compliance plan, in which all critical and noncritical systems were tested
and all identified

12
14

noncompliant software or technology was modified or replaced. This review
included all information technology systems and embedded systems located in the
Company's manufacturing equipment, facility equipment and in the Company's
products. Through December 31, 1999, the Company incurred approximately $9.5
million to modify existing computer systems, applications and embedded systems.
The Company expects no significant costs during 2000 related to the Year 2000
issue. In addition, the Company has experienced no significant issues relating
to the Year 2000 issue.

EURO CURRENCY

The Company has established the capability to trade in the common
European currency (the "Euro") in all European locations beginning January 1,
1999. The Company began communicating with suppliers, dealers and financial
institutions in 1998 and has formulated a transition plan to move to a
Euro-based business in 2001. The Company does not currently expect its
competitive position (including pricing, purchasing contracts and systems
modifications) to be materially affected by the change to the Euro.

ACCOUNTING CHANGES

In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition." SAB No. 101
does not change existing accounting literature on revenue recognition, but
rather explains the SEC staff's general framework for revenue recognition. SAB
No. 101 states that changes in accounting to apply the guidance in SAB No. 101
may be accounted for as a change in accounting principle and must be recorded in
the first quarter of 2000. The Company is currently reviewing its revenue
recognition policy and does not expect the adoption of SAB No. 101 to have a
material impact on the Company's financial condition or results of operations.

In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards requiring that every derivative instrument be recorded in
the balance sheet as either an asset or liability measured at its fair value.
SFAS No. 133 requires that changes in a derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. The
Company will be required to adopt the new statement on January 1, 2001. The
Company has not yet quantified the financial impact of adopting SFAS No. 133 and
has not determined the method of adoption. However, SFAS No. 133 could increase
volatility in earnings and other comprehensive income.

FORWARD LOOKING STATEMENTS

Certain statements included in Management's Discussion and Analysis of
Financial Condition and Results of Operations and elsewhere in this report are
forward looking, including certain statements set forth under the "Outlook,"
"Liquidity and Capital Resources," "Restructuring and other infrequent
Expenses," "Year 2000" and "Euro Currency" headings. Forward looking statements
include the Company's expectations with respect to future commodity prices,
export demand for commodities, farm income, demand for agricultural equipment,
production levels, the impact of cost reduction initiatives, operating margins,
overall profitability and the availability of capital. Although the Company
believes that the statements it has made are based on reasonable assumptions,
they are based on current information and beliefs and, accordingly, the Company
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
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, the levels of new and used field inventories, weather conditions,
interest and foreign currency exchange rates, the conversion to the Euro,
pricing and product actions taken by competitors, customer access to credit,
production disruptions, supply and capacity constraints, Company cost reduction
and control initiatives, Company research and development efforts, labor
relations, dealer and distributor actions, technological difficulties including
the Year 2000 readiness, changes in environmental, international trade and other
laws, and political and economic uncertainty in various areas of the world.
Further information concerning factors that could significantly affect the
Company's results is included in the Company's filings with the Securities and
Exchange Commission. The Company disclaims any responsibility to update any
forward looking statements.

13
15

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, 1999 and 1998 and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 1999. 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, 1999 and 1998 and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999 in conformity with accounting principles generally accepted in
the United States.

/s/ Arthur Andersen LLP

Atlanta, Georgia
February 1, 2000

14
16

AGCO CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS
IN MILLIONS, EXCEPT PER SHARE DATA

YEAR ENDED DECEMBER 31, 1999 1998 1997
- ----------------------- --------- --------- ---------

Net sales ....................................................... $ 2,413.3 $ 2,941.4 $ 3,224.4
Cost of goods sold .............................................. 2,056.9 2,404.1 2,557.6
--------- --------- ---------
Gross profit ................................................. 356.4 537.3 666.8
Selling, general and administrative expenses .................... 229.6 270.7 275.4
Engineering expenses ............................................ 44.6 56.1 54.1
Restructuring and other infrequent expenses ..................... 24.5 40.0 18.2
Amortization of intangibles ..................................... 14.8 13.2 12.1
--------- --------- ---------
Income from operations ....................................... 42.9 157.3 307.0
Interest expense, net ........................................... 57.6 67.7 53.5
Other expense, net .............................................. 17.5 15.3 7.8
--------- --------- ---------
Income (loss) before income taxes, equity in net earnings
of affiliates and extraordinary loss ......................... (32.2) 74.3 245.7
Income tax provision (benefit) .................................. (10.2) 27.5 87.5
--------- --------- ---------
Income (loss) before equity in net earnings of affiliates
and extraordinary loss ....................................... (22.0) 46.8 158.2
Equity in net earnings of affiliates ............................ 10.5 13.8 12.6
--------- --------- ---------
Income (loss) before extraordinary loss ......................... (11.5) 60.6 170.8
Extraordinary loss, net of taxes ................................ -- -- (2.1)
--------- --------- ---------
Net income (loss) ............................................... $ (11.5) $ 60.6 $ 168.7
========= ========= =========
Net income (loss) per common share:
Basic:
Income (loss) before extraordinary loss ................... $ (0.20) $ 1.01 $ 2.82
Extraordinary loss ........................................ -- -- (0.03)
--------- --------- ---------
Net income (loss) ......................................... $ (0.20) $ 1.01 $ 2.79
========= ========= =========
Diluted:
Income (loss) before extraordinary loss ................... $ (0.20) $ 0.99 $ 2.74
Extraordinary loss ........................................ -- -- (0.03)
--------- --------- ---------
Net income (loss) ............................................... $ (0.20) $ 0.99 $ 2.71
========= ========= =========
Weighted average shares outstanding:
Basic ........................................................ 58.7 59.7 60.4
========= ========= =========
Diluted ...................................................... 58.7 61.2 62.1
========= ========= =========

See accompanying notes to consolidated financial statements.

15
17

AGCO CORPORATION

CONSOLIDATED BALANCE SHEETS
IN MILLIONS, EXCEPT SHARE AMOUNTS

DECEMBER 31, 1999 1998
- ------------ -------- --------

ASSETS
Current Assets:
Cash and cash equivalents ............................................................. $ 19.6 $ 15.9
Accounts and notes receivable, net .................................................... 758.2 1,016.3
Inventories, net ...................................................................... 561.1 671.6
Other current assets .................................................................. 77.2 86.7
-------- --------
Total current assets ............................................................... 1,416.1 1,790.5
Property, plant and equipment, net ....................................................... 310.8 417.6
Investments in affiliates ................................................................ 93.6 95.2
Other assets ............................................................................. 140.1 76.6
Intangible assets, net ................................................................... 312.6 370.5
-------- --------
Total assets ....................................................................... $2,273.2 $2,750.4
======== ========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable ...................................................................... $ 244.2 $ 287.0
Accrued expenses ...................................................................... 408.2 428.0
Other current liabilities ............................................................. 29.8 45.6
-------- --------
Total current liabilities .......................................................... 682.2 760.6
Long-term debt ........................................................................... 691.7 924.2
Postretirement health care benefits ...................................................... 25.4 24.5
Other noncurrent liabilities ............................................................. 44.8 59.0
-------- --------
Total liabilities .................................................................. 1,444.1 1,768.3
-------- --------
Commitments and Contingencies (Note 10)
Stockholders' Equity:
Common stock; $0.01 par value, 150,000,000 shares authorized, 59,579,559
and 59,535,921 shares issued and outstanding in 1999 and 1998, respectively ........ 0.6 0.6
Additional paid-in capital ............................................................ 427.7 427.3
Retained earnings ..................................................................... 621.9 635.8
Unearned compensation ................................................................. (5.1) (11.1)
Accumulated other comprehensive income ................................................ (216.0) (70.5)
-------- --------
Total stockholders' equity ......................................................... 829.1 982.1
-------- --------
Total liabilities and stockholders' equity ......................................... $2,273.2 $2,750.4
======== ========

See accompanying notes to consolidated financial statements.

16
18

AGCO CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS
IN MILLIONS

YEAR ENDED DECEMBER 31, 1999 1998 1997
- ----------------------- ------- ------- -------

Cash flows from operating activities:
Net income (loss) ...................................................... $ (11.5) $ 60.6 $ 168.7
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Extraordinary loss, net of taxes ....................................... -- -- 2.1
Depreciation and amortization .......................................... 55.8 57.6 49.4
Amortization of intangibles ............................................ 14.8 13.2 12.1
Amortization of unearned compensation .................................. 6.2 8.9 10.5
Equity in net earnings of affiliates, net of cash received ............. 2.4 (3.3) (12.6)
Deferred income tax provision (benefit) ................................ (47.2) (22.4) 53.4
Loss on write-down of property, plant and equipment .................... 14.9 -- --
Changes in operating assets and liabilities, net of
effects from purchase/sale of businesses:
Accounts and notes receivable, net .................................. 194.3 17.7 (94.7)
Inventories, net .................................................... 72.1 (17.3) (100.4)
Other current and noncurrent assets ................................. (20.3) (1.2) (10.0)
Accounts payable .................................................... (38.5) (87.7) 25.5
Accrued expenses .................................................... (3.5) (15.0) (1.3)
Other current and noncurrent liabilities ............................ (5.8) 0.1 (2.7)
------- ------- -------
Total adjustments ................................................. 245.2 (49.4) (68.7)
------- ------- -------
Net cash provided by operating activities ......................... 233.7 11.2 100.0
------- ------- -------
Cash flows from investing activities:
Purchase of property, plant and equipment .............................. (44.2) (61.0) (72.1)
Proceeds from sale/leaseback of property ............................... 18.7 -- --
Sale/(purchase) of businesses, net ..................................... 6.0 (60.6) (289.2)
Investments in unconsolidated affiliates ............................... (1.1) -- --
------- ------- -------
Net cash used for investing activities .............................. (20.6) (121.6) (361.3)
------- ------- -------
Cash flows from financing activities:
Proceeds from long-term debt ........................................... 536.1 984.4 932.2
Repayments of long-term debt ........................................... (740.8) (798.9) (813.8)
Payment of debt issuance costs ......................................... -- -- (3.5)
Proceeds from issuance of common stock ................................. -- 0.4 142.2
Repurchases of common stock ............................................ -- (88.1) --
Dividends paid on common stock ......................................... (2.4) (2.4) (2.5)
------- ------- -------
Net cash provided by (used for) financing activities ................ (207.1) 95.4 254.6
------- ------- -------
Effect of exchange rate changes on cash and cash equivalents ........... (2.3) (0.3) (3.8)
------- ------- -------
Increase (decrease) in cash and cash equivalents ....................... 3.7 (15.3) (10.5)
Cash and cash equivalents, beginning of period ......................... 15.9 31.2 41.7
------- ------- -------
Cash and cash equivalents, end of period ............................... $ 19.6 $ 15.9 $ 31.2
======= ======= =======

See accompanying notes to consolidated financial statements.

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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, Landini (North
America), Tye, Farmhand, Glencoe, Deutz (South America), Fendt, Spra-Coupe and
Willmar. The Company distributes its products through a combination of
approximately 8,200 independent dealers, distributors, associates and licensees.
In addition, the Company provides retail financing in North America, the United
Kingdom, France, Germany, Spain and Brazil through its retail finance joint
ventures with Cooperative 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.

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 require that a
purchase order accompany all shipments. Title passes to the dealer or
distributor upon shipment and the risk of loss upon 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 payable within 6 months of shipment.

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

19
20

AGCO CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
IN MILLIONS, EXCEPT SHARE AMOUNTS

COMMON STOCK ADDITIONAL CUMULATIVE TOTAL COMPRE-
-------------------- PAID-IN RETAINED UNEARNED TRANSLATION STOCKHOLDERS' HENSIVE
SHARES AMOUNT CAPITAL EARNINGS COMPENSATION ADJUSTMENT EQUITY INCOME
----------- ------ ---------- -------- ------------ ----------- ------------- --------

Balance, December 31, 1996 ....... 57,260,151 $ 0.6 $ 360.1 $ 411.4 $(17.8) $ 20.3 $ 774.6

Net income .................... -- -- -- 168.7 -- -- 168.7 $ 168.7

Issuance of common stock,
net of offering expenses .... 5,175,000 -- 140.4 -- -- -- 140.4
Issuance of restricted stock .. 373,017 -- 12.7 -- (12.7) -- --
Stock options exercised ....... 164,255 -- 1.8 -- -- -- 1.8
Common stock dividends
($0.04 per common share)..... -- -- -- (2.5) -- -- (2.5)
Amortization of unearned
compensation ................ -- -- -- -- 10.5 -- 10.5
Change in cumulative
translation adjustment ...... -- -- -- -- -- (101.9) (101.9) (101.9)
----------- ------ ------- ------- ------ ------- ------- -------
Balance, December 31, 1997 ....... 62,972,423 0.6 515.0 577.6 (20.0) (81.6) 991.6 66.8
=======
Net income .................... -- -- -- 60.6 -- -- 60.6 60.6
Repurchases of common stock ... (3,487,200) -- (88.1) -- -- -- (88.1)
Stock options exercised ....... 50,698 -- 0.4 -- -- -- 0.4
Common stock dividends
($0.04 per common share)..... -- -- -- (2.4) -- -- (2.4)
Amortization of unearned
compensation ................ -- -- -- -- 8.9 -- 8.9
Change in cumulative
translation adjustment ...... -- -- -- -- -- 11.1 11.1 11.1
----------- ------ ------- ------- ------ ------- ------- -------
Balance, December 31, 1998 ... 59,535,921 0.6 427.3 635.8 (11.1) (70.5) 982.1 71.7
=======
Net loss .................... -- -- -- (11.5) -- -- (11.5) (11.5)

Issuance of restricted stock .. 26,500 -- 0.2 -- (0.2) -- --
Stock options exercised ....... 17,138 -- 0.2 -- -- -- 0.2
Common stock dividends
($0.04 per common share)..... -- -- -- (2.4) -- -- (2.4)
Amortization of unearned
compensation ................ -- -- -- -- 6.2 -- 6.2
Change in cumulative
translation adjustment ...... -- -- -- -- -- (145.5) (145.5) (145.5)
----------- ------ ------- ------- ------ ------- ------- -------
Balance, December 31, 1999 ....... 59,579,559 $ 0.6 $ 427.7 $ 621.9 $ (5.1) $(216.0) $ 829.1 $(157.0)
=========== ====== ======= ======= ====== ======= ======= =======

See accompanying notes to consolidated financial statements.

18
21

are generally payable within 30 days of shipment with terms for some larger
seasonal stock orders 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. For subsidiaries operating in highly inflationary
economies, financial statements are remeasured into the U.S. dollar with
adjustments resulting from the translation of monetary assets and liabilities
reflected in the accompanying consolidated statements of operations.

For 1997, the Company accounted for its subsidiary in Brazil by
applying the highly inflationary economy provisions of SFAS No. 52, where the
U.S. dollar is substituted as the functional currency. For the years ended
December 31, 1999 and 1998, the Company ceased the application of highly
inflationary accounting of its Brazilian subsidiary and established the
functional currency as the Brazilian real.

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 24% of the
Company's net sales were generated in 1999, 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,
1999, 17.4%, 4.4%, 1.2% and 0.7% 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 more, respectively. Actual interest-free periods are
shorter than above because the equipment receivable in the United States and
Canada is due immediately

20
22

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, 1999 and 1998 were as follows (in
millions):

1999 1998
-------- --------

Sales incentive discounts .................................. $ 53.6 $ 58.4
Doubtful accounts .......................................... 43.0 49.4
-------- --------
$ 96.6 $ 107.8
======== ========

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, 1999 and 1998 were as follows (in
millions):

1999 1998
-------- --------

Finished goods ............................................. $ 248.4 $ 271.2
Repair and replacement parts ............................... 229.3 256.7
Work in process, production parts and raw materials ........ 154.6 222.6
-------- --------
Gross inventories .......................................... 632.3 750.5
Allowance for surplus and obsolete inventories ............. (71.2) (78.9)
-------- --------
Inventories, net ........................................... $ 561.1 $ 671.6
======== ========

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, 1999 and 1998 consisted
of the following (in millions):

1999 1998
-------- --------

Land ....................................................... $ 40.0 $ 52.2
Buildings and improvements ................................. 101.3 139.5
Machinery and equipment .................................... 263.1 321.3
Furniture and fixtures ..................................... 47.4 55.9
-------- --------
Gross property, plant and equipment ........................ 451.8 568.9
Accumulated depreciation and amortization .................. (141.0) (151.3)
-------- --------
Property, plant and equipment, net ......................... $ 310.8 $ 417.6
======== ========

21
23
INTANGIBLE ASSETS

Intangible assets at December 31, 1999 and 1998 consisted of the following (in
millions):

1999 1998
-------- --------

Goodwill ................................................... $ 284.4 $ 330.1
Trademarks ................................................. 66.0 66.0
Other ...................................................... 4.0 4.2
Accumulated amortization ................................... (41.8) (29.8)
-------- --------
Intangible assets, net ..................................... $ 312.6 $ 370.5
======== ========

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. Goodwill and accumulated amortization are shown net of the excess of net
assets over cost ("negative goodwill") of $23.2 million for both 1999 and 1998
and its related accumulated amortization of $21.6 million and $19.5 million for
1999 and 1998, respectively. 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 acquistion 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.

ACCRUED EXPENSES

Accrued expenses at December 31, 1999 and 1998 consisted of the
following (in millions):

1999 1998
-------- --------

Reserve for volume discounts and sales incentives .......... $ 88.2 $ 93.8
Warranty reserves .......................................... 66.1 79.4
Accrued employee compensation and benefits ................. 49.9 55.7
Accrued taxes .............................................. 76.9 50.1
Other ...................................................... 127.1 149.0
-------- --------
$ 408.2 $ 428.0
======== ========

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.

22
24
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, 1999, 1998, and 1997
totaled approximately $7.6 million, $9.5 million, and $8.9 million,
respectively.

EXTRAORDINARY LOSS

In 1997, the Company refinanced its revolving credit facility and
recorded an extraordinary loss of $2.1 million, net of taxes of $1.4 million,
for the write-off of unamortized debt costs related to the revolving credit
facility existing at the time of refinancing.

INTEREST EXPENSE, NET

Interest expense, net for the years ended December 31, 1999, 1998 and
1997 consisted of the following:

1999 1998 1997
------ ------ ------

Interest expense ..... 71.4 81.5 70.7
------ ------ ------
Interest income ...... (13.8) (13.8) (17.2)
------ ------ ------
57.6 67.7 53.5
====== ====== ======

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,
1999, 1998 and 1997 is as follows (in millions, except per share data):

1999 1998 1997
------ ------ ------

Basic Earnings Per Share
Weighted average number of common shares outstanding ......... 58.7 59.7 60.4
====== ====== ======

Income (loss) before extraordinary loss ...................... $(11.5) $ 60.6 $170.8
Extraordinary loss ........................................... -- -- (2.1)
------ ------ ------
Net income (loss) ............................................... $(11.5) $ 60.6 $168.7
====== ====== ======
Net income (loss) per common share:
Income (loss) before extraordinary loss ...................... $(0.20) $ 1.01 $ 2.82
Extraordinary loss ........................................... -- -- (0.03)
------ ------ ------
Net income (loss) per share .................................. $(0.20) $ 1.01 $ 2.79
====== ====== ======

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25

Diluted Earnings Per Share
Weighted average number of common shares outstanding ......... 58.7 59.7 60.4
Shares issued upon assumed vesting of restricted stock ....... -- 1.3 1.4
Shares issued upon assumed exercise
of outstanding stock options .............................. -- 0.2 0.3
------ ------ ------
Weighted average number of common and common
equivalent shares outstanding ............................. 58.7 61.2 62.1
====== ====== ======

Income (loss) before extraordinary loss ...................... $(11.5) $ 60.6 $170.8
Extraordinary loss ........................................... -- -- (2.1)
------ ------ ------
Net income (loss) ............................................ $(11.5) $ 60.6 $168.7
====== ====== ======
Net income (loss) per common share:
Income (loss) before extraordinary loss ...................... $(0.20) $ 0.99 $ 2.74
Extraordinary loss ........................................... -- -- (0.03)
------ ------ ------
Net income (loss) ............................................... $(0.20) $ 0.99 $ 2.71
====== ====== ======

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. The cumulative translation
adjustment is the sole component of "Accumulated other comprehensive income" in
the Consolidated Balance Sheets.

FINANCIAL INSTRUMENTS

The carrying amounts reported in the Company's Consolidated Balance
Sheets for "Cash and cash equivalents," "Accounts and notes receivable" and
"Accounts payable" approximate fair value due to the immediate or short-term
maturity of these financial instruments. The carrying amount of long-term debt
under the Company's Revolving Credit Facility (Note 6) approximates fair value
based on the borrowing rates currently available to the Company for loans with
similar terms and average maturities. At December 31, 1999, the estimated fair
value of the Company's 8.5% Senior Subordinated Notes (Note 6), based on its
listed market value, was $230.4 million compared to the carrying value of $248.5
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, 1999 and 1998, the Company had foreign exchange forward contracts
with gross notional amounts of $348.2 million and $429.1 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 loss of
approximately $7.3 million at December 31, 1999. 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
in a rising interest rate environment. At December 31, 1999, the Company had an
interest rate swap contract outstanding with a notional amount of $94.3 million.
This contract has the effect of converting a portion of the Company's floating
rate indebtedness under its revolving credit facility (Note 6) to a fixed
interest rate of 5.1%. 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
agreements at the reporting date, taking into account interest and currency
rates. At December 31, 1999, the Company estimates that the interest rate swap
agreement has a market value of approximately $1.1 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

24
26

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, 1999 and 1998, all outstanding contracts were
related to firm commitments.

ACCOUNTING CHANGES

In December 1999, the Securities and Exchange Commission (the "SEC")
issued Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition." The SAB
does not change existing accounting literature on revenue recognition, but
rather explains the SEC staff's general framework for revenue recognition. SAB
No. 101 states that changes in accounting to apply the guidance in SAB No. 101
may be accounted for as a change in accounting principle and must be recorded in
the first quarter of 2000. The Company is currently reviewing its revenue
recognition policy and does not expect the adoption of SAB No. 101 to have a
material impact on the Company's financial condition or results of operations.

In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No.
133 establishes accounting and reporting standards requiring that every
derivative instrument be recorded in the balance sheet as either an asset or
liability measured at its fair value. SFAS No. 133 requires that changes in a
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. The Company will be required to adopt the new
statement on January 1, 2001. The Company has not yet quantified the financial
impact of adopting SFAS No. 133 and has not determined the method of adoption.
However, SFAS No. 133 could increase the volatility in earnings and other
comprehensive income.

Effective December 31, 1998, the Company adopted SFAS No. 132,
"Employer's Disclosures About Pensions and Other Postretirement Benefits," which
revises disclosure requirements related to the Company's employee benefit plans
and postretirement benefits (Note 7), and SFAS No. 131, "Disclosure about
Segments of an Enterprise and Related Information," which revises disclosure
requirements related to segment reporting (Note 11). SFAS No. 132 and SFAS No.
131 require disclosure only; therefore, their adoption had no impact on the
Company's financial position or results of operations.

Effective January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income," which requires disclosures regarding the Company's
comprehensive income defined as the total of net income and all other nonowner
changes in equity. SFAS No. 130 requires disclosure only; therefore, its
adoption had no impact on the Company's financial position or results of
operations.

2. ACQUISITIONS AND DISPOSITIONS

ACQUISITIONS

The Company completed several acquisitions in 1998 and 1997 which were
primarily financed with borrowings under the Company's revolving credit facility
(Note 6). In most cases, the Company acquired assets and assumed liabilities
consisting primarily of accounts receivable, inventories, property, plant and
equipment, trademarks, trade names and technology, accounts payable and accrued
liabilities. The results of operations for the Company's acquisitions are
included in the Company's consolidated financial statements as of and from the
respective dates of 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, sold primarily in North America (the "Willmar Acquisition") for
approximately $33.0 million. Effective July 1, 1998, the Company acquired
certain assets related to the Spra-Coupe product line, a brand of agricultural
self-propelled sprayers sold primarily in North America, for approximately $37.2
million (the "Spra-Coupe Acquisition").

25
27

On December 4, 1997, the Company acquired the remaining 68% of
Dronningborg Industries a/s ("Dronningborg") for approximately $22.0 million
(the "Dronningborg Acquisition"). Prior to the acquisition, the Company owned
32% of Dronningborg which manufactured combine harvesters sold exclusively to
the Company for sale under the Massey Ferguson brand name. Effective January 1,
1997, the Company acquired Xaver Fendt GmbH & Co. KG ("Fendt") for approximately
$283.5 million plus approximately $38.3 million of assumed working capital debt
(the "Fendt Acquisition"). Fendt's primary business is the manufacture and
distribution of tractors through a network of independent agricultural
cooperatives, dealers and distributors in Germany and throughout Europe and
Australia. Effective December 31, 1997, the Company sold Fendt's caravan and
motor home business for approximately $10.0 million.

The above 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 the Deutz Argentina, Fendt, Spra-Coupe and Willmar
Acquisitions included liabilities associated with certain costs to integrate the
acquired businesses into the Company's operations. The Deutz Argentina
liabilities related to severance associated with headcount reductions in most
functions of the acquired business. The Fendt 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 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.

BALANCE AT
LIABILITIES INCURRED INCURRED INCURRED DECEMBER
ESTABLISHED 1997 1998 1999 31, 1999
----------- -------- -------- -------- ----------

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 3.6
Willmar/Spra-Coupe integration .... 0.6 -- 0.2 0.2 0.2
---- --- --- --- ---
10.5 2.8 1.3 2.0 4.4
==== === === === ===

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 manufacturing hourly and salaried employees. The Haedo Sale had no
material impact to the Company's 1999 results of operations.

3. RESTRUCTURING AND OTHER INFREQUENT EXPENSES

In the fourth quarter of 1999, the Company recorded restructuring and
other infrequent expenses of $24.5 million, or $0.26 per share on a diluted
basis, related to the planned closure of its Coldwater, Ohio; Lockney, Texas;
and Noetinger, Argentina manufacturing facilities. The majority of production in
these facilities will be relocated to existing Company facilities or outsourced.
The Coldwater, Ohio facility was permanently closed in 1999 and the Lockney,
Texas and Noetinger, Argentina are planned to close in 2000. The Company
believes that the closure of these facilities will not have a significant impact
on 2000 revenues. The components of the expenses are summarized in the following
table (in millions):

RESTRUCTURING AND BALANCE AT
OTHER INFREQUENT EXPENSES DECEMBER 31,
EXPENSES INCURRED 1999
----------------- -------- ------------

26
28

The $1.9 of employee severance costs relate to the termination of
approximately 680 employees in the Cold-water, Ohio; Lockney, Texas; and
Noetinger, Argentina facilities of which approximately 490 employees had been
terminated as of December 31, 1999. The $7.7 million of facility closure costs
include employee and other exit costs to be incurred after operations cease in
addition to non-cancelable operating lease obligations. The $14.9 million
write-down of property, plant and equipment represents the impairment of assets
resulting from the facility closures. The write-down was based on the estimated
fair value of the assets compared to their carrying value. The write-down of
property, plant and equipment consisted of approximately $7.0 million related to
machinery, equipment and tooling and $7.9 million for buildings and
improvements. $13.0 million of the write-down related to Coldwater facility
assets and $1.9 million was for the Argentina facility assets. The estimated
fair value of the equipment and buildings was determined based on current
conditions in the applicable markets. The machinery, equipment and tooling for
both facilities is expected to be disposed of within a year and the buildings
and improvements in Coldwater are currently being marketed for sale.

The results of operations for 1998 included restructuring and other
infrequent expenses of $40.0 million, or $0.41 per share on a diluted basis. The
restructuring and other infrequent expenses primarily related to severance,
pension and postretirement benefit expense and related costs associated with
reductions in the Company's worldwide permanent workforce. All 1,400 employees
identified for termination were terminated as of December 31, 1999. Of the $40.0
million total expense, $34.9 million had been incurred as of December 31, 1999.

The results of operations for 1997 included restructuring and other
infrequent expenses of $18.2 million, or $0.19 per share on a diluted basis.
These restructuring and other infrequent expenses included $15.0 million related
to the restructuring of the Company's European operations and certain costs
associated with the integration of the Company's Argentina and Fendt operations.
The restructuring and other infrequent expenses for 1997 also included $3.2
million related to executive severance costs. The costs included for these
restructuring and integration activities in 1997 primarily related to the
centralization and rationalization of certain manufacturing, selling and
administrative functions in addition to the rationalization of a certain portion
of the Company's European dealer network. Of the $18.2 million total expense,
$13.7 million had been incurred as of December 31, 1999.

4. INVESTMENTS IN AFFILIATES

At December 31, 1999 and 1998, the Company's investments in affiliates
primarily consisted of (i) the Retail Finance Joint Ventures, (ii) the Company's
50% investments in manufacturing joint ventures with various unrelated
manufacturers to produce hay and forage equipment in North America, driveline
assemblies in Europe, and engines in South America and (iii) certain other
minority investments in farm equipment manufacturers and licensees.

Investments in affiliates as of December 31, 1999 and 1998 were as
follows (in millions):

1999 1998
------ ------

Retail Finance Joint Ventures ....................... $ 63.0 $ 61.2
Manufacturing joint ventures ........................ 21.5 24.2
Other ............................................... 9.1 9.8
------ ------
$ 93.6 $ 95.2
====== ======

The Company's equity in net earnings of affiliates for 1999, 1998 and
1997 were as follows (in millions):

1999 1998 1997
------ ------ ------

Retail Finance Joint Ventures ..... $ 11.0 $ 11.4 $ 10.9
Other ............................. (0.5) 2.4 1.7
------ ------ ------
$ 10.5 $ 13.8 $ 12.6
====== ====== ======

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29

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 December 31, 1999 and 1998 were as
follows (in millions):

AS OF DECEMBER 31, 1999 1998
-------- --------

Total assets ............................................... $1,402.8 $1,340.2
Total liabilities .......................................... 1,276.5 1,220.8
Partner's equity ........................................... 126.3 119.4

FOR THE YEAR ENDED DECEMBER 31, 1999 1998 1997
- ------------------------------- -------- -------- --------

Revenues ................................... $ 144.1 $ 136.6 $ 126.8
Costs ...................................... 109.3 102.2 94.6
-------- -------- --------
Income before income taxes ................. $ 34.8 $ 34.4 $ 32.2
======== ======== ========

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.

5. 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 before income taxes, equity in net earnings of
affiliates and extraordinary loss were as follows for the years ended December
31, 1999, 1998 and 1997 (in millions):

1999 1998 1997
-------- -------- --------

United States ................................................... $ (96.9) $ (9.4) $ 51.7
Foreign ......................................................... 64.7 83.7 194.0
-------- -------- --------
Income (loss) before income taxes, equity in net earnings of
affiliates and extraordinary loss ............................. $ (32.2) $ 74.3 $ 245.7
======== ======== ========

The provision (benefit) for income taxes by location of the taxing
jurisdiction for the years ended December 31, 1999, 1998 and 1997 consisted of
the following (in millions):

1999 1998 1997
-------- -------- --------

Current:
United States:
Federal ................................................... $ (3.3) $ 0.6 $ (2.6)
State ..................................................... -- 0.2 (0.8)
-------- -------- --------
Foreign ...................................................... 40.3 49.1 37.5
-------- -------- --------
Total current ................................................... 37.0 49.9 34.1
-------- -------- --------
Deferred:
United States:
Federal ................................................... (31.2) (6.1) 19.0
State ..................................................... (4.1) (0.8) 2.6
Foreign ...................................................... (11.9) (15.5) 31.8
-------- -------- --------
Total deferred .................................................. (47.2) (22.4) 53.4
-------- -------- --------
Provision (benefit) for income taxes ............................ $ (10.2) $ 27.5 $ 87.5
======== ======== ========

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30

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, 1999, 1998 and 1997 is as follows (in millions):

1999 1998 1997
-------- -------- --------

Provision (benefit) for income taxes at United States federal
statutory rate of 35% .......................................... $ (11.3) $ 26.0 $ 86.0
State and local income taxes, net of federal income tax benefit ... (3.9) (0.4) 1.8
Taxes on foreign income which differ from the United States
statutory rate ................................................. (0.7) (0.3) (0.5)
Foreign losses with no tax benefit ................................ 6.2 4.3 1.8
Benefit of foreign sales corporation .............................. (0.5) (1.3) (1.0)
Other ............................................................. -- (0.8) (0.6)
-------- -------- --------
$ (10.2) $ 27.5 $ 87.5
======== ======== ========

The significant components of the net deferred tax assets at December
31, 1999 and 1998 were as follows (in millions):

1999 1998
-------- --------

Deferred Tax Assets:
Net operating loss carryforwards .............. $ 116.9 $ 63.6
Sales incentive discounts ..................... 18.8 15.5
Inventory valuation reserves .................. 10.1 13.1
Postretirement benefits ....................... 8.2 7.2
Other ......................................... 76.3 77.3
Valuation allowance ........................... (78.8) (75.0)
-------- --------
Total deferred tax assets .................. 151.5 101.7
-------- --------
Deferred Tax Liabilities:
Tax over book depreciation .................... 46.2 35.9
Tax over book amortization of goodwill ........ 18.1 21.9
Other ......................................... 5.0 11.8
-------- --------
Total deferred tax liabilities ............. 69.3 69.6
-------- --------
Net deferred tax assets .......................... 82.2 32.1
Less: Current portion of deferred tax asset ... (22.3) (22.9)
-------- --------
Noncurrent net deferred tax assets ............... $ 59.9 $ 9.2
======== ========

At December 31, 1999, the Company has recorded a net deferred tax asset
of $82.2 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 $78.8 million and $75.0 million as of December 31, 1999 and 1998,
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. The Company has net operating loss carryforwards
of $307.5 million as of December 31, 1999, with expiration dates as follows:
2000 - $29.7 million, 2001 - $25.9 million, 2002 - $14.9 million, 2003 - $16.5
million, 2004 - $38.4 million and thereafter and unlimited - $182.1 million. The
Company paid income taxes of $6.1 million, $87.8 million and $42.0 million for
the years ended December 31, 1999, 1998 and 1997, respectively.

29
31

6. LONG-TERM DEBT

Long-term debt consisted of the following at December 31, 1999 and 1998
(in millions):

1999 1998
-------- --------

Revolving credit facility ........................ $ 431.4 $ 661.2
Senior Subordinated Notes ........................ 248.5 248.3
Other long-term debt ............................. 11.8 14.7
-------- --------
Total long-term debt ............................. $ 691.7 $ 924.2
======== ========

In January 1997, the Company established a five-year unsecured
revolving credit facility (the "Revolving Credit Facility"). At December 31,
1999, the lending commitment under the Revolving Credit Facility was $1.0
billion. 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 borrowings outstanding under the Revolving Credit Facility
primarily at LIBOR plus an applicable margin, as defined. At December 31, 1999,
interest rates on the outstanding borrowings, including the effect of the
interest rate swap contract (Note 1), ranged from 4.8% to 8.5%, and the weighted
average interest rate during 1999 was 5.3%. Excluding the impact of the interest
rate swap, the weighted average interest rate was 5.2%. 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. At December
31, 1999, $431.4 million was outstanding under the Revolving Credit Facility and
available borrowings, based on the lending commitment of $1.0 billion, were
$568.3 million, subject to the accounts receivable and inventory borrowing base
requirements.

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 Notes include certain covenants restricting the incurrence of
indebtedness and the making of certain restrictive payments, including
dividends.

At December 31, 1999, the aggregate scheduled maturities of long-term
debt are as follows (in millions):

2001.............................. $ 4.9
2002.............................. 432.3
2003.............................. 1.0
2004.............................. 1.0
2005.............................. 0.7
2006 and thereafter............... 251.8
-------
$ 691.7
=======

Cash payments for interest were $71.8 million, $77.4 million and $70.9
million for the years ended December 31, 1999, 1998 and 1997, 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, 1999, outstanding letters of credit totaled
$8.4 million, of which $0.3 million were issued under the Revolving Credit
Facility.

30
32

the facility. The Company initially funded $200 million under the securitization
facility which was used to reduce outstanding borrowings under the Revolving
Credit Facility. The $1.0 billion lending commitment under the Revolving Credit
Facility was permanently reduced by the $200 million initial proceeds received
from the securitization facility and will be further reduced by any additional
funding received under the securitization facility. This transaction had no
impact on the financial statements as of and for the year ended December 31,
1999.

7. 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, 1999, 1998 and 1997
are set forth below (in millions):

PENSION BENEFITS 1999 1998 1997
-------- -------- --------

Service cost ........................................ $ 8.0 $ 8.4 $ 6.5
Interest cost ....................................... 25.9 25.1 24.4
Expected return on plan assets ...................... (27.9) (29.7) (27.2)
Amortization of prior service cost .................. 0.5 0.5 0.5
Amortization of net loss ............................ 1.1 -- --
Special termination benefits ........................ -- 6.7 --
-------- -------- --------
Net annual pension costs ............................ $ 7.6 $ 11.0 $ 4.2
======== ======== ========
Weighted average discount rate ...................... 6.4% 6.1% 7.0%
Weighted average expected long-
term rate of return on plan assets ................ 7.3% 7.6% 8.0%
Rate of increase in future compensation ............. 4.0% 4.0% 4.0%

POSTRETIREMENT BENEFITS 1999 1998 1997
-------- -------- --------

Service cost ........................................ $ 0.9 $ 0.9 $ 0.8
Interest cost ....................................... 1.5 1.3 1.2
Amortization of transition and prior service cost ... (0.1) (0.6) (0.6)
Amortization of unrecognized net gain ............... (0.1) (0.8) (0.7)
Special termination benefits ........................ -- 0.5 --
-------- -------- --------
Net annual postretirement costs ..................... $ 2.2 $ 1.3 $ 0.7
-------- -------- --------
Weighted average discount rate ...................... 7.8% 7.0% 7.3%
======== ======== ========

The following tables set forth reconciliations of the changes in
benefit obligations, plan assets and funded status as of December 31, 1999 and
1998 (in millions):

PENSION POSTRETIREMENT
BENEFITS BENEFITS
CHANGE IN ----------------------- -----------------------
BENEFIT OBLIGATION 1999 1998 1999 1998
------ ------ ------ ------

Benefit obligation at beginning of year .......... $443.4 $364.0 $ 22.3 $ 18.9
Service cost ..................................... 8.0 8.4 0.9 0.9
Interest cost .................................... 25.9 25.1 1.5 1.3
Plan participant contributions ................... 2.5 3.0 -- --
Actuarial (gain) loss ............................ 21.2 50.6 (2.1) 1.3
Amendments ....................................... -- -- -- 0.5
Curtailments ..................................... -- -- -- 0.2
Special termination benefits ..................... -- 6.7 -- 0.5
Benefits paid .................................... (27.7) (18.6) (1.3) (1.3)
Foreign currency exchange rate changes ........... (12.2) 4.2 -- --
------ ------ ------ ------
Benefit obligation at end of year ................ $461.1 $443.4 $ 21.3 $ 22.3
====== ====== ====== ======

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33

PENSION POSTRETIREMENT
BENEFITS BENEFITS
CHANGE IN ----------------------- -----------------------
PLAN ASSETS 1999 1998 1999 1998
------ ------ ------ ------

Fair value of plan assets at beginning of year ... $384.7 $352.5 $ -- $ --
Actual return of plan assets ..................... 59.1 33.3 -- --
Employer contributions ........................... 16.7 11.6 1.3 1.3
Plan participant contributions ................... 2.5 3.0 -- --
Benefits paid .................................... (27.7) (18.6) (1.3) (1.3)
Foreign currency exchange rate changes ........... (8.5) 2.9 -- --
------ ------ ------ ------
Fair value of plan assets at end of year ......... $426.8 $384.7 $ -- $ --
====== ====== ====== ======

Funded status .................................... $(34.3) $(58.7) $(21.3) $(22.3)
Unrecognized net obligation ...................... 0.7 0.9 0.4 0.4
Unrecognized net loss (gain) ..................... 46.7 58.0 (4.9) (2.8)
Unrecognized prior service cost .................. 1.7 2.2 0.4 0.2
------ ------ ------ ------
Net amount recognized ............................ $ 14.8 $ 2.4 $(25.4) $(24.5)
====== ====== ====== ======

Amounts recognized in Consolidated
Balance Sheet:
Prepaid benefit cost ....................... $ 31.4 $ 20.5 $ -- $ --
Accrued benefit liability .................. (17.6) (19.4) (25.4) (24.5)
Intangible asset ........................... 1.0 1.3 -- --
------ ------ ------ ------
Net amount recognized ........................... $ 14.8 $ 2.4 $(25.4) $(24.5)
====== ====== ====== ======

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 $32.2 million, $30.2 million
and $11.9 million, respectively, as of December 31, 1999 and $218.0 million,
$199.0 million and $176.4 million, respectively, as of December 31, 1998.

For measuring the expected postretirement benefit obligation, a 8.25%
health care cost trend rate was assumed for 1999, decreasing 0.75% per year to
6.0% and remaining at that level thereafter. For 1998, a 9.0% 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, 1999 (in millions):

ONE ONE
PERCENTAGE PERCENTAGE
POINT POINT
INCREASE DECREASE
---------- ----------

Effect on service and interest cost.................................................. $0.3 $(0.2)
Effect on accumulated benefit obligation............................................. $2.1 $(1.8)

The Company maintains a separate defined contribution 401(k) savings
plan covering certain salaried employees in the United States. Under the plan,
the Company contributes a specified percentage of each eligible employee's
compensation. The Company contributed $1.5 million, $1.6 million and $1.7
million for the years ended December 31, 1999, 1998 and 1997, respectively.

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34

8. COMMON STOCK

At December 31, 1999, 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, 0.7 million shares reserved for issuance under the Company's
1991 Stock Option Plan (Note 9), 0.1 million shares reserved for issuance under
the Company's Nonemployee Director Stock Incentive Plan (Note 9) and 2.3 million
shares reserved for issuance under the Company's Long-Term Incentive Plan (Note
9).

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, 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 March 1997, the Company completed a public offering of 5.2 million
shares of its common stock (the "Offering"). The net proceeds to the Company
from the Offering were approximately $140.4 million, after deduction of
underwriting discounts and commissions and other expenses. The Company used the
proceeds from the Offering to reduce a portion of the borrowings outstanding
under the Revolving Credit Facility.

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.

9. 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, 1999, 72,500 shares have been awarded to plan
participants under the Director Plan, of which, 41,000 shares were earned and
21,500 shares were vested.

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 are earned in specified increments
for each 20% increase in the average market value of the Company's common stock
over the initial base price established under the plan. When an increment of the
awarded shares is earned, the 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 award vesting on the last day of the 36th, 48th and 60th
month, respectively, after each award is

33
35

earned. When the restricted shares are vested, a cash bonus equal to 40% of the
value of the vested shares on the date the restricted stock award is earned is
paid by the Company to satisfy a portion of the estimated income tax liability
to be incurred by the participant.

At the time the awarded shares are earned, the market value of the
stock is added to common stock and additional paid-in capital and an equal
amount is deducted from stockholders' equity as unearned compensation. The LTIP
unearned compensation and the amount of cash bonus to be paid when the awarded
shares become vested are amortized to expense ratably over the vesting period.
The Company recognized compensation expense associated with the LTIP of $8.5
million, $12.0 million and $14.8 million for the years ended December 31, 1999,
1998 and 1997, respectively, consisting of amortization of the stock award and
the related cash bonus.

Additional information regarding the LTIP for the years ended December
31, 1999, 1998 and 1997 is as follows:

1999 1998 1997
---------- ---------- ----------

Shares awarded but not earned at January 1 ..... 927,500 965,000 1,597,500
Shares awarded, net of forfeitures ............. 133,500 (37,500) (270,000)
Shares earned .................................. (15,000) -- (362,500)
---------- ---------- ----------
Shares awarded but not earned at December 31 ... 1,046,000 927,500 965,000
Shares available for grant ..................... 1,234,000 1,367,500 1,330,000
---------- ---------- ----------
Total shares reserved for issuance ............. 2,280,000 2,295,000 2,295,000
---------- ---------- ----------
Shares vested during year ...................... 441,166 375,833 194,000
========== ========== ==========

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. In 1998, the Option Plan was amended to increase the
number of shares authorized for issuance by 1,600,000 shares.

Stock option transactions during the three years ended December 31,
1999, 1998 and 1997 were as follows:

1999 1998 1997
------------ ------------ ------------

Options outstanding at January 1 ............. 1,238,294 797,968 787,250
Options granted .............................. 701,700 586,700 193,900
Options exercised ............................ (17,138) (50,698) (164,255)
Options canceled ............................. (66,937) (95,676) (18,927)
------------ ------------ ------------
Options outstanding at December 31 ........... 1,855,919 1,238,294 797,968
------------ ------------ ------------
Options available for grant at December 31 ... 740,718 1,375,481 266,505
------------ ------------ ------------
Option price ranges per share:
Granted ................................... $ 11.00 $8.31-27.00 $ 31.25
Exercised ................................. 1.52-11.00 1.52-27.00 1.52-31.25
Canceled .................................. $14.63-31.25 $11.75-31.25 $14.63-31.25
Weighted average option prices per share:
Granted ................................... $ 11.00 $ 22.08 $ 31.25
Exercised ................................. 3.09 9.52 10.36
Canceled .................................. 23.15 23.78 21.68
Outstanding at December 31 ................ 16.90 20.39 18.87

At December 31, 1999, the outstanding options had a weighted average
remaining contractual life of approximately 8.3 years and there were 884,893
options currently exercisable with option prices ranging from $1.52 to $31.25
and with a weighted average exercise price of $17.46.

34
36

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:

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, 1999 EXERCISE PRICE
--------------- --------- ---------------- -------------- ----------------- --------------

$1.52-$1.52 36,178 1.8 $ 1.52 36,178 $ 1.52
$2.50-$3.75 66,200 3.1 $ 2.61 66,200 $ 2.61
$6.25-$9.38 36,400 6.7 $ 7.38 24,400 $ 6.93
$11.00-$14.69 874,349 8.9 $ 11.75 322,189 $ 13.03
$16.96-$22.31 522,200 8.9 $ 22.18 217,280 $ 22.00
$25.50-$31.25 320,592 7.6 $ 28.13 218,646 $ 27.77
--------- -------
1,855,919 884,893
========= =======

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):

1999 1998 1997
-------- -------- --------

Director Plan ................... $ 13.61 $ 43.47 $ 39.96
LTIP * .......................... 12.13 -- --
Option Plan ..................... 7.07 12.18 15.75

* There were no awards under the LTIP in 1998 or 1997.

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):

YEAR ENDED DECEMBER 31, 1999 1998 1997
------ ------ ------

Net income (loss) ......................................... $(14.0) $ 57.4 $166.5
Net income (loss) per common share - diluted .............. $(0.24) $ 0.94 $ 2.60
Weighted average assumptions under Black-Scholes:
Expected life of options (years) .......................... 7.0 7.0 7.0
Risk free interest rate ................................... 5.9% 5.6% 6.1%
Expected volatility ....................................... 61.0% 46.0% 35.0%
Expected dividend yield ................................... 0.4% 0.2% 0.1%

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.

35
37

10. COMMITMENTS AND CONTINGENCIES

The Company leases land, buildings, machinery, equipment and furniture
under various noncancelable operating lease agreements. At December 31, 1999,
future minimum lease payments under noncancelable operating leases were as
follows (in millions):

2000................................ $ 12.2
2001................................ 11.1
2002................................ 9.3
2003................................ 8.0
2004................................ 7.0
Thereafter.......................... 35.1
------
$ 82.7
======

Total lease expense under noncancelable operating leases was $14.5
million, $15.9 million and $16.8 million, for the years ended December 31, 1999,
1998 and 1997, 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, 1999, the Company was obligated under certain
circumstances to purchase through the year 2002 up to $70.6 million of equipment
upon expiration of certain operating leases between Agricredit, the Company's
retail finance joint venture 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.

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38

11. 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 1999, 1998 and 1997 are as follows (in millions):

EUROPE/AFRICA/
NORTH AMERICA SOUTH AMERICA MIDDLE EAST ASIA/PACIFIC CONSOLIDATED
------------- ------------- -------------- ------------ ------------

1999
Net Sales ............................. $ 613.0 $ 197.1 $1,507.5 $ 95.7 $2,413.3
Income (loss) from operations ......... (25.3) (14.1) 116.5 13.6 90.7
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 ............................. $ 940.9 $ 15.3 $1,597.8 $ 87.4 $2,941.4
Income from operations ................ 57.0 13.5 136.2 15.8 222.5
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

1997
Net Sales ............................. $ 956.6 $ 334.3 $1,781.4 $ 152.1 $3,224.4
Income from operations ................ 108.3 19.3 192.4 32.1 352.1
Depreciation and amortization ......... 11.1 9.4 27.2 1.7 49.4
Assets ................................ 799.9 245.2 926.4 33.6 2,005.1
Capital expenditures .................. 20.4 7.2 44.4 0.1 72.1

A reconciliation from the segment information to the consolidated
balances for income from operations and assets is set forth below (in millions):

1999 1998 1997
-------- -------- --------

Segment income from operations ...................... $ 90.7 $ 222.5 $ 352.1
Restricted stock compensation expense ............... (8.5) (12.0) (14.8)
Restructuring and other infrequent expenses ......... (24.5) (40.0) (18.2)
Amortization of intangibles ......................... (14.8) (13.2) (12.1)
-------- -------- --------
Consolidated income from operations ................. $ 42.9 $ 157.3 $ 307.0
======== ======== ========

Segment assets ...................................... $1,617.3 $2,090.3 $2,005.1
Cash and cash equivalents ........................... 19.6 15.9 31.2
Receivables from affiliates ......................... 12.8 15.2 18.5
Investments in affiliates ........................... 93.6 95.2 87.6
Other current and noncurrent assets ................. 217.3 163.3 139.5
Intangible assets, net .............................. 312.6 370.5 339.0
-------- -------- --------
Consolidated total assets ........................... $2,273.2 $2,750.4 $2,620.9
======== ======== ========

37
39

Net sales by customer location for the years ended December 31, 1999,
1998 and 1997 were as follows (in millions):

1999 1998 1997
-------- -------- --------

Net Sales:
United States .................................... $ 479.8 $ 759.0 $ 738.5
Canada ........................................ 92.1 142.4 182.6
Germany ....................................... 439.5 449.3 470.5
France ........................................ 315.2 321.5 347.8
United Kingdom and Ireland .................... 137.4 122.2 179.5
Other Europe .................................. 480.4 540.3 614.6
South America ................................. 197.1 315.3 334.3
Middle East ................................... 97.5 115.8 105.7
Asia .......................................... 48.4 36.7 87.8
Australia ..................................... 47.3 50.7 64.3
Africa ........................................ 37.5 48.7 63.3
Mexico, Central America and Caribbean ......... 41.1 39.5 35.5
-------- -------- --------
$2,413.3 $2,941.4 $3,224.4
======== ======== ========

Net sales by product for the years ended December 31, 1999, 1998 and
1997 were as follows (in millions):

1999 1998 1997
-------- -------- --------

Net sales:
Tractors ......................................... $1,540.3 $1,838.8 $1,990.6
Combines ......................................... 162.3 293.5 330.5
Other machinery .................................. 253.5 318.5 389.7
Replacement parts ................................ 457.2 490.6 513.6
-------- -------- --------
$2,413.3 $2,941.4 $3,224.4
======== ======== ========