Massey Ferguson

Massey-Ferguson Limited, a multinational producer of farm machinery, industrial machinery, and diesel engines, was founded in 1847 and by 1980 had manufacturing and assembly operations in 31 countries throughout the world. Massey-Ferguson was the West’s largest producer of farm tractors and the world’s largest supplier of diesel engines to original equipment manufacturers. In 1978 however, Massey reported an unprecedented year-end loss of U. S. $262. 2 million. The new president, Victor A. Rice, pledged to restore Massey to profitability by the end of its 1979 fiscal year.

Massey did show a profit of U. S. $37. 0 million in 1979, but reported a loss on continuing operations of U. S. $35. 4 million (see Exhibit 2). Sales in the first half of fiscal 1980 were up, but earnings remained severely depressed. (Historical financial data are provided in Exhibits 1–4. ) In April of 1980 a preferred share issue of Can. $300 million to $500 million1 was postponed indefinitely. The postponement was attributed to Massey’s operating problems and to the fact that Argus Corporation, Massey’s largest shareholder, refused to take a block of the preferreds as a vote of confidence in Massey.

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As 1980 progressed, it became apparent that without an equity infusion, Massey would be in default of several loan covenants before the end of the fiscal year (October 31, 1980). Cross-default provisions made substantially all long- and short-term debts callable if any single default occurred. If Massey’s lenders then cut off credit and moved to secure their loans, company operations would quickly come to a halt. Plant shutdowns, further worker layoffs, and a liquidation of corporate assets would follow. Creditors and customers around the world wondered if Massey would make it through the looming financial crisis. Company Background

Massey-Ferguson had been called “the one true multinational. ” Its products—farm equipment, industrial machinery, and diesel engines—were sold throughout the world by dealers, distributors, and company retail outlets. (Exhibit 5 shows a breakdown of 1980 sales by national markets. Table A summarizes Massey-Ferguson’s sales by product line and geographical area. ) 1 In 1980, the Canadian dollar was trading in the range of U. S. $. 80–. 85. ____________________________________________________________ ____________________________________________________ HBS cases are developed solely as the basis for class discussion.

Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. Copyright © 1982 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to http://www. hbsp. harvard. edu. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of Harvard Business School. 82-043 Massey-Ferguson, 1980 Table A Breakdown of Massey-Ferguson’s 1980 Sales (in U. S. $ millions) Farm and Industrial Equipment Percentage of Sales Geographically Diesel Engines $599 Sales North America (U. S. , Canada, Mexico) Western Europe Rest of world $2,533 33. 2% 35. 6 31. 2% Source: Massey-Ferguson annual report Massey’s production facilities were also dispersed around the world. (Exhibit 5 shows the distribution of MF capacity by country. ) Massey’s largest facilities were located in Canada (Brantford and Toronto), France (Marquette), England (Coventry), and Australia (Melbourne).

Diesel engine production was concentrated in England (Peterborough). In certain markets, primarily North America, Massey financed retail sales of farm and industrial machinery through wholly owned finance subsidiaries. In Europe and Australia, Massey’s finance subsidiaries were primarily involved in financing sales to distributors, but they could also finance dealer receivables in their home markets. In October 1980 Massey’s finance subsidiaries had assets totaling U. S. $1,130. 6 million and outstanding debts of U. S. $825. 6 million. (Massey’s finance subsidiaries are not consolidated in the financial statements of Exhibits 1–4. Massey’s Products Farm and industrial machinery Massey’s farm machinery line consisted of tractors, combine harvesters, balers, forage harvesters, cane harvesters, agricultural implements, farmstead equipment, and other equipment for agricultural use. The industrial machinery line consisted of industrial tractors, tractor loaders, tractor/loader/backhoes, rough-terrain forklifts, skid steer loaders, utility loaders, and log skidders. In 1980 Massey held 17% of the worldwide market for tractors, 14% of the market for combines, and 13% of the market for industrial machinery.

Massey’s competition in farm and industrial machinery included both large, multinational companies with full product lines and medium-to-small companies conducting business locally with a limited range of products. In the large North American farm equipment market, Massey had traditionally ranked third in sales of farm equipment behind Deere & Co. and International Harvester. However, in 1980 it held first or second position in markets for small (30-90-HP) tractors and combine harvesters. (Exhibit 6 compares Massey’s sales, operating, and financial data with Deere and Harvester for the years 1976–1980. Historically, Massey’s strength had been in markets outside North America and Western Europe. In less-developed countries, Massey had success in dealing directly with governments or public institutions. During the 1970s Massey entered into agreements to supply farm equipment or construct manufacturing facilities in Peru, Pakistan, Egypt, Iran, Libya, Mozambique, Turkey, Saudi Arabia, Sri Lanka, and the Sudan. In 1974 Massey obtained a $360 million contract to modernize and expand Poland’s tractor and diesel engine industry. 2 Massey-Ferguson, 1980 282-043

Diesel engines Diesel engines were produced in England by the Perkins Engine Group. Perkins produced 60 basic models of multicylinder diesel engines in the 30- to 300-brake horsepower range. Perkins engines were used in Massey-Ferguson’s equipment and were also sold to manufacturers of a wide variety of agricultural, industrial, and construction equipment. In 1980 Perkins exported 86% of its product; over 50% of its exports were to Massey-Ferguson’s subsidiaries and affiliates. Because of rising gasoline prices, many auto and equipment manufacturers were expanding research and development in diesel engines.

The emerging market for small, high-powered engines used in automobiles and light trucks was particularly promising. Perkins’s long-range business plan called for it to maintain and increase its market share in areas such as agriculture vehicles, industrial and construction equipment, and marine craft. Perkins also was engaged in research on the dieselization of gasoline engines and the development of engines capable of operating on a variety of fuels. Massey’s Financial Difficulties During the 1960s and 1970s, Massey-Ferguson was involved in an ambitious program of acquiring assets and expanding operations.

The 1970s were years of dramatic growth financed by debt, much of it short term. By 1978 Massey’s debt-to-equity ratio stood at 214% (see Exhibit 4). In that year, Massey lost U. S. $262 million. Management attributed the massive loss to (1) the imposition of credit and monetary restrictions in Argentina and Brazil, which caused sharp declines in farm machinery sales; (2) the decline in North American farm prices and incomes; (3) poor weather in Western Europe; and (4) high interest rates, which raised the cost of carrying excess inventory.

Between 1978 and 1980, Massey reacted to the loss by cutting its labor force from 68,000 to 47,000 and its manufacturing space from 30 million to 20 million square feet. The company reduced inventories from U. S. $1,083. 2 million to U. S. $988. 9 million. Unprofitable operations in the manufacture of office furniture, garden tractors, and construction machinery were eliminated, and 24 plants were closed. The divestment program initiated in 1978 resulted in the sale of more than U. S. $300 million in assets by 1980.

Despite these efforts, in fiscal 1979 Massey’s loss on continuing operations was U. S. $35. 4 million, or U. S. $2. 38 per share; losses from discontinued operations amounted to another U. S. $23. 0 million. The company showed a positive net income in 1979 only as a result of an extraordinary item reflecting the recovery of previous years’ taxes. In the first three quarters of fiscal 1980, Massey’s financial condition deteriorated even further. At the end of the third quarter, year-to-date losses totaled U. S. 62 million, including an unfavorable currency adjustment of U. S. $37 million. Preliminary reports indicated that Massey’s fourth-quarter losses would be as high as those of the three previous quarters combined. Massey’s continuing problems were caused by high interest rates, low demand, lack of alignment between products and markets, and failure to penetrate the North American market. Interest rates The high interest rates of 1979 and 1980 had a doubly negative impact on Massey’s performance. First, the cost of Massey’s short-term debt rose dramatically.

Second, high interest rates depressed markets for farm and industrial machinery and thus hurt company sales. Demand The North American market for farm machinery crashed in the fall of 1980. The decline in demand was attributed to high interest rates, an economic recession, the Soviet grain 3 282-043 Massey-Ferguson, 1980 embargo, and a severe drought during the summer of 1980. Because of the recession, European and Third World markets were also severely depressed. The recession made 1980 a difficult year for all farm equipment manufacturers.

In North America, both Deere and Harvester experienced reduced sales and profits and showed sharp increases in short- and long-term debt. By the end of 1980, International Harvester was in technical violation of debt covenants and was in the process of negotiating a refinancing plan with its bankers. Product-market alignment Massey’s farm equipment production was in rough regional alignment with its sales. At the margin, North America and the United Kingdom were net suppliers to the rest of the world (see Table A and Exhibit 5). Engine production, however, was heavily concentrated in the United Kingdom.

In 1980, with the influx of North Sea oil, the pound rose dramatically relative to currencies in which Massey sold its products. The high price of the pound increased Massey’s cost of goods sold, reducing margins and thus hurting the competitiveness of Massey’s products. Lack of alignment between production sites and markets meant that currency fluctuations were a recurring problem for Massey-Ferguson. For example, in 1974 Massey purchased Hanomag, a West German construction equipment manufacturer. The venture was unprofitable in part because the strong German mark made its exports too costly in world markets.

In 1980 the Hanomag subsidiary was sold to IBH Holdings for an undisclosed amount. Massey-Ferguson’s product-market alignment would continue to have an unfavorable impact on profits as long as the British pound was strong and the company’s operations concentrated in the United Kingdom. However, political risk argued against matching production and sales on a country-by-country basis. Although successful in negotiating directly with Third World and Eastern bloc governments, Massey was vulnerable to changing political conditions in these countries.

During the 1970s, several governments with whom Massey had dealings—including Iran, Pakistan, Libya, and Poland—were overthrown as a result of coups or civil unrest. Economies of scale in engine production also made it advisable to concentrate facilities at a few sites. One possibility discussed within Massey was to relocate capacity at the margin in Canada. Concentration of assets in Canada would bring the company closer to North American markets and make its costs similar to those of Deere and Harvester.

Massey already had two large Canadian facilities, forming a base on which it could expand. North American efforts In the 1960s Massey concentrated its marketing and product development efforts overseas. As a result, the company lagged in its development of the highhorsepower tractors and combines desired by farmers in the Canadian and U. S. farm belts. In 1975 Massey turned its attention to the North American market, introducing a new range of 34to 81-HP tractors as well as an improved baler line. In 1978 Massey introduced large, highhorsepower tractors in Europe and North America.

Management claimed in its 1978 annual report: These new products will make Massey-Ferguson fully competitive in North American and European markets and will demonstrate the company’s ability to design, produce, and market large tractors as successfully as tractors in the 40- to 90-horsepower range. Unfortunately, Massey’s drive into North America coincided with a depressed market and the beginnings of its own financial difficulties. Doubts about the future of the company eroded sales and weakened the distribution network. During 1980 the number of Massey’s dealerships in North America fell by 50%—from 3,600 to 1,800. Massey-Ferguson, 1980 282-043 The Future Despite these problems, and even though in the fall of 1980 worldwide demand for farm equipment stood at depression levels, management continued to be optimistic about the future. In the 1980 annual report, Rice reaffirmed that the cost-cutting efforts initiated in 1978 had made Massey a viable company. As evidence, he pointed to a 1% increase in Massey’s worldwide tractor sales over the first nine months of 1980—an increase achieved in spite of the collapse of the North American market (Exhibit 2).

However, in order to take advantage of its long-run opportunities, Massey had to raise capital to finance its investment programs. New funds were needed for (1) ongoing R&D for new-product development; (2) repair and replacement of existing facilities; (3) reallocation of facilities from the United Kingdom to Canada; (4) penetration of the North American market; (5) defense of markets in Europe and the rest of the world; (6) further growth in the Third World; and (7) Perkins’s prospective entry into the market for small diesel engines.

It was not known for sure how much would be needed for each of these programs, but, in aggregate, they might require U. S. $500–$700 million over the next five years. A major unresolved question was the future of the Perkins Engine subsidiary. Perkins was Massey’s most valuable salable asset, but at the same time, diesel engines were the company’s best hope for profitable future growth. Some thought that Massey should seek to cut its currency exchange losses while concurrently pleasing the governments of Canada and Ontario by setting up diesel engine production in Canada.

The possibility of selling Perkins to a third party was also discussed; however, some felt that Perkins’s future depended on the existence of a healthy MasseyFerguson that was able to buy Perkins products. The most immediate problem, however, was to engineer Massey’s survival. By mid-1980 all expenditures except those necessary to continue operations had been suspended in an effort to conserve cash. Despite these efforts, the cash continued to flow out; by September, bank lines were nearly exhausted and the company’s position became daily more precarious.

A major restructuring of claims on Massey-Ferguson was necessary. However, to achieve a restructuring, Massey’s lenders and major shareholders had to consent to a refinancing plan. By September 1980 top management knew that a default on Massey’s existing debt was practically inevitable at the fiscal year end (October 31). Once Massey defaulted, any lender could potentially trigger a worldwide scramble for assets that would bring company operations to a halt. For this reason, the economic interest of each category of claimant had to be carefully considered to be sure that any refinancing plan proposed would e acceptable to all. The Players The banks As of late fiscal 1980 Massey-Ferguson had total debt of U. S. $1. 6 billion outstanding with more than 100 banks around the world. Exhibits 7 and 8 provide a breakdown of Massey’s short-term lines of credit and long-term debt. Most of the borrowing was unsecured. In addition, Massey’s finance company subsidiaries owed another U. S. $825 million worldwide. Finance company debt usually was not guaranteed, but Massey had agreed to maintain assets in the subsidiaries in certain specified relationships to their indebtedness.

As Exhibits 7 and 8 show, Massey’s borrowings were dispersed among lenders in Canada, Great Britain, West Germany, France, Italy, and the United States. Except for a consortium of U. S. banks 5 282-043 Massey-Ferguson, 1980 that had issued a revolving credit, most lenders operated independently of one another. The numerous covenants related to these loans hampered Massey’s free access to the capital markets. For example, before Massey could issue new preferred shares (as it had proposed to do in April 1980), it had to pay accumulated preferred dividends, which were U. S. 14 million in arrears as of December 1979. But, since March 1978 when Massey announced first losses, covenants on certain U. S. loans had caused dividends to both preferred and common shares to be suspended. The Canadian Imperial Bank of Commerce was Massey’s largest lender, with an aggregate exposure estimated at between Can. $200 million and $300 million. Commerce had ties not only to Massey-Ferguson but to Massey’s largest shareholder, Argus Corporation. Conrad Black, Massey’s chairman from 1978 to 1980 and president of Argus from 1978, was made a director of the bank in 1980.

Argus Corporation Since the 1960s, Argus Corporation, a Canadian holding company, had owned a controlling interest in Massey-Ferguson. Argus’s philosophy was to make major investments in a small number of promising enterprises. In 1956, shortly after Massey Harris merged with the Ferguson Company to become Massey-Ferguson, several Argus directors had played a major role in saving the newly formed company from bankruptcy by forcing it to liquidate certain assets and cut its prices on farm equipment. In 1980 Argus held 16. 5% of the outstanding shares.

Six of the 18 board members were Argus appointees. In 1978 Conrad Black, age 34, son of one of the founders of Argus, took over as president of Argus and, as a result, became chairman of the board of Massey-Ferguson. Black picked Victor Rice to succeed Albert Thornburgh as Massey’s president; two years later in 1980, Black relinquished the chairmanship of Massey to Rice. Argus was considered by the financial community to be a potential source of equity capital for Massey, but Black’s public comments on the company were highly equivocal.

In a 1979 interview, Black indicated that Argus was “not interested in putting up a lot of money and staying at 16%. ” He expressed surprise that Massey’s lenders kept approaching him for advice when Argus held only 16% of the stock and was therefore much less exposed than the major lenders. There were also perennial rumors that “Conrad Black has been trying to peddle Massey-Ferguson’s stock. ” In April 1980 a preferred stock issue was postponed, in part because Argus was reluctant to take a block of shares. Chairman Black was quoted as saying, “We could finance the company tomorrow.

I’m not going to get panicky. We’re good for another year. ” Black also maintained that he was willing to contribute Can. $100 million to $500 million to Massey-Ferguson “on the right terms. ” Other preferred and common shareholders Massey had two issues of preferred stock outstanding—Series A and B. Each had a liquidation value of $25 per share and was entitled to annual cumulative dividends of $2. 50 per share. A total of 1,526,300 shares of Series A preferred had been issued in April 1975, followed by 2,298,500 shares of Series B in March of 1976.

The purpose of each issue was “to reduce [Massey’s] short-term debt. ” Dividends on the preferred shares were suspended in 1978. Indentures provided that after a failure to pay dividends for eight quarters, shareholders of each class of preferred stock would have the right to elect two members to Massey’s board of directors. Board representation was attained by Series B shareholders in March 1980 and by Series A shareholders in April 1980. Massey’s 18,250,000 shares of common stock were listed on the New York, London, Toronto, Montreal, and Vancouver stock exchanges.

From January 1976 through July 31, 1980, Massey lost 167/8 points per share, or 69% of market value (see Exhibit 9). Over the same period, the New York Stock Exchange Composite index gained 30%. 6 Massey-Ferguson, 1980 282-043 The governments of Canada, Ontario, and the United Kingdom For some time Rice and Black had been trying to convince the governments of Canada, Ontario, and the United Kingdom to intervene on Massey’s behalf. Massey had approached the Trudeau and Thatcher governments for aid as early as June 1980.

The governments were anxious to avoid a loss of jobs (6,700 in Ontario and 17,000 in the combined Massey and Perkins operations in the United Kingdom); but in both Canada and the United Kingdom, there was strong resistance to bailing out a privately owned multinational. Talks with the governments were continuing, but very little progress had been made and time was rapidly running out. The Situation: The Fourth Quarter of 1980 In August 1980 the international financial press reported that the Canadian governments were considering some form of financial assistance for Massey.

It was said that Rice hoped to make a positive announcement when Massey released its third-quarter results in September. Black was quoted: It’s fair to assume that if there isn’t any indication of possibility of some equity when thirdquarter results are released, the situation could become quite hairy. . . . Either Massey is going to go right under or the company will be restored, not only to its former position but to a position of strength it hasn’t known before. In September, Massey postponed publication of its third-quarter results as talks continued with the Canadian governments.

By October, Massey and its finance subsidiaries had debt of U. S. $2. 5 billion outstanding to 150 banks worldwide, and speculation on the probability of Massey’s survival was rampant. Only a few weeks remained before the November 1 deadline when Massey would be technically in default on several loans. Cross-default provisions made substantially all outstanding loans callable if any single default occurred. Suddenly, on October 2, 1980, Argus donated its 16. 5% controlling interest to Massey-Ferguson’s two pension funds. This move made Massey the world’s largest employee-controlled corporation and resulted in a Can. 23 million tax write-off for Argus. On the same day, the government of Canada announced it would “work closely” with Massey to achieve a refinancing. Two weeks later, on October 20, 1980, the governments of Canada and Ontario announced they had reached an agreement in principle with Massey and its major lenders: The governments are prepared to guarantee the capital risk of a portion of the new equity investment in Massey, providing various conditions are met, including a satisfactory degree of cooperation from the existing lenders. The press attributed the governments’ actions to the upcoming Ontario provincial election and the need to protect jobs. According to the Economist (October 26, 1980): While the federal government is Liberal, Ontario is still Conservative. . . . It needs both the Massey jobs and Mr. Black, a Conservative supporter, who is in favor of more Massey 2 The Wall Street Journal, October 21, 1980. 7 282-043 Massey-Ferguson, 1980 investment in Canada. . . . Meanwhile, the Trudeau government is trying to use Massey to help its constitutional plans. However, other press reports indicated that the governments had been forced to act, and “in effect [they are] still supplying only inexpensive moral support for the company at this time. ” On October 31 Massey-Ferguson closed its books on fiscal year 1980. The loss for the year (subsequently reported) amounted to U. S. $225. 2 million, or $12. 79 per share. Scheduled principal repayments were suspended in October; interest payments were suspended on December 1, 1980. Massey-Ferguson began fiscal year 1981 in default on its $2. 5 billion of outstanding debt.

The company’s future depended on the ability of lenders, the governments of Canada and Ontario, and management to agree on a feasible refinancing plan. In the course of the continuing negotiations, serious questions were raised about Massey’s long-term ability to compete in its industry. Persons close to the situation wondered what sort of restructuring would allow the company to survive, and whether Massey would ever regain its status as a self-sufficient corporation. 3 The repatriation of the Constitution was a major political issue in Canada in 1980 and 1981. 8 Massey-Ferguson, 1980 282-043 Exhibit 1

Consolidated Balance Sheet, October 31, 1978–1980 (U. S. $ millions) 1980 Assets Current assets Cash Receivables Inventories Prepaid expenses and other current assets Total current assets Investments Fixed assets, net Other assets and deferred charges Total Liabilities Current liabilities Bank borrowings Current portion of LTD Accounts payable and accrued charges Other current liabilities Total current liabilities Deferred income tax Long-term debt (less current portion) Minority interest in subsidiaries Contingent liabilities and commitments Shareholders’ equity Redeemable preferred shares Common (18,250,350) Retained earnings Total 979 1978 $56. 2 968. 2 988. 9 93. 0 $2,106. 3 205. 8 488. 2 27. 3 $2,827. 6 $17. 2 731. 1 1,097. 6 89. 8 $1,935. 7 217. 1 568. 7 24. 0 $2,745. 5 $23. 4 531. 3 1,083. 8 63. 8 $1,702. 3 213. 3 602. 2 29. 3 $2,547. 1 $1,015. 1 60. 2 793. 8 24. 5 $1,893. 6 14. 3 562. 1 4. 5 — 95. 8 176. 9 80. 4 $2,827. 6 $511. 7 59. 3 907. 4 31. 1 $1,509. 5 13. 8 624. 8 19. 1 — 95. 8 176. 9 305. 6 $2,745. 5 $362. 3 115. 0 778. 7 16. 1 $1,272. 1 64. 3 651. 8 18. 4 — 95. 8 176. 9 267. 8 $2,547. 1 9 282-043 Massey-Ferguson, 1980 Exhibit 2 Consolidated Statements of Income, 1978–1980 (U. S. $ millions) 980 Net sales Costs and expenses Cost of goods sold, translated at average exchange rates for the year Effect of foreign currency exchange rate Marketing, general and administrative Engineering and product development Interest on long-term debt Other interest expense Interest income Exchange adjustments Minority interest Miscellaneous income Total costs and expenses Profit (loss) before items shown below Provision for reorganization expense Income tax recovery Equity in net income of finance subsidiaries Equity in net income of associate companies Income (loss) from continuing operations Loss from discontinued operations Extraordinary item Net income (loss) Unfavorable (favorable) impact on continuing operations of exchange adjustments and foreign currency exchange rate changes in cost of goods sold changesa 2,568. 5 7. 7 2,576. 2 404. 7 59. 7 71. 0 229. 9 (42. 0) 49. 9 0. 2 (13. 5) 3,336. 1 (204. 0) (28. 5) 10. 1 22. 7 — (199. 7) (25. 5) — (225. 2) $3,132. 1 Years Ended October 31 1979 $2,973. 0 1978 $2,925. 5 2,381. 8 18. 6 2,400. 4 351. 9 58. 2 75. 7 128. 8 (40. 3) (24. 9) 1. 4 (10. 3) 2,940. 9 32. 1 (95. 0) 6. 3 16. 6 4. 6 (35. 4) (23. 0) 95. 4 37. 0 2,371. — 2,371. 2 372. 0 66. 0 78. 6 108. 0b — 90. 9 (0. 8) (10. 6) 3,075. 3 (149. 8) (116. 0) (11. 8) 16. 3 4. 6 (256. 7) — — $(256. 7) $57. 6 $(6. 3) — aThis item is the difference between cost of goods sold translated to U. S. dollars at average exchange rates and such costs translated at historical rates. bAmount shown is net of interest income. 10 Massey-Ferguson, 1980 282-043 Exhibit 3 Consolidated Statement of Changes in Financial Position (U. S. $ millions) 1980 Source of funds Disposal of investments in associate companies and changes in long-term advances to finance subsidiaries Proceeds on disposal of fixed assets Extraordinary item (less $31. million in 1979 not affecting working capital) Proceeds from long-term debt issues Total funds provided Use of funds Funds used in operations Reductions in long-term debt Additions in fixed assets Other (net) Total funds used Working capital At beginning of year At end of year Decrease in working capital Changes in elements of working capital Current assets—increase (decrease): Cash Receivables Inventories Prepaid expenses and other current assets Total Current liabilities—(increase) decrease: Bank borrowing and current portion of long-term debt Accounts payable and accrued charges Accrued charges Income, sales and other taxes payable Advance payments from customers Decrease in working capital Years Ended October 31 1979 1978 $41. 3 34. 1 — — $75. 4 $29. 1 31. 1 64. 0 35. 8 $160. 0 — 11. 3 — 169. 0 $180. 3 $168. 4 67. 1 46. 2 7. 2 $288. 9 $30. 0 59. 0 76. 6 (0. 7) $164. 9 $176. 2 158. 6 99. 3 18. 2 $452. 3 426. 2 212. 7 (213. 5) 431. 1 426. 2 (4. 9) 703. 1 431. 1 (272. 0) 39. 0 237. 1 (108. 7) 3. 2 $170. 6 (6. 3) 174. 4 13. 8 26. 0 $207. 9 10. 8 (19. 9) (52. 1) (8. 4) $(69. 6) (504. 3) 54. 3 59. 3 6. 0 0. 6 $(384. 1) $(213. 5) (93. 8) (156. 0) 33. 4 3. 6 $(212. 8) $(4. 9) (132. 2) (55. 1) (5. 4) (9. 7) $(202. 4) $(272. 0) 11 282-043 Massey-Ferguson, 1980 Exhibit 4 10-Year Financial Statement (U. S. millions) (continued below) 1980 % 100% (4)% (7)% 2% 34% 35% 3% 74% 17% 9% 100% 36% 2% 29% 67% 20% 1% 12% 100% 1979 $2,973 (30) 37 17 731 1,098 90 $1,936 569 241 $2,746 $512 59 938 $1,509 625 33 579 $2,746 % 100% (1)% 1% % 56 968 989 93 $2,106 488 234 $2,828 $1,015 60 819 $1,894 562 19 353 $2,828 1% 27% 40% 3% 71% 21% 8% 100% 19% 2% 34% 55% 23% 1% 21% 100% 23 531 1,084 64 $1,702 602 243 $2,547 $362 115 795 $1,272 652 82 541 $2,547 1% 21% 43% 2% 67% 24% 9% 100% 14% 5% 31% 50% 26% 3% 21% 100% 13 542 1,136 81 $1,772 594 228 $2,594 $249 96 730 $1,075 616 96 807 $2,594 — 21% 44% 3% 68% 23% 9% 100% 10% 4% 28% 42% 24% 3% 31% 100% 7 558 967 83 $1,615 519 171 $2,305 $113 66 704 $883 529 90 803 $2,305 — 24% 42% 4% 70% 23% 7% 100% 5% 3% 30% 38% 23% 4% 35% 100% 1978 $2,631 (133) (262) % 100% (5)% (10)% 1977 $2,862 77 32 % 100% 3% 1% 1976 $2,774 126 108 % 100% 5% 4% Sales Operating profita Net incomeb Assets Cash Receivables Inventory Other current assets Current assets Net property, plant and equipment Other assets and investments Total assets Liabilities Bank borrowings LTD due in one year Other current liabilities Total current liabilities Long-term debt Other liabilities Owners’ equity Total liabilities and owners’ equity $3,132 (139) (225) 975 Sales Operating profita Net incomeb Assets Cash Receivables Inventory Other current assets Current assets Net property, plant and equipment Other assets and investments Total assets Liabilities Bank borrowings LTD due in one year Other current liabilities Total current liabilities Long-term debt Other liabilities Owners’ equity Total liabilities and owners’ equity $170 47 613 $830 452 63 652 $1,997 20 485 878 72 $1,455 401 141 $1,997 $2,554 111 100 % 100% 4% 4% 1% 24% 44% 4% 73% 20% 7% 100% 9% 2% 31% 42% 23% 3% 32% 100% 1974 $1,791 — — 13 433 711 66 $1,223 278 113 $1,614 $163 16 542 $721 325 44 524 $1,614 % 100% — — 1% 27% 44% 4% 76% 17% 7% 100% 10% 1% 34% 45% 20% 3% 32% 100% 1973 $1,497 — — 8 417 461 53 $939 205 105 $1,249 $81 13 406 $500 244 35 470 $1,249 100% — — 1% 33% 37% 4% 75% 16% 9% 100% 6% 1% 32% 39% 20% 3% 38% 100% 1972 $1,190 — — 10 368 362 33 $773 180 104 $1,057 $139 11 251 $401 196 16 444 $1,057 % 100% — — 1% 35% 34% 3% 73% 17% 10% 100% 13% 1% 24% 38% 18% 1% 43% 100% 1971 $1,029 — — 33 339 335 31 $738 186 87 $1,011 $168 10 224 $402 187 18 404 $1,011 % 100% — — 3% 33% 33% 3% 72%% 19% 9% 100% 17% 1% 22% 40% 18% 2% 40% 100% aOperating profit (loss) is defined as total revenue less those recurring expenses that are controllable by management. It excludes extraordinary items, net exchange adjustments, and reorganization expense pertaining to continuing operations. bPrior to 1978, results reflect sales and income from construction machinery businesses.

After 1978, construction machinery is treated as a discontinued operation. 12 Massey-Ferguson, 1980 282-043 Exhibit 5 Massey-Ferguson Worldwide Sales and Distribution of Capacity by Country, 1980 1980 Sales Amount in U. S. $ millions North America Canada United States Mexico % Percentage of Capacity Farm Diesel Equipment Engines $219 819 75 1,113 7. 0% 26. 1% 2. 4% 35. 5% 27. 4% 14. 6% —% 42. 0% —% 3. 4% —% 3. 4% Western Europe United Kingdom France Italy West Germany Spain Benelux 297 227 211 157 8 28 928 9. 5% 7. 2% 6. 7% 5. 0% . 3% . 9% 29. 6% 15. 6% 10. 2% 8. 0% 5. 5% —% —% 39. 3% 76. 7% 1. 0% —% —% —% —% 77. 7% % 17. 9% —% 17. 9% South America Brazil Argentina 306 44 350 9. 8% 1. 4% 11. 2% 6. 4% 1. 8% 8. 2%

Oceania Australia Scandinavia South Africa Iran Pakistan Japan Turkey All others Total 131 114 66 31 29 25 14 331 $3,132 4. 2% 3. 6% 2. 1% 1. 0% . 9% . 8% . 4% 10. 6% 100. 0% 10. 5% —% —% —% —% —% —% —% 100. 0% 1. 0% —% —% —% —% —% —% —% 100. 0% 13 282-043 Massey-Ferguson, 1980 Exhibit 6 Comparative Data on Farm Equipment Producers, 1976–1980 (all income, asset, and liability data in U. S. $ millions) 1980 Massey-Ferguson Limited Sales Operating profita Net income Assets Short-term debtb Long-term debt Equity Capital expenditures Operating profit/sales Net income/sales STD/capitalc Total debt/capital Sales/assets Coveraged Market sharee Capital xpenditures sharef International Harvester Sales Agricultural sales a Operating profit, firm Operating profit, agriculture Net income Assets Agricultural assets Short-term debtb Long-term debt Equity Capital expenditures Operating profit/sales Agricultural operating profit/agricultural sales Net income/sales c STD/capital Total debt/capital Sales/assets Agricultural sales/agricultural assets Coveraged Market sharee f Capital expenditures share Deere & Company Sales Operating profita Net income Assets Short-term debtb Long-term debt Equity Capital expenditures Operating profit/sales Net income/sales c STD/capital Total debt/capital Sales/assets Coveraged Market sharee f Capital expenditures share $3,132 (139) (225) 2,828 1,075 415 353 $46 (4. 44%) (7. 19%) 58. 33% 80. 85% 1. 11 0. 46 28. 19% 7. 43% 1979 $2,973 (30) 37 2,746 571 478 578 $77 (1. 01%) 1. 24% 35. 09% 64. 46% 1. 08 0. 82 27. 09% 17. 2% 1978 $2,925 (133) (257) 2,547 477 505 541 $99 (4. 55%) (8. 77%) 31. 35% 64. 50% 1. 15 0. 14 31. 03% 24. 69% 1977 $2,805 77 33 2,594 345 469 807 $147 2. 74% 1. 17% 21. 29% 50. 24% 1. 08 1. 42 32. 08% 33. 10% 1976 $2,772 126 118 2,305 180 529 803 $175 4. 55% 4. 25% 11. 89% 46. 90% 1. 20 2. 10 33. 94% 47. 80% $6,312 2,507 (262) (1) (397) 5,843 1,739 860 1,327 1,896 $384 (4. 15%) (0. 04%) (6. 29%) 21. 07% 53. 56% 1. 08 1. 44 0. 24 22. 57% 24. 62% $8,392 3,069 827 442 370 5,247 1,548 442 948 2,199 $285 9. 85% 14. 40% 4. 40% 12. 31% 38. 73% 1. 60 1. 98 4. 92 27. 96% 23. 30% $6,664 $2,348 610 298 187 4,316 1,385 380 933 1,876 $210 9. 15% 12. 25% 2. 80% 11. 1% 41. 16% 1. 54 1. 70 4. 21 24. 90% 18. 45% $5,975 2,334 531 0 204 3,788 0 292 926 1,734 $164 8. 89% — 3. 41% 9. 90% 41. 28% 1. 58 — 4. 11 26. 70% 14. 43% $5,498 2,262 473 0 173 3,575 0 302 923 1,564 $158 8. 61% — 3. 15% 10. 84% 43. 93% 1. 54 — 3. 66 27. 70% 17. 79% $5,470 470 228 5,202 742 702 2,141 $421 8. 59% 4. 17% 20. 69% 40. 28% 1. 05 3. 19 49. 24% 67. 96% $4,933 564 311 4,179 202 619 1,974 $266 11. 43% 6. 30% 7. 22% 29. 36% 1. 18 6. 32 44. 95% 59. 48% $4,155 537 265 3,892 137 637 1,756 $228 12. 92% 6. 37% 5. 43% 30. 61% 1. 07 6. 38 44. 07% 56. 86% $3,604 483 256 3,429 242 482 1,571 $233 13. 40% 7. 09% 10. 55% 31. 55% 1. 05 6. 32 41. 22% 52. 7% $3,134 438 242 2,944 134 494 1,379 $126 13. 98% 7. 71% 6. 69% 31. 31% 1. 06 6. 15 38. 37% 34. 41% aCasewriter’s estimates. Operating profit excludes extraordinary items, foreign exchange gains or losses, and reorganization expense on continuing operations. bShort-term debt equals bank borrowing plus long-term debt due in one year. cCapital equals long- and short-term debt plus equity. dCoverage is here defined as operating profit plus interest and lease rental expense divided by interest and lease rental expense plus preferred dividends. No adjustment for taxes was made because of the unstable tax status of these companies in this period.

As a result, Deere’s actual coverage is understated relative to Massey’s in all years, as is Harvester’s in 1980. eFor each company, market share is calculated as own sales (agricultural only for Harvester) divided by total (three company) agricultural sales. fFor each company, capital expenditure share is calculated as own capital expenditures divided by total (three company) capital expenditures. Harvester’s total capital expenditures are adjusted by the ratio of its agricultural sales to total sales. 14 282-043 -15- Exhibit 7 Short-Term Credit Lines by Banks at June 30, 1980 Manufacturing Companies Finance Companies United Kingdom Australia France Eicher GmbH Italy Total a Argentin Companies b

United France Brazil Other Total Canada States Australia Germany Italy Kingdom Fiang Corporate United United Total Grand Total Ranking Brazil a Canada States CIBC 133. 4 36. 2 36. 2 3. 0 50. 1 5. 6 26. 6 32. 2 3. 3 50. 1 1. 1 22. 1 17. 5 9. 0 36. 2 36. 2 54. 3 42. 5 133. 4 42. 5 222. 9 3. 6 3. 4 229. 9 37. 8 27. 1 64. 9 42. 5 54. 3 42. 5 17. 5 9. 0 3. 3 294. 8 175. 9 90. 5 78. 7 39. 6 59. 1 35. 5 1 2 3 4 11 7 13 Barclays Midland Lloyds Citibank 0. 5 17. 5 Societe Generale Deutsche Bank Chase 15. 0 33. 0 3. 3 39. 3 15. 0 9. 0 15. 0 9. 0 30. 0 48. 3 17 9 Manhattan 3. 0 15. 0 Credit Lyonnais Banque National 34. 6 21. 0 3. 3 3. 3 3. 9 27. 8 31. 7 13. 0 15. 0 1. 2 5. 0 14. 2 5. 0 13. 0 15. 0 13. 0 18. 5 45. 33. 3 36. 6 20. 8 3. 8 53. 4 21. 0 17. 5 3. 3 3. 3 7. 8 3. 8 11. 3 4. 5 19. 1 29. 3 17. 5 3. 3 3. 3 13. 0 15. 0 13. 0 63. 5 72. 5 50. 3 38. 3 39. 9 35. 0 26. 0 30. 0 27. 2 68. 5 5 8 12 10 14 20 17 19 6 de Paris 15. 0 Continental Illinois 21. 0 Bank of America 17. 5 Dresdner Commerzbank Bankers Trust 13. 0 FNB Chicago 15. 0 Chemical 13. 0 Allied & Associates Banque Francais du 18. 3 5. 0 12. 2 3. 3 33. 8 20. 0 15. 0 25. 5 28. 8 155. 7 28. 2 116. 6 60. 5 229. 5 74. 0 16. 1 15. 4 28. 9 56. 3 19. 2 51. 8 1. 0 11. 4 7. 7 7. 7 7. 0 7. 0 348. 4 1,222. 3 37. 8 78. 1 190. 1 23. 4 31. 2 7. 8 17. 7 81. 2 85. 0 11. 3 6. 8 50. 8 287. 6 45. 0 11. 3 6. 8 241. 694. 4 33. 8 31. 3 21. 8 589. 7 1,916. 7 15 16 21 Commerce Exterieur Royal Bank of Canada 15. 0 Toronto Dominion 15. 0 Others 31. 2 40. 1 48. 2 Total 31. 2 40. 6 237. 9 193. 2 Note: Because of sales seasonality, the maximum use of credit lines usually occurs in June or July. By September 1980, borrowing by manufacturing companies had decreased to approximately U. S. $1. 0 billion. Borrowing by finance subsidiaries was down to between U. S. $. 8 and $. 9 billion. aIncludes Perkins UK. bIncludes MF, AG, Agrotrac, MF International, and MF Nederland. 282-043 Massey-Ferguson, 1980 Exhibit 8 Summary of Long-Term Debt Outstanding (U. S. $ millions)

At Year End October 31 1980 1979 Bonds, debentures, notes, and loansa Massey-Ferguson Perkins S. A. (Brazil): Bank loans maturing 1981– 1984 repayable in U. S. dollars bearing interest at 3/4% to 21/2% above Eurodollar interbank rate Massey-Ferguson S. A. (France): Bank loans maturing 1981–1985 bearing interest at 1. 95% above base rate Massey-Ferguson S. p. A. (Italy): Bank loans maturing 1981–1982 repayable in U. S. dollars bearing interest at 1. 3% above Eurodollar interbank rate Massey-Ferguson Holding Limited (United Kingdom): 71/2% Loan Stock maturing 1986–1992 Bank loans maturing 1981–1984 bearing interest at various London bank market rates Massey-Ferguson Inc. (U. S. ): 8. 5% promissory notes maturing 1981– 1984 57/8% Subordinated notes maturing 1981–1984 Massey-Ferguson (Delaware) Inc. (U. S. ): 9% senior notes maturing 1983–1997 Perkins Diesel Corporation (U. S. ): Capitalized value of property and equipment lease terminating 1993 discounted at 10% General purpose loans (repayable in U. S. dollars): 91/2% debentures maturing 1991b 93/4% Sinking fund debentures maturing 1981–1982 Other long-term debtc Total unsubordinated long-term debt Convertible subordinated notesd Massey-Ferguson (Delaware) Inc. (U. S. ): 10% convertible subordinated notes maturing 1988–1992 Total long-term debt 147. 0 $622. 3 147. 0 $684. 1 $14. 3 23. 4 $30. 9 24. 4 10. 0 19. 4 34. 5 21. 6 10. 150. 0 24. 5 61. 5 30. 0 75. 7 $475. 3 10. 0 16. 6 38. 6 26. 3 12. 0 150. 0 25. 5 66. 0 32. 0 104. 8 $537. 1 aDebts are repayable in currency of country indicated unless otherwise shown. Current maturities are included in this summary; maturity dates are for fiscal years ending October 31. As of September 1980, the company had met all contractual sinking fund requirements. An additional $800,000 in sinking fund payments was due in October 1980. Sinking fund requirements and debt maturities during the next five years were as follows: 1981, $60. 2 million; 1982, $78. 5 million; 1983, $46. 3 million; 1984, $54. 3 million; 1985, $25. 9 million. The company is obligated to purchase for cancellation up to $4. 5 million of these debentures each year to 1986 if the market price goes below par value during the period March 1 to May 31. cOther long-term debt includes long-term loans each of which is less than $10. 0 million. dThese notes are convertible into common shares of Massey-Ferguson Ltd. at an initial price of U. S. $45. 00 per share rising to U. S. $55. 00 per share in 1982. There is no dilution of 1980 or 1979 annual results per common share as a result of this convertible feature. 16 Massey-Ferguson, 1980 282-043 Exhibit 9 Financial Markets Data (prices as of last trading day)

Massey-Ferguson Common 1980 October September August July June May April March February January 1979 December November October September August July June May April March February January 1978 December November October September August July June May April March February Januaryb 5 1/2 6 1/3 7 7/8 7 5/8 6 3/4 7 3/8 7 1/2 8 3/8 9 1/2 10 1/8 NYSE Compositea $73. 53 72. 38 70. 53 69. 64 65. 34 63. 44 60. 36 57. 65 64. 95 65. 91 1977 December (. 25 div) November October September (. 25 div) August July June (. 25 div) May April March (. 25 div) February January 1976 December (. 33 div) November October September (. 25 div) August July June (. 25 div) May April March (. 25 div) February January Massey-Ferguson Common 14 1/2 14 1/2 16 1/2 17 16 1/2 19 3/8 19 7/8 20 3/8 20 1/4 19 3/8 19 1/4 21

NYSE Compositea 52. 50 52. 36 50. 65 52. 81 52. 93 54. 12 55. 10 52. 56 53. 66 53. 53 54. 23 55. 48 10 1/4 9 1/8 8 5/8 10 1/2 11 1/8 12 12 5/8 11 11 1/4 11 3/4 10 3/8 9 3/8 61. 95 60. 71 57. 71 62. 24 62. 40 59. 14 58. 38 55. 99 57. 36 57. 13 53. 93 55. 99 21 3/4 20 23 1/8 22 3/4 26 1/4 28 3/8 28 3/4 27 26 3/4 27 3/4 27 3/8 24 1/2 57. 88 54. 80 54. 89 56. 23 54. 92 55. 26 55. 71 53. 31 54. 11 54. 80 53. 35 $53. 55 8 3/4 9 1/4 9 1/2 11 10 1/2 10 3/8 10 1/2 11 1/4 10 1/2 9 9 1/2 13 1/2 53. 62 52. 89 51. 63 57. 78 58. 35 56. 59 53. 66 54. 52 53. 90 49. 85 48. 43 49. 41 aNYSE composite does not include dividends. bDividend omitted after December 1977. 17

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