item 14 exhibits financial statement schedules reports form 8k a1 following consolidated financial statements agco corporation subsidiaries included annual report registrant stockholders year ended december 31 1997 incorporated reference part ii item 8 consolidated statements income years ended december 31 1997 1996 1995 consolidated balance sheets december 31 1997 1996 consolidated statements stockholders equity years ended december 31 1997 1996 1995 consolidated statements cash flows years ended december 31 1997 1996 1995 notes consolidated financial statements report independent public accountants a2 following report independent public accountants consolidated financial statement schedule agco corporation subsidiaries included herein pages schedules listed omitted required information contained notes consolidated financial statements schedules required applicable a3 following exhibits filed incorporated reference part report b reports form 8k none signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized agco corporation robert j ratliff robert j ratliff chairman board chief executive officer dated march 31 1998 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities date indicated annual report form 10k item 14a2 financial statement schedule year ended december 31 1997 report independent public accountants board directors stockholders agco corporation audited accordance generally accepted auditing standards consolidated balance sheets agco corporation subsidiaries december 31 1997 1996 related consolidated statements income stockholders equity cash flows three years period ended december 31 1997 issued report thereon dated february 5 1998 audit made purpose forming opinion statements taken whole accompanying schedule iivaluation qualifying accounts responsibility companys management presented purposes complying securities exchange commissions rules part basic financial statements schedule subjected auditing procedures applied audit basic financial statements opinion fairly states material respects financial data required set forth therein relation basic financial statements taken whole arthur andersen llp atlanta georgia february 5 1998 schedule ii agco corporation subsidiaries schedule ii valuation qualifying accounts millions exhibit index incorporated herein referenceitem 14 exhibits financial statement schedules reports form 8k a1 following consolidated financial statements agco corporation subsidiaries included annual report registrant stockholders year ended december 31 1998 incorporated reference part ii item 8 consolidated statements income years ended december 31 1998 1997 1996 consolidated balance sheets december 31 1998 1997 consolidated statements stockholders equity years ended december 31 1998 1997 1996 consolidated statements cash flows years ended december 31 1998 1997 1996 notes consolidated financial statements report independent public accountants a2 following report independent public accountants consolidated financial statement schedule agco corporation subsidiaries included herein pages schedule description report independent public accountants financial statement schedule ii valuation qualifying accounts schedules listed omitted required information contained notes consolidated financial statements schedules required applicable 3 following exhibits filed incorporated reference part report b reports form 8k none signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized agco corporation john shumejda john shumejda president chief executive officer dated march 31 1999 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities date indicated annual report form 10k item 14a2 financial statement schedule year ended december 31 1998 report independent public accountants financial statement schedule agco corporation audited accordance generally accepted auditing standards consolidated balance sheets agco corporation subsidiaries december 31 1998 1997 related consolidated statements income stockholders equity cash flows three years period ended december 31 1998 issued report thereon dated february 3 1999 audit made purpose forming opinion basic financial statements taken whole accompanying schedule iivaluation qualifying accounts responsibility companys management presented purposes complying securities exchange commissions rules part basic financial statements schedule subjected auditing procedures applied audit basic financial statements opinion fairly states material respects financial data required set forth therein relation basic financial statements taken whole arthur andersen llp atlanta georgia february 3 1999 schedule ii agco corporation subsidiaries schedule ii valuation qualifying accounts millions excludes nonrecurring expenses related pension postretirement benefit expenses 72 million b excludes 58 million nonrecurring expenses stock compensation expenses companys longterm incentive plan related executive severance exhibit index incorporated herein referenceitem 14 exhibits financial statement schedules reports form 8k 1 following consolidated financial statements agco corporation subsidiaries included annual report registrant stockholders year ended december 31 1999 incorporated reference part ii item 8 report independent public accountants consolidated statements income years ended december 31 1999 1998 1997 consolidated balance sheets december 31 1999 1998 consolidated statements cash flows years ended december 31 1999 1998 1997 consolidated statements stockholders equity years ended december 31 1999 1998 1997 notes consolidated financial statements 2 following report independent public accountants consolidated financial statement schedule agco corporation subsidiaries included herein pages 3 following exhibits filed incorporated reference part report management contract compensatory plan arrangement b reports form 8k none signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized agco corporation john shumejda john shumejda president chief executive officer dated march 28 2000 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities date indicated annual report form 10k item 14a2 financial statement schedule year ended december 31 1999 report independent public accountants financial statement schedule agco corporation audited accordance generally accepted auditing standards consolidated balance sheets agco corporation subsidiaries december 31 1999 1998 related consolidated statements income stockholders equity cash flows three years period ended december 31 1999 issued report thereon dated february 1 2000 audit made purpose forming opinion basic financial statements taken whole accompanying schedule ii valuation qualifying accounts responsibility companys management presented purposes complying securities exchange commissions rules part basic financial statements schedule subjected auditing procedures applied audit basic financial statements opinion fairly states material respects financial data required set forth therein relation basic financial statements taken whole arthur andersen llp atlanta georgia february 1 2000 schedule ii agco corporation subsidiaries schedule ii valuation qualifying accounts millions excludes nonrecurring expenses related writedown property plant equipment 149 million b excludes nonrecurring expenses related pension postretirement benefit expenses 72 million exhibit index incorporated herein referenceitem 14 exhibits financial statement schedules reports form 8k following documents filed part form 10k 1 consolidated financial statements notes consolidated financial statements report independent public accountants agco corporation subsidiaries presented pages 28 57 item 8 form 10k 2 financial statements notes financial statements independent auditors report agco finance llc formerly known agricredit acceptance llc included exhibit 991 3 financial statement schedules following report independent public accountants consolidated financial statement schedule agco corporation subsidiaries included herein pages ii1 ii3 schedules listed omitted required information contained notes consolidated financial statements schedules required applicable 4 following exhibits filed incorporated reference part report management contract compensatory plan arrangement b reports form 8k none signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized agco corporation john shumejda john shumejda president chief executive officer dated april 2 2001 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities date indicated annual report form 10k item 14a2 financial statement schedule year ended december 31 2000 ii1 report independent public accountants financial statement schedule agco corporation audited accordance auditing standards generally accepted united states consolidated balance sheets agco corporation subsidiaries december 31 2000 1999 related consolidated statements operations stockholders equity cash flows three years period ended december 31 2000 issued report thereon dated march 29 2001 audit made purpose forming opinion basic financial statements taken whole accompanying schedule iivaluation qualifying accounts responsibility companys management presented purposes complying securities exchange commissions rules part basic financial statements schedule subjected auditing procedures applied audit basic financial statements opinion fairly states material respects financial data required set forth therein relation basic financial statements taken whole arthur anderson llp atlanta georgia march 29 2001 ii2 schedule ii agco corporation subsidiaries schedule ii valuation qualifying accounts excludes restructuring infrequent expenses related writedown property plant equipment 149 million b excludes restructuring infrequent expenses related pension postretirement benefit expenses 72 million ii3item 14 exhibits financial statement schedules reports form 8k following documents filed part form 10k 1 consolidated financial statements notes consolidated financial statements report independent public accountants agco corporation subsidiaries presented pages 33 77 item 8 form 10k 2 financial statements notes financial statements report independent public accountants agco finance llc year ended december 31 2001 included exhibit 991 3 financial statements notes financial statements independent auditors report agco finance llc formerly known agricredit acceptance llc year ended december 31 2000 included exhibit 992 4 financial statement schedules following report independent public accountants consolidated financial statement schedule agco corporation subsidiaries included herein pages ii1 ii3 schedules listed omitted required information contained notes consolidated financial statements schedules required applicable 5 following exhibits filed incorporated reference part report management contract compensatory plan arrangement b reports form 8k none signatures pursuant requirements section 13 15 securities exchange act 1934 registrant duly caused report signed behalf undersigned thereto duly authorized agco corporation robert j ratliff robert j ratliff chairman president chief executive officer dated march 29 2002 pursuant requirements securities exchange act 1934 report following persons behalf registrant capacities date indicated annual report form 10k item 14 a2 financial statement schedule year ended december 31 2001 ii1 report independent public accountants financial statement schedule agco corporation audited accordance auditing standards generally accepted united states financial statements agco corporation subsidiaries included annual report form 10k issued report thereon dated february 6 2002 audit made purpose forming opinion basic financial statements taken whole accompanying schedule iivaluation qualifying accounts responsibility companys management presented purposes complying securities exchange commissions rules part basic financial statements schedule subjected auditing procedures applied audit basic financial statements opinion fairly states material respects financial data required set forth therein relation basic financial statements taken whole arthur andersen llp atlanta georgia february 6 2002 ii2 schedule ii agco corporation subsidiaries schedule ii valuation qualifying accounts millions ii3item 14 controls procedures evaluation disclosure controls procedures chief executive officer chief financial officer evaluating effectiveness disclosure controls procedures defined exchange act rule 13a14c date within ninety days filing report concluded date disclosure controls procedures adequate effective ensure material information relating agco corporation would made known others within company b changes internal controls significant changes internal controls factors could significantly affect agco corporation’s disclosure controls procedures subsequent date evaluation significant deficiencies material weaknesses agco corporation’s internal controls result corrective actions required undertaken part iv item 15item 14 principal accountant fees services information required item set forth notice 2004 annual meeting shareholders proxy statement section entitled “independent auditor information” incorporated herein reference thereto part iv item 15item 14 principal accountant fees services information required item set forth notice 2005 annual meeting shareholders proxy statement section entitled “independent registered public accounting firm information” incorporated herein reference thereto part iv item 15item 14 principal accountant fees services information required item set forth 2006 proxy statement annual meeting stockholders section entitled “audit committee report” incorporated herein reference part iv item 15item 14 principal accountant fees services information required item set forth 2007 proxy statement annual meeting stockholders sections entitled “audit committee report” “board directors certain committees board” incorporated herein reference part iv item 15item 14 principal accountant fees services information required item set forth 2008 proxy statement annual meeting stockholders sections entitled “audit committee report” “board directors certain committees board” incorporated herein reference part iv item 15item 14 principal accountant fees services information required item set forth 2009 proxy statement annual meeting stockholders sections entitled “audit committee report” “board directors certain committees board” incorporated herein reference part iv item 15item 14 principal accountant fees services information required item set forth 2010 proxy statement annual meeting stockholders sections entitled “audit committee report” “board directors certain committees board” incorporated herein reference part iv item 15item 14 principal accountant fees services information required item set forth 2011 proxy statement annual meeting stockholders sections entitled “audit committee report” “board directors certain committees board” incorporated herein reference part iv item 15item 14 principal accounting fees services information required item set forth 2012 proxy statement annual meeting stockholders sections entitled “audit committee report” “board directors certain committees board” incorporated herein reference part iv item 15item 14 principal accounting fees services information required item set forth 2013 proxy statement annual meeting stockholders sections entitled “audit committee report” “board directors corporate governance” incorporated herein reference part iv item 15item 14 principal accounting fees services information required item set forth 2014 proxy statement annual meeting stockholders sections entitled “audit committee report” “board directors corporate governance” incorporated herein reference part iv item 15item 14 principal accounting fees services information required item set forth 2015 proxy statement annual meeting stockholders sections entitled “audit committee report” “board directors corporate governance” incorporated herein reference part iv item 15item 14 principal accounting fees services information required item set forth 2017 proxy statement annual meeting stockholders sections entitled “audit committee report” “board directors corporate governance” incorporated herein reference part iv item 15item 14 principal accounting fees services information required item set forth 2018 proxy statement annual meeting stockholders sections entitled “audit committee report” “board directors corporate governance” incorporated herein reference part iv item 15item 14 principal accounting fees services information required item set forth proxy statement 2021 annual meeting stockholders sections entitled “audit committee report” “board directors corporate governance” incorporated herein reference part iv item 15item 14 exhibits financial statement schedules reports form 8k 1 following consolidated financial statements agco corporation subsidiaries included annual report registrant stockholders year ended december 31 1996 incorporated reference part ii item 8 consolidated statements income years ended december 31 1996 1995 1994 consolidated balance sheets december 31 1996 1995 consolidated statements stockholders equity years ended december 31 1996 1995 1994 consolidated statements cash flows years ended december 31 1996 1995 1994 notes consolidated financial statements report independent public accountants 2 following report independent public accountants consolidated financial statement schedule agco corporation subsidiaries included herein pages schedule description report independent public accountants schedule ii valuation qualifying accounts schedules listed omitted required information contained notes consolidated financial statements schedules required applicable 3 following exhibits filed incorporated reference part report b reports form 8k company filed current report form 8k dated november 1 1996 disclosing sale 51 interest agricredit acceptance company companys whollyowned retail finance subsidiary north america whollyowned subsidiary cooperatieve raiffeisenboerenleenbank ba rabobank nederland together rabobank signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized agco corporation jp richard jp richard president chief executive officer director dated march 28 1997 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities date indicated annual report form 10k item 14a2 financial statement schedule year ended december 31 1996 report independent public accountants board directors stockholders agco corporation audited accordance generally accepted auditing standards consolidated balance sheets agco corporation subsidiaries december 31 1996 1995 related consolidated statements income stockholders equity cash flows three years period ended december 31 1996 issued report thereon dated february 5 1997 audit made purpose forming opinion statements taken whole accompanying schedule iivaluation qualifying accounts responsibility companys management presented purposes complying securities exchange commissions rules part basic financial statements schedule subjected auditing procedures applied audit basic financial statements opinion fairly states material respects financial data required set forth therein relation basic financial statements taken whole arthur andersen llp atlanta georgia february 5 1997 schedule ii agco corporation subsidiaries schedule ii valuation qualifying accounts thousands exhibit index incorporated herein referenceitem 14 principal accounting fees services information required item set forth 2019 proxy statement annual meeting stockholders sections entitled “audit committee report” “board directors corporate governance” incorporated herein reference part iv item 15item 14 principal accounting fees services information required item set forth 2020 proxy statement annual meeting stockholders sections entitled “audit committee report” “board directors corporate governance” incorporated herein reference part iv item 15item 14 principal accounting fees services information required item set forth 2016 proxy statement annual meeting stockholders sections entitled “audit committee report” “board directors corporate governance” incorporated herein reference part iv item 15 item 7 managements discussion analysis financial condition results operations information heading managements discussion analysis financial condition results operations pages 16 23 annual report stockholders year ended december 31 1997 incorporated herein reference item 7aitem 7 managements discussion analysis financial condition results operations information heading managements discussion analysis financial condition results operations pages 20 27 annual report stockholders year ended december 31 1998 incorporated herein reference item 7aitem 7 managements discussion analysis financial condition results operations information heading managements discussion analysis financial condition results operations pages 19 26 annual report stockholders year ended december 31 1999 incorporated herein reference item 7aitem 7 managements discussion analysis financial condition results operations leading manufacturer distributor agricultural equipment related replacement parts throughout world sell full range agricultural equipment including tractors combines hay tools sprayers forage equipment implements distribute products combination approximately 7750 independent dealers distributors associates licensees addition provide retail financing north america united kingdom france germany spain ireland brazil finance joint ventures rabobank results operations record sales ship equipment replacement parts independent dealers distributors customers extent practicable attempt ship products dealers distributors level basis throughout year reduce effect seasonal demands manufacturing operations minimize investment inventory however retail sales dealers farmers highly seasonal function timing planting harvesting seasons certain markets particularly north america often time lag varies based timing level retail demand date record sale date dealer sells equipment retail customer time lag wholesale retail sale dealers may return equipment us unless terminate dealers contract agree accept returned products commissions payable salesman incentive programs paid time retail sale opposed products sold dealers following table sets forth periods indicated percentage relationship net sales certain items included consolidated statements operations 2000 compared 1999 net income 2000 35 million 006 per diluted share compared loss 115 million 020 per diluted share 1999 results included restructuring infrequent expenses restructuring expenses 219 million 022 per diluted share 2000 245 million 026 per diluted share 1999 associated closure manufacturing facilities announced 1999 2000 addition results 2000 included 80 million loss 008 per share associated completion accounts receivable securitization facility january 2000 see liquidity capital resources results improved 2000 primarily due improved gross margins resulting cost sales reductions achieved facility rationalizations initiatives acquisitions may 2000 acquired cnh global nv 50 share hay forage industries hfi 10 million acquisition terminated joint venture agreement pursuant cnh owned 50 interests hfi thereby providing us sole ownership hfi develops manufactures hay forage equipment implements sell various brand names retail sales demand agricultural equipment 2000 showed mixed results within major markets world compared 1999 low commodity prices caused high global commodity stocks lower export demand farm commodities continued adversely affect worldwide demand new equipment purchases past two years united states canada industry unit retail sales tractors combines 2000 increased approximately 8 5 respectively compared 1999 despite lack significant changes commodity prices moderate improvements core agricultural segments industry may influenced aggressive pricing actions competitors unit retail sales tractors combines united states canada decreased 2000 compared 1999 western europe industry unit retail sales tractors 2000 declined approximately 8 compared 1999 reduction experienced significant western european markets unit retail sales western europe 2000 also declined compared 1999 experienced favorable acceptance new tractor lines introduced 1999 2000 however retail unit sales ukbuilt products negatively impacted weakness euro versus british pound industry unit retail sales tractors south america 2000 increased approximately 16 compared 1999 major market brazil industry retail sales increased approximately 28 significant increases since june 2000 due full availability supplemental brazilian government subsidized retail financing program remaining south american markets including argentina retail unit sales decreased due economic uncertainty tightening credit unit retail sales tractors south america also increased compared 1999 international markets net sales higher prior year particularly middle east far east primarily due improved industry demand statements operations net sales 2000 23 billion compared 24 billion 1999 net sales 2000 decreased approximately 181 million result foreign currency translation effect weakening euro british pound relation us dollar excluding impact currency translation net sales 2000 approximately 3 1999 regionally net sales north america increased 517 million 8 compared 1999 increase result efforts 1999 lower dealer inventory levels reducing wholesale shipments dealers europeafricamiddle east region net sales 2000 decreased 1911 million 13 compared 1999 primarily due negative impact foreign currency translation industry declines western europe net sales south america increased 370 million 19 compared 1999 due favorable market conditions brazil asiapacific region net sales increased 21 million 2 compared 1999 primarily due improvements market demand far east markets gross profit 3766 million 161 net sales 2000 compared 3577 million 147 net sales 1999 gross margins improved 2000 primarily due cost reduction initiatives including impact facility rationalizations lower sales incentive costs particularly used equipment addition gross margins negatively impacted 1999 50 million writedown production inventory related closure coldwater ohio lockney texas manufacturing facilities selling general administrative expenses sga expenses 2000 2282 million 98 net sales compared 2332 million 96 net sales 1999 increase percentage net sales due lower sales volume 2000 compared 1999 engineering expenses 2000 456 million 20 net sales compared 446 million 18 net sales 1999 increase engineering expenses primarily due addition hfis engineering expenses subsequent acquisition hfi recorded restructuring infrequent expenses 219 million 245 million 2000 1999 respectively restructuring expenses related closing coldwater ohio independence missouri lockney texas noetinger argentina manufacturing facilities announced 1999 2000 restructuring expenses related employee severance facility closure costs writedown property plant equipment production transition costs addition restructuring expenses 2000 net 30 million reduction related reversal restructuring reserves established 1997 see restructuring infrequent expenses additional information income operations 658 million 2000 compared 406 million 1999 excluding restructuring expenses operating income 877 38 net sales 2000 compared 651 million 27 net sales 1999 operating income increased primarily result improved gross margins primarily related cost sales reductions achieved 2000 improvements partially offset impact currency translation reduced 2000 operating income approximately 160 million interest expense net 466 million 2000 compared 576 million 1999 reduction interest expense due 200 million reduction outstanding debt result accounts receivable securitization transaction completed first quarter 2000 see liquidity capital resources expense net 331 million 2000 compared 152 million 1999 increase expense related losses sales receivables connection establishment securitization facility january 2000 recorded losses totaling 203 million 2000 including loss 71 million related initial funding securitization facility 132 million related subsequent sales receivables revolving basis recorded income tax benefit 76 million 2000 compared income tax benefit 102 million 1999 tax benefit 2000 included recognition united states tax credit carryback approximately 20 million december 31 2000 deferred tax assets 1806 million including 1390 million related net operating loss carryforwards established valuation allowances 718 million primarily related net operating loss carryforwards uncertainty regarding realizability net operating losses primarily foreign jurisdictions likely losses expire unused equity earnings affiliates 98 million 2000 compared 105 million 1999 equity earnings retail finance affiliates represent largest component earnings lower 2000 due portfolio declines 1999 compared 1998 recorded net loss 1999 115 million compared net income 606 million 1998 net income loss per diluted share 020 1999 compared 099 1998 net income loss 1999 1998 included restructuring infrequent expenses 245 million 400 million 026 041 per diluted share respectively results 1999 negatively impacted lower sales operating margins caused unfavorable industry conditions lower production lower price realization negative impact currency translation compared 1998 acquisitions may 1998 acquired distribution rights massey ferguson brand argentina acquisition expanded distribution network second largest market south america july 1998 acquired spracoupe product line brand agricultural selfpropelled sprayers sold primarily north america october 1998 acquired willmar product line brand agricultural selfpropelled sprayers spreaders loaders sold primarily north america spracoupe willmar acquisitions expanded product offerings include full line selfpropelled sprayers retail sales global demand agricultural equipment continued weaken 1999 major markets industry decline primarily due continued effects high global commodity stocks lower export demand farm commodities resulted lower commodity prices conditions effect reducing farm income major markets thereby reducing demand new equipment purchases united states canada industry unit retail sales tractors increased approximately 2 1999 1998 significant increases 40 horsepower segment offsetting modest declines utility tractor segment significant declines high horsepower segment industry retail sales combines declined approximately 47 compared 1998 retail sales tractors combines decreased compared period 1998 competitive pricing affecting sales relative industry western europe industry unit retail sales tractors 1999 increased approximately 2 compared 1998 industry results mixed declines experienced spain scandinavia offset increases france united kingdom germany italy retail sales tractors 1999 unchanged 1998 however retail sales stronger compared industry third fourth quarters 1999 due favorable acceptance new massey ferguson high horsepower tractor line introduced first half 1999 accordingly limited availability first half year south america industry unit retail sales tractors 1999 decreased approximately 15 compared 1998 industry results 1999 also mixed region slightly favorable industry results brazil offset significant industry declines argentina remaining south american markets due low commodity prices tightening credit economic uncertainty retail sales tractors south america declined consistent industry decline international markets industry unit retail sales tractors lower 1998 regions including middle east africa eastern europe statement operations net sales 1999 24 billion compared 30 billion 1998 decline primarily reflects lower retail demand majority markets throughout world addition net sales 1999 negatively impacted foreign currency translation due weakening euro brazilian real us dollar foreign currency translation effect reducing net sales approximately 1351 million 1999 compared 1998 net sales 1999 positively impacted approximately 360 million due 1998 acquisitions massey ferguson argentina spracoupe willmar partially included 1998 results excluding impact currency translation acquisitions net sales decreased approximately 15 compared 1998 regional basis net sales north america decreased 3323 million 34 compared 1998 primarily due unfavorable market conditions planned efforts lower dealer inventories generating wholesale sales dealers rate less retail demand decline partially offset impact willmar spracoupe acquisitions europeafricamiddle east region net sales 1999 decreased 919 million 6 compared 1998 primarily due lower sales outside western europe negative impact foreign currency translation net sales 1999 south america decreased 1185 million 37 compared 1998 primarily due unfavorable industry conditions outside brazil negative impact foreign currency translation due devaluation brazilian real january 1999 east asiapacific region net sales 1999 increased 83 million 9 compared 1998 primarily due improving market conditions asia gross profit 3577 million 147 net sales 1999 compared 5393 million 182 net sales 1998 gross profit margins declined due reduced production overhead absorption lower price realization certain markets unfavorable mix higher margin products reduced 1999 worldwide tractor combine unit production 16 compared 1998 response weakening industry demand price realization 1999 impacted competitive global market environment higher levels used dealer inventories north american market increased sales incentives costs order reduce used inventory levels sell older discontinued products gross profit 1999 also included onetime writedown production inventory approximately 50 million recorded cost goods sold related planned closure coldwater ohio lockney texas manufacturing facilities sga expenses 2332 million 96 net sales compared 2743 million 92 net sales 1998 engineering expenses 446 million 18 net sales compared 561 million 19 net sales 1998 526 million decrease sga engineering expenses 1999 primarily result expense reduction initiatives implemented late 1998 included reductions worldwide workforce decreases discretionary spending levels see restructuring infrequent expenses initiatives discussed restructuring infrequent expenses 245 million 1999 400 million 1998 1999 restructuring expenses consisted writedown property plant equipment severance costs related permanent closure certain production facilities 1998 restructuring expenses consisted severance related costs associated reduction worldwide workforce see restructuring infrequent expenses discussion amortization intangibles 148 million 1999 compared 132 million 1998 increase attributable full year amortization 1998 acquisitions income operations 406 million 1999 compared 1557 million 1998 excluding restructuring expenses years income operations 651 million 1999 27 net sales compared 1957 million 66 net sales 1998 operating income negatively impacted 1999 lower sales gross profit margins partially offset lower sga expenses interest expense net 576 million 1999 compared 677 million 1998 lower expense 1999 primarily due lower average debt levels lower effective interest rates outstanding borrowings expense net 152 million 1999 compared 137 million 1998 increase expense net primarily attributable lower miscellaneous income higher discounts sales receivables recorded income tax benefit 102 million 1999 compared provision 275 million 1998 effective tax rate increased 1999 compared 1998 due increase losses incurred certain foreign tax jurisdictions immediate tax benefit recognized equity net earnings affiliates 105 million 1999 compared 138 million 1998 reduction earnings primarily related decreased earnings engine joint venture slightly lower earnings retail finance joint ventures quarterly results following table presents unaudited interim operating results believe following information includes adjustments consisting normal recurring adjustments consider necessary fair presentation accordance generally accepted accounting principles operating results period necessarily indicative results future period 1 2000 quarters ending march 31 june 30 september 30 december 31 include restructuring infrequent expenses 19 131 45 24 respectively thereby reducing net income per common share diluted basis 002 013 005 002 respectively 1999 operating results include restructuring infrequent expenses 245 million 026 per share three months ended december 31 1999 extent possible attempt ship products dealers distributors level basis throughout year reduce effect seasonal demands manufacturing operations minimize investments inventory however retail sales agricultural equipment highly seasonal farmers traditionally purchasing agricultural equipment spring fall conjunction major planting harvesting seasons net sales income operations historically lowest first quarter increased subsequent quarters dealers increase inventory anticipation increased retail sales third fourth quarters restructuring infrequent expenses second quarter 2000 announced plan permanently close combine manufacturing facility independence missouri relocate existing production hesston kansas manufacturing facility closure independence facility continuation strategy reduce excess manufacturing capacity north america plants began 1999 announced closure coldwater ohio lockney texas manufacturing facilities due declines industry demand since 1998 determined closure facilities redeployment majority production existing facilities remaining production thirdparty suppliers necessary address excess capacity us manufacturing plants manufacturing facility rationalization expected result significant cost savings improve overall competitiveness implements hay equipment high horsepower tractors combines produced plants also announced closure noetinger argentina manufacturing facility 1999 closure consistent strategy consolidate production south america 1998 combine production noetinger moved combine manufacturing plant brazil remaining implement production activities noetinger determined insufficient support cost facility result determined closure facility outsourcing future implement production would reduce costs sales south america closed coldwater plant 1999 independence lockney noetinger plants 2000 rationalization production facilities expected generate annual cost savings 20 million 25 million elimination production overhead costs efficiencies believe realized approximately half savings 2000 expect fully realize savings 2001 connection closures recorded restructuring infrequent expenses 249 million 2000 245 million 1999 components expenses summarized following table severance costs relate termination approximately 1050 employees substantially terminated december 31 2000 facility closure costs include employee costs exit costs incurred operations ceased addition noncancelable operating lease obligations writedown property plant equipment consisted 05 million 2000 70 million 1999 related machinery equipment 08 million 2000 79 million 1999 building improvements based estimated fair value assets compared carrying value production transition costs represent costs relocate integrate production existing facilities remaining costs accrued december 31 2000 expected incurred 2001 expect record additional 30 million restructuring infrequent expenses 2001 related closures addition restructuring infrequent expenses recorded onetime 50 million writedown production inventory 1999 charged cost goods sold directly related closures 1998 recorded restructuring infrequent expenses 400 million primarily related severance related costs associated reduction worldwide permanent workforce approximately 1400 employees headcount reductions made address negative market conditions adversely impacted demand majority markets anticipated reducing selling general administrative expenses approximately 50 million headcount reductions addition reducing general spending levels improving productivity eliminating nonessential projects headcount reductions also partially mitigated impact lower production levels 1999 adjusting manufacturing staff levels 1999 achieved expected impacts initiatives components restructuring expenses follows pension postretirement benefits related costs associated terminated employees writedown assets related cancellation systems projects order reduce headcount future expenses expect remaining reserve balance utilized 2001 1997 recorded restructuring infrequent expenses 182 million consisted 1 150 million related restructuring european operations integration deutz argentina fendt operations acquired december 1996 january 1997 respectively 2 32 million related executive severance costs associated restructuring integration activities primarily related centralization rationalization certain manufacturing selling administrative functions addition rationalization small portion european dealer network restructuring integration activities resulted cost savings related manufacturing costs selling general administrative expenses believe achieved addition european dealer rationalization expected improve longterm sales certain markets components expense follows 2000 reversed 30 million restructuring expenses related dealer termination costs possible could still incur costs associated dealer terminations believe longer probable costs incurred agchem acquisition november 2000 entered agreement acquire agchem equipment co inc leading manufacturer distributor selfpropelled fertilizer chemical sprayers preemergent postemergent applications agchem fiscal 2000 sales 299 million agreement provides agchem shareholders combination cash common stock valued 2580 per agchem common share total consideration approximately 247 million precise proportions determined based upon closing price common stock immediately prior closing 838 per share transaction structured agchem shareholders receive 50 60 purchase price cash 124 million 148 million aggregate remainder stock price generally elect amount cash used subject minimum 1290 per agchem share 124 million aggregate transaction subject approval agchem shareholders expected close april 2001 agchems net sales income operations heavily concentrated february march april year sales income part reflected 2001 results liquidity capital resources financing requirements subject variations due seasonal changes inventory dealer distributor receivable levels internally generated funds supplemented necessary external sources primarily revolving credit facility current lending commitment existing revolving credit facility 765 million borrowings existing revolving credit facility limited sum 90 eligible accounts receivable 60 eligible inventory december 31 2000 3142 million outstanding existing revolving credit facility available borrowings subject receivable inventory borrowing base requirements maintenance financial covenants included agreement january 2000 entered 250 million securitization facility whereby certain us wholesale accounts receivables sold revolving basis whollyowned special purpose subsidiary third party initially funded 200 million securitization facility maintained level funding subsequent receivables sales proceeds funding used reduce outstanding borrowings existing revolving credit facility lending commitment existing revolving credit facility permanently reduced 800 million representing decrease 200 million result initial proceeds received securitization reduced 35 million connection subsequent increase us securitization facility 2001 reduced additional funding received us securitization facility conjunction closing us securitization facility recorded initial onetime 80 million loss first quarter 2000 march 1996 issued 2500 million 8 12 senior subordinated notes due 2006 99139 principal amount indenture governing notes contains numerous covenants including limitations ability incur additional indebtedness make investments make restricted payments including dividends create liens indenture also requires us offer repurchase notes event change control subsequent yearend issued notice default trustee notes regarding violation covenant restricting payments dividends periods 1999 2000 2001 interest coverage ratio met period paid approximately 48 million dividends based upon interpretation need meet interest coverage ratio instead alternative total debt test issued preferred stock convertible common stock private placement net proceeds exceed amount dividend payments interest payments related expenses subsequently received sufficient waivers holders notes violation covenant might resulted dividend payments connection receipt waivers paid waiver fee approximately 25 million expensed first quarter 2001 currently prohibited paying dividends time interest coverage ratio indenture met currently process modifying capital structure order efficiently meet funding needs replace existing revolving credit facility expires january 2002 addition although currently compliance financial covenants indebtedness financial covenants existing revolving credit facility become stringent end second quarter 2001 result currently anticipate able fulfill two financial covenants contained facility limitation ratio funded debt ebitda minimum fixed charge coverage ratio address issues entered commitment letter rabobank new revolving credit facility expect close early second quarter 2001 new facility expected permit borrowings 350 million 4 12 year term secured majority assets including portion capital stock certain foreign subsidiaries addition process offering 250 million fixed rate senior notes sale private placement notes mature seven years terms substantially similar currently outstanding 8 12 senior subordinated notes except subordinated finally intend enter new 100 million accounts receivable securitization facility europe facilities notes expected provide us sufficient working capital ongoing basis meet needs business working capital requirements seasonal investments working capital typically building first half year decreasing second half year 6039 million working capital december 31 2000 compared 7640 million december 31 1999 decrease working capital primarily due lower accounts receivable related 200 million sale accounts receivable us securitization facility cash flow provided operating activities 1744 million 2000 2337 million 1999 112 million 1998 decrease operating cash flow 2000 primarily due reduction accounts receivable inventory levels accounts receivable reduction created 200 million sale accounts receivable us securitization facility offset receivable increases due higher fourth quarter sales 2000 higher dealer inventories certain new products introduced late 2000 planned increases dealer inventories certain products affected manufacturing facility rationalizations increase operating cash flow 1999 primarily due reduction accounts receivable inventory levels response industry decline decreased production levels order reduce level dealer inventories capital expenditures 577 million 442 million 610 million 2000 1999 1998 respectively capital expenditures primarily support development enhancement new existing products well facility equipment improvements level capital expenditures vary year based requirements support new products equipment replacements equipment facility improvements currently estimate capital expenditures 2001 range approximately 50 million 60 million capital expenditures expected funded cash flows operations debt capitalization ratio total longterm debt divided sum total longterm debt stockholders equity 419 december 31 2000 compared 455 december 31 1999 decrease attributable reduction indebtedness 1215 million primarily proceeds securitization facility offset extent negative cumulative translation adjustment equity 405 million primarily related weakening euro relation us dollar believe access credit markets available cash internally generated funds able support working capital expenditures debt service requirements foreseeable future addition time review continue review acquisition joint venture opportunities well changes capital markets consummate significant acquisition elect take advantage favorable opportunities capital markets may supplement availability revise terms revolving credit facility complete public private offerings equity debt securities outlook operations subject cyclical nature agricultural industry sales equipment expected continue affected changes net cash farm income farm land values weather conditions demand agricultural commodities general economic conditions global demand agricultural equipment 2000 remained relatively weak due low commodity prices weak industry fundamentals meaningful changes factors expected 2001 result expect industry retail demand 2001 flat major markets world exception western europe due farm consolidation cap reform concerns bse mad cow disease livestock diseases industry demand western europe currently expected 5 2000 extent bse livestock diseases europe measures taken control spreading could negatively impact forecast based current industry forecast impacts cost reduction initiatives operating margins overall profitability 2001 expected improve compared 2000 foreign currency risk management significant manufacturing operations united states united kingdom france germany denmark brazil purchase portion tractors combines components thirdparty foreign suppliers primarily various european countries japan also sell products 140 countries throughout world majority revenue outside united states denominated currency customer location exception sales middle east africa asia primarily denominated british pounds euros us dollars see segment reporting notes consolidated financial statements sales customer location significant transactional foreign currency exposures british pound relation euro british pound euro canadian dollar relation us dollar fluctuations value foreign currencies create exposures adversely affect results operations attempt manage transactional foreign exchange exposure hedging identifiable foreign currency cash flow commitments arising receivables payables committed purchases sales naturally offsetting currency positions occur hedge certain exposures use foreign currency forward contracts hedging policy prohibits foreign currency forward contracts speculative trading purposes translation exposure resulting translating financial statements foreign subsidiaries us dollars hedged significant translation exposures british pound euro brazilian real relation us dollar practical translation impact reduced financing local operations local borrowings following summary foreign currency forward contracts used hedge currency exposures contracts maturity less one year net notional amounts fair value gains losses december 31 2000 stated us dollars follows per us dollar contracts entered hedging purposes gains losses contracts would largely offset gains losses underlying firm commitment interest rates manage interest rate risk use fixed rate debt interest rate swap contracts fixed rate debt 250 million 8 12 senior subordinated notes due 2006 addition entered interest rate swap contract minimize effect potential interest rate increases floating rate debt rising interest rate environment december 31 2000 interest rate swap contract outstanding notional amount 883 million expires december 31 2001 interest rate swap effect converting portion floating rate indebtedness fixed rate 53 floating rate exposure related primarily revolving credit facility tied changes us european libor rates securitization facility losses sales receivables vary based us libor rates assuming 10 increase interest rates interest expense net including effect interest rate swap contract 2000 would increased approximately 21 million euro currency established capability trade common european currency european locations addition substantially completed transition transacting accounting european business euros currently expect competitive position including pricing purchasing contracts systems modifications materially affected change euro accounting changes june 1999 financial accounting standards board issued sfas 137 providing one year delay effective date sfas 133 accounting derivative instruments hedging activities sfas 133 establishes accounting reporting standards derivative instruments hedging activities requires entity recognize derivatives either assets liabilities balance sheet measure instruments fair value sfas 133 requires changes derivatives fair value recognized currently earnings unless specific hedge accounting treatment met june 2000 fasb issued sfas 138 amends accounting reporting derivatives sfas 133 exclude among things contracts normal purchases normal sales adopted sfas 133 january 1 2001 evaluated effect statement derivative instruments primarily interest rate swaps foreign currency forward contracts determined cumulative effect january 1 2001 resulted fair value asset net taxes approximately 5 million december 1999 sec released staff accounting bulletin 101 revenue recognition financial statements sab 101 change existing accounting literature revenue recognition rather explains secs general framework revenue recognition sec subsequently released sab 101b deferring implementation sab 101 fourth quarter 2000 evaluated sab 101 believe compliance bulletin result bulletin effect results operations financial position may 2000 emerging issues task force reached final consensus issue 0014 accounting certain sales incentives effective fourth quarter 2000 issue 0014 addresses recognition measurement income statement classification sales incentives offered requires entity recognize cost sales incentive later date related revenue recorded date sales incentive offered issue 0014 also requires reduction refund selling price product resulting sales incentive classified reduction revenue compliance issue 0014 material effect expense classifications operations financial position september 2000 eitf reached final consensus issue 0010 accounting shipping handling fees costs issue 0010 also effective fourth quarter 2000 addresses income statement classification amounts charged customers shipping handling well costs incurred related shipping handling eitf concluded amounts billed customer sale transaction related shipping handling classified revenue eitf also concluded costs incurred related shipping handling significant included cost sales entity disclose amount costs line item income statement includes connection issue reclassified certain revenue cost goods sold sga expense amounts periods presented statements operations reclassifications resulted increase net sales approximately 281 254 310 2000 1999 1998 respectively increase cost goods sold 248 218 274 2000 1999 1998 respectively increase sga expenses 33 36 2000 1999 1998 respectively reclassifications effect results operations financial position also september 2000 fasb issued sfas 140 accounting transfers servicing financial assets extinguishments liabilities replacement fasb statement 125 sfas 140 revises standards accounting securitizations transfers financial assets collateral requires certain disclosures statement effective transfers servicing financial assets extinguishments liabilities occurring march 31 2001 sfas 140 effective recognition reclassification collateral disclosures relating securitization transactions collateral fiscal years ending december 15 2000 adoption sfas 140 effect results operations financial position forward looking statements certain statements managements discussion analysis financial condition results operations elsewhere annual report form 10k forward looking including certain statements set forth headings results operations liquidity capital resources forward looking statements include expectations respect factors affect net sales income restructuring infrequent expenses future capital expenditures fulfillment working capital needs plans respect acquisitions although believe statements made based reasonable assumptions based current information beliefs accordingly give assurance statements achieved addition statements subject factors could cause actual results differ materially suggested forward looking statements factors include limited general economic capital market conditions demand agricultural products world grain stocks crop production commodity prices farm income farm land values government farm programs legislation pervasive livestock diseases levels new used field inventories weather conditions interest foreign currency exchanges rates conversion euro pricing product actions taken competitors customer access credit production disruptions supply capacity constraints cost reduction control initiatives research development efforts labor relations dealer distributor actions technological difficulties changes environmental international trade laws political economic uncertainty various ares world information concerning factors could significantly affect results included filings securities exchange commission disclaim responsibility update forward looking statements item 7aitem 7 managements discussion analysis financial condition results operations leading manufacturer distributor agricultural equipment related replacement parts throughout world sell full range agricultural equipment including tractors combines hay tools sprayers forage equipment implements products marketed following brand names agcor allis agcostarr agchemr farmhandr fendttm fieldstarr gleanerr glencoer hesstonr loralr massey fergusonr new idear rogatorr soilteq spracouper terragatorr tyer white tractors white planters willmarr distribute products combination approximately 7350 independent dealers distributors associates licensees addition provide retail financing north america united kingdom france germany spain ireland brazil finance joint ventures rabobank results operations sell equipment replacement parts independent dealers distributors customers large majority sales independent dealers distributors sell products end user extent practicable attempt sell products dealers distributors level basis throughout year reduce effect seasonal demands manufacturing operations minimize investment inventory however retail sales dealers farmers highly seasonal linked planting harvesting seasons certain markets particularly north america often time lag varies based timing level retail demand sale equipment dealer dealers sale retail customer time lag wholesale retail sale dealers may return equipment us unless dealers contract terminated agree accept returned products commissions payable salesman incentive programs paid time retail sale opposed products sold dealers following table sets forth periods indicated percentage relationship net sales certain items included consolidated statements operations 2001 compared 2000 net income 2001 226 million 033 per diluted share compared 35 million 006 per diluted share 2000 results 2001 included restructuring infrequent expenses restructuring expenses 130 million 012 per share primarily related integration ag chem equipment company inc acquired april 2001 rationalization certain manufacturing facilities addition 2001 earnings include extraordinary loss net taxes 08 million 001 per share writeoff unamortized debt costs associated revolving credit facility refinanced april 2001 results 2000 included restructuring expenses 219 million 022 per share associated closure certain manufacturing facilities announced 2000 1999 earnings improvement 2001 primarily result margin improvement generated successful cost reduction initiatives including impact manufacturing facility rationalizations results negatively impacted losses agchem period since acquisition agchem acquisition completed agchems seasonally strongest period typically first calendar quarter year impact agchem acquisition excluding restructuring expenses reduction net income approximately 105 million 015 per share acquisitions april 16 2001 completed acquisition agchem manufacturer distributor selfpropelled fertilizer chemical sprayers preemergent postemergent applications acquisition provided us leading position selfpropelled sprayer market see agchem acquisition additional information retail sales industry demand agricultural equipment 2001 showed mixed results within major markets world compared prior year commodity prices remained relatively low levels 2001 caused high global commodity stocks lower export demand farm commodities conditions adversely affect farm income thereby negatively impacting demand new equipment purchases united states canada industry retail unit sales tractors combines 2001 increased approximately 10 9 respectively compared 2000 reflecting improvement relatively low industry levels 2000 retail unit sales tractors north america increased retail unit sales combines declined 2001 compared 2000 delays related relocation startup combine production hesston kansas facility negatively impacted 2001 sales western europe industry retail unit sales tractors declined approximately 7 2001 compared 2000 concerns bse mad cow disease footandmouth disease first half 2001 contributed decline subsequently diminished second half year retail unit sales 2001 also declined compared 2000 south america industry retail unit sales tractors 2001 increased approximately 13 compared 2000 major market brazil continued strong growth due full availability supplemental brazilian government subsidized retail financing program growth brazilian market partially offset declines argentina market retail unit sales also increased 2001 compared prior year international markets net sales 2001 prior year majority decline related sales middle eastern markets statements operations net sales 2001 25415 million compared 23361 million 2000 net sales generated agchem subsequent acquisition 2001 1485 million net sales 2001 negatively impacted foreign currency translation approximately 1273 million due strength us dollar relation euro brazilian real excluding impact agchem acquisition foreign currency translation net sales 79 higher 2000 net sales north america increased 774 million 122 2001 2000 due primarily improved market conditions addition combine sales higher 2001 2000 resulting increased combine production limited 2000 relocation hesston kansas second half year europeafricamiddle east region net sales decreased 336 million 26 compared 2000 primarily due negative impact foreign currency translation result industry declines western europe net sales south america increased 150 million 62 compared 2000 strong sales increases partially offset impact currency translation asiapacific region net sales decreased approximately 05 million 05 compared 2000 primarily due impact currency translation sprayer division net sales increased 1471 million compared 2000 primarily due acquisition agchem contributed net sales approximately 1485 million gross profit 4348 million 171 net sales 2001 compared 3766 million 161 net sales 2000 gross margins improved primarily due cost reduction initiatives impact new higher margin products margin improvement offset part cost inefficiencies first three quarters 2001 hesston kansas manufacturing facility approximately 79 million initial production products relocated closed facilities inefficiencies primarily associated initial production run combines planters facility selling general administrative sga expenses 2001 2570 million 101 net sales compared 2282 million 98 net sales 2000 increase percentage net sales result agchem higher sga expense ratio net sales remainder operations engineering expenses 2001 496 million 20 net sales compared 456 million 20 net sales 2000 increase due inclusion full year engineering expenses hay forage industries acquired may 2000 addition agchem subsequent acquisition recorded restructuring expenses 130 million 2001 219 million 2000 restructuring expenses 2001 included 85 million integration agchem 45 million manufacturing facility rationalization programs see restructuring infrequent expenses discussion 2000 restructuring expenses costs primarily associated manufacturing facility closures amortization intangibles increased 185 million 2001 151 million 2000 primarily due amortization goodwill acquired intangibles associated agchem acquisition income operations 967 million 38 net sales 2001 compared 658 million 28 net sales 2000 excluding restructuring expenses operating income 1097 million 43 net sales 2001 compared 877 million 38 net sales 2000 improvement due higher gross margins discussed previously interest expense net 586 million 2001 compared 466 million 2000 increase interest expense primarily relates increased indebtedness related agchem acquisition partially offset decline interest rates reduction borrowings associated new securitization facilities interest expense net 2001 also included 20 million fee successful waiver solicitation companys 8 12 senior subordinated notes expense net 234 million 2001 compared 331 million 2000 losses sales receivables primarily securitization facilities 235 million compared 245 million 2000 amount 2001 included approximately 36 million upfront losses transaction costs associated initial funding new securitization facilities europe canada totaling 1520 million 2000 amount included 71 million upfront losses transaction costs associated initial 2000 million funding us securitization facility expense net 2001 also included gain 52 million associated sale minority interest investment european agricultural equipment company recorded income tax provision 19 million 2001 compared income tax benefit 76 million 2000 2001 provision reflects lower tax provision foreign income 2000 tax benefit includes benefit recognition united states tax credit carryback approximately 20 million december 31 2001 deferred tax assets 2065 million including 1416 million related net operating loss carryforwards amount net operating losses grown past three years primarily result tax losses united states losses resulted industry decline us market restructuring expenses associated facility closures realization resulting deferred tax assets dependent generating sufficient taxable income future periods established valuation allowances 527 million primarily related net operating loss carryforwards foreign jurisdictions likely losses expire unused believe likely remaining net deferred tax assets realized equity earnings affiliates 106 million 2001 compared 98 million 2000 increase earnings primarily result reduced losses argentina engine joint venture equity earnings retail finance joint ventures 2001 consistent prior year 2000 compared 1999 net income 2000 35 million 006 per diluted share compared loss 115 million 020 per diluted share 1999 results included restructuring expenses 219 million 022 per diluted share 2000 245 million 026 per diluted share 1999 associated closure manufacturing facilities announced 1999 2000 addition results 2000 included 80 million loss 008 per share associated completion accounts receivable securitization facility january 2000 see liquidity capital resources results improved 2000 primarily due improved gross margins resulting cost sales reductions achieved facility rationalizations initiatives acquisitions may 2000 acquired cnh global nv 50 share hay forage industries hfi 10 million acquisition terminated joint venture agreement pursuant cnh owned 50 interests hfi thereby providing us sole ownership hfi located hesston kansas develops manufactures hay forage equipment implements sell various brand names retail sales demand agricultural equipment 2000 showed mixed results within major markets world compared 1999 low commodity prices caused high global commodity stocks lower export demand farm commodities continued adversely affect worldwide demand new equipment purchases past two years united states canada industry unit retail sales tractors combines 2000 increased approximately 8 5 respectively compared 1999 despite lack significant changes commodity prices moderate improvements core agricultural segments industry may influenced aggressive pricing actions competitors unit retail sales tractors combines united states canada decreased 2000 compared 1999 western europe industry unit retail sales tractors 2000 declined approximately 8 compared 1999 reduction experienced significant western european markets unit retail sales western europe 2000 also declined compared 1999 experienced favorable acceptance new tractor lines introduced 1999 2000 however retail unit sales ukbuilt products negatively impacted weakness euro versus british pound industry unit retail sales tractors south america 2000 increased approximately 16 compared 1999 major market brazil industry retail sales increased approximately 28 significant increases since june 2000 due full availability supplemental brazilian government subsidized retail financing program remaining south american markets including argentina retail unit sales decreased due economic uncertainty tightening credit unit retail sales tractors south america also increased compared 1999 international markets net sales higher prior year particularly middle east far east primarily due improved industry demand statements operations net sales 2000 23 billion compared 24 billion 1999 net sales 2000 decreased approximately 181 million result foreign currency translation effect weakening euro british pound relation us dollar excluding impact currency translation net sales 2000 approximately 3 1999 regionally net sales north america increased 496 million 9 compared 1999 increase result efforts 1999 lower dealer inventory levels reducing wholesale shipments dealers europeafricamiddle east region net sales 2000 decreased 1911 million 13 compared 1999 primarily due negative impact foreign currency translation industry declines western europe net sales south america increased 355 million 17 compared 1999 due favorable market conditions brazil asiapacific region net sales increased 21 million 2 compared 1999 primarily due improvements market demand far east markets net sales sprayer division increased 36 million 9 1999 gross profit 3766 million 161 net sales 2000 compared 3577 million 147 net sales 1999 gross margins improved 2000 primarily due cost reduction initiatives including impact facility rationalizations lower sales incentive costs particularly used equipment addition gross margins negatively impacted 1999 50 million writedown production inventory related closure coldwater ohio lockney texas manufacturing facilities selling general administrative expenses sga expenses 2000 2282 million 98 net sales compared 2332 million 96 net sales 1999 increase percentage net sales due lower sales volume 2000 compared 1999 engineering expenses 2000 456 million 20 net sales compared 446 million 18 net sales 1999 increase engineering expenses primarily due addition hfis engineering expenses subsequent acquisition hfi recorded restructuring infrequent expenses 219 million 245 million 2000 1999 respectively restructuring expenses related closing coldwater ohio independence missouri lockney texas noetinger argentina manufacturing facilities announced 1999 2000 restructuring expenses related employee severance facility closure costs writedown property plant equipment production transition costs addition restructuring expenses 2000 net 30 million reduction related reversal restructuring reserves established 1997 see restructuring infrequent expenses additional information income operations 658 million 2000 compared 406 million 1999 excluding restructuring expenses operating income 877 million 38 net sales 2000 compared 651 million 27 net sales 1999 operating income increased primarily result improved gross margins primarily related cost sales reductions achieved 2000 improvements partially offset impact currency translation reduced 2000 operating income approximately 160 million interest expense net 466 million 2000 compared 576 million 1999 reduction interest expense due 200 million reduction outstanding debt result united states accounts receivable securitization transaction completed first quarter 2000 see liquidity capital resources expense net 331 million 2000 compared 152 million 1999 increase expense related losses sales receivables connection establishment us securitization facility january 2000 recorded losses totaling 245 million 2000 including loss 71 million related initial funding us securitization facility recorded income tax benefit 76 million 2000 compared income tax benefit 102 million 1999 tax benefit 2000 included recognition united states tax credit carryback approximately 20 million equity earnings affiliates 98 million 2000 compared 105 million 1999 equity earnings retail finance affiliates represent largest component earnings lower 2000 due portfolio declines quarterly results following table presents unaudited interim operating results believe following information includes adjustments consisting normal recurring adjustments consider necessary fair presentation accordance generally accepted accounting principles operating results period necessarily indicative results future period 1 2001 quarters ended march 31 june 30 september 30 december 31 include restructuring infrequent expenses 23 million 33 million 49 million 25 million respectively thereby reducing net income per common share diluted basis 002 003 004 002 respectively 2000 quarters ended march 31 june 30 september 30 december 31 include restructuring infrequent expenses 19 million 131 million 45 million 24 million respectively thereby reducing net income per common share diluted basis 002 013 005 002 respectively 2 quarter ended june 30 2001 includes extraordinary loss net taxes 08 million 001 per share extent possible attempt sell products dealers distributors level basis throughout year reduce effect seasonal demands manufacturing operations minimize investments inventory however retail sales agricultural equipment highly seasonal farmers traditionally purchasing agricultural equipment spring fall conjunction major planting harvesting seasons agchem acquisition april 16 2001 completed acquisition agchem paid agchem shareholders approximately 2472 million consisting approximately 118 million agco common shares 1475 million cash funding cash component purchase price made borrowings revolving credit facility agchem acquisition accounted purchase accordance accounting principles board apb 16 accordingly purchase price allocated assets acquired liabilities assumed based preliminary estimate fair values acquisition date connection acquisition agchem established liabilities primarily related severance employee relocation costs associated planned closure agchems benson minnesota manufacturing facility minnetonka minnesota administrative office fifteen parts service facilities activity related liabilities summarized following table millions severance relates planned termination approximately 350 agchem employees approximately 340 terminated december 31 2001 restructuring infrequent expenses second quarter 2001 announced intention rationalize certain facilities part agchem acquisition integration plan company consolidated existing willmar minnesota manufacturing facility agchems benson minnesota manufacturing facility agchems jackson minnesota manufacturing plant addition company closed agchems minnetonka minnesota administrative offices relocated majority functions jackson facility lastly closed fifteen agchem parts service facilities integrated parts warehousing logistics existing north america parts distribution system closures expected result reduction cost goods sold operating expenses combined businesses generate portion targeted 30 million synergies achieved acquisition anticipate majority savings achieved 2002 connection closures recorded restructuring infrequent expenses 85 million 2001 components restructuring infrequent expenses summarized following table millions severance relates planned termination approximately 200 agco employees approximately 190 terminated december 31 2001 employee retention payments relate incentives paid agchem agco employees remain employed certain future termination dates accrued term retention period facility closure costs include employee costs exit costs incurred willmar operations cease writedown property plant equipment represents impairment machinery equipment willmar facility closures based estimated fair value assets compared carrying value facility relocation transition costs expensed incurred represent costs relocate employees inventory machinery costs integrate operations remaining facilities 09 million costs accrued december 31 2001 expected incurred 2002 1999 2001 completed several manufacturing rationalization initiatives included closure 1999 coldwater ohio tractor implement facility closures 2000 combine manufacturing facility independence missouri implement manufacturing facilities lockney texas noetinger argentina initiatives included relocation majority production engineering facilities existing facilities closure facilities consistent strategy reduce excess manufacturing capacity due declines industry demand since 1998 determined closure facilities redeployment majority production existing facilities remaining production thirdparty suppliers necessary address excess capacity us south american manufacturing plants manufacturing facility rationalization resulted significant cost savings improved overall competitiveness implements hay equipment high horsepower tractors combines produced plants closed coldwater plant 1999 independence lockney noetinger plants 2000 rationalization production facilities expected generate annual cost savings 20 million 25 million elimination production overhead costs efficiencies believe achieved savings targets 2001 except startup inefficiencies 79 million experienced hesston manufacturing facility due initial production combines planters facility summary expenses related reserves associated initiatives summarized following table millions severance costs relate termination approximately 1050 employees terminated december 31 2001 facility closure costs include employee costs exit costs incurred operations ceased addition noncancelable operating lease obligations 2001 reversed 07 million accrued facility closure costs incurred writedown property plant equipment represents impairment assets resulting facility closures based estimated fair value assets compared carrying value writedown consisted 05 million 2000 70 million 1999 related machinery equipment 08 million 2000 79 million 1999 building improvements 2001 recorded recovery 07 million sale machinery equipment writedown net recoveries consisted 116 related coldwater 12 million related independence 27 million related noetinger estimated fair value equipment buildings determined based current conditions applicable markets machinery equipment tooling disposed buildings improvements currently marketed sale production transition costs expensed incurred represent costs relocate integrate production engineering existing agco facilities remaining costs accrued december 31 2001 expected incurred 2002 2003 1998 recorded restructuring infrequent expenses 400 million primarily related severance related costs associated reduction worldwide permanent workforce approximately 1400 employees december 31 2001 approximately 04 million accrued severance remained paid expect remaining costs paid 2002 caterpillar challenger acquisition march 5 2002 completed acquisition design assembly marketing caterpillar incs new mt series challenger tractors issued approximately 10 million shares common stock transaction valued approximately 21 million based closing price common stock acquisition date addition expect purchase approximately 13 million initial production inventory caterpillar addition challenger tractor line provides us technological leader high horsepower tracktype tractors marketed worldwide basis primarily caterpillar distribution organization furthermore plan provide caterpillar dealers additional products broaden equipment offerings enhance competitive position results operations product line included results date acquisition since challenger tractors sold may 2002 complementary products fully available 2002 anticipate impact acquisition neutral slightly negative earnings 2002 liquidity capital resources financing requirements subject variations due seasonal changes inventory receivable levels internally generated funds supplemented necessary external sources primarily revolving credit facility accounts receivable securitization facilities 2001 completed number transactions modified capital structure replaced existing revolving credit facility scheduled expire january 2002 entered 3500 million multicurrency revolving credit facility rabobank mature october 2005 facility secured majority us canadian uk based assets pledge stock domestic material foreign subsidiaries interest accrue borrowings outstanding facility option either 1 libor plus margin based ratio senior debt ebitda adjusted 2 administrative agents base lending rate federal funds rate plus margin ranging 0625 15 whichever higher facility contains covenants including covenants restricting incurrence indebtedness making restrictive payments including dividends addition must fulfill financial covenants including among others total debt ebitda ratio senior debt ebitda ratio fixed charge coverage ratio defined facility proceeds used repay borrowings outstanding existing revolving credit facility december 31 2001 borrowings 890 million availability borrow 2566 million revolving credit facility issued 2500 million 9 12 senior notes due 2008 senior notes unsecured obligations redeemable option whole part commencing may 1 2005 initially 10475 principal amount plus accrued interest declining 100 principal amount plus accrued interest may 1 2007 indenture governing senior notes requires us offer repurchase senior notes 101 principal amount plus accrued interest date repurchase event change control indenture contains certain covenants among things limits ability restricted subsidiaries incur additional indebtedness make restricted payments including dividends share repurchases make investments guarantee indebtedness create liens sell assets share repurchases proceeds used pay borrowings outstanding existing revolving credit facility support financing agchem acquisition lastly completed additional accounts receivable securitization facilities totaling approximately 1520 million whereby certain european canadian wholesale accounts receivable may sold third party revolving basis used proceeds securitization facilities reduce outstanding borrowings new revolving credit facility 2000 completed 250 million securitization facility sale united states accounts receivable revolving basis result primary financing funding sources 2500 million 8 12 senior subordinated notes due 2006 2500 million 9 12 senior notes due 2008 3500 million revolving credit facility approximately 4100 million accounts receivable securitization facilities us canada europe meet shortterm liquidity requirements utilization revolving credit facility accounts receivable securitization facilities revolving credit facility committed october 2005 subject maintaining certain covenants described securitization facilities terms five years subject annual renewal facilities allow us sell accounts receivables financing conduits obtain funding commercial paper markets future funding securitization facilities dependent upon adequacy receivables sufficient demand underlying commercial paper maintenance certain covenants concerning quality receivables financial condition event commercial paper demand adequate securitization facilities provide liquidity backing various financial institutions including rabobank liquidity commitments would provide us interim funding allow us time find alternative sources working capital financing necessary securitization facilities sell accounts receivable revolving basis commercial paper conduits either direct basis whollyowned special purpose entity december 31 2001 unpaid balance receivables sold approximately 5089 million funding 4020 million advanced us funded balance 4020 million effect reducing accounts receivable shortterm liabilities amount risk loss securitization facilities limited receivables required contributed commercial paper conduit excess amount funded currently receivable requirement approximately 15 excess funded amount maintain reserves doubtful accounts associated risk facilities terminated would required repurchase previously sold receivables would prevented selling additional receivables working capital requirements seasonal investments working capital typically building first half year reducing second half year 5397 million working capital december 31 2001 decrease 642 million working capital 6039 million december 31 2000 accounts receivable inventory combined 1033 million lower prior year change includes 1450 million reduction resulting increased sales receivables 2001 offset addition 1068 million agchem receivables inventory net change receivables inventory excluding items reduction approximately 651 million compared december 31 2000 majority reduction due currency translation cash flow provided operating activities 2254 million 2001 compared 1744 million 2000 operating cash flow benefited additional 1450 million receivables sales 2001 2000 million 2000 excluding securitization impacts operating cash flow improved compared prior year capital expenditures 2001 393 million compared 577 million 2000 decrease capital expenditures primarily due completion capital expansion projects related facility rationalizations anticipate capital expenditures 2002 range approximately 450 million 550 million primarily used support development enhancement new existing products well facility equipment systems improvements debt capitalization ratio total longterm debt divided sum total longterm debt stockholders equity 436 december 31 2001 compared 419 december 31 2000 increase primarily attributable higher debt incurred connection agchem acquisition partially offset reduction debt resulting increased funding accounts receivable securitization facilities well negative impact currency translation equity balance believe available borrowings revolving credit facility funding accounts receivable securitization facilities available cash internally generated funds sufficient support working capital expenditures debt service requirements foreseeable future time review continue review acquisition joint venture opportunities well changes capital markets consummate significant acquisition elect take advantage favorable opportunities capital markets may supplement availability revise terms credit facilities complete public private offerings equity debt securities contractual commitments 1999 entered saleleaseback transaction involving certain real property proceeds transaction 187 million used reduce outstanding borrowings revolving credit facility terms lease require us pay approximately 20 million per year fifteen years time option extend lease annual payments ranging 22 million 27 million accordance sfas 13 accounted lease operating lease december 31 2001 obligated certain circumstances purchase year 2005 42 million equipment upon expiration certain operating leases agco finance llc agco finance canada ltd retail finance joint ventures north america end users also maintain remarketing agreement joint ventures whereby obligated repurchase repossessed inventory market values management believes losses might incurred resale equipment materially impact financial position results operations december 31 2001 guaranteed indebtedness owed third parties approximately 151 million primarily related dealer end user financing equipment believe credit risk associated guarantees material financial position related parties rabobank nederland aaa rated financial institution based netherlands 51 owner retail finance joint ventures located united states canada united kingdom france germany spain ireland brazil rabobank also principal agent participant revolving credit facility securitization facilities finance joint ventures also financed lines credit rabobank credit facilities directly guaranteed us 2000 company entered supply agreements deutzfahr group spa sdfg whereby sdfg supplies certain orchard vineyard tractors agco supplies sdfg combines european market december 31 2001 sdfg owned approximately 5 agcos common stock involvement agco management 2001 net sales 870 million baywa corporation german distributor ordinary course business president ceo baywa corporation also member board directors outlook operations subject cyclical nature agricultural industry sales equipment expected continue affected changes net cash farm income farm land values weather conditions demand agricultural commodities general economic conditions worldwide industry demand agricultural equipment expected remain principally unchanged 2002 industry fundamentals including commodity prices anticipated improve meaningfully 2002 us proposed us farm bill may provide stability farm income farmer confidence europe farm consolidation cap reform continue negatively impact industry demand concerns livestock diseases impacted 2001 demand receded south america brazilian farm economics remain strong however equipment demand 2002 continue dependent availability subsidized financing light flat industry conditions agco expects continue generate earnings growth 2002 cost reduction initiatives positive impact upgraded product offerings fullyear inclusion agchems results acquisition synergies addition anticipate impact adopting statement financial accounting standards sfas 142 eliminates amortization goodwill result increase operating income 2002 18 million impact operating income offset increased restricted stock expense associated awards earned 2002 longterm incentive plan awards earned upon increases price common stock increased significantly date 2002 based restricted shares earned date 2002 record compensation expense approximately 27 million 024 per share first quarter 2002 approximately 15 million noncash expense discussed accounting changes expect adoption sfas 142 result noncash goodwill impairment charge 18 million 28 million pretax basis recorded cumulative effect accounting change foreign currency risk management significant manufacturing operations united states united kingdom france germany denmark brazil purchase portion tractors combines components thirdparty foreign suppliers primarily various european countries japan also sell products 140 countries throughout world majority revenue outside united states denominated currency customer location exception sales middle east africa asia primarily denominated british pounds euros us dollars see segment reporting notes consolidated financial statements sales customer location significant transactional foreign currency exposures british pound relation euro british pound euro brazilian real canadian dollar relation us dollar fluctuations value foreign currencies create exposures adversely affect results operations attempt manage transactional foreign exchange exposure hedging foreign currency cash flow forecasts commitments arising settlement receivables payables future purchases sales naturally offsetting currency positions occur hedge certain exposures use foreign currency forward contracts hedging policy prohibits foreign currency forward contracts speculative trading purposes translation exposure resulting translating financial statements foreign subsidiaries us dollars hedged significant translation exposures british pound euro brazilian real relation us dollar practical translation impact reduced financing local operations local borrowings following summary foreign currency forward contracts used hedge currency exposures contracts maturity less one year net notional amounts fair value gains losses december 31 2001 stated us dollars follows per us dollar contracts entered hedging purposes gains losses contracts would largely offset gains losses underlying firm commitment january 2002 argentine peso incurred significant devaluation accounted devaluation december 31 2001 resulting negative currency translation adjustment stockholders equity approximately 38 million interest rates manage interest rate risk use fixed rate debt interest rate swap contracts fixed rate debt 250 million 8 12 senior subordinated notes due 2006 250 million 9 12 senior notes due 2008 2001 interest rate swap contract outstanding minimize effect potential interest rate increases floating rate debt contract expired december 31 2001 currently interest rate swap contracts outstanding 2001 interest rate swap effect converting portion floating rate indebtedness fixed rate 61 floating rate exposure related revolving credit facility securitization facilities tied changes us european libor rates assuming 10 increase interest rates interest expense net excluding effect interest rate swap contract 2001 would increased approximately 21 million critical accounting policies consolidated financial statements prepared conformity accounting principles generally accepted united states significant accounting policies followed preparation financial statements detailed note 1 notes consolidated financial statements preparation financial statements make judgments estimates assumptions affect reported amounts assets liabilities date financial statements reported amounts revenues expenses reporting period believe judgments estimates assumptions reasonable however due level judgment complexity period time many items resolved actual results could differ estimated time preparation financial statements adjustments estimates would impact financial position future results operations believe application policies involving significant judgments estimates complexity utilized financial statements include establishment following allowances discounts sales incentives allowances discounts sales incentives made time sale based retail sales incentive programs available dealer retail customer cost programs dependent various factors including timing retail sale volume sales achieved dealer retail sales incentives may also revised time record sale time retail sale occurs monitor factors revise provisions necessary allowances surplus obsolete inventory allowances surplus obsolete inventory based historical usage sales patterns estimates future sales production changes demand product design impact estimates periodically evaluate update assumptions assessing adequacy inventory allowances valuation allowances deferred tax assets valuation allowances deferred tax assets established estimate likely tax assets realized estimates based projections future income certain tax jurisdictions changes industry conditions competitive environment may impact accuracy projections warranty reserves provisions estimated expenses related product warranties made time products sold estimates based historical experience nature frequency average cost warranty claims frequently review warranty trends monitor estimates develop actions minimize future claims insurance reserves insurance reserves provided estimates losses due claims workers compensation product liability liabilities selfinsured estimates based ultimate value claims often long periods resolution closely monitor claims maintain adequate reserves additional details accounts located note 1 consolidated financial statements exception valuation allowances deferred taxes located note 6 consolidated financial statements accounting changes september 1999 financial accounting standards board fasb issued sfas 137 providing one year delay effective date sfas 133 accounting derivative instruments hedging activities january 1 2001 sfas 133 establishes accounting reporting standards derivative instruments hedging activities requires entity recognize derivatives either assets liabilities balance sheet measure instruments fair value sfas 133 requires changes derivatives fair value recognized currently earnings unless specific hedge accounting treatment met june 2000 fasb issued sfas 138 amends accounting reporting derivatives sfas 133 exclude among things contracts normal purchases normal sales discussed note 11 consolidated financial statements adopted sfas 133 january 1 2001 july 2001 fasb issued sfas 141 business combinations sfas 142 goodwill intangible assets sfas 141 prospectively prohibits pooling interest method accounting business combinations initiated june 30 2001 sfas 142 requires companies cease amortizing goodwill indefinite lived assets december 31 2001 existence june 30 2001 goodwill indefinite lived assets resulting acquisitions completed june 30 2001 amortized sfas 142 also establishes new method testing goodwill indefinite lived assets impairment annual basis interim basis event occurs circumstances change would reduce fair value reporting unit carrying value adoption sfas 142 result discontinuation amortization goodwill however required test goodwill impairment new standard beginning 2002 could adverse effect future results operations impairment occurs sfas 142 requires initial impairment assessment performed goodwill indefinite lived intangible assets assessment involves determining estimate fair value reporting units trademarks order evaluate whether impairment current carrying amount goodwill intangible assets exists fair values derived based evaluation past expected future performance reporting units impairment charge initial assessment recorded cumulative effect accounting change currently performing initial fair value assessment although assessment completed subject change estimate cumulative effect adopting standard result noncash charge 18 million 28 million pretax basis expect complete assessment record impact adoption standard first quarter 2002 adoption standard also benefit pretax earnings beginning 2002 approximately 18 million 16 per share reduced amortization intangibles july 2001 fasb also issued sfas 143 accounting asset retirement obligations sfas 143 sfas 143 requires entities record fair value liability asset retirement obligation period incurred liability initially recorded entity capitalizes cost increasing carrying amount related longlived asset time liability accreted present value period capitalized cost depreciated useful life related asset upon settlement liability entity either settles obligation amount recorded incurs gain loss sfas 143 effective fiscal years beginning june 15 2002 evaluating effect statement results operations financial position believe impact material august 2001 fasb issued sfas 144 accounting impairment disposal longlived assets sfas 144 sfas 144 supersedes fasb statement 121 accounting impairment longlived assets longlived assets disposed sfas 121 accounting reporting provisions accounting principles board opinion 30 reporting results operations reporting effects disposal segment business extraordinary unusual infrequently occurring events transactions opinion 30 disposal segment business previously defined opinion 30 fasb issued sfas 144 establish single accounting model based framework established sfas 121 longlived assets disposed sale sfas 144 broadens presentation discontinued operations statement operations include component entity rather segment business component entity comprises operations cash flows clearly distinguished operationally financial reporting purposes rest entity sfas 144 also requires discontinued operations measured lower carrying amount fair value less cost sell sfas 144 effective fiscal years beginning december 15 2001 applied prospectively standard impact current results operations financial position applied appropriate circumstances arise forward looking statements certain statements managements discussion analysis financial condition results operations elsewhere annual report form 10k forward looking including certain statements set forth headings results operations liquidity capital resources forward looking statements include expectations respect factors affect industry conditions net sales income restructuring infrequent expenses impairment charges future capital expenditures fulfillment working capital needs plans respect acquisitions although believe statements made based reasonable assumptions based current information beliefs accordingly give assurance statements achieved addition statements subject factors could cause actual results differ materially suggested forward looking statements factors include limited general economic capital market conditions demand agricultural products world grain stocks crop production commodity prices farm income farm land values government farm programs legislation pervasive livestock diseases levels new used field inventories weather conditions interest foreign currency exchanges rates conversion euro pricing product actions taken competitors customer access credit production disruptions supply capacity constraints cost reduction control initiatives research development efforts labor relations dealer distributor actions technological difficulties changes environmental international trade laws political economic uncertainty various areas world information concerning factors could significantly affect results included filings securities exchange commission disclaim responsibility update forward looking statements item 7aitem 7 management’s discussion analysis financial condition results operations leading manufacturer distributor agricultural equipment related replacement parts throughout world sell full range agricultural equipment including tractors combines hay tools sprayers forage equipment implements products marketed following brand names agco® agcoallis® agcostar® agchem® challenger® farmhand® fendt® fieldstar® gleaner® glencoe® hesston® loral ® massey ferguson® new idea® rogator® soilteq™ spracoupe® sunflower® terragator® tye® white® willmar® distribute products combination approximately 8450 independent dealers distributors associates licensees addition provide retail financing north america united kingdom france germany spain ireland brazil finance joint ventures rabobank results operations sell equipment replacement parts independent dealers distributors customers large majority sales independent dealers distributors sell products end user extent practicable attempt sell products dealers distributors level basis throughout year reduce effect seasonal demands manufacturing operations minimize investment inventory however retail sales dealers farmers highly seasonal linked planting harvesting seasons certain markets particularly north america often time lag varies based timing level retail demand sale equipment dealer’s sale retail customer time lag wholesale retail sale dealers may return equipment us unless dealer’s contract terminated agree accept returned products cases commissions payable salesman incentive programs paid time retail sale opposed products sold dealers following table sets forth periods indicated percentage relationship net sales certain items included consolidated statements operations 2002 compared 2001 net loss 2002 844 million 114 per diluted share compared net income 226 million 033 per diluted share 2001 results 2002 included following items • restructuring infrequent expenses “restructuring expenses” 427 million 038 per share primarily related closure coventry england manufacturing facility well rationalization various manufacturing facilities • restricted stock compensation expense 441 million 039 per share primarily related awards earned first fourth quarters longterm incentive plan “ltip” • noncash adjustment 910 million 123 per share increase valuation allowance us deferred tax assets • noncash writedown goodwill 241 million net 36 million taxes 033 per share related adoption statement accounting standards “sfas” 142 “goodwill intangible assets” reflected cumulative effect change accounting principle first quarter 2002 results 2001 included following items • restructuring charges 130 million 012 per share associated integration agchem acquired april 2001 closure certain manufacturing facilities announced 2000 1999 • restricted stock compensation expense 71 million 006 per share primarily related awards earned fourth quarter ltip • extraordinary loss net taxes 08 million 001 per share writeoff unamortized debt issuance costs associated revolving credit facility refinanced april 2001 operating income including restructuring expenses restricted stock compensation 1040 million 2002 compared 967 million 2001 earnings improvement 2002 primarily result addition agchem acquired april 2001 first quarter 2002 results higher sales majority markets gross margin improvement cost reduction initiatives acquisition synergies gross margins improved 171 2001 182 2002 results negatively impacted startup losses relating challenger product line introduction well higher restricted stock compensation expense restructuring expenses 2002 impact challenger acquisition reduction operating income approximately 172 million 015 per share operating income 2002 also benefited lower intangible asset amortization approximately 171 million 015 per share due adoption sfas 142 acquisitions november 7 2002 completed acquisition sunflower manufacturing co inc leading producer tillage seeding specialty harvesting equipment serving north american market sunflower’s products marketed sold highly respected “sunflower” brand name 50 years established reputation innovation performance durability longterm plans include expansion products export markets addition new technology allied product innovations agco see “recent acquisitions” additional information march 5 2002 completed acquisition design assembly marketing new mt series caterpillar’s challenger tractor line addition challenger tractor line provides us technological leader high horsepower tracktype tractors marketed worldwide basis primarily caterpillar distribution organization furthermore expand challenger product line include wheeled tractors combines hay equipment provide caterpillar dealers full line products broaden equipment offerings enhance competitive position agricultural equipment market see “recent acquisitions” retail sales industry demand agricultural equipment 2002 showed mixed results within major markets world 2002 commodity prices improved 2001 levels supporting improving fundamentals farm income addition new united states farm bill passed 2002 provide stability farm income emergency aid payments made prior years industry fundamentals improved 2002 dry weather conditions united states negatively impacted demand europe concerns livestock diseases declined support payment levels common agricultural policy generally maintained south america higher commodity prices continued availability affordable financing supported strong demand united states canada industry unit retail sales tractors increased approximately 1 compared 2001 resulting increases compact tractor segment relatively flat demand utility tractor segment significant decrease high horsepower tractor segment industry unit retail sales combines decreased approximately 20 compared prior year primarily result dry weather conditions poor crop production many key areas transition issues support payments despite decline unit retail sales tractors combines north america increased 2002 compared 2001 increase unit retail sales combines 2002 partially due production delays 2001 related relocation startup combine production hesston kansas facility western europe industry unit retail sales tractors increased approximately 4 compared 2001 strong increases experienced markets particularly impacted concerns livestock diseases 2001 unit retail sales 2002 also increased compared 2001 south america industry unit retail sales tractors 2002 increased approximately 16 compared 2001 availability brazilian government subsidized financing program finame helped support strong demand 2002 unit retail sales also increased 2002 compared prior year international markets net sales 2002 excluding currency impacts approximately 17 higher prior year growth markets industry unit retail sales sprayers north america decreased approximately 16 2002 compared 2001 agco’s retail sales sprayers also declined compared 2001 statements operations net sales 2002 29227 million compared 25415 million 2001 increase primarily attributable inclusion full year agchem sales 2002 challenger product line introduction foreign currency translation improved sales performance majority markets agchem acquired april 2001 generated net sales increase 2002 partial year 2001 789 million new challenger product line generated net sales 1083 million sunflower generated net sales 41 million 2002 currency translation positively impacted net sales 170 million primarily due strengthening euro offset weakness brazilian real excluding effect agchem challenger sunflower acquisitions foreign currency translation net sales 72 higher 2001 regionally net sales north america excluding currency impact increased 790 million 111 2002 due primarily challenger product line introduction europe africa middle east region net sales excluding currency impact increased 1236 million 96 compared 2001 primarily due improved industry conditions impact new product introductions net sales excluding currency impact south america increased 794 million 308 compared 2001 resulting stronger brazilian market asia pacific region net sales excluding currency impact increased 47 million 49 compared 2001 due growth markets sprayers net sales excluding currency impact increased 774 million compared 2001 due full year agchem 2002 results gross profit 5318 million 182 net sales 2002 compared 4348 million 171 net sales 2001 gross margins improved primarily due addition high margin agchem sales cost reduction initiatives higher production levels addition production cost inefficiencies hesston plant first three quarters 2001 79 million eliminated 2002 cost reductions partially offset lower margins challenger product line due low track tractor production volume unfavorable mix products sold selling general administrative “sga” expenses 2002 2824 million 96 net sales compared 2499 million 98 net sales 2001 sga expenses increased primarily result challenger product line expenses full year inclusion agchem higher sales volumes engineering expenses 2002 572 million 20 net sales compared 496 million 20 net sales 2001 increase due inclusion full year engineering expenses agchem well increased engineering costs result challenger acquisition restricted stock compensation expense 441 million 2002 compared 71 million 2001 due rise common stock price first fourth quarters 2002 restricted stock compensation awards granted key executives 2000 earned ltip restricted stock awards earned upon increases common stock price shares earned ltip remain restricted earned cannot sold period three five years cash bonus equal 40 value stock also paid participants time shares earned facilitate payment current income tax liability incurred participants 441 million expense recorded 2002 approximately 244 million noncash expense december 2002 board directors approved new ltip plan award senior executives plan allows restricted shares earned next five years stock price increases base price 2375 established new plan additional compensation expense would incurred future levels earned base price established plan refer note 10 consolidated financial statements additional information recorded restructuring expenses 427 million 2002 130 million 2001 restructuring expenses 2002 primarily related planned closure tractor manufacturing facility located coventry england announced june 2002 restructuring expenses 2001 associated integration agchem well manufacturing facility rationalization programs see “restructuring infrequent expenses” amortization intangibles decreased 14 million 2002 185 million 2001 due discontinuation amortization goodwill intangible assets upon adoption sfas 142 2002 see “accounting changes” income operations 1040 million 36 net sales 2002 compared 967 million 38 net sales 2001 income operations 2002 includes restricted stock compensation restructuring expenses 441 million 427 million respectively discussed income operations 2001 includes restricted stock compensation restructuring expenses 71 million 130 million respectively improvement operating income charges 2002 primarily due higher gross margins decrease intangible amortization discussed previously interest expense net 574 million 2002 compared 586 million 2001 decrease interest expense due primarily lower interest rates 2002 compared 2001 addition interest expense net 2001 included 20 million fee successful waiver solicitation 8 12 senior subordinated notes expense net 208 million 2002 compared 234 million 2001 included expense losses sales receivables primarily securitization facilities 148 million compared 235 million 2001 amount 2001 included approximately 40 million upfront losses transaction costs associated initial funding securitization facilities europe canada totaling approximately 1500 million expense net 2001 also included gain 52 million associated sale minority interest investment european agricultural equipment company recorded income tax provision 998 million 2002 compared 19 million 2001 2002 recognized noncash income tax charge 910 million related increasing valuation allowance certain us deferred tax assets sfas 109 “accounting income taxes” requires establishment valuation allowance uncertainty realizability deferred tax assets accordance sfas 109 assessed likelihood deferred tax assets would recovered future taxable income determined adjustment valuation allowance appropriate december 31 2002 deferred tax assets 2006 million including 1642 million related net operating loss carryforwards december 31 2002 recorded total valuation allowances offset deferred tax assets 1262 million primarily related us net operating loss carryforwards realization remaining net deferred tax assets dependent generating sufficient taxable income future periods believe likely remaining net deferred tax asset realized equity earnings affiliates 137 million 2002 compared 106 million 2001 equity earnings retail finance joint ventures 2002 26 million higher 2001 recorded 08 million extraordinary loss net taxes representing writeoff unamortized debt issuance costs associated revolving credit facility refinanced april 2001 first quarter 2002 recorded noncash goodwill impairment charge 241 million net taxes 033 per share related adoption sfas 142 recorded cumulative effect change accounting principle see “accounting changes” 2001 compared 2000 net income 2001 226 million 033 per diluted share compared 35 million 006 per diluted share 2000 results 2001 included restructuring infrequent expenses “restructuring expenses” 130 million 012 per share primarily related integration agchem equipment company inc acquired april 2001 rationalization certain manufacturing facilities addition 2001 earnings include extraordinary loss net taxes 08 million 001 per share writeoff unamortized debt costs associated revolving credit facility refinanced april 2001 results 2000 included restructuring expenses 219 million 022 per share associated closure certain manufacturing facilities announced 2000 1999 operating income including restructuring expenses restricted stock compensation 967 million 2001 compared 658 million 2000 earnings improvement 2001 primarily result margin improvement generated successful cost reduction initiatives including impact manufacturing facility rationalizations results negatively impacted losses agchem period since acquisition agchem acquisition completed agchem’s seasonally strongest period typically first calendar quarter year impact agchem acquisition excluding restructuring expenses reduction net income approximately 105 million 015 per share acquisitions april 16 2001 completed acquisition agchem manufacturer distributor selfpropelled fertilizer chemical sprayers preemergent postemergent applications acquisition provided us leading position selfpropelled sprayer market see “recent acquisitions” additional information retail sales industry demand agricultural equipment 2001 showed mixed results within major markets world compared prior year commodity prices remained relatively low levels 2001 caused high global commodity stocks lower export demand farm commodities conditions adversely affect farm income thereby negatively impacting demand new equipment purchases united states canada industry retail unit sales tractors combines 2001 increased approximately 10 9 respectively compared 2000 reflecting improvement relatively low industry levels 2000 retail unit sales tractors north america increased retail unit sales combines declined 2001 compared 2000 delays related relocation startup combine production hesston kansas facility negatively impacted 2001 sales western europe industry retail unit sales tractors declined approximately 7 2001 compared 2000 concerns bse mad cow disease footandmouth disease first half 2001 contributed decline subsequently diminished second half year retail unit sales 2001 also declined compared 2000 south america industry retail unit sales tractors 2001 increased approximately 13 compared 2000 major market brazil continued strong growth due full availability supplemental brazilian government subsidized retail financing program growth brazilian market partially offset declines argentina market retail unit sales also increased 2001 compared prior year international markets net sales 2001 prior year majority decline related sales middle eastern markets statements operations net sales 2001 25415 million compared 23361 million 2000 net sales generated agchem subsequent acquisition 2001 1485 million net sales 2001 negatively impacted foreign currency translation approximately 1273 million due strength us dollar relation euro brazilian real excluding impact agchem acquisition foreign currency translation net sales 79 higher 2000 regionally net sales north america excluding currency impact increased 828 million 130 2001 2000 due primarily improved market conditions addition combine sales higher 2001 2000 resulting increased combine production limited 2000 relocation hesston kansas second half year europe africa middle east region net sales excluding currency impact increased 158 million 12 compared 2000 net sales excluding currency impact south america increased 792 million 326 compared 2000 strong sales increases brazil asia pacific region net sales excluding currency impact increased approximately 80 million 82 strong increases australian market sprayer division net sales excluding currency impact increased 1470 million compared 2000 primarily due acquisition agchem contributed net sales approximately 1485 million gross profit 4348 million 171 net sales 2001 compared 3766 million 161 net sales 2000 gross margins improved primarily due cost reduction initiatives impact new higher margin products margin improvement offset part cost inefficiencies first three quarters 2001 hesston kansas manufacturing facility approximately 79 million initial production products relocated closed facilities inefficiencies primarily associated initial production run combines planters facility selling general administrative “sga” expenses 2001 2499 million 98 net sales compared 2244 million 96 net sales 2000 increase percentage net sales result agchem higher sga expense ratio net sales remainder operations engineering expenses 2001 496 million 20 net sales compared 456 million 20 net sales 2000 increase due inclusion full year engineering expenses hay forage industries acquired may 2000 addition agchem subsequent acquisition restricted stock compensation expense 71 million 2001 compared 38 million 2000 increase 2001 due awards earned fourth quarter 2001 relating restricted stock compensation awards granted key executives 2000 recorded restructuring expenses 130 million 2001 219 million 2000 restructuring expenses 2001 included 85 million integration agchem 45 million manufacturing facility rationalization programs see “restructuring infrequent expenses” discussion 2000 restructuring expenses costs primarily associated manufacturing facility closures amortization intangibles increased 185 million 2001 151 million 2000 primarily due amortization goodwill acquired intangibles associated agchem acquisition income operations 967 million 38 net sales 2001 compared 658 million 28 net sales 2000 income operations 2001 includes restricted stock compensation restructuring expenses 71 million 130 million respectively income operations 2000 includes restricted stock compensation restructuring expenses 38 million 219 million respectively improvement due higher gross margins discussed previously interest expense net 586 million 2001 compared 466 million 2000 increase interest expense primarily relates increased indebtedness related agchem acquisition partially offset decline interest rates reduction borrowings associated new securitization facilities interest expense net 2001 also included 20 million fee successful waiver solicitation 8 12 senior subordinated notes expense net 234 million 2001 compared 331 million 2000 included expense losses sales receivables primarily securitization facilities 235 million 2001 compared 245 million 2000 amount 2001 included approximately 40 million upfront losses transaction costs associated initial funding new securitization facilities europe canada totaling 1520 million 2000 amount included 71 million upfront losses transaction costs associated initial 2000 million funding us securitization facility expense net 2001 also included gain 52 million associated sale minority interest investment european agricultural equipment company recorded income tax provision 19 million 2001 compared income tax benefit 76 million 2000 2001 provision reflects lower tax provision foreign income 2000 tax benefit includes benefit recognition united states tax credit carryback approximately 20 million equity earnings affiliates 106 million 2001 compared 98 million 2000 increase earnings primarily result reduced losses argentina engine joint venture equity earnings retail finance joint ventures 2001 consistent prior year 2001 recorded 08 million extraordinary loss net taxes representing writeoff unamortized debt issuance costs associated revolving credit facility refinanced april 2001 quarterly results following table presents unaudited interim operating results believe following information includes adjustments consisting normal recurring adjustments consider necessary fair presentation accordance accounting principles generally accepted united states america operating results period necessarily indicative results future period 1 2002 quarters ended march 31 june 30 september 30 december 31 include restricted stock compensation expense 270 million 08 million 07 million 156 million respectively thereby increasing net loss per common share reducing net income per common share diluted basis 024 001 014 respectively quarters ended march 31 june 30 september 30 december 31 also include restructuring infrequent expenses 09 million 227 million 97 million 94 million respectively thereby increasing net loss per common share reducing net income per common share diluted basis 001 019 008 respectively 2001 quarters ended march 31 june 30 september 30 december 31 include restricted stock compensation expense 07 million 06 million 04 million 54 million respectively thereby increasing net loss per common share reducing net income per common share diluted basis 001 000 005 respectively quarters ended march 31 june 30 september 30 december 31 also include restructuring infrequent expenses 23 million 33 million 49 million 25 million respectively thereby increasing net loss per common share reducing net income per common share diluted basis 002 003 004 002 respectively 2 quarter ended march 31 2002 includes cumulative effect change accounting principle net taxes 241 million 033 per share quarter ended december 31 2002 includes noncash income tax charge 910 million 121 per share quarter ended june 30 2001 includes extraordinary loss net taxes 08 million 001 per share extent possible attempt sell products dealers distributors level basis throughout year reduce effect seasonal demands manufacturing operations minimize investments inventory however retail sales agricultural equipment highly seasonal farmers traditionally purchasing agricultural equipment spring fall conjunction major planting harvesting seasons recent acquisitions november 7 2002 completed acquisition sunflower manufacturing co inc former product line spx corporation sunflower leading producer tillage seeding specialty harvesting equipment serving north american market located beloit kansas purchase price approximately 480 million funded borrowings revolving credit facility sunflower acquisition accounted accordance statement financial accounting standards “sfas” 141 “business combinations” accordingly purchase price allocated assets acquired liabilities assumed based preliminary estimate fair values acquisition date march 5 2002 completed agreement caterpillar acquire design assembly marketing new mt series caterpillar’s challenger tractor line issued approximately 10 million shares common stock transaction valued approximately 213 million based closing price common stock acquisition date july 2002 received approximately 09 million caterpillar pursuant terms purchase agreement whereby proceeds caterpillar received upon sale stock 210 million would refunded us addition purchased approximately 136 million initial production inventory caterpillar connection supply agreement caterpillar addition challenger tractor line provides us technological leader high horsepower tracktype tractors marketed worldwide basis primarily caterpillar distribution organization furthermore provide caterpillar dealers additional products broaden equipment offerings enhance competitive position challenger acquisition accounted accordance sfas 141 accordingly purchase price allocated assets acquired liabilities assumed based preliminary estimate fair values acquisition date march 3 2003 announced closure track tractor facility dekalb illinois currently dekalb plant assembles challenger track tractors range 235 500 horsepower review cost reduction alternatives determined current forecasted production levels sufficient support stand alone track tractor site evaluating relocation production current facilities hesston kansas jackson minnesota production dekalb facility planned cease late may 2003 production relocated resumed july 2003 march 3 2003 186 employees dekalb plant anticipate facility rationalization generate annual savings approximately 80 million year 2004 estimated cash closure costs approximately 50 million expected recovered proceeds sale dekalb site april 16 2001 completed acquisition agchem manufacturer distributor selfpropelled sprayers paid agchem shareholders approximately 2472 million consisting approximately 118 million agco common shares 1475 million cash funding cash component purchase price made borrowings revolving credit facility agchem acquisition accounted purchase accordance accounting principles board “apb” 16 “business combinations” accordingly purchase price allocated assets acquired liabilities assumed based fair values acquisition date connection acquisition agchem established 31 million liabilities primarily related severance employee relocation costs associated planned closure agchem’s benson minnesota manufacturing facility minnetonka minnesota administrative office fifteen parts service facilities first quarter 2002 costs connection liabilities established incurred accordingly adjusted purchase price allocation reflect reduction established liabilities 04 million addition finalized purchase price allocation resulting net total goodwill adjustment approximately 36 million adjustment primarily related reflection final appraised values property plant equipment acquired establishment certain liabilities related outstanding litigation warranty obligations restructuring infrequent expenses second quarter 2002 announced initiated restructuring plan related closure tractor manufacturing facility coventry england relocation existing production coventry beauvais france canoas brazil manufacturing facilities closure facility consistent strategy reduce excess manufacturing capacity closure also aid eliminating negative impact currency factors significantly lower product operating costs facility manufactured transaxles assembled tractors range 50110 horsepower trend higher horsepower tractors resulting consolidation farms caused product segment industry decline recent years negatively impacted facility’s utilization anticipate generate annual savings 200 million 250 million result rationalization fully realized 2004 connection restructuring plan recorded approximately 402 million restructuring infrequent expenses 2002 components restructuring expenses summarized following table millions severance costs relate termination approximately 1100 employees following completion production coventry facility approximately 250 employees terminated december 31 2002 employee retention payments relate incentives paid coventry employees remain employed certain future termination dates accrued term retention period facility closure costs include certain noncancelable operating lease termination facility exit costs writedown property plant equipment represents impairment machinery equipment resulting facility closure based estimated fair value assets compared carrying value estimated fair value equipment determined based current conditions market machinery equipment tooling disposed production ceases buildings land improvements marketed sale 283 million restructuring costs accrued december 31 2002 expected incurred 2003 also recorded approximately 14 million inventory reserves 2002 reflected costs goods sold related inventory identified obsolete result closure expect incur additional 100 150 million restructuring expenses 2003 related coventry closure october 2002 applied high court london england clarification rule uk pension plan governs value pension payments payable employee 50 years old retires service certain circumstances prior normal retirement date primary matter high court whether pension payments employees including terminated due closure coventry facility reduced compensate fact pension payments begin prior normal retirement age 65 december 20 2002 high court ruled position reduced pension payments payable context early retirements terminations high court’s ruling also granted us approval appeal judgment court appeal advisors maintain view reduced pension payments payable result appealed judgment court appeal process england panel judges involvement high court proceedings hear appeal determine outcome merits majority ruling court appeal judges required overturn original high court decision based upon advice legal advisors reassessed merits case consideration high court ruling maintain opinion likelihood unfavorable resolution matter reasonably possible consider probable consequently recorded loss december 31 2002 related matter event position ultimately upheld closure coventry facility past early retirement programs would entitle certain terminated employees receive unreduced pension payments estimated impact pension plan would increase pension plan liabilities approximately 55 million 60 million related charge consolidated statements operations presently estimate additional funding pension plan related increased liability would approximately 65 million per annum next 10 years timing obligation fund cash pension plan respect increased liability would depend many factors including overall funded status plan investment returns plan’s assets recorded additional restructuring infrequent expenses 34 million 2002 expense primarily relates severance costs certain lease termination exit costs associated rationalization european engineering marketing personnel certain components german manufacturing facilities located kempten marktoberdorf germany restructuring north american information systems function rationalizations completed improve ongoing cost structure reduce cost goods sold well engineering selling general administrative expenses 26 million severance costs recorded associated activities relate termination 137 employees total december 31 2002 approximately 26 million amount accrued incurred remaining balance 08 million expected incurred 2003 2001 announced plans rationalize certain facilities part agchem acquisition integration consolidated agco’s willmar minnesota manufacturing facility agchem’s benson minnesota manufacturing facility agchem’s jackson minnesota manufacturing plant addition closed agchem’s minnetonka minnesota administrative offices relocated functions jackson facility also closed 15 parts service facilities integrated parts warehousing logistics agco’s north american parts distribution system closures completed order achieve overall reduction cost goods sold operating expenses combined businesses believe key aspects restructuring plan successfully executed targeted synergies approximately 30 million offset decline industry demand impacted sales production levels cost structure employees identified restructuring plan terminated end first quarter 2002 employee retention payments related incentives paid agchem agco employees remained employed certain future termination dates accrued term retention period incurred facility closure costs included employee relocation costs exit costs willmar location operations ceased facility relocation transition costs expensed incurred represented costs relocate inventory machinery costs integrate operations remaining facilities remaining costs accrued related rationalizations december 31 2002 components restructuring expenses summarized following table millions 2000 permanently closed combine manufacturing facility independence missouri lockney texas noetinger argentina implement manufacturing facilities 1999 permanently closed coldwater ohio manufacturing facility majority production facilities relocated existing facilities outsourced third parties closure facilities consistent strategy reduce excess manufacturing capacity due declines industry demand since 1998 determined closure facilities redeployment majority production existing facilities remaining production thirdparty suppliers necessary address excess capacity us south american manufacturing plants manufacturing facility rationalization resulted significant cost savings improved overall competitiveness implements hay equipment high horsepower tractors combines produced plants rationalization production facilities expected continue generate annual cost savings 20 million 25 million elimination production overhead costs efficiencies believe efficiencies substantially achieved 2001 2002 expensed approximately 45 million 249 million associated rationalizations 2001 2000 respectively 10 million costs accrued related rationalizations december 31 2001 record additional restructuring infrequent expenses 2002 related closures incurred approximately 05 million expenses 2002 remaining accrued restructuring costs 05 million primarily relate noncancelable lease termination costs incurred 2005 addition 2002 sold closed manufacturing facilities independence missouri coldwater ohio net gain sale two facilities 10 million reflected “restructuring infrequent expenses” consolidated statements operations critical accounting policies consolidated financial statements prepared conformity accounting principles generally accepted united states america preparation financial statements make judgments estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period significant accounting policies followed preparation financial statements detailed note 1 notes consolidated financial statements believe application policies regarding establishment allowances accounts receivable inventories valuation allowances deferred tax assets certain accrued expenses warranty insurance sales incentives involve significant levels judgments estimates complexity allowances discounts sales incentives made time sale based retail sales incentive programs available dealer retail customer cost programs dependent various factors including timing retail sale volume sales achieved dealer retail sales incentives may also revised time record sale time retail sale occurs monitor factors revise provisions necessary allowances surplus obsolete inventory based estimates future sales production changes demand product design impact estimates periodically evaluate update assumptions assessing adequacy inventory allowances valuation allowances deferred tax assets established estimate likely tax assets realized estimates based projections future income including tax planning strategies certain tax jurisdictions changes industry conditions competitive environment may impact accuracy projections provisions estimated expenses related product warranties made time products sold estimates based historical experience nature frequency average cost warranty claims frequently review warranty trends monitor estimates develop actions minimize future claims insurance reserves provided estimates losses due claims worker’s compensation product liability liabilities selfinsured estimates based ultimate value claims often long periods resolution closely monitor claims maintain adequate reserves party various claims lawsuits arising normal course business closely monitor claims lawsuits frequently consult legal counsel determine whether may resolved material adverse effect financial position results operations discussed previously october 2002 applied high court london england clarification rule uk pension plan governs value pension payments payable employee 50 years old retires service certain circumstances prior normal retirement date december 2002 high court ruled position reduced pension payments payable context early retirements terminations high court’s ruling also granted us approval appeal judgment court appeal based upon advice legal advisors reassessed merits case consideration high court ruling maintain opinion likelihood unfavorable resolution matter reasonably possible consider probable consequently recorded loss december 31 2002 related matter event position ultimately upheld closure coventry facility past early retirement programs would entitle certain terminated employees receive unreduced pension payments estimated impact pension plan would increase pension plan liabilities approximately 55 million 60 million related charge consolidated statements operations goodwill indefinitelived trademarks segments tested impairment january 1 2002 required sfas 142 sfas 142 established new method testing goodwill indefinitelived intangible assets impairment annual basis interim basis event occurs circumstances change would reduce fair value reporting unit carrying value assessment involves determining estimate fair value reporting units including trademarks order evaluate whether impairment current carrying amount goodwill intangible assets exists fair values derived based evaluation past expected future performance reporting units utilized combination valuation techniques including discounted cash flow approach market multiple approach comparable transaction approach based initial evaluation january 1 2002 determined goodwill two reporting units impaired recorded writedown goodwill recognized cumulative effect change accounting principle first quarter 2002 conducted annual analysis october 1 2002 determined reduction carrying amount goodwill required 2002 closely monitor circumstances could potentially impact fair value reporting units due level judgment complexity period time many items resolved actual results could differ estimated time preparation financial statements adjustments estimates would impact financial position future results operations liquidity capital resources financing requirements subject variations due seasonal changes inventory receivable levels internally generated funds supplemented necessary external sources primarily revolving credit facility accounts receivable securitization facilities primary financing funding sources 2500 million 8 12 senior subordinated notes due 2006 2500 million 9 12 senior notes due 2008 3500 million revolving credit facility approximately 4250 million accounts receivable securitization facilities us canada europe 3500 million multicurrency revolving credit facility rabobank matures october 2005 facility secured majority us canadian uk based assets pledge portion stock domestic material foreign subsidiaries interest accrues borrowings outstanding facility option either 1 libor plus margin based ratio senior debt ebitda adjusted 2 administrative agent’s base lending rate federal funds rate plus margin ranging 0625 15 whichever higher facility contains covenants including covenants restricting incurrence indebtedness making restrictive payments including dividends addition facility contains financial covenants including among others total debt ebitda ratio senior debt ebitda ratio fixed charge coverage ratio defined facility march 14 2002 amended revolving credit facility agreement allow ltip cash expense recognized evenly four quarters purposes calculating ebitda certain financial covenants facility also amended december 31 2002 change required ratios total debt ebitda senior debt ebitda covenants december 31 2002 borrowings 1269 million availability borrow 2176 million revolving credit facility issued 2500 million 9 12 senior notes due 2008 “senior notes” 2001 senior notes unsecured obligations redeemable option whole part commencing may 1 2005 initially 10475 principal amount plus accrued interest declining 100 principal amount plus accrued interest may 1 2007 indenture governing senior notes requires us offer repurchase senior notes 101 principal amount plus accrued interest date repurchase event change control indenture contains certain covenants among things limits ability restricted subsidiaries incur additional indebtedness make restricted payments including dividends share repurchases make investments guarantee indebtedness create liens sell assets share repurchases issued 2500 million 8 12 senior subordinated notes due 2006 “senior subordinated notes” 1996 99139 principal amount senior subordinated notes unsecured obligations redeemable option whole part time march 15 2001 initially 10425 principal amount plus accrued interest declining ratably 100 principal amount plus accrued interest march 15 2003 senior subordinated notes include certain covenants restricting incurrence indebtedness making certain restrictive payments including dividends securitization facilities sell accounts receivable revolving basis commercial paper conduits either direct basis whollyowned special purpose entity december 31 2002 unpaid balance receivables sold approximately 5232 million funding 4239 million advanced us funded balance 4239 million effect reducing accounts receivable shortterm liabilities amount risk loss securitization facilities limited portion unfunded balance receivables sold approximately 15 funded amount maintain reserves doubtful accounts associated risk facilities terminated would required repurchase previously sold receivables would prevented selling additional receivables commercial paper conduit agreements provide agent rabobank right terminate arrangement senior unsecured debt rating moves b standard poor’s b1 moody’s investor services based current ratings downgrade three levels standard poor’s two levels moody’s would need occur accounts receivable securitization facilities united states canada europe total approximately 4249 million december 31 2002 2001 completed 1520 million securitization facilities sale certain european canadian wholesale accounts receivable third party revolving basis 2000 completed 2500 million securitization facility sale united states accounts receivables revolving basis meet shortterm liquidity requirements utilization revolving credit facility accounts receivable securitization facilities revolving credit facility committed october 2005 subject maintaining certain covenants described securitization facilities terms five years subject annual renewal facilities allow us sell accounts receivables financing conduits obtain funding commercial paper markets future funding securitization facilities dependent upon adequacy receivables sufficient demand underlying commercial paper maintenance certain covenants concerning quality receivables financial condition event commercial paper demand adequate securitization facilities provide liquidity backing various financial institutions including rabobank liquidity commitments would provide us interim funding allow us time find alternative sources working capital financing necessary working capital requirements seasonal investments working capital typically building first half year reducing second half year 6272 million working capital december 31 2002 increase 875 million working capital 5397 million december 31 2001 accounts receivable inventory combined 1753 million higher prior year change includes approximately 1649 million receivables inventory related challenger product line introduction sunflower acquisition net change receivables inventory excluding items increase approximately 104 million compared december 31 2001 increase predominantly due foreign currency translation cash flows provided operating activities 732 million 2002 compared 2254 million 2001 operating cash flows 2001 benefited additional 1450 million receivables securitization funding excluding securitization impacts 2002 operating cash flow comparable 2001 operating cash flows 2002 impacted initial investment working capital related challenger product line introduction approximately 110 million capital expenditures 2002 549 million compared 393 million 2001 increase capital expenditures primarily due new product offerings systems improvements challenger acquisition anticipate capital expenditures 2003 range approximately 500 million 600 million primarily used support development enhancement new existing products well facility equipment systems improvements debt capitalization ratio total longterm debt divided sum total longterm debt stockholders’ equity 470 december 31 2002 compared 436 december 31 2001 increase primarily attributable higher debt incurred connection challenger working capital investment sunflower acquisition reduction equity 2002 believe available borrowings revolving credit facility funding accounts receivable securitization facilities available cash internally generated funds sufficient support working capital expenditures debt service requirements foreseeable future time review continue review acquisition joint venture opportunities well changes capital markets consummate significant acquisition elect take advantage favorable opportunities capital markets may supplement availability revise terms credit facilities complete public private offerings equity debt securities contractual commitments future payments required significant contractual obligations excluding foreign currency forward contracts december 31 2002 follows millions 1 unconditional purchase obligations exclude routine purchase orders normal course business guarantees december 31 2002 obligated certain circumstances purchase year 2005 125 million equipment upon expiration certain operating leases agco finance llc agco finance canada ltd retail finance joint ventures north america end users also maintain remarketing agreement joint ventures whereby obligated repurchase repossessed inventory market values management believes losses might incurred resale equipment materially impact financial position results operations december 31 2002 guaranteed indebtedness owed third parties approximately 118 million primarily related dealer end user financing equipment believe credit risk associated guarantees material financial position addition december 31 2002 outstanding foreign currency forward contracts approximately 1513 million contracts maturity less one year refer also “foreign currency risk management” related parties rabobank nederland aaa rated financial institution based netherlands 51 owner retail finance joint ventures located united states canada united kingdom france germany spain ireland brazil rabobank also principal agent participant revolving credit facility securitization facilities majority assets retail finance joint ventures represent finance receivables majority liabilities represent notes payable accrued interest various joint venture agreements rabobank affiliates obligated provide financing joint venture companies primarily lines credit guarantee obligations retail finance joint ventures 49 solvency requirements brazil joint venture brazil joint venture company agency relationship rabobank whereby rabobank provides funding provided entirely governmentsponsored finame facilities subject variation time brazilian government retail finance joint ventures provide retail financing wholesale financing dealers terms financing arrangements offered dealers similar arrangements provide unaffiliated third parties discussed previously december 31 2002 obligated certain circumstances purchase year 2005 125 million equipment upon expiration certain operating leases agco finance llc agco finance canada ltd retail joint ventures north america end users also maintain remarketing agreement joint ventures discussed “contractual commitments” addition part sales incentives provided end users may time subsidize interest rates retail financing provided retail joint ventures cost programs recognized time sale dealers 2002 net sales 1302 million baywa corporation german distributor ordinary course business president ceo baywa corporation also member board directors 2002 purchased approximately 1275 million equipment components manufacturing joint venture gima cost 2002 also purchased approximately 53 million equipment components manufacturing joint venture deutz agco motores sa prices approximating cost outlook operations subject cyclical nature agricultural industry sales equipment expected continue affected changes net cash farm income farm land values weather conditions demand agricultural commodities farm industry related legislation general economic conditions worldwide demand farm equipment 2003 expected remain relatively level 2002 north america higher commodity prices generally favorable farm bill support higher farm income 2003 current demand north america remains soft due dry conditions portions north america transition issues support payments retail demand north america expected improve modestly throughout year western europe industry demand rebounded 2002 reflecting recovery livestock disease concerns industry demand western europe expected remain relatively level 2003 although concerns common agricultural policy changes may impact markets south america industry demand relatively high levels past two years due availability financing support brazil 2003 subsidized financing also expected available brazil initially levels 2002 result south american industry demand anticipated lower 2003 2002 current outlook anticipate disruptions demand operations caused current global political environment potential future conflicts middle east based current market outlook agco expects earnings improve 2003 resulting sales growth improved operating margins reduction restructuring expenses agco’s net sales expected increase 2003 growth achieved challenger product line introduction addition sunflower impact new product introductions strengthening euro operating margins expected improve cost reduction initiatives new product offerings factory rationalizations product mix offsetting benefits higher pension costs expected increase approximately 12 million pretax basis restructuring expenses related coventry closure expected approximately 10 million 15 million pretax basis foreign currency risk management significant manufacturing operations united states united kingdom france germany denmark brazil purchase portion tractors combines components thirdparty foreign suppliers primarily various european countries japan also sell products 140 countries throughout world majority revenue outside united states denominated currency customer location exception sales middle east africa asia primarily denominated british pounds euros us dollars see “segment reporting” notes consolidated financial statements sales customer location significant transactional foreign currency exposures british pound relation euro british pound euro brazilian real canadian dollar relation us dollar fluctuations value foreign currencies create exposures adversely affect results operations attempt manage transactional foreign exchange exposure hedging foreign currency cash flow forecasts commitments arising settlement receivables payables future purchases sales naturally offsetting currency positions occur hedge certain exposures use foreign currency forward contracts hedging policy prohibits foreign currency forward contracts speculative trading purposes translation exposure resulting translating financial statements foreign subsidiaries us dollars hedged significant translation exposures british pound euro brazilian real relation us dollar practical translation impact reduced financing local operations local borrowings following summary foreign currency forward contracts used hedge currency exposures contracts maturity less one year net notional amounts fair value gains losses december 31 2002 stated us dollars follows millions except average contract rate per us dollar contracts entered hedging purposes gains losses contracts would largely offset gains losses underlying firm commitment interest rates manage interest rate risk use fixed rate debt may future utilize interest rate swap contracts fixed rate debt 2500 million 8 12 senior subordinated notes due 2006 250 million 9 12 senior notes due 2008 floating rate exposure related revolving credit facility securitization facilities tied changes us european libor rates assuming 10 increase interest rates interest expense net 2002 would increased approximately 12 million 2001 interest rate swap contract outstanding minimize effect potential interest rate increases floating rate debt contract expired december 31 2001 interest rate swap contracts outstanding 2002 accounting changes january 1 2002 adopted sfas 142 sfas 142 requires companies cease amortizing goodwill indefinitelived intangible assets december 31 2001 existence june 30 2001 goodwill indefinitelived intangible assets resulting acquisitions completed june 30 2001 amortized sfas 142 also establishes new method testing goodwill indefinitelived intangible assets impairment annual basis interim basis event occurs circumstances change would reduce fair value reporting unit carrying value sfas 142 requires initial impairment assessment performed goodwill indefinitelived intangible assets assessment involves determining estimate fair value reporting units trademarks order evaluate whether impairment current carrying amount goodwill intangible assets exists fair values derived based evaluation past expected future performance reporting units adoption sfas 142 resulted reduction amortization expense approximately 171 million 2002 compared 2001 refer note 1 consolidated financial statements goodwill segments tested impairment january 1 2002 required sfas 142 utilized combination valuation techniques including discounted cash flow approach market multiple approach comparable transaction approach based evaluation determined goodwill associated argentine north american reporting units impaired result recorded pretax writedown goodwill 277 million writedown recognized cumulative effect change accounting principle 241 million net 36 million taxes first quarter 2002 july 2001 fasb also issued sfas 143 “accounting asset retirement obligations” “sfas 143” sfas 143 requires entities record fair value liability asset retirement obligation period incurred liability initially recorded entity capitalizes cost increasing carrying amount related longlived asset time liability accreted present value period capitalized cost depreciated useful life related asset upon settlement liability entity either settles obligation amount recorded incurs gain loss sfas 143 effective fiscal years beginning june 15 2002 evaluating effect statement results operations financial position believe impact material august 2001 fasb issued sfas 144 “accounting impairment disposal longlived assets” “sfas 144” sfas 144 supersedes fasb statement 121 “accounting impairment longlived assets longlived assets disposed of” “sfas 121” accounting reporting provisions apb opinion 30 “reporting results operations reporting effects disposal segment business extraordinary unusual infrequently occurring events transactions” “apb opinion 30” disposal segment business previously defined apb opinion 30 fasb issued sfas 144 establish single accounting model based framework established sfas 121 longlived assets disposed sale sfas 144 broadens presentation discontinued operations statement operations include component entity rather segment business component entity comprises operations cash flows clearly distinguished operationally financial reporting purposes rest entity sfas 144 also requires discontinued operations measured lower carrying amount fair value less cost sell adopted sfas 144 effective january 1 2002 adoption standard impact current results operations financial position refer note 1 consolidated financial statements april 2002 fasb issued sfas 145 “rescission fasb statements 4 44 64 amendment sfas 13 technical corrections” “sfas 145” sfas 145 eliminates requirement sfas 4 “reporting gains losses extinguishment debt” report gains losses extinguishments debt extraordinary items income statement accordingly gains losses extinguishments debt fiscal years beginning may 15 2002 shall reported extraordinary items unless extinguishment qualifies extraordinary item provisions apb opinion 30 upon adoption sfas 145 gain loss extinguishment debt previously classified extraordinary item prior periods presented meet criteria apb opinion 30 classification reclassified conform provisions sfas 145 sfas 145 also amends sfas 13 “accounting leases” eliminate inconsistency required accounting saleleaseback transactions required accounting certain lease modifications economic effects similar saleleaseback transactions addition sfas 145 amends existing authoritative pronouncements make various technical corrections clarify meanings describe applicability changed conditions sfas 145 effective fiscal years beginning may 15 2002 evaluating effect statement results operations financial position believe impact material new standard require us reclassify extraordinary loss recorded 2001 interest expense net result reduction income extraordinary loss 001 per share impact net income stockholders’ equity june 2002 fasb issued sfas 146 “accounting costs associated exit disposal activities” “sfas 146” sfas 146 addresses financial accounting reporting costs associated exit disposal activities nullifies emerging issues task force eitf issue 943 “liability recognition certain employee termination benefits costs exit activity including certain costs incurred restructuring” sfas 146 requires liability cost associated exit disposal activity recognized liability incurred eitf issue 943 liability exit cost defined issue recognized date entity’s commitment exit plan therefore sfas 146 eliminates definition requirements recognition exit costs eitf issue 943 also establishes fair value objective initial measurement liability sfas 146 effective exit disposal activities initiated december 31 2002 sfas 146 impact current restructuring plans related closure coventry england manufacturing facility comply statement future exit disposal activities dekalb illinois closure accounted requirements eitf issue 953 “recognition liabilities connection purchase business combination” november 2002 fasb issued interpretation 45 “guarantor’s accounting disclosure requirements guarantees including indirect guarantees indebtedness others” “fin 45” fin 45 requires guarantor recognize inception certain guarantees liability fair value obligation undertaken issuing guarantee fin 45 also requires additional disclosure guarantor’s obligations certain guarantees issued initial recognition measurement provisions interpretation applicable prospective basis guarantees issued modified december 31 2002 disclosure requirements effective december 15 2002 included note 12 consolidated financial statements december 2002 fasb issued sfas 148 “accounting stockbased compensationtransition disclosure amendment fasb statement 123” “sfas 148” sfas 148 amends sfas 123 provide alternative methods transition voluntary change fair value based method accounting stockbased employee compensation amends disclosure requirements sfas 123 require prominent disclosures annual interim financial statements method accounting stockbased employee compensation effect method used reported results transition annual disclosure provisions sfas 148 effective fiscal years ending december 15 2002 adopted disclosure provisions sfas 148 effective year ending december 31 2002 refer note 10 consolidated financial statements january 2003 fasb issued interpretation 46 “consolidation variable interest entities interpretation arb 51” “fin 46” fin 46 establishes criteria consolidating variable interest entities currently evaluating fin 46 effective fiscal years interim periods beginning june 15 2003 variable entities acquired february 1 2003 currently believe current securitization facilities special purpose entity affected interpretation forward looking statements certain statements “management’s discussion analysis financial condition results operations” elsewhere annual report form 10k forward looking including certain statements set forth headings “results operations” “liquidity capital resources” “outlook” forward looking statements include expectations respect factors affect industry conditions net sales income restructuring infrequent expenses impairment charges future capital expenditures fulfillment working capital needs impact war political unrest plans respect acquisitions although believe statements made based reasonable assumptions based current information beliefs accordingly give assurance statements achieved addition statements subject factors could cause actual results differ materially suggested forward looking statements factors include limited general economic capital market conditions demand agricultural products world grain stocks crop production commodity prices farm income farm land values government farm programs legislation pervasive livestock diseases levels new used field inventories weather conditions interest foreign currency exchanges rates conversion euro pricing product actions taken competitors customer access credit production disruptions supply capacity constraints cost reduction control initiatives research development efforts labor relations dealer distributor actions technological difficulties changes environmental international trade laws political economic uncertainty various areas world information concerning factors could significantly affect results included filings securities exchange commission disclaim responsibility update forward looking statements item 7aitem 7 management’s discussion analysis financial condition results operations leading manufacturer distributor agricultural equipment related replacement parts throughout world sell full range agricultural equipment including tractors combines hay tools sprayers forage equipment implements products marketed following brand names agco® agcoallis® agcostar® agchem® challenger® farmhand® fendt® fieldstar® gleaner® glencoe® hesston® lor al® massey ferguson® new idea® rogator® soilteqtm spracoupe® sunflower® terragator® tye® white® willmar® distribute products combination approximately 8400 independent dealers distributors associates licensees addition provide retail financing north america united kingdom france germany ireland brazil finance joint ventures rabobank result valtra acquisition consummated january 5 2004 see “recent acquisitions” also began marketing valtra® sisudieseltm brand names depending markets distribute products directly end customers valtra’s 820 independent dealers distributors results operations sell equipment replacement parts independent dealers distributors customers large majority sales independent dealers distributors sell products end user extent practicable attempt sell products dealers distributors level basis throughout year reduce effect seasonal demands manufacturing operations minimize investment inventory however retail sales dealers farmers highly seasonal linked planting harvesting seasons certain markets particularly north america often time lag varies based timing level retail demand sale equipment dealer’s sale retail customer time lag wholesale retail sale dealers may return equipment us unless dealer’s contract terminated agree accept returned products cases commissions payable salesman incentive programs paid time retail sale opposed products sold dealers following table sets forth periods indicated percentage relationship net sales certain items included consolidated statements operations 2003 compared 2002 net income 2003 744 million 098 per diluted share compared net loss 844 million 114 per diluted share 2002 results 2003 included following items • restructuring expenses 276 million 026 per share primarily related closure coventry england manufacturing facility well rationalization various manufacturing facilities • restricted stock compensation expense 06 million 001 per share related awards earned longterm incentive plan “ltip” results 2002 included following items • restructuring expenses 427 million 038 per share primarily related closure coventry england manufacturing facility well rationalization various manufacturing facilities • restricted stock compensation expense 441 million 039 per share primarily related awards earned first fourth quarters ltip • noncash adjustment 910 million 123 per share increase valuation allowance united states deferred tax assets • noncash writedown goodwill 241 million net 36 million taxes 033 per share related adoption sfas 142 reflected cumulative effect change accounting principle first quarter 2002 net sales 2003 196 higher 2002 primarily due higher sales south america incremental sales new challenger product line acquired sunflower brand positive currency translation impacts income operations including restructuring expenses restricted stock compensation 1835 million 2003 compared 1040 million 2002 operating income improved primarily due higher sales volume well decreased restricted stock compensation expense lower restructuring infrequent expenses compared 2002 operating earnings increased markets outside europe primarily due improved industry demand europe operating earnings declined result production transition inefficiencies sales mix associated weak industry demand key markets higher pension costs gross margins declined 182 2002 176 2003 largely result production transition inefficiencies negative currency impacts european south american exports sold markets acquisitions january 5 2004 acquired valtra tractor diesel engine operations kone corporation finnish company 6006 million net approximately 214 million cash acquired approximately 7559 million net subject customary closing adjustments valtra global tractor offroad engine manufacturer market leadership positions nordic region europe latin america acquisition provides us opportunity expand business significant global markets exchange technology combined companies see “recent acquisitions” additional information retail sales industry demand within major markets world mixed 2003 conditions north american market generally improved throughout 2003 due higher commodity prices improved weather conditions relative 2002 western europe demand negatively impacted dry weather conditions especially german market severe drought conditions economic uncertainty significantly affected high horsepower tractor demand south america industry tractor sales largest market brazil declined due revisions government financing subsidies offset strong increases demand argentina market united states canada industry unit retail sales tractors increased approximately 190 2003 compared 2002 resulting strong increases compact tractor utility tractor segments moderate increase high horsepower tractor segment industry unit retail sales combines decreased approximately 20 compared prior year unit retail sales tractors north america increased slightly 2003 compared 2002 unit retail sales combines lower prior year western europe industry unit retail sales tractors decreased approximately 20 2003 compared 2002 sales results mixed significant declines germany spain dry weather conditions impacted demand unit retail sales tractors also decreased 2003 compared 2002 south america industry unit retail sales tractors combines 2003 increased approximately 10 250 respectively compared 2002 unit retail sales tractors combines also increased 2003 compared 2002 international markets net sales 2003 excluding currency impacts approximately 30 higher prior year particularly eastern europe australia industry unit retail sales sprayers north america increased approximately 50 2003 compared 2002 retail sales sprayers 2003 flat compared 2002 industry sales recovered second half 2003 offset declines first half 2003 statements operations net sales 2003 34953 million compared 29227 million 2002 increase primarily attributable inclusion full year sunflower sales 2003 incremental sales new challenger product line consolidation gima component manufacturing joint venture france july 1 2003 positive foreign currency translation impacts sunflower acquired november 2002 generated net sales increase 2003 partial year 2002 approximately 340 million challenger product line acquired march 2002 generated net sales increase 2003 partial year 2002 approximately 979 million consolidation gima joint venture resulted additional 249 million sales prior year currency translation positively impacted net sales 2765 million primarily due strengthening euro excluding effect sunflower challenger acquisitions consolidation gima foreign currency translation net sales 47 higher 2002 regionally net sales north america excluding currency impact increased 1216 million 154 2003 due primarily challenger product line introduction product offering expansion well inclusion full year sunflower sales europe africa middle east region net sales excluding currency impact consolidation gima decreased 344 million 27 compared 2002 primarily due weakened industry conditions western europe particularly germany due dry weather conditions economic uncertainty decline partially offset improved market demand eastern europe demand increased countries recently invited join european union net sales excluding currency impact south america increased 1526 million 564 compared 2002 resulting significant increases demand argentina market growth combine sales asia pacific region net sales excluding currency impact increased 179 million 167 compared 2002 due growth markets particularly australia sprayer division net sales excluding currency impact increased 17 million 07 gross profit 6164 million 176 net sales 2003 compared 5318 million 182 net sales 2002 gross margins declined primarily due production transition inefficiencies sales mix related weak demand key european markets manufacturing facility beauvais france experienced cost inefficiencies production delays associated transition production coventry england facility closed third quarter 2003 addition inefficiencies associated new oem supply arrangement randers denmark combine manufacturing facility contributed margin decline gross margins also negatively impacted unfavorable currency impacts european south american production sold markets selling general administrative “sga” expenses 2003 3316 million 95 net sales compared 2824 million 96 net sales 2002 sga expenses increased primarily result incremental expenses associated new challenger product line acquired sunflower brand well impact currency translation higher pension costs engineering expenses 2003 714 million 20 net sales compared 572 million 20 net sales 2002 increase due full year engineering expenses sunflower challenger addition engineering expenses due consolidation joint venture gima july 1 2003 well new product offerings launched 2003 recorded restructuring expenses 276 million 2003 427 million 2002 restructuring expenses 2003 2002 primarily related closure tractor manufacturing facility located coventry england announced june 2002 closed july 2003 addition recorded restructuring infrequent expenses 124 million associated litigation related uk pension plan see “restructuring infrequent expenses” additional information income operations 1835 million 52 net sales 2003 compared 1040 million 36 net sales 2002 income operations 2003 included restricted stock compensation restructuring expenses 06 million 276 million respectively income operations 2002 included restricted stock compensation restructuring expenses 441 million 427 million respectively improvement operating income charges 2003 primarily due improved industry demand markets outside europe interest expense net 600 million 2003 compared 574 million 2002 increase interest expense primarily due higher debt levels offset lower interest rates 2003 compared 2002 expense net 252 million 2003 compared 208 million 2002 included expense net losses sales receivables primarily securitization facilities 146 million 2003 compared 148 million 2002 decrease 2003 primarily due lower interest rates 2003 compared 2002 also experienced higher foreign exchange losses 2003 2002 recorded income tax provision 413 million 2003 compared 998 million 2002 recognized noncash income tax charge 910 million related increasing valuation allowance united states deferred tax assets sfas 109 “accounting income taxes” requires establishment valuation allowance uncertainty realizability deferred tax assets accordance sfas 109 assessed likelihood deferred tax assets would recovered future taxable income determined adjustment valuation allowance appropriate benefited losses generated united states time assessment december 31 2003 2002 deferred tax assets net valuation allowances 2966 million 2006 million respectively including 2117 million 1642 million respectively related net operating loss carryforwards december 31 2003 2002 recorded total valuation allowances offset deferred tax assets 1417 million 1262 million respectively primarily related united states net operating loss carryforwards realization remaining net deferred tax assets depends generating sufficient taxable income future periods believe likely remaining net deferred tax assets realized 2002 compared 2001 net loss 2002 844 million 114 per diluted share compared net income 226 million 033 per diluted share 2001 results 2002 included following items • restructuring expenses 427 million 038 per share primarily related closure coventry england manufacturing facility well rationalization various manufacturing facilities • restricted stock compensation expense 441 million 039 per share primarily related awards earned first fourth quarters ltip • noncash adjustment 910 million 123 per share increase valuation allowance united states deferred tax assets • noncash writedown goodwill 241 million net 36 million taxes 033 per share related adoption sfas 142 reflected cumulative effect change accounting principle first quarter 2002 results 2001 included following items • restructuring expenses 130 million 012 per share associated integration agchem equipment company inc agchem acquired april 2001 closure certain manufacturing facilities announced 2000 1999 • restricted stock compensation expense 71 million 006 per share primarily related awards earned fourth quarter ltip income operations including restructuring expenses restricted stock compensation 1040 million 2002 compared 967 million 2001 improvement 2002 primarily result inclusion agchem first quarter 2002 results higher sales majority markets gross margin improvement cost reduction initiatives acquisition synergies gross margins improved 182 2002 173 2001 income operations 2002 also benefited lower intangible asset amortization approximately 171 million 015 per share due adoption sfas 142 results negatively impacted startup losses relating challenger product line introduction well higher restricted stock compensation expense restructuring expenses 2002 impact challenger acquisition reduction operating income approximately 172 million 015 per share acquisitions november 7 2002 completed acquisition sunflower manufacturing co inc leading producer tillage seeding specialty harvesting equipment serving north american market sunflower’s products marketed sold highly respected “sunflower” brand name 50 years established reputation innovation performance durability longterm plans sunflower include expansion products export markets addition new technology allied product innovations agco product lines see “recent acquisitions” additional information march 5 2002 completed acquisition design assembly marketing caterpillar’s new mt series challenger tractor line addition challenger tractor line provides us technological leader high horsepower tracktype tractors marketed worldwide basis primarily caterpillar distribution organization furthermore plan expand challenger product line include wheeled tractors combines hay equipment provide caterpillar dealers full line products broaden equipment offerings enhance competitive position agricultural equipment market see “recent acquisitions” additional information retail sales industry demand agricultural equipment 2002 showed mixed results within major markets world 2002 commodity prices improved 2001 levels supporting improving fundamentals farm income addition new united states farm bill passed 2002 provide stability farm income emergency aid payments made prior years industry fundamentals improved 2002 dry weather conditions united states negatively impacted demand europe concerns livestock diseases declined support payment levels common agricultural policy generally maintained south america higher commodity prices continued availability affordable financing supported strong demand united states canada industry unit retail sales tractors increased approximately 10 compared 2001 resulting increases compact tractor segment relatively flat demand utility tractor segment significant decrease high horsepower tractor segment industry unit retail sales combines decreased approximately 200 compared prior year primarily result dry weather conditions poor crop production many key areas transition issues support payments despite decline unit retail sales tractors combines north america increased 2002 compared 2001 increase unit retail sales combines 2002 partially due production delays 2001 related relocation startup combine production hesston kansas facility western europe industry unit retail sales tractors increased approximately 40 compared 2001 strong increases experienced markets particularly impacted concerns livestock diseases 2001 unit retail sales tractors 2002 increased compared 2001 south america industry unit retail sales tractors 2002 increased approximately 160 compared 2001 availability brazilian government subsidized financing program finame helped support strong demand 2002 unit retail sales increased 2002 compared prior year international markets net sales 2002 excluding currency impacts approximately 170 higher prior year growth markets industry unit retail sales sprayers north america decreased approximately 160 2002 compared 2001 retail sales sprayers declined compared 2001 statements operations net sales 2002 29227 million compared 25459 million 2001 increase primarily attributable inclusion full year agchem sales 2002 challenger product line introduction foreign currency translation improved sales performance majority markets agchem acquired april 2001 generated net sales increase 2002 partial year 2001 789 million new challenger product line generated net sales 1083 million sunflower generated net sales 41 million 2002 currency translation positively impacted net sales 170 million primarily due strengthening euro offset weakness brazilian real excluding effect agchem challenger sunflower acquisitions foreign currency translation net sales 72 higher 2001 regionally net sales north america excluding currency impact increased 747 million 104 2002 due primarily challenger product line introduction europe africa middle east region net sales excluding currency impact increased 1236 million 96 compared 2001 primarily due improved industry conditions impact new product introductions net sales excluding currency impact south america increased 794 million 308 compared 2001 resulting stronger brazilian market asia pacific region net sales excluding currency impact increased 47 million 49 compared 2001 due growth markets sprayer division net sales excluding currency impact increased 774 million compared 2001 due inclusion full year agchem sales 2002 results gross profit 5318 million 182 net sales 2002 compared 4392 million 173 net sales 2001 gross margins improved primarily due addition high margin agchem sales cost reduction initiatives higher production levels addition production cost inefficiencies 79 million hesston kansas plant first three quarters 2001 eliminated 2002 cost reductions partially offset lower margins challenger product line due low track tractor production volume unfavorable mix products sold sga expenses 2002 2824 million 96 net sales compared 2543 million 100 net sales 2001 sga expenses increased primarily result challenger product line expenses inclusion full year sga expenses agchem higher sales volumes engineering expenses 2002 572 million 20 net sales compared 496 million 20 net sales 2001 increase due inclusion full year engineering expenses agchem well increased engineering costs result challenger acquisition restricted stock compensation expense 441 million 2002 compared 71 million 2001 due rise common stock price first fourth quarters 2002 restricted stock compensation awards granted key executives 2000 earned ltip restricted stock awards earned upon increases common stock price shares earned ltip remain restricted earned cannot sold period three five years cash bonus equal 40 value stock also paid participants time shares earned facilitate payment current income tax liability incurred participants 441 million expense recorded 2002 approximately 244 million noncash expense december 2002 board directors approved new ltip plan award senior executives plan allows restricted shares earned next five years stock price increases base price 2375 per share established new plan additional compensation expense would incurred future levels earned base price established plan see “price range common stock” note 10 consolidated financial statements year ended december 31 2002 additional information recorded restructuring expenses 427 million 2002 130 million 2001 restructuring expenses 2002 primarily related planned closure tractor manufacturing facility located coventry england announced june 2002 restructuring expenses 2001 associated integration agchem well manufacturing facility rationalization programs see “restructuring infrequent expenses” additional information amortization intangibles decreased 14 million 2002 185 million 2001 due discontinuation amortization goodwill intangible assets upon adoption sfas 142 2002 see “accounting changes” additional information income operations 1040 million 36 net sales 2002 compared 967 million 38 net sales 2001 income operations 2002 included restricted stock compensation restructuring expenses 441 million 427 million respectively discussed income operations 2001 included restricted stock compensation restructuring expenses 71 million 130 million respectively improvement operating income charges 2002 primarily due higher gross margins decrease intangible amortization discussed previously interest expense net 574 million 2002 compared 599 million 2001 decrease interest expense due primarily lower interest rates 2002 compared 2001 addition interest expense net 2001 included 20 million fee successful waiver solicitation related senior subordinated notes well writeoff 13 million unamortized debt issuance costs associated revolving credit facility refinanced april 2001 expense net 208 million 2002 compared 234 million 2001 included expense net losses sales receivables primarily securitization facilities 148 million 2002 compared 235 million 2001 amount 2001 included approximately 40 million upfront losses transaction costs associated initial funding securitization facilities europe canada totaling approximately 1500 million expense net 2001 also included gain 52 million associated sale minority interest investment european agricultural equipment company recorded income tax provision 998 million 2002 compared 14 million 2001 2002 recognized noncash income tax charge 910 million related increasing valuation allowance united states deferred tax assets sfas 109 “accounting income taxes” requires establishment valuation allowance uncertainty realizability deferred tax assets accordance sfas 109 assessed likelihood deferred tax assets would recovered future taxable income determined adjustment valuation allowance appropriate december 31 2002 deferred tax assets 2006 million net valuation allowances including 1642 million related net operating loss carryforwards december 31 2002 recorded total valuation allowances offset deferred tax assets 1262 million primarily related united states net operating loss carryforwards realization remaining net deferred tax assets depends generating sufficient taxable income future periods believe likely remaining net deferred tax assets realized first quarter 2002 recorded noncash goodwill impairment charge 241 million net taxes 033 per share related adoption sfas 142 recorded cumulative effect change accounting principle see “accounting changes” additional information sec inquiry february 5 2004 announced received informal inquiry sec asking policies related information regard accounting revenue recognition particularly bill hold transactions sales returns allowances plant facility closing costs reserves personal use corporate aircraft result announcement inquiry five lawsuits filed us two officers directors additional details regarding lawsuits see item 3 “legal proceedings” quarterly results following table presents unaudited interim operating results believe following information includes adjustments consisting normal recurring adjustments necessary present fairly results operations periods presented operating results period necessarily indicative results future period 1 2003 quarters ended march 31 june 30 september 30 december 31 include restricted stock compensation expense 01 million 01 million 03 million 01 million respectively thereby reducing net income per common share diluted basis nominally quarters ended march 31 june 30 september 30 december 31 also include restructuring infrequent expenses 70 million 192 million 16 million 02 million respectively thereby reducing net income per common share diluted basis 006 017 002 000 respectively 2002 quarters ended march 31 june 30 september 30 december 31 include restricted stock compensation expense 270 million 08 million 07 million 156 million respectively thereby increasing net loss per common share reducing net income per common share diluted basis 024 001 014 respectively quarters ended march 31 june 30 september 30 december 31 also include restructuring infrequent expenses 09 million 227 million 97 million 94 million respectively thereby increasing net loss per common share reducing net income per common share diluted basis 001 019 008 respectively 2 quarter ended march 31 2002 includes cumulative effect change accounting principle net taxes 241 million 033 per share quarter ended december 31 2002 includes noncash income tax charge 910 million 121 per share extent possible attempt sell products dealers distributors level basis throughout year reduce effect seasonal demands manufacturing operations minimize investments inventory however retail sales agricultural equipment highly seasonal farmers traditionally purchasing agricultural equipment spring fall conjunction major planting harvesting seasons recent acquisitions january 5 2004 acquired valtra tractor diesel engine operations kone corporation finnish company 6006 million net approximately 214 million cash acquired approximately 7559 million subject customary closing adjustments valtra global tractor offroad engine manufacturer market leadership positions nordic region europe latin america valtra known strong engineering technical skills tractor diesel engine manufacturing allow produce highquality products efficient expedited manner addition valtra unique highly effective direct sales network certain markets together valtra’s “made order” manufacturing process allowed achieve significant market share core markets valtra focused becoming market leader industry terms returns margins rather market share account valtra acquisition accordance statement accounting standards “sfas” 141 “business combinations” accordingly purchase price allocated assets acquired liabilities assumed based estimated fair values acquisition date completed initial funding 6006 million cash purchase price net 214 million cash acquired valtra related acquisition costs using 1000 million borrowed interim bridge facility 1000 million borrowed new revolving credit facility 3000 million new united states dollar denominated term loan facility 1200 million borrowed new eurodollar denominated term loan facility paid balance purchase price available cash hand portion raised december 2003 private placement 2013 million principal amount 1 34 convertible senior subordinated notes due 2033 see “liquidity capital resources” additional information applied brazilian competition authority approval purchase valtra time cannot predict certainty whether brazilian competition authority grant approval brazilian law permitted complete purchase valtra without received approval however brazilian competition authority considering request approval imposed conditions operate valtra’s brazilian business existing brazilian business conditions include requirement maintain manufacturing facilities brands products distribution channels existed prior acquisition timing conditions approval may delay prevent us fully executing business plan operating valtra business existing business may force us sell portion valtra business existing business events could adversely affect financial condition results operations november 7 2002 completed acquisition sunflower manufacturing co inc former product line spx corporation sunflower leading producer tillage seeding specialty harvesting equipment serving north american market purchase price approximately 480 million funded borrowings revolving credit facility accounted sunflower acquisition accordance sfas 141 accordingly purchase price allocated assets acquired liabilities assumed based fair values acquisition date march 5 2002 completed agreement caterpillar acquire design assembly marketing caterpillar’s new challenger mt series track tractor line issued approximately 10 million shares common stock transaction valued approximately 213 million based closing price common stock acquisition date july 2002 received approximately 09 million caterpillar pursuant terms purchase agreement whereby proceeds caterpillar received upon sale stock 210 million would refunded us addition purchased approximately 136 million initial production inventory caterpillar connection supply agreement caterpillar challenger acquisition accounted accordance sfas 141 accordingly purchase price allocated assets acquired liabilities assumed based fair values acquisition date april 16 2001 completed acquisition agchem manufacturer distributor selfpropelled sprayers paid agchem shareholders approximately 2472 million consisting approximately 118 million common shares 1475 million cash funded cash component purchase price borrowings revolving credit facility accounted agchem acquisition purchase accordance accounting principles board “apb” opinion 16 “business combinations” accordingly allocated purchase price assets acquired liabilities assumed based fair values acquisition date connection acquisition agchem established 31 million liabilities primarily related severance employee relocation costs associated planned closure agchem’s benson minnesota manufacturing facility minnetonka minnesota administrative office 15 parts service facilities first quarter 2002 costs connection liabilities established incurred accordingly adjusted purchase price allocation reflect reduction established liabilities 04 million addition finalized purchase price allocation resulting net total goodwill adjustment approximately 36 million adjustment primarily related reflection final appraised values property plant equipment acquired establishment certain liabilities related outstanding litigation warranty obligations restructuring infrequent expenses dekalb rationalization march 3 2003 announced closure challenger track tractor facility located dekalb illinois relocation production facility jackson minnesota dekalb plant assembled challenger track tractors range 235 500 horsepower review cost reduction alternatives determined current future production levels time sufficient support stand alone track tractor site production dekalb facility ceased may 2003 relocated resumed minnesota facility june 2003 anticipate facility rationalization generate annual savings approximately 80 million 2004 total cash closure costs approximately 32 million largely offset expected proceeds sale dekalb site actively marketing sale connection restructuring plan recorded approximately 25 million restructuring infrequent expenses 2003 components restructuring expenses summarized following table writedown property plant equipment represents impairment real estate resulting facility closure based upon estimated fair value assets compared carrying value estimated fair value real estate determined based current conditions market severance costs relate termination 134 employees following completion production dekalb facility december 31 2003 employees terminated employee retention payments relate incentives paid dekalb employees remained employed certain future termination dates accrued term retention period severance costs also accrued term retention period employees entitled severance payments remained service scheduled termination dates certain employees relocated jackson minnesota facility costs associated relocation expensed incurred portion machinery equipment tooling located dekalb relocated jackson minnesota facility second quarter remaining portion machinery equipment sold disposed buildings land improvements marketed sale coventry rationalization 2002 announced initiated restructuring plan related closure tractor manufacturing facility coventry england relocation existing production coventry beauvais france canoas brazil manufacturing facilities closure facility consistent strategy reduce excess manufacturing capacity facility manufactured transaxles assembled tractors range 50110 horsepower trend higher horsepower tractors resulting consolidation farms caused product segment industry decline recent years negatively impacted facility’s utilization 2003 completed transfer production experienced cost inefficiencies production delays beauvais facility primarily due supplier delivery issues anticipate inefficiencies eliminated 2004 resulting reduction cost sales 2004 compared 2003 anticipated annual savings related closure dependent upon elimination inefficiencies december 31 2003 recorded approximately 522 million restructuring infrequent expenses connection restructuring plan components restructuring expenses summarized following table writedown property plant equipment represents impairment machinery equipment resulting facility closure based estimated fair value assets compared carrying value estimated fair value equipment determined based current conditions market machinery equipment tooling disposed production ceases buildings land improvements marketed sale severance costs relate termination 1054 employees december 31 2003 1024 employees terminated employee retention payments relate incentives paid coventry employees remain employed certain future termination dates accrued term retention period facility closure costs include certain noncancelable operating lease terminations facility exit costs fourth quarter 2003 sold machinery equipment auction result sales recognized net gain approximately 20 million gain reflected “restructuring infrequent expenses” consolidated statements operations 41 million restructuring costs accrued december 31 2003 expected incurred 2004 january 30 2004 sold land buildings improvements coventry facility approximately 407 million see note 16 notes consolidated financial statements additional information october 2002 applied high court london england clarification provision uk pension plan governs value pension payments payable employee 50 years old retires service certain circumstances prior normal retirement date see “business legal proceedings” additional information primary matter high court whether pension payments employees including take early retirement terminated due closure coventry facility reduced compensate fact pension payments begin prior normal retirement age 65 december 2002 high court ruled position reduced pension payments payable context early retirements terminations appealed high court’s ruling july 2003 court appeal ruled employees terminated result closure coventry facility qualify full pensions thereby reversing earlier high court ruling aspect case ruled employees might qualify court appeal ruling subject appeal representatives beneficiaries pension plan sought right appeal house lords house lords yet conclude matter result court’s ruling case certain employees took early retirement prior years voluntary retirement arrangements would entitled additional payments therefore recorded charge second quarter 2003 included “restructuring infrequent expenses” approximately 124 million reflect current estimate additional pension liability associated previous early retirement programs event court appeal ruling successfully challenged may incur additional pension liability within range approximately 400 million 500 million timing obligation fund cash pension plan respect increased liability well existing liabilities depends many factors including overall funded status plan investment returns plan’s assets subject ongoing negotiations representatives beneficiaries pension plan 2002 2003 functional rationalizations 2002 initiated several rationalization plans recorded restructuring infrequent expenses 34 million expenses primarily related severance costs certain lease termination exit costs associated rationalization european engineering marketing personnel certain components german manufacturing facilities located kempten marktoberdorf germany restructuring north american information systems function rationalizations completed improve ongoing cost structure reduce cost goods sold well engineering sga expenses year ended december 31 2003 recorded additional 12 million restructuring infrequent expenses associated rationalization initiatives germany well european combine engineering rationalization initiated 2003 total 36 million severance costs recorded associated activities relate termination approximately 180 employees total december 31 2003 total approximately 38 million expenses incurred paid remaining accrued balance 08 million december 31 2003 expected incurred 2004 agchem acquisition integration 2001 announced plans rationalize certain facilities part agchem acquisition integration consolidated willmar minnesota manufacturing facility agchem’s benson minnesota manufacturing facility agchem’s jackson minnesota manufacturing plant addition closed agchem’s minnetonka minnesota administrative offices relocated functions jackson facility also closed fifteen parts service facilities integrated parts warehousing logistics north american parts distribution system completed closures order achieve overall reduction cost goods sold operating expenses combined businesses believe key aspects restructuring plan successfully executed targeted synergies approximately 30 million offset decline industry demand impacted sales production levels cost structure employees identified restructuring plan terminated end first quarter 2002 employee retention payments related incentives paid agchem agco employees remained employed certain future termination dates accrued term retention period incurred facility closure costs included employee relocation costs exit costs willmar location operations ceased facility relocation transition costs expensed incurred represented costs relocate inventory machinery costs integrate operations remaining facilities remaining costs accrued related rationalizations december 31 2002 costs incurred related rationalization 2003 components restructuring expenses summarized following table millions production ceased willmar facility manufacturing consolidated jackson minnesota company began marketing willmar facility real estate sale along closed facilities benson minnetonka facilities several parts service facilities sold 2001 2002 fourth quarter 2003 wrote carrying value real estate willmar facility estimated fair value estimated fair value real estate determined based current conditions market writedown real estate approximately 15 million reflected “restructuring infrequent expenses” condensed consolidated statements operations 1999 2001 manufacturing facility rationalizations 2000 permanently closed combine manufacturing facility independence missouri lockney texas noetinger argentina implement manufacturing facilities 1999 permanently closed coldwater ohio manufacturing facility majority production facilities relocated existing facilities outsourced third parties closure facilities consistent strategy reduce excess manufacturing capacity due declines industry demand since 1998 determined closure facilities redeployment majority production existing facilities remaining production third party suppliers necessary address excess capacity united states south american manufacturing plants manufacturing facility rationalization resulted significant cost savings improved overall competitiveness implements hay equipment high horsepower tractors combines produced plants rationalization production facilities expected generate annual cost savings 20 million 25 million elimination production overhead costs inefficiencies believe efficiencies substantially achieved 2001 2002 2003 expensed approximately 45 million 249 million associated rationalizations 2001 2000 respectively 10 million costs accrued related rationalizations december 31 2001 record additional restructuring infrequent expenses 2002 2003 related closures incurred paid approximately 05 million expenses years ending december 31 2003 2002 respectively remaining costs accrued related rationalizations december 31 2003 addition 2002 sold closed manufacturing facilities independence missouri coldwater ohio net gain sale two facilities 10 million reflected “restructuring infrequent expenses” consolidated statements operations critical accounting policies prepare consolidated financial statements conformity accounting principles generally accepted united states preparation financial statements make judgments estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period significant accounting policies followed preparation financial statements detailed note 1 notes consolidated financial statements believe application policies discussed involve significant levels judgments estimates complexity determine allowance doubtful accounts actively monitoring financial condition customers determine potential nonpayment trade receivables determining allowance doubtful accounts also consider economic factors aging trends believe process specific review customers combined overall analytical review provides effective evaluation ultimate collectibility trade receivables loss experience approximately 01 net sales 2003 allowances discounts sales incentives made time sale based retail sales incentive programs available dealer retail customer cost programs depends various factors including timing retail sale programs place time retail sales incentives may also revised time record sale time retail sale occurs monitor factors revise provisions necessary december 31 2003 recorded allowance discounts sales incentives approximately 765 million allow additional 1 sales incentives discounts time retail sale reserve would increase approximately 63 million december 31 2003 conversely decrease sales incentives discounts 1 time retail sale reserve would decrease approximately 63 million inventories valued lower cost market determination cost includes estimates surplus obsolete inventory based estimates future sales production changes demand product design impact estimates periodically evaluate update assumptions assessing adequacy inventory adjustments establish valuation allowances deferred tax assets estimate likely tax assets realized base estimates projections future income including tax planning strategies certain tax jurisdictions changes industry conditions competitive environment may impact accuracy projections 2002 recognized noncash income tax charge 910 million related increasing valuation allowance certain united states deferred tax assets sfas 109 requires establishment valuation allowance likely deferred tax assets realized accordance sfas 109 assessed likelihood deferred tax assets would recovered future taxable income determined adjustment valuation allowance appropriate 2003 2002 2001 benefited losses generated united states 2003 december 31 2003 2002 deferred tax assets net valuation allowances 2966 million 2006 million respectively including 2117 million 1642 million respectively related net operating loss carryforwards december 31 2003 2002 recorded total valuation allowances offset deferred tax assets 1417 million 1262 million respectively primarily related united states net operating loss carryforwards realization remaining net deferred tax assets depends generating sufficient taxable income future periods believe likely remaining net deferred tax assets realized make provisions estimated expenses related product warranties time products sold base estimates historical experience nature frequency average cost warranty claims frequently review warranty trends monitor estimates develop actions minimize future claims provide insurance reserves estimates losses due claims worker’s compensation product liability liabilities selfinsured base estimates ultimate settlement amount claims often long periods resolution closely monitor claims maintain adequate reserves account defined benefit plans accordance sfas 87 “employers’ accounting pensions” requires amounts recognized financial statements determined actuarial basis substantial portion pension amounts relate defined benefit plans united states united kingdom base discount rate used determine projected benefit obligation us pension plans moody’s investor service aa bond yield december 31 year uk german pension plans base discount rate comparable indices within countries discount rate used determine 2003 projected benefit obligation us plans decreased 25 basis points projected benefit plan obligation would increased approximately 11 million december 31 2003 2004 pension expense would increase nominal amount discount rate used determine projected benefit obligation uk plans decreased 25 basis points projected benefit plan obligation would increased approximately 209 million december 31 2003 2004 pension expense would increase 17 million party various claims lawsuits arising normal course business closely monitor claims lawsuits frequently consult legal counsel determine whether may resolved material adverse effect financial position results operations see “business legal proceedings” discussion application high court london england clarification provision united kingdom pension plan governs value pension payments payable employee retires service certain circumstances prior normal retirement date result ruling case certain employees took early retirement prior years voluntary retirement arrangements would entitled additional payments therefore recorded charge second quarter 2003 included restructuring expenses approximately 124 million reflect current estimate additional pension liability associated previous early retirement programs event court appeal ruling successfully challenged may incur additional pension liability within range approximately 400 500 million timing obligation fund cash pension plan respect increased liability well existing liabilities depends many factors including overall funded status plan investment returns plan’s assets subject ongoing negotiations representatives beneficiaries pension plan goodwill indefinitelived trademarks segments tested impairment first quarter 2002 required sfas 142 sfas 142 established new method testing goodwill indefinitelived intangible assets impairment annual basis interim basis event occurs circumstances change would reduce fair value reporting unit carrying value assessment involves determining estimate fair value reporting units including trademarks order evaluate whether impairment current carrying amount goodwill intangible assets exists fair values derived based evaluation past expected future performance reporting units utilized combination valuation techniques including discounted cash flow approach market multiple approach comparable transaction approach based evaluation determined goodwill associated argentina north america reporting units impaired recorded pretax writedown goodwill 277 million recognized cumulative effect change accounting principle 241 million net 36 million taxes first quarter 2002 conducted annual analyses october 1 2002 2003 respectively determined reduction carrying amount goodwill required 2002 2003 conduct analyses interim basis event occurs circumstances indicate asset might impaired due level judgment complexity period time many items resolved actual results could differ estimated time preparation financial statements adjustments estimates would impact financial position future results operations liquidity capital resources financing requirements subject variations due seasonal changes inventory receivable levels internally generated funds supplemented necessary external sources primarily revolving credit facility accounts receivable securitization facilities subsequent completion funding valtra acquisition closed january 5 2004 primary financing funding sources 2013 million principal amount 1 34 convertible senior subordinated notes due 2033 2500 million principal amount 8 12 senior subordinated notes due 2006 2500 million principal amount 9 12 senior notes due 2008 approximately 4485 million accounts receivable securitization facilities new multicurrency revolving credit facility 3000 million 3000 million united states dollar denominated term loan facility 1200 million euro denominated term loan facility december 23 2003 issued 2013 million 1 34 convertible senior subordinated notes due 2033 private placement offering convertible senior subordinated notes unsecured obligations convertible shares common stock upon satisfaction certain conditions discussed interest payable notes 1 34 per annum payable semiannually arrears cash june 30 december 31 year beginning june 30 2004 convertible senior subordinated notes convertible shares common stock effective price 2236 per share subject adjustment holders notes may convert notes shares common stock conversion rate 447193 shares per 1000 principal amount notes subject adjustment close business december 31 2033 following circumstances 1 fiscal quarter commencing march 31 2004 closing sales price common stock exceeds 120 conversion price least 20 trading days 30 consecutive trading days ending last trading day preceding fiscal quarter 2 five business day period five consecutive trading day period trading price per note day period less 98 product closing sale price common stock conversion rate 3 notes called redemption 4 upon occurrence certain corporate transactions defined beginning january 1 2011 may redeem notes redemption price 100 principal amount plus accrued interest holders notes may require us repurchase notes repurchase price 100 principal amount plus accrued interest december 31 2010 2013 2018 2023 2028 senior subordinated notes unsecured obligations redeemable option whole part time 1000 principal amount plus accrued interest notes issued 1996 99139 principal amount indenture governing senior subordinated notes requires us offer repurchase senior subordinated notes 101 principal amount plus accrued interest date repurchase event change control indenture contains certain covenants among things limit ability restricted subsidiaries incur additional indebtedness make restricted payments including dividends share repurchases make investments guarantee indebtedness create liens sell assets repurchase shares senior notes unsecured obligations redeemable option whole part commencing may 1 2005 initially 10475 principal amount plus accrued interest declining 100 principal amount plus accrued interest may 1 2007 indenture governing senior notes requires us offer repurchase senior notes 101 principal amount plus accrued interest date repurchase event change control senior notes include certain covenants similar contained senior subordinated notes 2003 utilized 3500 million multicurrency revolving credit facility replaced january 5 2004 new multicurrency revolving credit facility discussed old facility secured majority united states canadian united kingdom based assets pledge portion stock domestic material foreign subsidiaries weighted average interest rate borrowings 2003 41 december 31 2003 outstanding borrowings availability borrow 3425 million revolving credit facility december 31 2002 borrowings 1269 million availability borrow 2176 million revolving credit facility 191 million outstanding borrowings december 31 2002 payable canadian dollars january 5 2004 entered new credit facility provides 3000 million multicurrency revolving credit facility 3000 million us dollar denominated term loan 1200 million approximately 1500 million euro denominated term loan revolving credit facility mature january 2006 maturity date revolving credit facility extended march 2008 existing 8 12 senior subordinated notes due 2006 refinanced terms specified lenders prior date extended december 2008 existing 9 12 senior notes due 2008 refinanced terms specified lenders prior date term loans amortize rate one percent per annum maturity date maturity date term loans january 2006 maturity date term loans extended march 2008 subordinated notes refinanced terms specified lender prior date extended june 2009 senior notes refinanced terms specified lenders prior date revolving credit term facilities secured majority us canadian finnish uk based assets pledge portion stock domestic material foreign subsidiaries interest accrues amounts outstanding facility option either 1 libor plus margin ranging 150 225 based upon senior debt ratio 2 higher administrative agent’s base lending rate onehalf one percent federal funds rate plus margin ranging 025 10 based senior debt ratio facility contains covenants restricting among things incurrence indebtedness making certain payments including dividends must also fulfill financial covenants including among others total debt ebitda ratio senior debt ebitda ratio fixed charge coverage ratio defined facility addition new credit facility requires us issue least 1000 million common stock january 5 2005 discussed completed initial funding 6006 million cash purchase price valtra net approximately 214 million cash acquired issuance 2013 million principal amount 1 34 convertible senior subordinated notes funds borrowed new credit facility 1000 million borrowed interim bridge loan facility loans bridge facility closed january 5 2004 constitute unsecured senior subordinated obligations bridge loan facility matures january 5 2005 interest accrues borrowings increasing rate interest currently 8 subject maximum rate 8 34 bridge facility contains covenants restricting among things incurrence indebtedness making certain payments including dividends requires net proceeds issuances stock debt used prepay bridge financing bridge financing repaid first anniversary closing date january 5 2005 default event default bridge financing bridge lenders may approval holders 50 principal amount loans bridge facility exchange bridge loan “exchange notes” would mature tenth anniversary closing date intend permanently finance valtra acquisition public sale common stock subordinated notes although finalized mix common stock debt sell currently expect issue approximately 2500 million common stock 2500 million euro senior subordinated notes expect use net proceeds offerings repay amounts outstanding 1000 million bridge loan facility redeem 2500 million principal amount outstanding 8 12 senior subordinated notes due 2006 repay amounts outstanding new revolving credit term loan facilities business subject substantial cyclical variations generally difficult forecast results operations may also vary time resulting costs associated rationalization plans acquisitions result request relief lenders occasion respect financial covenant compliance currently anticipate asking relief possible would require relief future based upon historical working relationship lenders currently anticipate difficulty obtaining relief securitization facilities sell accounts receivable united states canada europe revolving basis commercial paper conduits either direct basis whollyowned special purpose entity december 31 2003 aggregate amount facilities 4485 million outstanding funded balance 4483 million december 31 2003 effect reducing accounts receivable shortterm liabilities amount risk loss securitization facilities limited portion unfunded balance receivables sold approximately 15 funded amount maintain reserves doubtful accounts associated risk facilities terminated would required repurchase previously sold receivables would prevented selling additional receivables commercial paper conduit us facility agreement provides agent rabobank right terminate securitization facility senior unsecured debt rating moves bb standard poor’s ba3 moody’s investor services based current ratings downgrade two levels standard poor’s one level moody’s would need occur canadian european facility agreements provide agent rabobank right terminate securitization facilities senior unsecured debt rating moves b standard poor’s b1 moody’s investor services based current ratings downgrade three levels standard poor’s two levels moody’s would need occur currently discussions rating agencies conduit purchasers ratings triggers eliminated agreements securitization facilities expire 2005 2006 subject annual renewal facilities allow us sell accounts receivables financing conduits obtain funding commercial paper markets future funding securitization facilities depends upon adequacy receivables sufficient demand underlying commercial paper maintenance certain covenants concerning quality receivables financial condition event commercial paper demand adequate securitization facilities provide liquidity backing various financial institutions including rabobank liquidity commitments would provide us interim funding allow us find alternative sources working capital financing necessary working capital requirements seasonal investments working capital typically building first half year reducing second half year 7554 million working capital december 31 2003 increase 1560 million working capital 5994 million december 31 2002 accounts receivable inventories combined 1512 million higher december 31 2002 increase primarily due currency translation higher inventory levels related transition production closed manufacturing facilities consolidation gima joint venture july 1 2003 cash flow provided operating activities 880 million 2003 compared 732 million 2002 increase operating cash flow result higher earnings described offset increases working capital addition cash restructuring payments relating primarily closure coventry facility 416 million 2003 compared 48 million 2002 capital expenditures 2003 787 million compared 549 million 2002 increase capital expenditures primarily due new product introductions consolidation gima joint venture july 1 2003 capital additions associated transition production closed manufacturing facilities impact currency translation including capital expenditures relating valtra acquisition anticipate capital expenditures full year 2004 range approximately 90 million 100 million primarily used support development enhancement new existing products well facility equipment systems improvements debt capitalization ratio total longterm debt divided sum total longterm debt stockholders’ equity 440 december 31 2003 compared 470 december 31 2002 acquisition valtra permanent financing acquisition increase ratio time review continue review acquisition joint venture opportunities well changes capital markets consummate significant acquisition elect take advantage favorable opportunities capital markets may supplement availability revise terms credit facilities complete public private offerings equity debt securities believe available borrowings revolving credit facility funding accounts receivable securitization facilities available cash internally generated funds sufficient support working capital expenditures debt service requirements foreseeable future contractual commitments future payments required significant contractual obligations excluding foreign currency forward contracts december 31 2003 follows millions 1 unconditional purchase obligations exclude routine purchase orders entered normal course business 2 longterm obligations include estimates future minimum contribution requirements us uk defined benefit pension plans estimates based current legislation subject change guarantees december 31 2003 obligated certain circumstances purchase year 2009 137 million equipment upon expiration certain operating leases agco finance llc agco finance canada ltd retail finance joint ventures north america end users also maintain remarketing agreement joint ventures whereby obligated repurchase repossessed inventory market values december 31 2003 entered agreement agco finance llc limits purchase obligations arrangement 60 million aggregate per calendar year believe losses might incurred resale equipment materially impact financial position results operations december 31 2003 guaranteed indebtedness owed third parties approximately 302 million primarily related dealer enduser financing equipment believe credit risk associated guarantees material financial position december 31 2003 outstanding net foreign currency forward contracts approximately 1466 million contracts maturity less one year see “foreign currency risk management” information received assessments brazilian tax authorities regarding transaction taxes payable certain foreign currency gains losses currently contesting assessments believe calculation method applied tax authorities correct believe probable likely assessments paid total assessment approximates 90 million 95 million anticipate may take significant time resolve dispute brazilian tax authorities related parties rabobank aaa rated financial institution based netherlands 51 owner retail finance joint ventures located united states canada united kingdom france germany spain ireland brazil rabobank also principal agent participant revolving credit facility securitization facilities majority assets retail finance joint ventures represent finance receivables majority liabilities represent notes payable accrued interest various joint venture agreements rabobank affiliates obligated provide financing joint venture companies primarily lines credit guarantee obligations retail finance joint ventures 49 approximately 198 million solvency requirements brazil joint venture brazil joint venture company agency relationship rabobank whereby rabobank provides funding retail finance joint ventures provide retail financing wholesale financing dealers terms financing arrangements offered dealers similar arrangements provide unaffiliated third parties discussed previously december 31 2003 obligated certain circumstances purchase year 2009 137 million equipment upon expiration certain operating leases agco finance llc agco finance canada ltd retail joint ventures north america end users also maintain remarketing agreement joint ventures discussed “contractual commitments” addition part sales incentives provided end users may time subsidize interest rates retail financing provided retail joint ventures cost programs recognized time sale dealers 2003 2002 net sales approximately 1161 million 1302 million respectively baywa corporation german distributor ordinary course business president ceo baywa corporation member board directors 2002 purchased approximately 1275 million equipment components manufacturing joint venture gima cost july 1 2003 began consolidating gima accordance requirements fasb interpretation 46 “consolidation variable interest entities interpretation arb 51” fin 46 2003 2002 also purchased approximately 56 million 53 million respectively equipment components manufacturing joint venture deutz agco motores sa prices approximating cost outlook operations subject cyclical nature agricultural industry sales equipment expected continue affected changes net cash farm income farm land values weather conditions demand agricultural commodities farm industry related legislation general economic conditions current industry fundamentals favorable entering 2004 relatively high commodity prices contributing strong farm income north america high farm income favorable tax incentives expected stimulate improvement equipment demand 2004 europe industry demand expected remain slightly current levels due impact drought conditions 2003 uncertainty surrounding common agricultural policy cap reforms impact strong euro export demand increased demand new eu entrants expected continue 2004 south america industry demand also expected slightly 2003 levels brazilian government subsidized financing programs expected reduced 2004 likely moderate demand based current market outlook agco expects net income improve 2004 resulting impact new products cost reduction initiatives elimination production inefficiencies experienced 2003 reduction restructuring infrequent expenses related plant closures occurred 2003 agco’s net sales expected increase 2004 growth achieved addition valtra impact new product introductions strengthening euro foreign currency risk management significant manufacturing operations france germany brazil denmark purchase portion tractors combines components thirdparty foreign suppliers primarily various european countries japan also sell products 140 countries throughout world majority revenue outside united states denominated currency customer location exception sales middle east africa asia revenue primarily denominated british pounds euros united states dollars see “segment reporting” note 15 notes audited consolidated financial statements year ended december 31 2003 sales customer location significant transactional foreign currency exposures euro brazilian real canadian dollar relation united states dollar fluctuations value foreign currencies create exposures adversely affect results operations attempt manage transactional foreign exchange exposure hedging foreign currency cash flow forecasts commitments arising settlement receivables payables future purchases sales naturally offsetting currency positions occur hedge certain exposures use foreign currency forward contracts hedging policy prohibits foreign currency forward contracts speculative trading purposes translation exposure resulting translating financial statements foreign subsidiaries united states dollars hedged significant translation exposures euro brazilian real relation united states dollar practical translation impact reduced financing local operations local borrowings following summary foreign currency forward contracts used hedge currency exposures contracts maturity less one year net notional amounts fair value gains losses december 31 2003 stated united states dollars follows millions except average contract rate per united states dollar contracts entered hedging purposes gains losses contracts would largely offset gains losses underlying firm commitment interest rates manage interest rate risk use fixed rate debt may future utilize interest rate swap contracts fixed rate debt senior notes senior subordinated notes convertible senior subordinated notes floating rate exposure related revolving credit facility securitization facilities tied changes united states european libor rates assuming 100 increase interest rates interest expense net cost securitization facilities year ended december 31 2003 would increased approximately 03 million 2001 interest rate swap contract outstanding minimize effect potential interest rate increases floating rate debt contract expired december 31 2001 interest rate swap contracts outstanding years ended december 31 2003 2002 accounting changes january 1 2002 adopted sfas 142 accordance transition provisions sfas 142 goodwill segments tested impairment january 1 2002 required sfas 142 utilized combination valuation techniques including discounted cash flow approach market multiple approach comparable transaction approach based evaluation determined goodwill associated argentine north american reporting units impaired result recorded pretax writedown goodwill 277 million writedown recognized cumulative effect change accounting principle 241 million net 36 million taxes first quarter 2002 july 2001 fasb issued sfas 143 “accounting asset retirement obligations” “sfas 143” sfas 143 requires entities record fair value liability asset retirement obligation period incurred liability initially recorded entity capitalizes cost increasing carrying amount related longlived asset time liability accreted present value period capitalized cost depreciated useful life related asset upon settlement liability entity either settles obligation amount recorded incurs gain loss sfas 143 effective fiscal years beginning june 15 2002 adoption standard 2003 impact current results operations financial position april 2002 fasb issued sfas 145 “rescission fasb statements 4 44 64 amendment sfas 13 technical corrections” “sfas 145” sfas 145 eliminates requirement sfas 4 “reporting gains losses extinguishment debt” report gains losses extinguishments debt extraordinary items income statement accordingly gains losses extinguishments debt fiscal years beginning may 15 2002 shall reported extraordinary items unless extinguishment qualifies extraordinary item provisions apb opinion 30 upon adoption sfas 145 gain loss extinguishment debt previously classified extraordinary item prior periods presented meet criteria apb opinion 30 classification reclassified conform provisions sfas 145 sfas 145 also amends sfas 13 “accounting leases” eliminate inconsistency required accounting saleleaseback transactions required accounting certain lease modifications economic effects similar saleleaseback transactions addition sfas 145 amends existing authoritative pronouncements make various technical corrections clarify meanings describe applicability changed conditions sfas 145 effective fiscal years beginning may 15 2002 new standard required us reclassify extraordinary loss recorded 2001 interest expense net resulted reduction income cumulative effect change accounting principle 08 million 001 per share impact net income stockholders’ equity consolidated statements operations reflect adoption standard june 2002 fasb issued sfas 146 “accounting costs associated exit disposal activities” “sfas 146” sfas 146 addresses financial accounting reporting costs associated exit disposal activities nullifies emerging issues task force eitf issue 943 “liability recognition certain employee termination benefits costs exit activity including certain costs incurred restructuring” sfas 146 requires liability cost associated exit disposal activity recognized liability incurred eitf issue 943 liability exit cost defined issue recognized date entity’s commitment exit plan therefore sfas 146 eliminates definition requirements recognition exit costs eitf issue 943 also establishes fair value objective initial measurement liability sfas 146 effective exit disposal activities initiated december 31 2002 adoption sfas 146 impact restructuring plans related closure coventry england manufacturing facility dekalb illinois closure accounted requirements standard november 2002 fasb issued interpretation 45 “guarantor’s accounting disclosure requirements guarantees including indirect guarantees indebtedness others” “fin 45” fin 45 requires guarantor recognize inception certain guarantees liability fair value obligation undertaken issuing guarantee fin 45 also requires additional disclosure guarantor’s obligations certain guarantees issued initial recognition measurement provisions interpretation applicable prospective basis guarantees issued modified december 31 2002 disclosure requirements effective december 15 2002 included note 12 consolidated financial statements adoption fin 45 material impact results operations financial position january 2003 fasb issued fin 46 revised december 2003 addresses consolidation business enterprises variable interest entities usual condition consolidating controlling financial interest apply fin 46 requires entity assess equity investments determine variable interest entities defined fin 46 variable interests contractual ownership interests entity change changes entity’s net asset value variable interests entity may arise financial instruments service contracts guarantees leases arrangements variable interest entity absorb majority variable interest entity’s expected losses expected residual returns defined fin 46 considered primary beneficiary variable interest entity primary beneficiary must include variable interest entity’s assets liabilities results operations consolidated financial statements fin 46 immediately effective variable interest entities created january 31 2003 variable interest entities created prior date provisions fin 46 must applied later first interim period ending march 15 2004 however public companies must apply unmodified provisions fin 46 entities considered “special purpose entities” end first reporting period ending december 15 2003 analyzed provisions fin 46 relate current securitization facilities special purpose entity related facilities concluded believe impacted interpretation addition analyzed provisions fin 46 relate accounting investments joint ventures determined primary beneficiary one joint ventures gima established 1994 agco renault agriculture sa “renault” cooperate field purchasing design manufacturing components agricultural tractors party 50 ownership joint venture july 1 2003 began consolidating accounts gima historically accounted investment gima equity method consolidation gima material impact results operations financial position april 2003 fasb issued sfas 149 “amendment statement 133 derivative instruments hedging activities” statement effective contracts entered modified june 30 2003 hedging relationships designated june 30 2003 statement amends clarifies financial accounting reporting derivative instruments including certain derivative instruments embedded contracts hedging activities statement amends statement 133 decisions made part derivatives implementation group process connection board projects dealing financial instruments connection implementation issues raised relation application definition derivative adoption standard 2003 impact current results operations financial position may 2003 fasb issued sfas 150 “accounting certain financial instruments characteristics liabilities equity” statement effective financial instruments entered modified may 31 2003 otherwise effective beginning first interim period beginning june 15 2003 third quarter fiscal 2003 statement establishes standards issuer classifies measures certain financial instruments characteristics liabilities equity requires issuer classify financial instrument within scope liability adoption standard 2003 impact current results operations financial position forward looking statements certain statements “management’s discussion analysis financial condition results operations” elsewhere annual report form 10k forward looking including certain statements set forth headings “results operations” “liquidity capital resources” “outlook” forward looking statements reflect assumptions expectations projections intentions beliefs future events statements may relate matters expectations respect valtra acquisition industry conditions net sales income restructuring infrequent expenses impairment charges future capital expenditures fulfillment working capital needs impact war political unrest future acquisition plans “forwardlooking statements” within meaning federal securities laws statements relate strictly historical current facts identify certain statements necessarily use words “anticipate” “assumed” “indicate” “estimate” “believe” “predict” “forecast” “rely” “expect” “continue” “grow” words similar meaning although believe expectations assumptions reflected statements reasonable view information currently available us assurance expectations prove correct forwardlooking statements involve number risks uncertainties actual results may differ materially results discussed implied forwardlooking statements following among important factors could cause actual results differ materially forwardlooking statements • general economic capital market conditions • worldwide demand agricultural products • grain stock levels new used field inventories • government policies subsidies • weather conditions • interest foreign currency exchange rates • pricing product actions taken competitors • commodity prices acreage planted crop yields • farm income land values debt levels access credit • pervasive livestock diseases • production disruptions • supply capacity constraints • cost reduction control initiatives • research development efforts • dealers distributor actions • technological difficulties • political economic uncertainty various areas world • forwardlooking statement considered light important factors item 7aitem 7 management’s discussion analysis financial condition results operations leading manufacturer distributor agricultural equipment related replacement parts throughout world sell full range agricultural equipment including tractors combines hay tools sprayers forage equipment implements line diesel engines products distributed various wellknown brand names agco® challenger® fendt® gleaner® hesston® massey ferguson® new idea® rogator® spracoupe® sunflower® terragator® valtra® whitetm planters distribute products combination approximately 3900 independent dealers distributors associates licensees addition provide retail financing north america united kingdom australia france germany ireland brazil finance joint ventures rabobank results operations sell equipment replacement parts independent dealers distributors customers large majority sales independent dealers distributors sell products end user extent practicable attempt sell products dealers distributors level basis throughout year reduce effect seasonal demands manufacturing operations minimize investment inventory however retail sales dealers farmers highly seasonal linked planting harvesting seasons certain markets particularly north america often time lag varies based timing level retail demand sale equipment dealer’s sale retail customer time lag wholesale retail sale dealers may return equipment us unless dealer’s contract terminated agree accept returned products cases commissions payable salesman incentive programs paid time retail sale opposed products sold dealers following table sets forth periods indicated percentage relationship net sales certain items included consolidated statements operations 2004 compared 2003 net income 2004 1588 million 171 per diluted share compared net income 2003 744 million 098 per diluted share results 2004 include following items • restructuring infrequent income 01 million primarily related charges incurred relation randers denmark combine manufacturing operations well costs associated various rationalization initiatives europe us offset gains sale property plant equipment related coventry england facility closure well revision previously established provision resulted reduction estimated costs associated pension scheme uk • restricted stock compensation expense 05 million related awards earned longterm incentive plan “ltip” • implementation eitf issue 0408 resulted addition approximately 90 million shares weighted average shares outstanding purposes computing diluted net income per share results 2003 included following items • restructuring infrequent expenses 276 million 026 per share primarily related closure coventry england manufacturing facility well rationalization various manufacturing facilities • restricted stock compensation expense 06 million 001 per share related awards earned longterm incentive plan “ltip” net sales 2004 approximately 51 higher 2003 primarily due acquisition valtra january 2004 sales growth geographical segments positive currency translation impacts income operations including restructuring expenses restricted stock compensation 3235 million 2004 compared 1843 million 2003 operating income improved primarily due contribution valtra approximately 528 million higher sales volume improved operating margins well lower restructuring infrequent expenses approximately 275 million compared 2003 offsetting positive factors impact weak us dollar higher steel costs additional noncash amortization purchased intangible assets approximately 141 million related valtra acquisition europe africa middle east operations operating income improved 732 million 2004 compared 2003 increase reflects contribution valtra higher sales volume productivity gains currency translation benefits improved productivity supply chain performance beauvais france plant contributed better product availability higher margins operating income south american operations increased 654 million 2004 compared 2003 operating income significantly higher 2004 resulting contribution valtra stronger end markets production efficiencies price realization north america operating income decreased 70 million 2004 compared 2003 although higher sales volumes achieved improved market conditions north america benefits offset reduced margins due impact weak dollar products imported europe brazil well higher steel costs operating income asia pacific region increased 97 million 2003 primarily resulting operating income contribution valtra improved product availability improved market conditions currency translation benefits acquisitions january 5 2004 acquired valtra tractor diesel engine operations kone corporation finnish company 6046 million net approximately 214 million cash acquired approximately 760 million net valtra global tractor offroad engine manufacturer market leadership positions nordic region europe latin america acquisition provides us opportunity expand business significant global markets exchange technology combined companies see “recent acquisitions” additional information retail sales industry demand agricultural equipment 2004 showed mixed results within major markets world conditions north american market significantly improved throughout 2004 due record harvests strong commodity prices favorable tax incentives western europe demand mixed relatively flat whole despite improved harvest yields 2004 south america market demand remained strong 2004 however brazilian market experienced softening fourth quarter resulting effects lower commodity prices weak us dollar united states canada industry unit retail sales tractors increased approximately 120 2004 compared 2003 resulting increases tractor segments largest growth highhorsepower equipment industry unit retail sales combines increased approximately 410 compared prior year unit retail sales tractors combines north america also increased 2003 levels western europe industry unit retail sales tractors increased approximately 20 2004 compared 2003 retail demand improved france italy declined finland higher horsepower sector germany including impact valtra acquisition periods unit retail sales tractors also increased 2004 compared 2003 south america industry unit retail sales tractors combines 2004 increased approximately 80 respectively compared 2003 tractor demand declined slightly brazil offset significant increases argentina south american markets including impact valtra acquisition periods unit retail sales tractors combines also increased 2004 compared 2003 international markets net sales 2004 excluding increase attributable valtra acquisition approximately 180 approximately 140 higher prior year particularly eastern europe australia statements operations net sales 2004 52733 million compared 34953 million 2003 increase primarily attributable acquisition valtra january 2004 sales growth geographical segments positive currency translation impacts valtra generated net sales approximately 10075 million 2004 currency translation positively impacted net sales approximately 2419 million primarily due continued strengthening euro brazilian real consolidation gima joint venture beginning july 2003 contributed incremental net sales increase prior year approximately 358 million following table sets forth periods indicated impact net sales valtra acquisition currency translation consolidation gima geographical segment regionally net sales north america increased 2004 primarily due stronger end markets well favorable response new products distribution europe africa middle east region net sales increased primarily due acquisition valtra incremental sales related consolidation gima full year 2004 favorable response new products distribution region improved product availability net sales south america increased 2004 compared 2003 resulting acquisition valtra well significant increases demand argentina south american markets growth combine sales brazil argentina asia pacific region net sales increased due contribution valtra acquisition growth markets particularly asia australia estimate consolidated price increases 2004 contributed approximately 3 increase net sales consolidated net sales tractors combines consisted approximately 71 sales 2004 increased approximately 60 2004 compared 2003 unit sales tractors combines increased approximately 48 consisting 36 increase related valtra acquisition 12 increase equipment sales difference unit sales increase net sales result foreign currency translation pricing sales mix changes following table sets forth periods indicated percentage relationship net sales certain items included consolidated statements operations gross profit increased primarily due contribution valtra acquisition higher sales volume improved gross margins gross margins improved 2004 primarily due increased production improved productivity particular improved productivity supply chain performance beauvais france manufacturing operations contributed higher margins positive factors offset lower margins north america due impact weak us dollar products exported european brazilian facilities addition product costs regions impacted significant increases steel costs 2004 increased prices markets however additional pricing fully offset higher steel costs approximately 100 million selling general administrative “sga” expenses increased primarily result valtra acquisition impact currency translation higher pension postretirement benefit costs engineering expenses also increased result valtra acquisition currency translation well introduction new product offerings restructuring infrequent expenses 2004 primarily related charges incurred relation rationalization randers denmark combine manufacturing operations well costs associated various rationalization initiatives europe us offset gains sale property plant equipment related coventry england facility closure well revision previously established provision resulted reduction estimated costs associated pension scheme uk restructuring expenses 2003 primarily related coventry england facility closure addition recorded restructuring infrequent expenses 2003 associated litigation related uk pension plan see “restructuring infrequent expenses” additional information interest expense net 770 million 2004 compared 600 million 2003 increase interest expense primarily due higher debt levels 2004 result financing valtra acquisition interest expense also impacted 2004 approximately 30 million costs associated repayment 812 senior subordinated debt second quarter expense net 221 million 2004 compared 260 million 2003 losses sales receivables primarily securitization facilities 156 million 2004 compared 146 million 2003 increase 2004 primarily due higher interest rates 2004 compared 2003 offsetting increase lower foreign exchange losses experienced 2004 2003 recorded income tax provision 862 million 2004 compared 413 million 2003 effective tax rate 384 2004 compared 420 2003 years effective tax rate negatively impacted incurring losses tax jurisdictions recorded tax benefit significant impact related losses incurred denmark 2004 united states 2003 december 31 2004 2003 deferred tax assets net valuation allowances 2879 million 2879 million respectively including 1882 million 2117 million respectively related net operating loss carryforwards december 31 2004 2003 recorded total valuation allowances offset deferred tax assets 1429 million 1417 million respectively primarily related net operating loss carryforwards argentina denmark united states realization remaining net deferred tax assets depends generating sufficient taxable income future periods believe likely remaining net deferred tax assets realized 2003 compared 2002 net income 2003 744 million 098 per diluted share compared net loss 844 million 114 per diluted share 2002 results 2003 included following items • restructuring infrequent expenses 276 million 026 per share primarily related closure coventry england manufacturing facility well rationalization various manufacturing facilities • restricted stock compensation expense 06 million 001 per share related awards earned ltip results 2002 included following items • restructuring infrequent expenses 427 million 038 per share primarily related closure coventry england manufacturing facility well rationalization various manufacturing facilities • restricted stock compensation expense 441 million 039 per share primarily related awards earned first fourth quarters ltip • noncash adjustment 910 million 123 per share increase valuation allowance united states deferred tax assets • noncash writedown goodwill 241 million net 36 million taxes 033 per share related adoption sfas 142 reflected cumulative effect change accounting principle first quarter 2002 net sales 2003 196 higher 2002 primarily due higher sales south america incremental sales new challenger product line acquired sunflower brand positive currency translation impacts income operations including restructuring expenses restricted stock compensation 1843 million 2003 compared 1035 million 2002 operating income improved primarily due higher sales volume well decreased restricted stock compensation expense lower restructuring infrequent expenses compared 2002 operating earnings increased markets outside europe primarily due improved industry demand europe operating earnings declined result production transition inefficiencies sales mix associated weak industry demand key markets higher pension costs gross margins declined 182 2002 176 2003 largely result production transition inefficiencies negative currency impacts european south american exports sold markets retail sales industry demand within major markets world mixed 2003 conditions north american market generally improved throughout 2003 due higher commodity prices improved weather conditions relative 2002 western europe demand negatively impacted dry weather conditions especially german market severe drought conditions economic uncertainty significantly affected high horsepower tractor demand south america industry tractor sales largest market brazil declined due revisions government financing subsidies offset strong increases demand argentina market united states canada industry unit retail sales tractors increased approximately 190 2003 compared 2002 resulting strong increases compact tractor utility tractor segments moderate increase high horsepower tractor segment industry unit retail sales combines decreased approximately 20 compared prior year unit retail sales tractors north america increased slightly 2003 compared 2002 unit retail sales combines lower prior year western europe industry unit retail sales tractors decreased approximately 20 2003 compared 2002 sales results mixed significant declines germany spain dry weather conditions impacted demand unit retail sales tractors also decreased 2003 compared 2002 south america industry unit retail sales tractors combines 2003 increased approximately 10 250 respectively compared 2002 unit retail sales tractors combines also increased 2003 compared 2002 international markets net sales 2003 excluding currency impacts approximately 30 higher prior year particularly eastern europe australia statements operations net sales 2003 34953 million compared 29227 million 2002 increase primarily attributable positive foreign currency translation impacts incremental sales new challenger product line inclusion full year sunflower sales 2003 consolidation gima component manufacturing joint venture france july 1 2003 currency translation positively impacted net sales 2765 million primarily due strengthening euro challenger product line acquired march 2002 generated net sales increase 2003 partial year 2002 approximately 979 million sunflower acquired november 2002 generated net sales increase 2003 partial year 2002 approximately 340 million consolidation gima joint venture resulted additional 249 million sales prior year following table sets forth periods indicated impact net sales currency translation challenger sunflower acquisitions consolidation gima geographical segment regionally net sales north america increased due primarily challenger product line introduction product offering expansion well inclusion full year sunflower sales europe africa middle east region net sales increased due positive currency translation impacts consolidation gima offset weakened industry conditions western europe particularly germany due dry weather conditions economic uncertainty market demand improved eastern europe demand increased countries recently invited join european union net sales south america increased resulting significant increases demand argentina market growth combine sales asia pacific region net sales increased due positive foreign currency translation impacts growth markets particularly australia following table sets forth periods indicated percentage relationship net sales certain items included consolidated statements operations gross margins declined 2003 compared 2002 primarily due production transition inefficiencies sales mix related weak demand key european markets manufacturing facility beauvais france experienced cost inefficiencies production delays associated transition production coventry england facility closed third quarter 2003 addition inefficiencies associated new oem supply arrangement randers denmark combine manufacturing facility contributed margin decline gross margins also negatively impacted unfavorable currency impacts european south american products sold markets sga expenses increased primarily result incremental expenses associated new challenger product line acquired sunflower brand well impact currency translation higher pension costs engineering expenses increased due full year engineering expenses sunflower challenger addition engineering expenses due consolidation joint venture gima july 1 2003 well new product offerings launched 2003 restricted stock compensation expense incurred 2002 result restricted stock awards earned ltip result increases common stock price first fourth quarters 2002 restructuring expenses 2003 2002 primarily related closure tractor manufacturing facility located coventry england announced june 2002 closed july 2003 addition recorded restructuring infrequent expenses associated litigation related uk pension plan 2003 see “restructuring infrequent expenses” additional information interest expense net 600 million 2003 compared 574 million 2002 increase interest expense primarily due higher debt levels offset lower interest rates 2003 compared 2002 expense net 260 million 2003 compared 203 million 2002 included expense net losses sales receivables primarily securitization facilities 146 million 2003 compared 148 million 2002 decrease 2003 primarily due lower interest rates 2003 compared 2002 also experienced higher foreign exchange losses 2003 2002 recorded income tax provision 413 million 2003 compared 998 million 2002 effective tax rate 420 2003 negatively impacted losses united states tax benefit recorded 2002 recognized noncash income tax charge 910 million related increasing valuation allowance united states deferred tax assets sfas 109 “accounting income taxes” requires establishment valuation allowance uncertainty realizability deferred tax assets accordance sfas 109 assessed likelihood deferred tax assets would recovered future taxable income determined adjustment valuation allowance appropriate benefited losses generated united states time assessment quarterly results following table presents unaudited interim operating results believe following information includes adjustments consisting normal recurring adjustments necessary present fairly results operations periods presented operating results period necessarily indicative results future period 1 2004 quarters ended march 31 june 30 september 30 december 31 include restructuring infrequent income expenses 66 million 60 million 17 million 10 million respectively thereby impacting net income per common share diluted basis 005 007 002 000 respectively 2003 quarters ended march 31 june 30 september 30 december 31 also include restructuring infrequent expenses income 70 million 192 million 16 million 02 million respectively thereby impacting net income per common share diluted basis 006 017 002 001 respectively 2 quarters ended march 31 june 30 september 30 december 31 2004 quarter ended december 31 2003 net income per common share diluted amounts presented include impact implementation eitf issue 0408 resulted addition approximately 90 million shares quarters ended march 31 june 30 september 30 december 31 2004 08 million shares quarter ended december 31 2003 see note 1 consolidated financial statements impact fully described recent acquisitions january 5 2004 acquired valtra tractor diesel engine operations kone corporation finnish company 6046 million net approximately 214 million cash acquired approximately 760 million net valtra global tractor offroad engine manufacturer nordic region europe latin america acquisition valtra provided us opportunity expand business significant global markets utilizing valtra’s technology productivity leadership agricultural equipment market acquired assets liabilities consisted primarily inventories accounts receivable property plant equipment technology tradenames trademarks customer relationships patents results operations valtra acquisition included consolidated financial statements date acquisition valtra acquisition accounted accordance sfas 141 “business combinations” accordingly allocated purchase price assets acquired liabilities assumed based fair values acquisition date recorded approximately 3584 million goodwill approximately 1569 million identifiable intangible assets tradenames trademarks technology related patents customer relationship intangibles part purchase price allocation completed initial funding cash purchase price valtra issuance 2013 million principal amount convertible senior subordinated notes december 2003 funds borrowed revolving credit term loan facilities entered january 5 2004 1000 million borrowed interim bridge facility also closed january 5 2004 see “liquidity capital resources” additional information applied brazilian competition authority approval purchase valtra time cannot predict certainty whether brazlian competition authority grant approval brazilian law permitted complete purchase valtra without received approval however brazilian competition authority considering request approval imposed conditions operate valtra’s brazilian business existing brazilian business conditions include requirement maintain manufacturing facilities brands products distribution channels existed prior acquisition timing conditions approval may delay prevent us fully executing business plan operating valtra business existing business may force us sell portion valtra business existing business events could adversely affect financial condition results operations restructuring infrequent expenses recorded restructuring infrequent expenses 01 million 276 million 427 million years ended december 31 2004 2003 2002 respectively 2004 expense consisted 82 million pretax writedown property plant equipment associated rationalization randers denmark combine manufacturing operations announced july 2004 33 million severance facility closure costs associated randers rationalization 14 million charge associated rationalization certain administrative functions within finnish tractor manufacturing facility well 05 million charges associated various rationalization initiatives europe us initiated 2002 2003 2004 charges offset gains sale coventry england manufacturing facility related machinery equipment 83 million 09 million restructuring reserve reversals related coventry closure reversal 41 million previously established provision related litigation involving uk pension scheme record income tax benefit associated charges relating randers rationalization 2004 2003 expense consisted 120 million charge associated closure coventry england manufacturing facility 124 million charge associated litigation regarding uk pension scheme 25 million costs associated closure dekalb illinois manufacturing facility 12 million charges associated various functional rationalizations initiated 2002 2003 15 million writedown real estate associated closed agchem willmar minnesota facility offset 20 million gain related sale machinery equipment auction coventry england facility 2002 expense consisted 402 million associated closure coventry england manufacturing facility 35 million primarily associated various functional rationalizations offset 10 million net gain related sale two closed manufacturing facilities see note 3 consolidated financial statements additional information valtra finland administrative rationalization fourth quarter 2004 initiated restructuring certain administrative functions within finnish tractor manufacturing operations resulting termination approximately 60 employees rationalization completed improve ongoing overhead cost structure recorded severance costs approximately 14 million associated rationalization fully described note 3 consolidated financial statements randers denmark rationalization july 2 2004 announced plan restructure european combine manufacturing operations located randers denmark restructuring plan reduce cost complexity randers manufacturing operation simplifying model range eliminating facility’s component manufacturing operations outsource manufacturing majority parts components suppliers retain critical key assembly operations randers facility retaining facility assembly operations reduce randers workforce approximately 300 employees permanently eliminate 70 square footage utilized plans also include rationalization combine model range assembled randers retaining production high specification high value combines result restructuring plan estimate generate annual savings approximately 7 million 8 million cash restructuring costs recorded 2004 approximately 33 million primarily related employee severance retention payments addition recorded 82 million writedown property plant equipment 2004 associated impairment real estate machinery equipment within component manufacturing operations rationalization fully described note 3 consolidated financial statements also recorded approximately 37 million inventory writedowns reflected costs goods sold related inventory identified obsolete result restructuring plan coventry rationalization 2002 announced initiated restructuring plan related closure tractor manufacturing facility coventry england relocation existing production coventry beauvais france canoas brazil manufacturing facilities resulting termination approximately 1050 employees closure facility consistent strategy reduce excess manufacturing capacity facility manufactured transaxles assembled tractors range 50110 horsepower trend towards higher horsepower tractors resulting consolidation farms caused product segment industry decline recent years negatively impacted facility’s utilization 2003 completed transfer production beauvais facility although experienced cost inefficiencies production delays primarily due supplier delivery issues inefficiencies largely corrected 2004 estimate reduced manufacturing overhead costs result coventry rationalization project approximately 20 million adjusted changes production volume year approximately 402 million 120 million restructuring infrequent expenses recorded associated rationalization 2002 2003 respectively 2002 charge included 112 million impairment charge associated writedown property plant equipment resulting facility closure 2004 reversed approximately 09 million provisions related restructuring previously established reflect accurate estimates remaining obligations also recorded gain sale facility approximately 69 million sold january 2004 well approximately 20 million 14 million gains sale related machinery equipment 2003 2004 respectively components restructuring infrequent expenses income recorded 2002 2003 2004 summarized note 3 consolidated financial statements october 2002 applied high court london england clarification provision uk pension plan governs value pension payments payable employee 50 years old retires service certain circumstances prior normal retirement date primary matter high court whether pension payments employees including take early retirement terminated due closure coventry facility reduced compensate fact pension payments begin prior normal retirement age 65 december 2002 high court ruled position reduced pension payments payable context early retirements terminations appealed high court’s ruling july 2003 court appeal ruled employees terminated result closure coventry facility qualify full pensions thereby reversing earlier high court ruling aspect case ruled employees might qualify representatives beneficiaries pension plan sought right appeal house lords march 26 2004 house lords denied request result high court’s ruling case certain employees took early retirement prior years voluntary retirement arrangements would entitled additional payments therefore recorded charge second quarter 2003 included “restructuring infrequent expenses” approximately £75 million approximately 124 million reflect estimate additional pension liability associated previous early retirement programs subsequently full details court appeal judgment published received detailed legal advice regarding specific circumstances past voluntary retirements would subject court’s ruling based advice completed detailed review past terminations fourth quarter 2004 concluded number former employees considered eligible receive enhanced pensions court’s ruling lower initial estimate therefore reduced established provision approximately £25 million approximately 41 million fourth quarter 2004 included “restructuring infrequent expenses” consolidated statements operations dekalb rationalization march 2003 announced closure challenger track tractor facility located dekalb illinois relocation production facility jackson minnesota production dekalb facility ceased may 2003 relocated resumed minnesota facility june 2003 dekalb plant assembled challenger track tractors range 235 500 horsepower review cost reduction alternatives determined current future production levels time sufficient support standalone track tractor site connection restructuring plan recorded approximately 25 million restructuring infrequent expenses 2003 included termination approximately 135 employees estimate reduced costs 2004 approximately 80 million result closure sold dekalb facility real estate fourth quarter 2004 approximately 30 million associated selling costs recorded net loss sale facilities approximately 01 million loss reflected “restructuring infrequent expenses” consolidated statements operations components restructuring expenses incurred 2003 fully described note 3 consolidated financial statements 2002 2003 2004 functional rationalizations 2002 2003 initiated several rationalization plans recorded restructuring infrequent expenses approximately 34 million 12 million respectively expenses primarily related severance costs certain lease termination exit costs associated rationalization european engineering marketing personnel certain components german manufacturing facilities located kempten marktoberdorf germany well european combine engineering rationalization initiated 2003 2004 recorded 02 million restructuring infrequent expenses associated european rationalization initiatives well 02 million charges related closure consolidation valtra’s us canadian sales offices existing us canadian sales organizations 50 million total costs approximately 40 million relate severance costs associated termination approximately 215 employees total rationalizations completed improve ongoing cost structure reduce cost goods sold well engineering sga expenses discussed fully note 3 consolidated financial statements 1999 2001 rationalizations 2001 announced plans rationalize certain facilities part agchem acquisition integration consolidated willmar minnesota manufacturing facility agchem benson minnesota manufacturing facility agchem’s jackson minnesota manufacturing plant recorded approximately 85 million associated rationalization 2001 approximately 01 million costs 2002 fourth quarter 2003 wrote carrying value real estate willmar facility recorded impairment charge approximately 15 million reflected “restructuring infrequent expenses” consolidated statements operations fourth quarter 2004 sold portion willmar facility approximately 08 million 2000 permanently closed combine manufacturing facility independence missouri 1999 permanently closed coldwater ohio manufacturing facility record restructuring infrequent expenses 2002 2003 related closures 2002 sold independence coldwater facilities recorded net gain sale two facilities approximately 10 million reflected “restructuring infrequent expenses” consolidated statements operations rationalization initiatives fully described note 3 consolidated financial statements critical accounting policies prepare consolidated financial statements conformity us generally accepted accounting principles preparation financial statements make judgments estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period significant accounting policies followed preparation financial statements detailed note 1 notes consolidated financial statements believe application policies discussed involve significant levels judgments estimates complexity allowance doubtful accounts determine allowance doubtful accounts actively monitoring financial condition customers determine potential nonpayment trade receivables determining allowance doubtful accounts also consider economic factors aging trends believe process specific review customers combined overall analytical review provides effective evaluation ultimate collectibility trade receivables loss experience approximately 02 net sales 2004 discount sales incentive allowances discounts sales incentives made time sale based retail sales incentive programs available dealer retail customer cost programs depends various factors including timing retail sale programs place time retail sales incentives may also revised time record sale time retail sale occurs monitor factors revise provisions necessary december 31 2004 recorded allowance discounts sales incentives approximately 847 million allow additional 1 sales incentives discounts time retail sale reserve would increase approximately 69 million december 31 2004 conversely decrease sales incentives discounts 1 time retail sale reserve would decrease approximately 69 million inventory reserves inventories valued lower cost market determination cost includes estimates surplus obsolete inventory based estimates future sales production changes demand product design impact estimates periodically evaluate update assumptions assessing adequacy inventory adjustments deferred income taxes establish valuation allowances deferred tax assets estimate likely tax assets realized base estimates projections future income including tax planning strategies certain tax jurisdictions changes industry conditions competitive environment may impact accuracy projections 2002 recognized noncash income tax charge 910 million related increasing valuation allowance certain united states deferred tax assets sfas 109 requires establishment valuation allowance likely deferred tax assets realized accordance sfas 109 periodically assess likelihood deferred tax assets recovered future taxable income determine adjustments valuation allowance appropriate result assessments certain tax jurisdictions benefit losses benefited losses generated united states 2003 2004 respect losses incurred denmark 2004 december 31 2004 2003 deferred tax assets net valuation allowances 2879 million 2879 million respectively including 1882 million 2117 million respectively related net operating loss carryforwards december 31 2004 2003 recorded total valuation allowances offset deferred tax assets 1429 million 1417 million respectively primarily related net operating loss carryforwards argentina denmark united states realization remaining net deferred tax assets depends generating sufficient taxable income future periods believe likely remaining net deferred tax assets realized warranty additional service actions see note 1 consolidated financial statements information regarding costs assumptions warranties make provisions estimated expenses related product warranties time products sold base estimates historical experience nature frequency average cost warranty claims addition number magnitude additional service actions expected approved policies related additional service actions taken consideration due uncertainty potential volatility estimated factors changes assumptions could materially affect net income estimate warranty obligations reevaluated quarterly basis experience shown initial data product series line volatile therefore process relies upon longterm historical averages sufficient data available actual experience becomes available used modify historical averages ensure forecast within range likely outcomes resulting balances compared present spending rates ensure accruals adequate meet expected future obligations insurance reserves provide insurance reserves estimates losses due claims worker’s compensation product liability liabilities selfinsured base estimates ultimate settlement amount claims often long periods resolution closely monitor claims maintain adequate reserves pensions defined benefit pension plans covering certain employees principally united states united kingdom germany finland norway france australia brazil see note 8 consolidated financial statements information regarding costs assumptions employee retirement benefits nature estimates required measurement pension obligations costs liabilities dependent variety assumptions used actuaries provided management assumptions include estimates present value projected future pension payments plan participants taking consideration likelihood potential future events salary increases demographic experience assumptions may effect amount timing future contributions assumptions approach used assumptions used developing required estimates include following key factors • discount rates • inflation • salary growth • expected return plan assets • retirement rates • mortality rates base discount rate used determine projected benefit obligation us pension plans moody’s investor service aa bond yield december 31 year nonus plans base discount rate comparable indices within countries measurement date respect uk pension scheme september 30 year inflation assumption based evaluation external market indicators salary growth assumptions reflects longterm actual experience nearterm outlook assumed inflation expected return plan assets assumptions reflects asset allocations investment strategy views investment managers retirement mortality rates based primarily actual plan experience effects actual results differing assumptions accumulated amortized future periods therefore generally affect recognized expense periods us uk pension plans represent approximately 92 consolidated projected benefit obligation december 31 2004 discount rate used determine 2004 projected benefit obligation us plans decreased 25 basis points projected benefit obligation would increased approximately 14 million december 31 2004 2005 pension expense would increase nominal amount discount rate used determine 2004 projected benefit obligation us plans increased 25 basis points projected benefit obligation would decreased approximately 13 million 2005 pension expense would decrease nominal amount discount rate used determine projected benefit obligation uk scheme decreased 25 basis points projected benefit obligation would increased approximately 243 million december 31 2004 2005 pension expense would increase approximately 19 million discount rate used determine projected benefit obligation uk scheme increased 25 basis points projected benefit obligation would decreased approximately 231 million december 31 2004 2005 pension expense would decrease approximately 19 million postretirement benefits retiree health care life insurance provide certain postretirement health care life insurance benefits certain employees principally united states see note 8 consolidated financial statements information regarding costs assumptions postretirement benefits nature estimates required measurement obligations costs liabilities associated postretirement benefits ie retiree health care life insurance requires make use estimates present value projected future payments participants taking consideration likelihood potential future events health care cost increases salary increases demographic experience may effect amount timing future payments assumptions approach used assumptions used developing required estimates include following key factors • health care cost trends • inflation • discount rates • expected return plan assets • salary growth • mortality rates • retirement rates health care cost trend assumptions developed based historical cost data nearterm outlook efficiencies costmitigation actions including employee cost sharing administrative improvements efficiencies assessment likely longterm trends base discount rate used determine projected benefit obligation us postretirement benefit plans moody’s investor service aa bond yield december 31 year inflation assumption based evaluation external market indicators salary growth assumptions reflect longterm actual experience nearterm outlook assumed inflation retirement mortality rates based primarily actual plan experience effects actual results differing assumptions accumulated amortized future periods therefore generally affect recognized expense future periods discount rate used determine 2004 projected benefit obligation us postretirement benefit plans decreased 25 basis points projected benefit obligation would increased approximately 12 million december 31 2004 2005 pension expense would increase approximately 01 million discount rate used determine 2004 projected benefit obligation us postretirement benefit plans increased 25 basis points projected benefit obligation would decreased approximately 12 million 2005 pension expense would decrease approximately 01 million measuring expected postretirement benefit obligation december 31 2004 10 health care cost trend rate assumed 2005 decreasing 10 per year 50 remaining level thereafter changing assumed health care cost trend rates one percentage point year holding assumptions constant would following effect service interest cost 2004 accumulated postretirement benefit obligation december 31 2004 millions litigation party various claims lawsuits arising normal course business closely monitor claims lawsuits frequently consult legal counsel determine whether may resolved material adverse effect financial position results operations goodwill indefinitelived assets january 1 2002 adopted sfas 142 “goodwill intangible assets” “sfas 142” sfas 142 required initial impairment assessment performed goodwill indefinitelived intangible assets first quarter 2002 sfas 142 also established method testing goodwill indefinitelived intangible assets impairment annual basis interim basis event occurs circumstances change would reduce fair value reporting unit carrying value initial assessment annual assessments involve determining estimate fair value reporting units order evaluate whether impairment current carrying amount goodwill indefinitelived intangible assets exists fair values derived based evaluation past expected future performance reporting units reporting unit operating segment one level operating segment eg component operating segment reporting unit component constitutes business discrete financial information available executive management team regularly reviews operating results component addition combine aggregate two components operating segment single reporting unit components similar economic characteristics reportable segments reported guidance sfas 131 reporting units exception asia pacific geographical segment utilized combination valuation techniques including discounted cash flow approach market multiple approach comparable transaction approach making initial subsequent annual interim assessments part adoption sfas 142 2002 determined goodwill associated argentina agco north american reporting units impaired due fact enterprise book values reporting units greater respective calculated fair values result recorded pretax writedown goodwill 277 million resulted reducing carrying value argentina agco north american reporting units’ goodwill zero writedown recognized cumulative effect change accounting principle 241 million net 36 million income taxes first quarter 2002 stated goodwill tested impairment annual basis often indications impairment exist results analyses conducted october 1 2004 2003 respectively indicated reduction carrying amount goodwill required 2004 2003 due level judgment complexity period time many items resolved actual results could differ estimated time preparation financial statements adjustments estimates would impact financial position future results operations liquidity capital resources financing requirements subject variations due seasonal changes inventory receivable levels internally generated funds supplemented necessary external sources primarily revolving credit facility accounts receivable securitization facilities result valtra acquisition completed number debt equity capital transactions provided funding valtra acquisition refinanced majority outstanding debt facilities current financing funding sources 2013 million principal amount 134 convertible senior subordinated notes due 2033 2000 million principal amount 678 senior subordinated notes due 2014 2500 million principal amount 912 senior notes due 2008 approximately 4991 million accounts receivable securitization facilities 3000 million revolving credit facility 2755 million term loan facility 1101 million term loan facility december 23 2003 sold 2013 million 134 convertible senior subordinated notes due 2033 private placement offering convertible senior subordinated notes unsecured obligations convertible shares common stock upon satisfaction certain conditions discussed interest payable notes 134 per annum payable semiannually arrears cash september 30 december 31 year beginning september 30 2004 convertible senior subordinated notes convertible shares common stock effective price 2236 per share subject adjustment holders notes may convert notes shares common stock conversion rate 447193 shares per 1000 principal amount notes subject adjustment prior close business december 31 2033 following circumstances 1 fiscal quarter closing sales price common stock exceeds 120 conversion price least 20 trading days 30 consecutive trading days ending last trading day preceding fiscal quarter 2 five business day period five consecutive trading day period trading price per note day period less 98 product closing sale price common stock conversion rate 3 notes called redemption 4 upon occurrence certain corporate transactions beginning january 1 2011 may redeem notes redemption price 100 principal amount plus accrued interest holders notes may require us repurchase notes repurchase price 100 principal amount plus accrued interest december 31 2010 2013 2018 2023 2028 january 5 2004 entered new credit facility provides 3000 million multicurrency revolving credit facility 3000 million us dollar denominated term loan 1200 million euro denominated term loan facility replaced 3500 million multicurrency revolving credit facility revolving credit facility mature march 2008 maturity date revolving credit facility may extended december 2008 existing 912 senior notes due 2008 refinanced terms specified lenders prior march 2008 term loans amortize rate one percent per annum maturity date required prepay approximately 223 million us dollar denominated term loan 90 million euro denominated term loan result excess proceeds received common stock public offering april 2004 beginning march 31 2005 year thereafter may required prepay portion term loans depending amount cash flow generated prior year addition prepayments required make quarterly payments towards us dollar denominated term loan euro denominated term loan 075 million 03 million respectively maturity date term loans march 2008 maturity date term loans may extended june 2009 912 senior notes refinanced terms specified lenders prior march 2008 revolving credit term loan facilities secured majority us canadian finnish uk based assets pledge portion stock domestic material foreign subsidiaries interest accrues amounts outstanding revolving credit facility option either 1 libor plus margin ranging 150 225 based upon senior debt ratio 2 higher administrative agent’s base lending rate onehalf one percent federal funds rate plus margin ranging 025 10 based senior debt ratio interest accrues amounts outstanding term loans libor plus 200 credit facility contains covenants restricting among things incurrence indebtedness making certain payments including dividends must also fulfill financial covenants including among others total debt ebitda ratio senior debt ebitda ratio fixed charge coverage ratio defined facility december 31 2004 total borrowings 4247 million credit facility included 2755 million us dollar denominated term loan facility 1101 million approximately 1492 million euro denominated term loan facility december 31 2004 availability borrow 2912 million revolving credit facility april 7 2004 sold 14720000 shares common stock underwritten public offering received proceeds approximately 3001 million used net proceeds repay 1000 million interim bridge loan facility used part acquire valtra repay borrowings credit facility pay offering related fees expenses april 23 2004 sold 2000 million 678 senior subordinated notes due 2014 received proceeds approximately 2340 million offering related fees expenses 678 senior subordinated notes unsecured obligations subordinated right payment 912 senior notes existing future senior indebtedness interest payable notes semiannually april 15 october 15 year beginning october 15 2004 beginning april 15 2009 may redeem notes whole part initially 103438 principal amount plus accrued interest declining 100 principal amount plus accrued interest time april 15 2012 addition april 15 2009 may redeem notes whole part redemption price equal 100 principal amount plus accrued interest plus makewhole premium april 15 2007 also may redeem 35 notes 106875 principal amount using proceeds sales certain kinds capital stock notes include covenants restricting incurrence indebtedness making certain restricted payments including dividends used net proceeds received issuance 678 senior subordinated notes well available cash redeem 2500 million principal amount 812 senior subordinated notes may 24 2004 912 senior notes unsecured obligations redeemable option whole part commencing may 1 2005 initially 10475 principal amount plus accrued interest declining 100 principal amount plus accrued interest may 1 2007 indenture governing senior notes requires us offer repurchase senior notes 101 principal amount plus accrued interest date repurchase event change control senior notes include covenants restricting incurrence indebtedness making certain restricted payments including dividends business subject substantial cyclical variations generally difficult forecast results operations may also vary time resulting costs associated rationalization plans acquisitions result request relief lenders occasion respect financial covenant compliance currently anticipate asking relief possible would require relief future based upon historical working relationship lenders currently anticipate difficulty obtaining relief securitization facilities sell accounts receivable united states canada europe revolving basis commercial paper conduits either direct basis whollyowned special purpose entity december 31 2004 aggregate amount facilities 4991 million second quarter 2004 amended certain provisions united states canada receivable securitization facilities primarily increase facilities 300 million 100 million respectively eliminate default triggers associated credit ratings outstanding funded balance 4589 million december 31 2004 effect reducing accounts receivable shortterm liabilities amount risk loss securitization facilities limited portion unfunded balance receivables sold approximately 15 funded amount maintain reserves doubtful accounts associated risk facilities terminated would required repurchase previously sold receivables would prevented selling additional receivables commercial paper conduit european facility agreement provides agent rabobank right terminate securitization facilities senior unsecured debt rating moves b standard poor’s b1 moody’s investor services based current ratings downgrade two levels standard poor’s two levels moody’s would need occur currently discussions conduit purchaser ratings triggers eliminated agreement us canadian securitization facilities expire april 2009 european facility april 2006 subject annual renewals facilities allow us sell accounts receivables financing conduits obtain funding commercial paper markets future funding securitization facilities depends upon adequacy receivables sufficient demand underlying commercial paper maintenance certain covenants concerning quality receivables financial condition event commercial paper demand adequate securitization facilities provide liquidity backing various financial institutions including rabobank liquidity commitments would provide us interim funding allow us find alternative sources working capital financing necessary cash flow provided operating activities 2659 million 2004 compared 880 million 2003 increase operating cash flow result higher earnings well decreases working capital excluding impact valtra acquisition fully described addition 2003 cash restructuring payments relating primarily closure coventry facility approximately 416 million compared 39 million 2004 working capital requirements seasonal investments working capital typically building first half year reducing second half year 10455 million working capital december 31 2004 compared 7554 million december 31 2003 accounts receivable inventories combined 5354 million higher december 31 2003 increase includes approximately 2759 million receivables inventories related valtra acquisition remaining increase inventories receivables due primarily sales growth foreign currency translation capital expenditures 2004 784 million compared 787 million 2003 capital expenditures made 2004 primarily related enhancing new existing products facility equipment systems improvements debt capitalization ratio total longterm debt divided sum total longterm debt stockholders’ equity 447 december 31 2004 compared 440 december 31 2003 increase primarily attributable higher debt incurred fund valtra acquisition time review continue review acquisition joint venture opportunities well changes capital markets consummate significant acquisition elect take advantage favorable opportunities capital markets may supplement availability revise terms credit facilities complete public private offerings equity debt securities believe available borrowings revolving credit facility funding accounts receivable securitization facilities available cash internally generated funds sufficient support working capital expenditures debt service requirements foreseeable future contractual obligations future payments required significant contractual obligations excluding foreign currency forward contracts december 31 2004 follows millions 1 estimated interest payments calculated assuming current interest rates minimum maturity periods specified debt agreements debt may repaid sooner later minimum maturity periods 2 unconditional purchase obligations exclude routine purchase orders entered normal course business result rationalization european combine manufacturing operations 2004 entered agreement third party manufacturer produce certain combine model ranges fiveyear period agreement provides purchase minimum quantity 200 combines per year cost approximately 200 million per year december 2009 3 shortterm longterm obligations include estimates future minimum contribution requirements us nonus defined benefit pension postretirement plans estimates based current legislation countries operate within subject change offbalance sheet arrangements guarantees december 31 2004 obligated certain circumstances purchase year 2009 168 million equipment upon expiration certain operating leases agco finance llc agco finance canada ltd retail finance joint ventures north america end users also maintain remarketing agreement joint ventures whereby obligated repurchase repossessed inventory market values december 31 2003 entered agreement agco finance llc limits purchase obligations arrangement 60 million aggregate per calendar year believe losses might incurred resale equipment materially impact financial position results operations time sell certain trade receivables factoring arrangements financial institutions throughout world evaluate sale receivables pursuant guidelines sfas 140 “accounting transfers servicing financial assets extinguishments liabilities replacement fasb statement 125” determined facilities accounted offbalance sheet transactions accordance sfas 140 december 31 2004 guaranteed indebtedness owed third parties approximately 783 million primarily related dealer enduser financing equipment believe credit risk associated guarantees material financial position december 31 2004 foreign currency forward contracts buy aggregate approximately 308 million united states dollar equivalents foreign currency forward contracts sell aggregate approximately 2910 million united states dollar equivalents contracts maturity less one year see “foreign currency risk management” information contingencies received assessments brazilian tax authorities regarding transaction taxes payable certain foreign currency gains losses currently contesting assessments disputing calculation method applied tax authorities believe probable likely assessments paid total assessment approximates 90 million 95 million anticipate may take significant time resolve dispute brazilian tax authorities october 2004 notified customer claim costs damages arising alleged breaches supply agreement customer’s initial evaluation indicated claim approximately 105 million approximately 140 million vigorously contesting claim legal proceedings initiated discussions agco customer ongoing related parties rabobank aaa rated financial institution based netherlands 51 owner retail finance joint ventures located united states canada united kingdom france germany spain ireland brazil rabobank also principal agent participant revolving credit facility securitization facilities majority assets retail finance joint ventures represent finance receivables majority liabilities represent notes payable accrued interest various joint venture agreements rabobank affiliates obligated provide financing joint venture companies primarily lines credit guarantee debt obligations retail finance joint ventures 49 approximately 317 million solvency requirements brazil joint venture brazil joint venture company agency relationship rabobank whereby rabobank provides funding retail finance joint ventures provide retail financing wholesale financing dealers terms financing arrangements offered dealers similar arrangements provide unaffiliated third parties discussed previously december 31 2004 obligated certain circumstances purchase year 2009 168 million equipment upon expiration certain operating leases agco finance llc agco finance canada ltd retail joint ventures north america end users also maintain remarketing agreement joint ventures discussed “offbalance sheet arrangements” addition part sales incentives provided end users may time subsidize interest rates retail financing provided retail joint ventures cost programs recognized time sale dealers 2004 2003 net sales approximately 1865 million 1161 million respectively baywa corporation german distributor ordinary course business president ceo baywa corporation member board directors 2004 2003 purchased approximately 24 million 26 million respectively equipment components manufacturing joint venture deutz agco motores sa prices approximating cost outlook operations subject cyclical nature agricultural industry sales equipment expected continue affected changes net cash farm income farm land values weather conditions demand agricultural commodities farm industry related legislation general economic conditions industry conditions retail sales agricultural equipment expected mixed 2005 compared 2004 north america despite decline commodity prices second half 2004 retail farm equipment demand expected remain stable 2005 farmers expected continue invest equipment resulting high farm income generated 2004 addition government farm support payments expected partially offset impact lower commodity prices europe industry retail demand expected relatively flat benefits stronger harvest 2004 anticipated offset lower commodity prices impact strong euro south america lower commodity prices higher input costs weak dollar expected negatively impact farm income result industry retail demand expected decline significantly 2005 compared strong levels 2004 based market outlook net income expected remain relatively flat 2005 compared 2004 impact anticipated market declines profitable south america operations higher investments engineering expenses expected offset benefits improved productivity cost reduction distribution initiatives addition weighted average shares outstanding used calculate earnings per share expected higher reflect additional common shares issued march 2004 foreign currency risk management significant manufacturing operations france germany brazil finland denmark purchase portion tractors combines components thirdparty foreign suppliers primarily various european countries japan also sell products 140 countries throughout world majority revenue outside united states denominated currency customer location exception sales middle east africa asia revenue primarily denominated british pounds euros united states dollars see note 15 consolidated financial statements sales customer location significant transactional foreign currency exposures euro brazilian real canadian dollar relation united states dollar fluctuations value foreign currencies create exposures adversely affect results operations attempt manage transactional foreign exchange exposure hedging foreign currency cash flow forecasts commitments arising settlement receivables payables future purchases sales naturally offsetting currency positions occur hedge certain exposures use foreign currency forward contracts hedging policy prohibits foreign currency forward contracts speculative trading purposes translation exposure resulting translating financial statements foreign subsidiaries united states dollars hedged significant translation exposures euro brazilian real relation united states dollar practical translation impact reduced financing local operations local borrowings derivatives recognized consolidated balance sheets fair value date derivative contract entered designate derivative either 1 fair value hedge recognized liability 2 cash flow hedge forecasted transaction 3 hedge net investment foreign operation 4 nondesignated derivative instrument currently engage derivatives nondesignated derivative instruments changes fair value nondesignated derivative contracts reported current earnings following summary foreign currency forward contracts used hedge currency exposures contracts maturity less one year net notional amounts fair value gains losses december 31 2004 stated united states dollars follows millions except average contract rate per united states dollar contracts entered hedging purposes gains losses contracts would largely offset gains losses underlying firm commitment interest rates manage interest rate risk use fixed rate debt may future utilize interest rate swap contracts fixed rate debt senior notes senior subordinated notes convertible senior subordinated notes floating rate exposure related revolving credit facility securitization facilities tied changes united states european libor rates assuming 100 increase interest rates interest expense net cost securitization facilities year ended december 31 2004 would increased approximately 08 million interest rate swap contracts outstanding years ended december 31 2004 2003 accounting changes december 2004 financial accounting standards board fasb issued statement financial accounting standards 123r “sfas 123r” “sharebased payment” sfas 123r requires cost resulting sharebased payment transactions recognized financial statements sfas 123r also establishes fair value measurement method accounting sharebased payments employees required sfas 123r adopt new accounting standard effective july 1 2005 estimate application expensing provisions sfas 123r result pretax expense approximately 34 million second half 2005 november 2004 fasb issued sfas 151 “inventory costsan amendment arb 43 chapter 4” “sfas 151” sfas 151 amends guidance arb 43 chapter 4 “inventory pricing” clarify accounting abnormal amounts idle facility expense freight handling costs wasted material spoilage among provisions new rule requires items idle facility expense excessive spoilage double freight rehandling costs recognized currentperiod charges regardless whether meet criterion “so abnormal” stated arb 43 additionally sfas 151 requires allocation fixed production overheads costs conversion based normal capacity production facilities sfas 151 effective fiscal years beginning june 15 2005 required adopted first quarter 2006 currently evaluating effect adoption sfas 151 consolidated results operations financial condition october 22 2004 american jobs creation act 2004 “ajca” enacted ajca provides deduction income qualified domestic production activities phased 2005 2010 ajca also provides twoyear phase existing extraterritorial income exclusion eti foreign sales viewed inconsistent international trade protocols european union guidance fasb staff position 1091 “application fasb statement 109 “accounting income taxes” tax deduction qualified production activities provided american jobs creation act 2004” deduction treated “special deduction” described sfas 109 special deduction effect deferred tax assets liabilities existing enactment date ajca provides multinational companies election deduct taxable income 85 eligible dividends repatriated foreign subsidiaries eligible dividends generally cannot exceed 500 million must meet certain business purposes qualify deduction addition provisions prohibit use net operating losses avoid tax liability taxable portion qualifying dividend estimated impact current tax expense united states generally equal 525 qualifying dividend ajca generally allows companies take advantage special deduction november 2004 end calendar year 2005 propose qualifying plan repatriation 2004 currently assessing whether propose plan qualifying repatriation 2005 estimated range dividend amounts may consider would exceed eligible dividend amounts allowable ajca fourth quarter 2004 emerging issues task force “eitf” reached consensus eitf issue 0408 “accounting issues related certain features contingently convertible debt effect diluted earnings per share” eitf issue 0408 requires shares subject issuance contingently convertible debt included calculation diluted earnings per share using ifconverted method regardless whether market price trigger met adopted eitf 0408 fourth quarter 2004 included approximately 90 million additional shares common stock may issued upon conversion outstanding 134 convertible senior subordinated notes diluted earnings per share calculation year ended december 31 2004 02 million additional shares common stock year ended december 31 2003 addition diluted earnings per share required restated period convertible debt outstanding agco’s convertible senior subordinated notes issued december 23 2003 benefiting losses united states tax purposes interest expense associated convertible senior subordinated notes included diluted earnings per share calculation reflect income tax benefit reconciliation net income weighted average common shares outstanding purposes calculating basic diluted earnings per share presented note 1 consolidated financial statements may 19 2004 fasb issued fasb staff position 1062 “fsp 1062” “accounting disclosure requirements related medicare prescription drug improvement modernization act 2003” fsp 1062 relates medicare prescription drug improvement modernization act 2003 “act” signed law december 8 2003 act introduced prescription drug benefit medicare well federal subsidy sponsors retiree health care benefit plans provide benefit least actuarially equivalent medicare currently evaluating whether benefits provided postretirement benefit plans actuarially equivalent medicare part act decisions regarding impact act plans addressed completion evaluation currently expect impact material december 2003 fasb issued interpretation 46 “consolidation variable interest entities interpretation arb 51 revised december 2003” “fin 46r” addresses consolidation business enterprises variable interest entities usual condition consolidating controlling financial interest apply fin 46r requires entity assess equity investments determine variable interest entities defined fin 46r variable interests contractual ownership interests entity change changes entity’s net asset value variable interests entity may arise financial instruments service contracts guarantees leases arrangements variable interest entity absorb majority variable interest entity’s expected losses expected residual returns defined fin 46r considered primary beneficiary variable interest entity primary beneficiary must include variable interest entity’s assets liabilities results operations consolidated financial statements provisions fin 46r must applied later first interim period ending march 15 2004 however public companies required apply unmodified provisions fin 46 entities considered “special purpose entities” end first reporting period ending december 15 2003 analyzed provisions fin 46r relate current securitization facilities special purpose entity related facilities concluded believe impacted interpretation addition analyzed provisions fin 46r relate accounting investments joint ventures determined primary beneficiary one joint ventures gima established 1994 agco renault agriculture sa “renault” cooperate field purchasing design manufacturing components agricultural tractors party 50 ownership joint venture july 1 2003 began consolidating accounts gima historically accounted investment gima equity method consolidation gima material impact results operations financial position december 2003 fasb issued sfas 132 revised 2003 “employers’ disclosures pensions postretirement benefitsan amendment fasb statements 87 88 106” statement requires disclosures addition required original sfas 132 related assets obligations cash flows net periodic benefit cost defined benefit pension plans defined benefit postretirement plans additional disclosures required year ended december 31 2003 us defined benefit plans defined benefit plans year ended december 31 2004 see note 8 consolidated financial statements forward looking statements certain statements “management’s discussion analysis financial condition results operations” elsewhere annual report form 10k forward looking including certain statements set forth headings “results operations” “liquidity capital resources” “outlook” forward looking statements reflect assumptions expectations projections intentions beliefs future events statements may relate matters industry conditions net sales income restructuring infrequent expenses impairment charges future capital expenditures fulfillment working capital needs impact war political unrest future acquisition plans “forwardlooking statements” within meaning federal securities laws statements relate strictly historical current facts identify certain statements necessarily use words “anticipate” “assumed” “indicate” “estimate” “believe” “predict” “forecast” “rely” “expect” “continue” “grow” words similar meaning although believe expectations assumptions reflected statements reasonable view information currently available us assurance expectations prove correct forwardlooking statements involve number risks uncertainties actual results may differ materially results discussed implied forwardlooking statements following among important factors could cause actual results differ materially forwardlooking statements • general economic capital market conditions • worldwide demand agricultural products • grain stock levels new used field inventories • cost steel raw materials • government policies subsidies • weather conditions • interest foreign currency exchange rates • pricing product actions taken competitors • commodity prices acreage planted crop yields • farm income land values debt levels access credit • pervasive livestock diseases • production disruptions • supply capacity constraints • cost reduction control initiatives • research development efforts • dealer distributor actions • technological difficulties • political economic uncertainty various areas world forwardlooking statement considered light important factors new factors could cause actual results differ materially described emerge time possible us predict factors extent factor combination factors may cause actual results differ contained forwardlooking statement forwardlooking statement speaks date statement made disclaim obligation update information contained statement reflect subsequent developments information except required law item 7aitem 7 management’s discussion analysis financial condition results operations leading manufacturer distributor agricultural equipment related replacement parts throughout world sell full range agricultural equipment including tractors combines hay tools sprayers forage equipment implements line diesel engines products widely recognized agricultural equipment industry marketed number wellknown brand names including agco® challenger® fendt® gleaner® hesston® massey ferguson® new idea® rogator® spracoupe® sunflower® terragator® valtra® whitetm planters distribute products combination approximately 3600 independent dealers distributors associates licensees addition provide retail financing united states canada brazil germany france united kingdom australia ireland finance joint ventures rabobank results operations sell equipment replacement parts independent dealers distributors customers large majority sales independent dealers distributors sell products end user extent practicable attempt sell products dealers distributors level basis throughout year reduce effect seasonal demands manufacturing operations minimize investment inventory however retail sales dealers farmers highly seasonal linked planting harvesting seasons certain markets particularly north america often time lag varies based timing level retail demand sale equipment dealer’s sale retail customer following table sets forth periods indicated percentage relationship net sales certain items included consolidated statements operations 2005 compared 2004 net income 2005 316 million 035 per diluted share compared net income 2004 1588 million 171 per diluted share results 2005 include following items • noncash deferred income tax charge 908 million 095 per share related increasing valuation allowance united states deferred tax assets accordance statement financial accounting standard “sfas” 109 “accounting income taxes” • redemption 250 million 912 senior notes due 2008 price approximately 2619 million included premium 475 face amount notes time redemption recorded interest expense premium approximately 119 million 013 per share approximately 22 million 003 per share writeoff remaining balance deferred debt issuance costs • exchange former 134 convertible senior subordinated notes new notes june 2005 resulted reduction diluted weighted average shares outstanding approximately 90 million shares prospective basis results 2004 included following item • implementation emerging issues task force “eitf” issue 0408 resulted addition approximately 90 million shares weighted average shares outstanding purposes computing diluted net income per share net sales 2005 approximately 3 higher 2004 primarily due sales growth north america europeafricamiddle east regions well positive currency translation impacts growth offset significant sales declines south america due weak market demand income operations including restructuring expenses restricted stock compensation 2747 million 2005 compared 3235 million 2004 decrease income operations due primarily lower operating income south america north america partially offset improvements europeafricamiddle east operations operating margins declined 2005 result reduced margins south america primarily due significant reduction industry demand impact strengthening brazilian real europeafricamiddle east operations income operations improved 557 million 2005 compared 2004 increase reflects higher sales outside western europe margin improvements achieved productivity improvements new product introductions expense control measures pricing changes operating income south american operations decreased 892 million 2005 compared 2004 due sales declines resulting deterioration market conditions operating margins south america declined significantly 2005 resulting lower production levels unfavorable sales mix impact continued strengthening brazilian real sales outside brazil north america operating income decreased 151 million 2005 compared 2004 although higher sales volumes achieved improved market conditions sales performance north america benefits offset reduced margins due higher costs impact weak united states dollar products produced primarily brazil higher warranty costs increased engineering expenses related new product offerings operating income asia pacific region increased 21 million 2005 compared 2004 due higher sales asia retail sales worldwide industry equipment demand declined 2005 largest reductions europe south america north america industry demand remained relatively stable supported solid farm income although drought conditions certain areas united states impacted demand latter part year europe industry demand softened second half 2005 result lower agricultural production mainly due dry weather conditions southern europe well uncertainty related common agricultural policy farm subsidy reforms south america industry demand declined significantly 2005 due drought conditions southern brazil reduced farm profits resulting lower commodity prices continued strengthening brazilian real united states canada industry unit retail sales tractors relatively flat 2005 compared 2004 resulting decrease compact tractor segment offset increases utility high horsepower segments industry unit retail sales combines increased approximately 1 compared prior year unit retail sales tractors north america increased 2004 levels unit retail sales combines decreased compared 2004 levels europe industry unit retail sales tractors decreased approximately 4 2005 compared 2004 retail demand improved germany scandinavia eastern europe declined spain france united kingdom finland unit retail sales tractors relatively flat 2005 compared 2004 south america industry unit retail sales tractors 2005 decreased approximately 24 compared 2004 retail sales tractors major market brazil declined approximately 38 2005 industry unit retail sales combines 2005 58 lower prior year decline brazil approximately 73 compared prior year unit retail sales tractors combines south america also significantly lower 2005 compared 2004 international markets net sales 2005 approximately 26 higher prior year particularly middle east statements operations net sales 2005 54497 million compared 52733 million 2004 increase primarily attributable sales growth north america europe africa middle east regions well positive currency translation impacts currency translation positively impacted net sales approximately 946 million primarily due continued strengthening brazilian real following table sets forth periods indicated impact net sales currency translation geographical segment millions except percentages regionally net sales north america increased 2005 primarily due strong retail sales improved product availability europe africa middle east region net sales increased 2005 primarily due sales growth germany eastern europe middle east net sales south america decreased 2005 compared 2004 primarily result weak market conditions region asia pacific region net sales increased 2005 compared 2004 due increases industry demand region particularly asia estimate consolidated price increases 2005 contributed approximately 4 increase net sales consolidated net sales tractors combines consisted approximately 71 net sales 2005 increased approximately 3 2005 compared 2004 unit sales tractors combines decreased approximately 6 2005 compared 2004 difference unit sales decrease increase net sales result foreign currency translation pricing sales mix changes following table sets forth periods indicated percentage relationship net sales certain items included consolidated statements operations gross profit percentage net sales declined 2005 primarily due lower gross margins south america resulting lower production levels unfavorable sales mix negative currency impacts declines partially offset improved margins europe africa middle east region positively impacted improved productivity new product introductions expense control measures pricing changes productivity improvements achieved purchasing material cost initiatives outsourcing initiatives outsourcing combine manufacturing europe enhanced production processes resulting material flow assembly improvements margins north america impacted weak united states dollar products imported european brazilian facilities higher warranty costs selling general administrative “sga” expenses percentage net sales decreased slightly 2005 compared 2004 primarily result higher sales levels cost reduction initiatives engineering expenses increased 2005 result increase spending fund product improvements cost reduction projects restructuring infrequent expenses 2005 primarily related rationalization randers denmark combine manufacturing operations announced july 2004 second quarter 2005 completed auctions remaining machinery equipment randers facility recorded gain associated actions gain offset restructuring expenses associated randers rationalization consisting primarily employee retention payments facility closure costs also recorded restructuring expenses 2005 associated severance costs retention payments asset writedowns contract termination costs related rationalization finnish tractor manufacturing parts distribution sales operations restructuring expenses 2004 primarily related charges incurred resulting randers rationalization well costs associated various rationalization initiatives europe united states offset gains sale property plant equipment related coventry england facility closure well revision previously established provision resulted reduction estimated costs associated pension plan united kingdom see “restructuring infrequent expenses” interest expense net 800 million 2005 compared 770 million 2004 increase interest expense net 2005 due primarily redemption 250 million 912 senior notes second quarter 2005 redeemed notes price approximately 2619 million included premium 475 face amount notes premium approximately 119 million writeoff remaining balance deferred debt issuance costs associated senior notes approximately 22 million recognized interest expense net second quarter 2005 april 2004 completed common stock offering received net proceeds approximately 3001 million used net proceeds repay borrowings credit facility well repay 1000 million interim bridge loan facility expense net 346 million 2005 compared 221 million 2004 losses sales receivables primarily securitization facilities 224 million 2005 compared 156 million 2004 increase 2005 due primarily higher interest rates 2005 compared 2004 well additional outstanding funding portions 2005 also experienced foreign exchange losses 2005 compared foreign exchange gains 2004 recorded income tax provision 1511 million 2005 compared 862 million 2004 fourth quarter 2005 recognized noncash deferred income tax charge 908 million related increasing valuation allowance united states deferred tax assets statement financial accounting standards “sfas” 109 “accounting income taxes” requires establishment valuation allowance likely portion deferred tax assets realized accordance sfas 109 assessed likelihood deferred tax assets would recovered estimated future taxable income available income tax planning strategies determined adjustment valuation allowance appropriate effective tax rate excluding noncash deferred income tax charge 377 2005 compared 384 2004 years effective tax rate negatively impacted incurring losses tax jurisdictions recorded tax benefit significant impact related losses incurred united states 2005 denmark 2004 2005 incurred losses united states part due costs associated second quarter redemption senior notes discussed well lower operating margins previously described 2004 incurred losses denmark primarily due rationalization combine manufacturing operations randers denmark december 31 2005 2004 gross deferred tax assets 4298 million 4308 million respectively including 1929 million 1882 million respectively related net operating loss carryforwards december 31 2005 2004 recorded total valuation allowances offset gross deferred tax assets 2528 million 1429 million respectively primarily related net operating loss carryforwards argentina brazil denmark united states realization remaining deferred tax assets december 31 2005 depends generating sufficient taxable income future periods net reversing deferred tax liabilities believe likely remaining net deferred tax assets realized 2004 compared 2003 net income 2004 1588 million 171 per diluted share compared net income 2003 744 million 098 per diluted share results 2004 included following item • implementation eitf issue 0408 resulted addition approximately 90 million shares weighted average shares outstanding purposes computing diluted net income per share results 2003 included following item • restructuring infrequent expenses 276 million 026 per share primarily related closure coventry england manufacturing facility well rationalization various manufacturing facilities net sales 2004 approximately 51 higher 2003 primarily due acquisition valtra january 2004 sales growth geographical segments positive currency translation impacts income operations including restructuring expenses restricted stock compensation 3235 million 2004 compared 1843 million 2003 operating income improved primarily due contribution valtra approximately 528 million higher sales volume improved operating margins well lower restructuring infrequent expenses approximately 275 million compared 2003 offsetting positive factors impact weak united states dollar higher steel costs additional noncash amortization purchased intangible assets approximately 141 million related valtra acquisition europeafricamiddle east operations operating income improved 732 million 2004 compared 2003 increase reflects contribution valtra higher sales volume productivity gains currency translation benefits improved productivity supply chain performance beauvais france plant contributed better product availability higher margins operating income south american operations increased 654 million 2004 compared 2003 operating income significantly higher 2004 resulting contribution valtra stronger end markets production efficiencies price realization north america operating income decreased 70 million 2004 compared 2003 although higher sales volumes achieved improved market conditions north america benefits offset reduced margins due impact weak united states dollar products imported europe brazil well higher steel costs operating income asiapacific region increased 97 million 2003 primarily resulting operating income contribution valtra improved product availability improved market conditions currency translation benefits acquisitions january 5 2004 acquired valtra tractor diesel engine operations kone corporation finnish company 6046 million net approximately 214 million cash acquired approximately 760 million net valtra global tractor offroad engine manufacturer market leadership positions nordic region europe latin america acquisition provides us opportunity expand business significant global markets exchange technology combined companies see “ recent acquisitions” additional information retail sales industry demand agricultural equipment 2004 showed mixed results within major markets world conditions north american market significantly improved throughout 2004 due record harvests strong commodity prices favorable tax incentives europe demand mixed relatively flat whole despite improved harvest yields 2004 south america market demand remained strong 2004 however brazilian market experienced softening fourth quarter resulting effects lower commodity prices weak united states dollar united states canada industry unit retail sales tractors increased approximately 120 2004 compared 2003 resulting increases tractor segments largest growth highhorsepower equipment industry unit retail sales combines increased approximately 410 compared prior year unit retail sales tractors combines north america also increased 2003 levels europe industry unit retail sales tractors increased approximately 20 2004 compared 2003 retail demand improved france italy eastern europe declined finland higher horsepower sector germany including impact valtra acquisition periods unit retail sales tractors also increased 2004 compared 2003 south america industry unit retail sales tractors combines 2004 increased approximately 80 compared 2003 tractor demand declined slightly brazil offset significant increases argentina south american markets including impact valtra acquisition periods unit retail sales tractors combines also increased 2004 compared 2003 international markets net sales 2004 excluding increase attributable valtra acquisition approximately 140 approximately 130 higher prior year particularly australia statements operations net sales 2004 52733 million compared 34953 million 2003 increase attributable primarily acquisition valtra january 2004 sales growth geographical segments positive currency translation impacts valtra generated net sales approximately 10075 million 2004 currency translation positively impacted net sales approximately 2419 million primarily due continued strengthening euro brazilian real consolidation gima joint venture beginning july 2003 contributed incremental net sales increase prior year approximately 358 million following table sets forth periods indicated impact net sales valtra acquisition currency translation consolidation gima geographical segment regionally net sales north america increased 2004 primarily due stronger end markets well favorable response new products distribution europeafricamiddle east region net sales increased primarily due acquisition valtra incremental sales related consolidation gima full year 2004 favorable response new products distribution region improved product availability net sales south america increased 2004 compared 2003 resulting acquisition valtra well significant increases demand argentina south american markets growth combine sales brazil argentina asiapacific region net sales increased due contribution valtra acquisition growth markets particularly asia australia estimate consolidated price increases 2004 contributed approximately 3 increase net sales consolidated net sales tractors combines consisted approximately 71 sales 2004 increased approximately 60 2004 compared 2003 unit sales tractors combines increased approximately 48 consisting 36 increase related valtra acquisition 12 increase equipment sales difference unit sales increase net sales result foreign currency translation pricing sales mix changes following table sets forth periods indicated percentage relationship net sales certain items included consolidated statements operations gross profit increased primarily due contribution valtra acquisition higher sales volume improved gross margins gross margins improved 2004 primarily due increased production improved productivity particular improved productivity supply chain performance beauvais france manufacturing operations contributed higher margins positive factors offset lower margins north america due impact weak united states dollar products exported european brazilian facilities addition product costs regions impacted significant increases steel costs 2004 increased prices markets however additional pricing fully offset higher steel costs approximately 100 million sga expenses increased primarily result valtra acquisition impact currency translation higher pension postretirement benefit costs engineering expenses also increased result valtra acquisition currency translation well introduction new product offerings restructuring infrequent expenses 2004 primarily related charges incurred relation rationalization randers denmark combine manufacturing operations well costs associated various rationalization initiatives europe united states offset gains sale property plant equipment related coventry england facility closure well revision previously established provision resulted reduction estimated costs associated pension plan united kingdom restructuring expenses 2003 primarily related coventry england facility closure addition recorded restructuring infrequent expenses 2003 associated litigation related pension plan united kingdom see “ restructuring infrequent expenses” additional information interest expense net 770 million 2004 compared 600 million 2003 increase interest expense due primarily higher debt levels 2004 result financing valtra acquisition interest expense also impacted 2004 approximately 30 million costs associated repayment 812 senior subordinated debt second quarter expense net 221 million 2004 compared 260 million 2003 losses sales receivables primarily securitization facilities 156 million 2004 compared 146 million 2003 increase 2004 primarily due higher interest rates 2004 compared 2003 offsetting increase lower foreign exchange losses experienced 2004 2003 recorded income tax provision 862 million 2004 compared 413 million 2003 effective tax rate 384 2004 compared 420 2003 years effective tax rate negatively impacted incurring losses tax jurisdictions recorded tax benefit significant impact related losses incurred denmark 2004 united states 2003 december 31 2004 2003 deferred tax assets net valuation allowances 2879 million 2879 million respectively including 1882 million 2117 million respectively related net operating loss carryforwards december 31 2004 2003 recorded total valuation allowances offset deferred tax assets 1429 million 1417 million respectively primarily related net operating loss carryforwards argentina denmark united states quarterly results following table presents unaudited interim operating results believe following information includes adjustments consisting normal recurring adjustments necessary present fairly results operations periods presented operating results period necessarily indicative results future period 1 2005 quarters ended march 31 june 30 september 30 december 31 include restructuring infrequent expenses income 10 million 08 million 00 million 00 million respectively thereby impacting net income per common share diluted basis 001 000 respectively 2004 quarters ended march 31 june 30 september 30 december 31 include restructuring infrequent income expenses 66 million 60 million 17 million 10 million respectively thereby impacting net income per common share diluted basis 005 007 002 000 respectively 2 quarters ended march 31 june 30 september 30 december 31 2004 net income per common share diluted amounts presented include impact implementation eitf issue 0408 resulted addition approximately 90 million shares quarters ended march 31 june 30 2005 march 31 june 30 september 30 december 31 2004 june 29 2005 completed exchange 2013 million aggregate principal amount 134 convertible senior subordinated notes new notes provide settlement upon conversion cash principal amount converted new notes excess conversion value settled shares common stock impact exchange resulted reduction diluted weighted averages shares outstanding approximately 90 million shares prospective basis see note 1 consolidated financial statements impact described fully recent acquisitions january 5 2004 acquired valtra tractor diesel engine operations kone corporation finnish company 6046 million net approximately 214 million cash acquired approximately 760 million net valtra global tractor offroad engine manufacturer nordic region europe latin america acquisition valtra provided us opportunity expand business significant global markets utilizing valtra’s technology productivity leadership agricultural equipment market acquired assets liabilities consisted primarily inventories accounts receivable property plant equipment technology tradenames trademarks customer relationships patents results operations valtra acquisition included consolidated financial statements date acquisition valtra acquisition accounted accordance sfas 141 “business combinations” accordingly allocated purchase price assets acquired liabilities assumed based fair values acquisition date recorded approximately 3584 million goodwill approximately 1569 million identifiable intangible assets tradenames trademarks technology related patents customer relationship intangibles part purchase price allocation completed initial funding cash purchase price valtra issuance 2013 million aggregate principal amount 134 convertible senior subordinated notes december 2003 funds borrowed revolving credit term loan facilities entered january 5 2004 1000 million borrowed interim bridge facility also closed january 5 2004 interim bridge facility subsequently repaid april 2004 upon completion common stock offering see “ liquidity capital resources” additional information restructuring infrequent expenses recorded restructuring infrequent expenses 00 million 01 million 276 million years ended december 31 2005 2004 2003 respectively net charges 2005 include 15 million gain sale property plant equipment related completion auctions machinery equipment associated rationalization randers denmark combine manufacturing operations announced july 2004 gain offset 08 million employee retention payments facility closure costs incurred associated randers rationalization well 07 million severance asset writedowns facility closure costs related rationalization finnish tractor manufacturing sales parts operations record income tax benefit provision associated charges gain relating randers rationalization 2005 2004 net charges consisted 82 million pretax writedown property plant equipment associated randers rationalization 33 million severance facility closure costs associated randers rationalization 14 million charge associated rationalization certain administrative functions within finnish tractor manufacturing facility well 05 million charges associated various rationalization initiatives europe united states initiated 2002 2003 2004 charges offset gains sale coventry england manufacturing facility related machinery equipment 83 million 09 million restructuring reserve reversals related coventry closure reversal 41 million previously established provision related litigation involving uk pension plan record income tax benefit associated charges relating randers rationalization 2004 2003 expense consisted 120 million charge associated closure coventry manufacturing facility 124 million charge associated uk pension plan 25 million costs associated closure dekalb illinois manufacturing facility 12 million charges associated various functional rationalizations initiated 2002 2003 15 million writedown real estate associated closed willmar minnesota facility offset 20 million gain related sale machinery equipment auction coventry facility see note 3 consolidated financial statements additional information valtra european sales office rationalizations second quarter 2005 announced change distribution valtra fendt products scandinavia entering distribution agreement thirdparty distributor distribute valtra fendt equipment sweden valtra equipment norway denmark result agreement decision close valtra european sales offices initiated restructuring closure valtra sales offices located united kingdom spain denmark norway resulting termination approximately 24 employees danish norwegian sales operations transferred thirdparty scandinavian equipment distributor october 2005 included transfer certain employees assets lease supplier contracts recorded severance costs asset writedowns facility closure costs approximately 04 million 01 million 01 million respectively related closures 2005 fourth quarter 2005 completed sale property plant equipment associated sales offices united kingdom norway recorded gain approximately 02 million reflected within “restructuring infrequent expenses” within consolidated statements operations december 31 2005 10 24 employees terminated rationalizations completed improve ongoing cost structure sga expenses rationalizations fully described note 3 consolidated financial statements valtra finland administrative european parts rationalizations fourth quarter 2004 initiated restructuring certain administrative functions within finnish operations resulting termination approximately 58 employees 2004 recorded severance costs approximately 14 million associated rationalization recorded additional 01 million severance costs first quarter 2005 associated rationalization fourth quarter 2005 reversed 01 million previously established provisions related severance costs severance claims finalized quarter december 31 2005 56 58 employees terminated addition 2005 incurred expensed approximately 03 million contract termination costs associated rationalization valtra european parts distribution operations rationalizations completed improve ongoing cost structure sga expenses rationalizations fully described note 3 consolidated financial statements randers denmark rationalization july 2004 announced initiated plan restructure european combine manufacturing operations located randers denmark restructuring plan reduce cost complexity randers manufacturing operation simplifying model range eliminating facility’s component manufacturing operations component manufacturing operations ceased february 2005 outsource manufacturing majority parts components suppliers retained critical key assembly operations randers facility retaining facility assembly operations reduced randers workforce 298 employees permanently eliminated 70 square footage utilized plans also included rationalization combine model range assembled randers retaining production high specification high value combines estimate restructuring plan generate annual savings approximately 7 million 8 million 2006 achieved savings 2005 approximately 66 million savings primarily impact cost goods sold total cash restructuring costs approximately 4 million 2004 recorded 82 million writedown property plant equipment well 33 million severance costs employee retention payments facility closure costs also recorded approximately 37 million inventory writedowns 2004 reflected costs goods sold related inventory identified obsolete result restructuring plan 2005 recorded additional 08 million restructuring costs related rationalization primarily related employee retention payments facility closure costs second quarter 2005 completed auctions remaining machinery equipment recorded gain approximately 15 million associated actions gain reflected “restructuring infrequent expenses” within consolidated statements operations december 31 2005 298 employees terminated components restructuring expenses incurred 2004 2005 summarized note 3 consolidated financial statements coventry rationalization 2002 announced initiated restructuring plan related closure tractor manufacturing facility coventry england relocation existing production coventry beauvais france canoas brazil manufacturing facilities resulting termination 1049 employees closure facility consistent strategy reduce excess manufacturing capacity 2003 completed transfer production beauvais facility although experienced cost inefficiencies production delays primarily due supplier delivery issues largely corrected 2004 estimate reduced manufacturing overhead costs result coventry rationalization project approximately 20 million adjusted changes production volume year approximately 120 million restructuring infrequent expenses recorded associated rationalization 2003 primarily related employee retention payments 2004 recorded gain 69 million sale coventry england facility well gains totaling approximately 23 million related sale machinery equipment coventry facility certain coventry closure reserve reductions 2004 also recorded 41 million reversal previously established provision related pension plan united kingdom components restructuring expenses incurred related coventry rationalization summarized note 3 consolidated financial statements october 2002 applied high court london england clarification provision uk pension plan governs value pension payments payable employee 50 years old retires service certain circumstances prior normal retirement date primary matter high court whether pension payments employees including take early retirement terminated due closure coventry facility reduced compensate fact pension payments begin prior normal retirement age 65 july 2003 uk court appeal ruled employees terminated result closure coventry facility qualify full pensions ruled employees might qualify result ruling case certain employees took early retirement prior years voluntary retirement arrangements would entitled additional payments therefore recorded charge second quarter 2003 included “restructuring infrequent expenses” approximately £75 million approximately 124 million reflect estimate additional pension liability associated previous early retirement programs subsequently full details court appeal judgment published received detailed legal advice regarding specific circumstances past voluntary retirements would subject court’s ruling based advice completed detailed review past terminations fourth quarter 2004 concluded number former employees considered eligible receive enhanced pensions court’s ruling lower initial estimate therefore recorded reversal established provision approximately £25 million approximately 41 million fourth quarter 2004 included “restructuring infrequent expenses” consolidated statements operations dekalb rationalization march 2003 announced closure challenger track tractor facility located dekalb illinois relocation production facility jackson minnesota production dekalb facility ceased may 2003 relocated resumed minnesota facility june 2003 dekalb plant assembled challenger track tractors range 235 500 horsepower review cost reduction alternatives determined current future production levels time sufficient support standalone track tractor site connection restructuring plan recorded approximately 25 million restructuring infrequent expenses 2003 included termination approximately 135 employees estimate reduced costs approximately 80 million result closure sold dekalb facility real estate fourth quarter 2004 approximately 30 million associated selling costs recorded net loss sale facilities approximately 01 million loss reflected “restructuring infrequent expenses” consolidated statements operations components restructuring expenses incurred 2003 fully described note 3 consolidated financial statements 2002 2003 2004 functional rationalizations addition 2002 2004 initiated several rationalization plans recorded restructuring infrequent expenses aggregate totaled approximately 50 million 2002 2003 2004 expenses primarily related severance costs certain lease termination exit costs associated rationalization european engineering marketing personnel rationalization certain components german manufacturing facilities located kempten marktoberdorf germany rationalization european combine engineering operations closure consolidation valtra united states canadian sales organizations rationalizations completed improve ongoing cost structure reduce cost goods sold well engineering sga expenses discussed fully note 3 consolidated financial statements critical accounting policies prepare consolidated financial statements conformity us generally accepted accounting principles preparation financial statements make judgments estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period significant accounting policies followed preparation financial statements detailed note 1 notes consolidated financial statements believe application policies discussed involves significant levels judgments estimates complexity allowance doubtful accounts determine allowance doubtful accounts actively monitoring financial condition customers determine potential nonpayment trade receivables determining allowance doubtful accounts also consider economic factors aging trends believe process specific review customers combined overall analytical review provides effective evaluation ultimate collectibility trade receivables loss experience approximately 01 net sales 2005 discount sales incentive allowances discounts sales incentives made time sale based retail sales incentive programs available dealer retail customer cost programs depends various factors including timing retail sale programs place time retail sales incentives may also revised time record sale time retail sale occurs monitor factors revise provisions necessary december 31 2005 recorded allowance discounts sales incentives approximately 908 million allow additional 1 sales incentives discounts time retail sale reserve would increase approximately 68 million december 31 2005 conversely decrease sales incentives discounts 1 time retail sale reserve would decrease approximately 68 million december 31 2005 inventory reserves inventories valued lower cost market determination cost includes estimates surplus obsolete inventory based estimates future sales production changes demand product design impact estimates periodically evaluate update assumptions assessing adequacy inventory adjustments deferred income taxes establish valuation allowances deferred tax assets estimate likely tax assets realized base estimates projections future income including taxplanning strategies certain tax jurisdictions changes industry conditions competitive environment may impact accuracy projections sfas 109 requires establishment valuation allowance likely portion deferred tax assets realized accordance sfas 109 periodically assess likelihood deferred tax assets recovered estimated future taxable income available tax planning strategies determine adjustments valuation allowance appropriate result assessments certain tax jurisdictions benefit losses benefited losses generated united states 2003 2004 2005 respect losses incurred denmark 2004 fourth quarter 2005 recognized noncash deferred income tax charge 908 million related increasing valuation allowance united states deferred tax assets accordance sfas 109 assessed likelihood united states deferred tax assets would recovered future taxable income determined adjustment valuation allowance appropriate december 31 2005 2004 gross deferred tax assets 4298 million 4308 million respectively including 1929 million 1882 million respectively related net operating loss carryforwards december 31 2005 2004 recorded total valuation allowances offset gross deferred tax assets 2528 million 1429 million respectively primarily related net operating loss carryforwards argentina brazil denmark united states realization remaining deferred tax assets december 31 2005 depends generating sufficient taxable income future periods net reversing deferred tax liabilities believe likely remaining net deferred tax assets realized warranty additional service actions make provisions estimated expenses related product warranties time products sold base estimates historical experience nature frequency average cost warranty claims addition number magnitude additional service actions expected approved policies related additional service actions taken consideration due uncertainty potential volatility estimated factors changes assumptions could materially affect net income estimate warranty obligations reevaluated quarterly basis experience shown initial data product series line volatile therefore process relies upon longterm historical averages sufficient data available actual experience becomes available used modify historical averages ensure forecast within range likely outcomes resulting balances compared present spending rates ensure accruals adequate meet expected future obligations see note 1 consolidated financial statements information regarding costs assumptions warranties insurance reserves provide insurance reserves estimates losses due claims worker’s compensation product liability liabilities selfinsured base estimates ultimate settlement amount claims often long periods resolution closely monitor claims maintain adequate reserves pensions defined benefit pension plans covering certain employees principally united states united kingdom germany finland norway france australia argentina see note 8 consolidated financial statements information regarding costs assumptions employee retirement benefits nature estimates required measurement pension obligations costs liabilities dependent variety assumptions used actuaries provided management assumptions include estimates present value projected future pension payments plan participants taking consideration likelihood potential future events salary increases demographic experience assumptions may effect amount timing future contributions assumptions approach used assumptions used developing required estimates include following key factors • discount rates • inflation • salary growth • expected return plan assets • retirement rates • mortality rates base discount rate used determine projected benefit obligation us pension plans moody’s investor service aa bond yield december 31 year nonus plans base discount rate comparable indices within countries 15year iboxx aa corporate bond yield united kingdom indices used united states united kingdom countries chosen match expected plan obligations related expected cash flows measurement date respect uk pension plan september 30 year inflation assumption based evaluation external market indicators salary growth assumptions reflect longterm actual experience nearterm outlook assumed inflation expected return plan assets assumptions reflects asset allocations investment strategy historical experience views investment managers retirement mortality rates based primarily actual plan experience effects actual results differing assumptions accumulated amortized future periods therefore generally affect recognized expense periods us uk pension plans represent approximately 92 consolidated projected benefit obligation december 31 2005 discount rate used determine 2005 projected benefit obligation us plans decreased 25 basis points projected benefit obligation would increased approximately 14 million december 31 2005 2006 pension expense would increase nominal amount discount rate used determine 2005 projected benefit obligation us plans increased 25 basis points projected benefit obligation would decreased approximately 13 million 2006 pension expense would decrease nominal amount discount rate used determine projected benefit obligation uk plan decreased 25 basis points projected benefit obligation would increased approximately 265 million december 31 2005 2006 pension expense would increase approximately 21 million discount rate used determine projected benefit obligation uk plan increased 25 basis points projected benefit obligation would decreased approximately 245 million december 31 2005 2006 pension expense would decrease approximately 19 million unrecognized actuarial losses related pension plans 2513 million december 31 2005 compared 2443 million december 31 2004 increase unrecognized losses years primarily reflects declining discount rates worldwide partially offset gains result better expected asset returns favorable currency translation unrecognized actuarial losses impacted future periods actual asset returns discount rate changes currency exchange rate fluctuations actual demographic experience certain factors losses amortized straightline basis average remaining service period active employees expected receive benefits defined benefit pension plans population covered predominantly inactive participants losses related plans amortized average remaining lifetimes participants covered respective plan december 31 2005 average amortization period 16 years us pension plans 11 years nonus pension plans expect amortization net actuarial losses increase approximately 16 million 2006 compared 2005 primarily due decrease discount rates weighted average asset allocation us pension benefit plans december 31 2005 2004 follows weighted average asset allocation nonus pension benefit plans december 31 2005 2004 follows taxqualified pension fund investments united states held agco corporation master pension trust global pension fund strategy diversify investments across broad categories equity fixed income securities appropriate use alternative investment categories minimize risk volatility us target allocation retirement fund investments 50 large cap domestic equity securities 10 international equity securities 25 domestic fixed income securities 15 invested investments noted long periods mix investments would achieve average return excess 9 arriving choice expected return assumption 8 usbased plans tempered historical indicator lower expectations returns equity investments future well considered administrative costs plans date invested pension funds stock intention future nonus target allocation retirement fund investments 50 equity securities 35 fixed income securities 15 percent invested investments majority nonus pension fund investments related pension plan united kingdom noted long periods target mix investments would achieve average return excess 73 arriving choice expected return assumption 7 uk pension plan tempered historical indicator slightly lower expectation future returns equity investments december 31 2005 approximately 2484 million unfunded underfunded obligations related pension plans due primarily pension plans united states united kingdom 2005 contributed approximately 273 million towards obligations expect fund least approximately 220 million 2006 future funding dependent upon compliance local laws regulations changes laws regulations future well generation operating cash flows future currently agreement place trustees uk defined benefit plan obligates us fund approximately £100 £120 million per year approximately 170 210 million towards obligation next 13 years funding arrangement based upon current underfunded status could change future discount rates local laws regulations factors change postretirement benefits retiree health care life insurance provide certain postretirement health care life insurance benefits certain employees principally united states see note 8 consolidated financial statements information regarding costs assumptions postretirement benefits nature estimates required measurement obligations costs liabilities associated postretirement benefits retiree health care life insurance requires make use estimates present value projected future payments participants taking consideration likelihood potential future events health care cost increases salary increases demographic experience may effect amount timing future payments assumptions approach used assumptions used developing required estimates include following key factors • health care cost trends • inflation • discount rates • expected return plan assets • salary growth • mortality rates • retirement rates health care cost trend assumptions developed based historical cost data nearterm outlook efficiencies costmitigating actions including employee cost sharing administrative improvements efficiencies assessment likely longterm trends base discount rate used determine projected benefit obligation us postretirement benefit plans moody’s investor service aa bond yield december 31 year index used chosen match expected plan obligations related expected cash flows inflation assumption based evaluation external market indicators salary growth assumptions reflect longterm actual experience nearterm outlook assumed inflation retirement mortality rates based primarily actual plan experience effects actual results differing assumptions accumulated amortized future periods therefore generally affect recognized expense future periods discount rate used determine 2005 projected benefit obligation us postretirement benefit plans decreased 25 basis points projected benefit obligation would increased approximately 09 million december 31 2005 2006 postretirement benefit expense would increase nominal amount discount rate used determine 2005 projected benefit obligation us postretirement benefit plans increased 25 basis points projected benefit obligation would decreased approximately 09 million 2006 pension expense would decrease nominal amount unrecognized actuarial losses related us postretirement benefit plans 101 million december 31 2005 compared 191 million december 31 2004 decrease losses primarily reflects impact federal medicare subsidy medicare modernization act 2003 well changes made retiree welfare programs 2004 2005 partially offset reduction discount rate unrecognized actuarial losses impacted future periods discount rate changes actual demographic experience actual health care inflation certain factors losses amortized straightline basis average remaining service period active employees expected receive benefits average remaining lifetime inactive participants covered postretirement benefit plans december 31 2005 average amortization period 12 years us postretirement benefit plans expect amortization net actuarial losses decrease approximately 05 million 2006 compared 2005 primarily due federal subsidy benefits changes made postretirement programs measuring expected postretirement benefit obligation december 31 2005 9 health care cost trend rate assumed 2006 decreasing 10 per year 50 remaining level thereafter changing assumed health care cost trend rates one percentage point year holding assumptions constant would following effect service interest cost 2005 accumulated postretirement benefit obligation december 31 2005 millions litigation party various claims lawsuits arising normal course business closely monitor claims lawsuits frequently consult legal counsel determine whether may resolved material adverse effect financial position results operations goodwill indefinitelived assets sfas 142 “goodwill intangible assets” “sfas 142” establishes method testing goodwill indefinitelived intangible assets impairment annual basis interim basis event occurs circumstances change would reduce fair value reporting unit carrying value initial assessment annual assessments involve determining estimate fair value reporting units order evaluate whether impairment current carrying amount goodwill indefinitelived intangible assets exists fair values derived based evaluation past expected future performance reporting units reporting unit operating segment one level operating segment eg component operating segment reporting unit component constitutes business discrete financial information available executive management team regularly reviews operating results component addition combine aggregate two components operating segment single reporting unit components similar economic characteristics reportable segments reported guidance sfas 131 “disclosures segments enterprise related information” reporting units exception asia pacific geographical segment utilized combination valuation techniques including discounted cash flow approach market multiple approach comparable transaction approach making initial subsequent annual interim assessments stated goodwill tested impairment annual basis often indications impairment exist results analyses conducted october 1 2005 2004 2003 indicated reduction carrying amount goodwill required due level judgment complexity period time many items resolved actual results could differ estimated time preparation financial statements adjustments estimates would impact financial position future results operations liquidity capital resources financing requirements subject variations due seasonal changes inventory receivable levels internally generated funds supplemented necessary external sources primarily revolving credit facility accounts receivable securitization facilities current financing funding sources balances outstanding december 31 2005 2013 million principal amount 134 convertible senior subordinated notes due 2033 2000 million approximately 2370 million principal amount 678 senior subordinated notes due 2014 approximately 4803 million accounts receivable securitization facilities 3000 million multicurrency revolving credit facility 2725 million term loan facility 1089 million approximately 1290 million term loan facility december 23 2003 sold 2013 million 134 convertible senior subordinated notes due 2033 private placement offering notes unsecured obligations convertible shares common stock upon satisfaction certain conditions discussed interest payable notes 134 per annum payable semiannually arrears cash june 30 december 31 year notes convertible shares common stock effective price 2236 per share subject adjustment june 29 2005 exchanged notes new notes provide settlement upon conversion cash principal amount converted new notes excess conversion value settled shares common stock ii conversion rate increased certain circumstances new notes converted connection certain change control transactions occurring prior december 10 2010 otherwise substantially old notes holders may convert notes following circumstances 1 fiscal quarter closing sales price common stock exceeds 120 conversion price least 20 trading days 30 consecutive trading days ending last trading day preceding fiscal quarter 2 five business day period five consecutive trading day period trading price per note day period less 98 product closing sale price common stock conversion rate 3 notes called redemption 4 upon occurrence certain corporate transactions beginning january 1 2011 may redeem notes redemption price 100 principal amount plus accrued interest holders notes may require us repurchase notes repurchase price 100 principal amount plus accrued interest december 31 2010 2013 2018 2023 2028 impact exchange completed june 2005 discussed reduce diluted weighted average shares outstanding future periods initial reduction diluted shares approximately 90 million shares vary future based stock price market price trigger specified conversion circumstances met although currently place financial facility pay cash amount due upon maturity conversion new notes financial position currently sufficiently strong enough would expect ready access bank loan facility broader debt equity markets extent needed typically convertible securities converted prior expiration unless called redemption would sufficient funds available us result expect new notes converted foreseeable future january 5 2004 entered new credit facility provides 3000 million multicurrency revolving credit facility 3000 million united states dollar denominated term loan 1200 million euro denominated term loan maturity date revolving credit facility automatically extended march 2008 december 2008 due redemption 912 senior notes june 23 2005 required prepay approximately 223 million united states dollar denominated term loan 90 million euro denominated term loan result excess proceeds received common stock public offering april 2004 required make quarterly payments towards united states dollar denominated term loan euro denominated term loan 075 million 03 million respectively amortization one percent per annum maturity date term loan maturity date term loans automatically extended march 2008 june 2009 due redemption 912 senior notes june 23 2005 revolving credit term loan facilities secured majority us canadian finnish uk based assets pledge portion stock domestic material foreign subsidiaries interest accrues amounts outstanding revolving credit facility option either 1 libor plus margin ranging 150 225 based upon senior debt ratio 2 higher administrative agent’s base lending rate onehalf one percent federal funds rate plus margin ranging 025 10 based senior debt ratio interest accrues amounts outstanding term loans libor plus 175 credit facility contains covenants restricting among things incurrence indebtedness making certain payments including dividends also must fulfill financial covenants including among others total debt ebitda ratio senior debt ebitda ratio fixed charge coverage ratio defined facility december 31 2005 total borrowings 4015 million credit facility included 2725 million united states dollar denominated term loan facility 1089 million approximately 1290 million euro denominated term loan facility december 31 2005 availability borrow 2929 million revolving credit facility december 31 2004 total borrowings 4247 million credit facility included 2755 million united states dollar denominated term loan facility 1101 million approximately 1492 million euro denominated term loan facility december 31 2004 availability borrow 2912 million revolving credit facility march 22 2005 amended term loan agreements among reasons lower borrowing rate 25 basis points libor plus 200 libor plus 175 april 7 2004 sold 14720000 shares common stock underwritten public offering received net proceeds approximately 3001 million used net proceeds repay 1000 million interim bridge loan facility used part acquire valtra repay borrowings credit facility pay offering related fees expenses april 23 2004 sold 2000 million 678 senior subordinated notes due 2014 received proceeds approximately 2340 million offering related fees expenses 678 senior subordinated notes unsecured obligations subordinated right payment existing future senior indebtedness interest payable notes semiannually april 15 october 15 year beginning october 15 2004 beginning april 15 2009 may redeem notes whole part initially 103438 principal amount plus accrued interest declining 100 principal amount plus accrued interest time april 15 2012 addition april 15 2009 may redeem notes whole part redemption price equal 100 principal amount plus accrued interest makewhole premium april 15 2007 also may redeem 35 notes 106875 principal amount using proceeds sales certain kinds capital stock notes include covenants restricting incurrence indebtedness making certain restricted payments including dividends used net proceeds received issuance 678 senior subordinated notes well available cash redeem 2500 million principal amount 812 senior subordinated notes may 24 2004 redeemed 250 million 912 senior notes june 23 2005 price approximately 2619 million represented premium 475 senior notes face amount premium approximately 119 million reflected interest expense net second quarter 2005 connection redemption also wrote remaining balance deferred debt issuance costs approximately 22 million funding sources redemption combination cash generated transfer wholesale interestbearing receivables united states canadian retail finance joint ventures agco finance llc agco finance canada ltd discussed revolving credit facility borrowings available cash hand securitization facilities sell accounts receivable united states canada europe revolving basis commercial paper conduits either direct basis whollyowned special purpose entity united states canadian securitization facilities expire april 2009 european facility expires june 2006 subject annual renewal december 31 2005 aggregate amount facilities 4803 million outstanding funded balance 4627 million december 31 2005 effect reducing accounts receivable shortterm liabilities amount risk loss securitization facilities limited portion unfunded balance receivables sold approximately 15 funded amount maintain reserves doubtful accounts associated risk facilities terminated would required repurchase previously sold receivables would prevented selling additional receivables commercial paper conduit european facility agreement provides agent rabobank right terminate securitization facilities senior unsecured debt rating moves b standard poor’s b1 moody’s investor services based current ratings downgrade two levels standard poor’s two levels moody’s would need occur currently discussions conduit purchaser eliminate requirement maintain certain debt rating levels standard poor’s moody’s investors service agreement extend european facility june 2011 facilities allow us sell accounts receivables financing conduits obtain funding commercial paper markets future funding securitization facilities depends upon adequacy receivables sufficient demand underlying commercial paper maintenance certain covenants concerning quality receivables financial condition event commercial paper demand adequate securitization facilities provide liquidity backing various financial institutions including rabobank liquidity commitments would provide us interim funding allow us find alternative sources working capital financing necessary may 2005 completed agreement permit transferring ongoing basis majority wholesale interestbearing receivables north america united states canadian retail finance joint ventures agco finance llc agco finance canada ltd 49 ownership interest joint ventures transfer wholesale interestbearing receivables without recourse agco continue service receivables initial transfer wholesale interestbearing receivables resulted net proceeds approximately 94 million used redeem 250 million 912 senior notes december 31 2005 balance interestbearing receivables transferred agco finance llc agco finance canada ltd agreement approximately 1099 million business subject substantial cyclical variations generally difficult forecast results operations may also vary time resulting costs associated rationalization plans acquisitions result request relief lenders occasion respect financial covenant compliance currently anticipate asking relief possible would require relief future based upon historical working relationship lenders currently anticipate difficulty obtaining relief cash flow provided operating activities 2463 million 2005 compared 2659 million 2004 operating cash flows 2005 reflects approximately 1099 million interestbearing receivables transferred agco finance llc agco finance canada ltd retail finance joint ventures north america discussed excluding impact operating cash flows 2005 lower 2004 due lower net income increases working capital working capital requirements seasonal investments working capital typically building first half year reducing second half year 8258 million working capital december 31 2005 compared 10455 million december 31 2004 accounts receivable inventories combined december 31 2005 1744 million lower december 31 2004 production levels significantly lower prior year fourth quarter 2005 result initiative reduce inventory levels end year addition cash hand december 31 2005 lower compared december 31 2004 cash used fund inventory needs well repayment 250 million 912 senior notes discussed production levels 2006 expected 3 4 2005 reflect decline industry demand inventory reduction goals timing production reduced first half 2006 expected reduce seasonal increase working capital 2006 capital expenditures 2005 884 million compared 784 million 2004 capital expenditures 2005 used support development enhancement new existing products well expand engine manufacturing facility february 2005 made 213 million investment retail finance joint venture rabobank brazil fully described “ related parties” debt capitalization ratio total longterm debt divided sum total longterm debt stockholders’ equity 375 december 31 2005 compared 449 december 31 2004 decrease due lower debt levels 2005 primarily due redemption 250 million 912 senior notes june 2005 time review continue review acquisition joint venture opportunities well changes capital markets consummate significant acquisition elect take advantage favorable opportunities capital markets may supplement availability revise terms credit facilities complete public private offerings equity debt securities believe available borrowings revolving credit facility funding accounts receivable securitization facilities available cash internally generated funds sufficient support working capital expenditures debt service requirements foreseeable future contractual obligations future payments required significant contractual obligations excluding foreign currency forward contracts december 31 2005 follows millions 1 estimated interest payments calculated assuming current interest rates minimum maturity periods specified debt agreements debt may repaid sooner later minimum maturity periods 2 unconditional purchase obligations exclude routine purchase orders entered normal course business result rationalization european combine manufacturing operations 2004 entered agreement thirdparty manufacturer produce certain combine model ranges fiveyear period agreement provides purchase minimum quantity 200 combines per year cost approximately 162 million per year approximately 192 million may 2009 3 shortterm longterm obligations include estimates future minimum contribution requirements us nonus defined benefit pension postretirement plans estimates based current legislation countries operate within subject change offbalance sheet arrangements guarantees december 31 2005 obligated certain circumstances purchase year 2010 113 million equipment upon expiration certain operating leases agco finance llc agco finance canada ltd retail finance joint ventures north america end users also maintain remarketing agreement joint ventures whereby obligated repurchase repossessed inventory market values agreement agco finance llc limits purchase obligations arrangement 60 million aggregate per calendar year believe losses might incurred resale equipment materially impact financial position results operations time sell certain trade receivables factoring arrangements financial institutions throughout world evaluate sale receivables pursuant guidelines sfas 140 “accounting transfers servicing financial assets extinguishments liabilities replacement fasb statement 125” determined facilities accounted offbalance sheet transactions accordance sfas 140 december 31 2005 guaranteed indebtedness owed third parties approximately 825 million primarily related dealer enduser financing equipment believe credit risk associated guarantees material financial position december 31 2005 foreign currency forward contracts buy aggregate approximately 785 million united states dollar equivalents foreign currency forward contracts sell aggregate approximately 1000 million united states dollar equivalents contracts maturity less one year see “ foreign currency risk management” additional information contingencies october 2004 notified customer claim costs damages arising alleged breaches supply agreement customer’s initial evaluation indicated claim approximately 105 million approximately 125 million settled matter customer december 2005 approximately 16 million result recent brazilian tax legislative changes impacting value added taxes “vat” recorded reserve approximately 214 million outstanding balance brazilian vat taxes receivable december 31 2005 due uncertainty ability collect amounts outstanding related parties rabobank aaa rated financial institution based netherlands 51 owner retail finance joint ventures located united states canada brazil germany france united kingdom australia ireland rabobank also principal agent participant revolving credit facility securitization facilities majority assets retail finance joint ventures represent finance receivables majority liabilities represent notes payable accrued interest various joint venture agreements rabobank affiliates obligated provide financing joint venture companies primarily lines credit guarantee debt obligations retail finance joint ventures portion retail portfolio brazil held outside joint venture rabobank brazil prior 2005 joint venture brazil agency relationship rabobank whereby rabobank provided funding february 2005 made 213 million investment retail finance joint venture rabobank brazil additional investment joint venture’s organizational structure comparable retail finance joint ventures result gradual elimination solvency guarantee rabobank portfolio originally funded rabobank brazil december 31 2005 solvency requirement portfolio held rabobank approximately 86 million retail finance joint ventures provide retail financing wholesale financing dealers terms financing arrangements offered dealers similar arrangements provide unaffiliated third parties discussed previously december 31 2005 obligated certain circumstances purchase year 2010 113 million equipment upon expiration certain operating leases agco finance llc agco finance canada ltd retail joint ventures north america end users also maintain remarketing agreement joint ventures discussed “offbalance sheet arrangements” addition part sales incentives provided end users may time subsidize interest rates retail financing provided retail joint ventures cost programs recognized time sale dealers 2005 2004 net sales approximately 1538 million 1628 million respectively baywa corporation german distributor ordinary course business president ceo baywa corporation member board directors 2005 made license fee payments purchased raw materials including engines totaling approximately 1845 million caterpillar inc ordinary course business one group presidents caterpillar inc also member board directors 2005 2004 purchased approximately 44 million 24 million respectively equipment components manufacturing joint venture deutz agco motores sa prices approximating cost outlook operations subject cyclical nature agricultural industry sales equipment expected continue affected changes net cash farm income farm land values weather conditions demand agricultural commodities farm industry related legislation general economic conditions worldwide industry conditions retail sales agricultural equipment expected modestly 2005 levels north america record farm income previous two years support demand relatively high levels 2006 however higher fuel fertilizer input costs lower crop prices expected negatively impact farm income equipment demand compared 2005 europe equipment demand expected continue decline 2006 resulting lower commodity prices higher input costs concerns subsidy reforms south america equipment demand expected remain low levels due impact strong brazilian real high farm debt levels drought conditions argentina based market outlook net sales full year 2006 expected slightly 2005 resulting lower industry demand planned dealer inventory reductions currency translation partially offset pricing increases market share improvements operating margins targeted improve 2006 due achievement cost reduction productivity initiatives 2006 results also impacted lower interest costs due lower debt levels also targeting improvements working capital utilization 2006 lowering seasonal increases dealer company inventories throughout 2006 leveling production dealer deliveries compared 2005 foreign currency risk management significant manufacturing operations france germany brazil finland denmark purchase portion tractors combines components thirdparty foreign suppliers primarily various european countries japan also sell products 140 countries throughout world majority net sales outside united states denominated currency customer location exception sales middle east africa asia parts south america net sales primarily denominated british pounds euros united states dollars see note 15 consolidated financial statements net sales customer location significant transactional foreign currency exposures euro brazilian real canadian dollar relation united states dollar fluctuations value foreign currencies create exposures adversely affect results operations attempt manage transactional foreign exchange exposure economically hedging foreign currency cash flow forecasts commitments arising settlement receivables payables future purchases sales naturally offsetting currency positions occur hedge certain exposures use foreign currency forward contracts hedging policy prohibits foreign currency forward contracts speculative trading purposes translation exposure resulting translating financial statements foreign subsidiaries united states dollars hedged significant translation exposures euro british pound brazilian real relation united states dollar practical translation impact reduced financing local operations local borrowings derivatives recognized consolidated balance sheets fair value date derivative contract entered designate derivative either 1 fair value hedge recognized liability 2 cash flow hedge forecasted transaction 3 hedge net investment foreign operation 4 nondesignated derivative instrument engaged past currently engage derivatives nondesignated derivative instruments changes fair value nondesignated derivative contracts reported current earnings following summary foreign currency forward contracts used hedge currency exposures contracts maturity less one year net notional amounts fair value gains losses december 31 2005 stated united states dollars follows millions except average contract rate per united states dollar contracts entered hedging purposes gains losses contracts would largely offset gains losses underlying firm commitment interest rates manage interest rate risk use fixed rate debt may future utilize interest rate swap contracts fixed rate debt senior subordinated notes convertible senior subordinated notes floating rate exposure related revolving credit facility securitization facilities tied changes united states european libor rates assuming 100 increase interest rates interest expense net cost securitization facilities year ended december 31 2005 would increased approximately 50 million interest rate swap contracts outstanding years ended december 31 2005 2004 2003 accounting changes june 2005 financial accounting standards board fasb issued sfas 154 “accounting changes error corrections replacement apb opinion 20 accounting changes statement 3 reporting accounting changes interim financial statements” “sfas 154” sfas 154 changes requirements accounting reporting change accounting principle previously voluntary changes accounting principles required recognized way cumulative effect adjustment within net income period change sfas 154 requires retrospective application prior periods’ financial statements unless impracticable determine either periodspecific effects cumulative effect change sfas 154 effective accounting changes made fiscal years beginning december 15 2005 however statement change transition provisions existing accounting pronouncements believe adoption sfas 154 material effect consolidated results operations financial position april 2005 sec adopted new rule changes adoption dates sfas 123r revised 2004 “sharebased payment” “sfas 123r” revision sfas 123 sec’s new rule allows companies implement sfas 123r beginning next fiscal year instead next reporting period begins june 15 2005 rule change accounting required sfas 123r changes dates compliance standard adopted sfas 123r using modified prospective method effective january 1 2006 terminated executive director longterm incentive plans end 2005 outstanding awards plans forfeited decision terminate plans related forfeitures made primarily avoid recognizing compensation cost future financial statements upon adoption sfas 123r awards establish new longterm incentive program plan grant awards new longterm incentive program 2006 subject approval stockholders annual stockholders’ meeting april 2006 approved currently estimate application expensing provisions sfas 123r result pretax expense 2006 approximately 7 8 million march 2005 fasb issued fasb interpretation “fin” 47 “accounting conditional asset retirement obligations interpretation fasb statement 143” “fin 47” result consistent recognition liabilities relating asset retirement obligations b information expected future cash outflows associated obligations c information investments longlived assets additional asset retirement costs recognized part carrying amounts assets fin 47 clarifies term conditional asset retirement obligation used sfas 143 “accounting asset retirement obligations” refers legal obligation perform asset retirement activity timing method settlement conditional future event may within control entity obligation perform asset retirement activity unconditional even though uncertainty exists timing method settlement uncertainty timing method settlement conditional asset retirement obligation factored measurement liability sufficient information exists fin 47 also clarifies entity would sufficient information reasonably estimate fair value asset retirement obligation fin 47 effective later end fiscal years ending december 15 2005 adoption fin 47 december 31 2005 material impact consolidated results operations financial position november 2004 fasb issued sfas 151 “inventory costsan amendment arb 43 chapter 4” “sfas 151” sfas 151 amends guidance accounting research bulletin 43 chapter 4 “inventory pricing” “arb 43” clarify accounting abnormal amounts idle facility expense freight handling costs wasted material spoilage among provisions new rule requires items idle facility expense excessive spoilage double freight rehandling costs recognized currentperiod charges regardless whether meet criterion “so abnormal” stated arb 43 additionally sfas 151 requires allocation fixed production overheads costs conversion based normal capacity production facilities sfas 151 effective fiscal years beginning june 15 2005 required adopted first quarter 2006 believe adoption sfas 151 material impact consolidated results operations financial condition october 22 2004 american jobs creation act 2004 “ajca” enacted ajca provides deduction income qualified domestic production activities phased 2005 2010 ajca also provides twoyear phase existing extraterritorial income exclusion “eti” foreign sales viewed inconsistent international trade protocols european union guidance fasb staff position 1091 “application fasb statement 109 ’accounting income taxes ’ tax deduction qualified production activities provided american jobs creation act 2004” deduction treated “special deduction” described sfas 109 “accounting income taxes” special deduction effect deferred tax assets liabilities existing enactment date december 2004 fasb issued staff position 1092 “accounting disclosure guidance foreign earnings repatriation provision within american jobs creation act 2004” ajca provides multinational companies election deduct taxable income 85 eligible dividends repatriated foreign subsidiaries ajca generally allows companies take advantage special deduction november 2004 end calendar year 2005 propose qualifying plan repatriation 2005 2004 may 19 2004 fasb issued fasb staff position 1062 “accounting disclosure requirements related medicare prescription drug improvement modernization act 2003” “fsp 1062” fsp 1062 relates medicare prescription drug improvement modernization act 2003 “act” signed law december 8 2003 act introduced prescription drug benefit medicare well federal subsidy sponsors retiree health care benefit plans provide benefit least actuarially equivalent medicare based upon final regulations released january 2005 third quarter 2005 reviewed provisions postretirement health care plans actuaries determine whether benefits offered plans met statutory definition “actuarially equivalent” prescription drug benefits qualify federal subsidy based upon review believe two plans qualify subsidy accordance fsp 1062 began reflecting impact anticipated subsidies july 1 2005 prospective basis revalued projected benefit obligation july 1 2005 1 incorporate benefit associated federal subsidy expected received 2 reduce discount rate 575 december 31 2004 525 july 1 2005 revised obligation july 1 2005 reflects reduction approximately 50 million due impact federal subsidy offset increase approximately 18 million due change discount rate last six months 2005 net postretirement cost reduced approximately 03 million due impact expected federal subsidy reduction evenly split reduced interest cost lower amortization net actuarial losses see note 8 consolidated financial statements information item 7aitem 7 management’s discussion analysis financial condition results operations leading manufacturer distributor agricultural equipment related replacement parts throughout world sell full range agricultural equipment including tractors combines hay tools sprayers forage equipment implements line diesel engines products widely recognized agricultural equipment industry marketed number wellknown brand names including agco® challenger® fendt® gleaner® hesston® massey ferguson® new idea® rogator® spracoupe® sunflower® terragator® valtra® whitetm planters distribute products combination approximately 3200 independent dealers distributors associates licensees addition provide retail financing united states canada brazil germany france united kingdom australia ireland austria finance joint ventures rabobank results operations sell equipment replacement parts independent dealers distributors customers large majority sales independent dealers distributors sell products end user extent practicable attempt sell products dealers distributors level basis throughout year reduce effect seasonal demands manufacturing operations minimize investment inventory however retail sales dealers farmers highly seasonal linked planting harvesting seasons certain markets particularly north america often time lag varies based timing level retail demand sale equipment dealer’s sale retail customer following table sets forth periods indicated percentage relationship net sales certain items included consolidated statements operations compared 2005 net loss 2006 649 million 071 per diluted share compared net income 2005 316 million 035 per diluted share results 2006 include following items • noncash goodwill impairment charge 1714 million 181 per share related sprayer business accordance provisions statement financial accounting standards “sfas” 142 “goodwill intangible assets” “sfas 142” • restructuring infrequent expenses 10 million 001 per share primarily related rationalization certain parts sales marketing administrative functions united kingdom germany well rationalization certain valtra european sales offices results 2005 included following items • noncash deferred income tax charge 908 million 095 per share related increasing valuation allowance united states deferred tax assets accordance sfas 109 “accounting income taxes” “sfas 109” • redemption 250 million 912 senior notes due 2008 price approximately 2619 million included premium 475 face amount notes time redemption recorded interest expense premium approximately 119 million 013 per share approximately 22 million 002 per share writeoff remaining balance deferred debt issuance costs • exchange former 134 convertible senior subordinated notes new notes june 2005 resulted reduction diluted weighted average shares outstanding approximately 90 million shares prospective basis net sales 2006 approximately 03 lower 2005 primarily due significant sales declines north america south america asiapacific regions primarily due weak market demand decline partially offset sales growth europeafricamiddle east region particularly europe income operations including restructuring infrequent expenses 1714 million goodwill impairment charge 689 million 2006 compared 2747 million 2005 addition impairment charge decrease income operations due primarily lower operating income north america asiapacific regions result sales declines partially offset improvements europeafricamiddle east south american operations operating margins declined 2006 result reduced production levels sales declines higher engineering expenses negative currency impacts productivity improvements favorable sales mix helped offset portion decline europeafricamiddle east operations income operations improved approximately 369 million 2006 compared 2005 increase result higher sales levels compared 2005 particularly germany united kingdom scandinavia central eastern europe well margin improvements achieved productivity improvements sales mix income operations south american operations increased approximately 74 million 2006 compared 2005 improvement result higher margins north america income operations decreased approximately 549 million 2006 compared 2005 primarily due reduction net sales resulting lower dealer deliveries led reduction dealer inventory levels well weaker market conditions estimate dealer inventory levels north america december 31 2006 declined approximately 14 compared end year 2005 levels income operations asiapacific region decreased approximately 147 million 2006 compared 2005 due lower sales weaker market conditions asia particularly japan new zealand australia retail sales worldwide industry equipment demand declined 2006 largest reductions north america south america well asiapacific region north america industry demand declined particularly higher horsepower equipment segments reduction net farm income caused increase fuel fertilizer input costs contributed decline demand europe industry demand increased slightly compared prior year due growth german uk scandinavian eastern central european markets south america industry demand continued decline 2006 due reduced farm profits resulting dry weather conditions impact strong brazilian currency exports commodities high farmer debt levels demand stabilized latter half year major market brazil primarily due solid growth citrus sugar cane sectors united states canada industry unit retail sales tractors decreased approximately 3 2006 compared 2005 resulting declines compact high horsepower tractor segments offset slight increase utility tractor segment industry unit retail sales combines decreased approximately 6 compared prior year unit retail sales tractors combines north america also decreased compared 2005 levels europe industry unit retail sales tractors increased approximately 3 2006 compared 2005 retail demand improved germany united kingdom scandinavia central eastern europe declined france italy finland unit retail sales tractors higher 2006 compared 2005 south america industry unit retail sales tractors 2006 decreased approximately 1 compared 2005 retail sales tractors major market brazil increased approximately 15 2006 industry unit retail sales combines 2006 37 lower prior year decline brazil approximately 33 compared prior year unit retail sales tractors combines south america also lower 2006 compared 2005 international markets net sales 2006 approximately 16 lower prior year particularly asia middle east australia new zealand statements operations net sales 2006 54350 million compared 54497 million 2005 decrease primarily attributable significant sales declines north america south america asiapacific regions partially offset sales growth europeafricamiddle east region well positive currency translation impacts currency translation positively impacted net sales approximately 1147 million primarily due continued strengthening brazilian real euro following table sets forth periods indicated impact net sales currency translation geographical segment millions except percentages regionally net sales north america decreased 2006 primarily resulting weaker market conditions lower dealer deliveries led reduction dealer inventory levels europeafricamiddle east region net sales increased 2006 primarily due sales growth germany united kingdom scandinavia central eastern europe south america net sales excluding impact currency translation decreased 2006 compared 2005 primarily result weak market conditions region asiapacific region net sales decreased 2006 compared 2005 due decreases industry demand region particularly asia australia new zealand estimate consolidated price increases 2006 contributed approximately 2 offset decrease net sales consolidated net sales tractors combines consisted approximately 71 net sales 2006 relatively flat compared 2005 unit sales tractors combines decreased approximately 5 2006 compared 2005 difference unit sales decrease net sales result foreign currency translation pricing sales mix changes following table sets forth periods indicated percentage relationship net sales certain items included consolidated statements operations gross profit percentage net sales flat 2006 compared 2005 impact lower production levels negative currency impacts offset impact pricing improved productivity new products margins north america affected weak united states dollar products imported european brazilian facilities higher warranty costs unit production tractors combines 2006 approximately 9 lower 2005 productivity improvements achieved purchasing initiatives resourcing components labor efficiencies recorded approximately 01 million stock compensation expense within cost goods sold 2006 associated applying provisions sfas 123r revised 2004 “sharebased payment” “sfas 123r” fully explained note 1 consolidated financial statements selling general administrative “sga” expenses percentage net sales increased 2006 compared 2005 primarily result impact lower sales volumes 2006 recorded approximately 35 million stock compensation expense within sga 2006 associated applying provisions sfas 123r fully explained note 1 consolidated financial statements increase sga expenses primarily result currency translation impacts engineering expenses increased 2006 result increase spending fund product improvements cost reduction projects restructuring infrequent expenses 2006 primarily related severance costs associated rationalization certain parts sales marketing administrative functions united kingdom germany well rationalization certain valtra european sales offices located denmark norway germany united kingdom restructuring infrequent expenses 2005 primarily related rationalization randers denmark combine manufacturing operations second quarter 2005 completed auctions remaining machinery equipment randers facility recorded gain associated actions gain offset restructuring expenses associated randers rationalization consisting primarily employee retention payments facility closure costs also recorded restructuring expenses 2005 associated severance costs retention payments asset writedowns contract termination costs related rationalization finnish tractor manufacturing parts distribution sales operations see “restructuring infrequent expenses” 2006 sales operating income sprayer operations declined significantly compared prior years addition projections sprayer business result valuation sufficient support carrying amount goodwill balance consolidated balance sheet result fourth quarter 2006 recorded noncash goodwill impairment charge 1714 million related sprayer operations accordance provisions sfas 142 interest expense net 552 million 2006 compared 800 million 2005 decrease interest expense net 2006 primarily due redemption 250 million 912 senior notes second quarter 2005 redeemed notes price approximately 2619 million included premium 475 face amount notes premium approximately 119 million writeoff remaining balance deferred debt issuance costs associated senior notes approximately 22 million recognized interest expense net second quarter 2005 december 2006 issued 2013 million 114 convertible senior subordinated notes received proceeds approximately 1964 million related fees expenses used net proceeds received issuance notes well available cash hand repay portion outstanding united states euro denominated term loans recorded interest expense approximately 20 million proportionate writeoff deferred debt issuance costs associated term loan balances repaid see “liquidity capital resources” expense net 329 million 2006 compared 346 million 2005 losses sales receivables primarily securitization facilities 299 million 2006 compared 224 million 2005 increase 2006 primarily due higher interest rates 2006 compared 2005 increase expense net offset foreign exchange gains 2006 versus foreign exchange losses 2005 recorded income tax provision 735 million 2006 compared 1511 million 2005 fourth quarter 2005 recognized noncash deferred income tax charge 908 million related increasing valuation allowance united states deferred tax assets sfas 109 requires establishment valuation allowance likely portion deferred tax assets realized accordance sfas 109 assessed likelihood deferred tax assets would recovered estimated future taxable income available income tax planning strategies 2006 2005 effective tax rate negatively impacted incurring losses tax jurisdictions recorded tax benefit significant impact related losses incurred united states 2006 incurred losses united states primarily due lower operating margins discussed 2005 incurred losses united states due part costs associated second quarter redemption senior notes discussed well lower operating margins discussed december 31 2006 2005 gross deferred tax assets 4725 million 4298 million respectively including 2466 million 1929 million respectively related net operating loss carryforwards december 31 2006 2005 recorded total valuation allowances offset gross deferred tax assets 2914 million 2528 million respectively primarily related net operating loss carryforwards brazil denmark united states realization remaining deferred tax assets december 31 2006 depends generating sufficient taxable income future periods net reversing deferred tax liabilities believe likely remaining net deferred tax assets realized compared 2004 net income 2005 316 million 035 per diluted share compared net income 2004 1588 million 171 per diluted share results 2005 include following items • noncash deferred income tax charge 908 million 095 per share related increasing valuation allowance united states deferred tax assets accordance sfas 109 • redemption 250 million 912 senior notes due 2008 price approximately 2619 million included premium 475 face amount notes time redemption recorded interest expense premium approximately 119 million 013 per share approximately 22 million 002 per share writeoff remaining balance deferred debt issuance costs • exchange former 134 convertible senior subordinated notes new notes june 2005 resulted reduction diluted weighted average shares outstanding approximately 90 million shares prospective basis results 2004 included following item • implementation emerging issues task force “eitf” issue 0408 “accounting issues related certain features contingently convertible debt effect diluted earnings per share” resulted addition approximately 90 million shares weighted average shares outstanding purposes computing diluted net income per share net sales 2005 approximately 3 higher 2004 primarily due sales growth north america europeafricamiddle east regions well positive currency translation impacts growth offset significant sales declines south america due weak market demand income operations including restructuring expenses restricted stock compensation 2747 million 2005 compared 3235 million 2004 decrease income operations primarily due lower operating income south america north america partially offset improvements europeafricamiddle east operations operating margins declined 2005 result reduced margins south america primarily due significant reduction industry demand impact strengthening brazilian real europeafricamiddle east region income operations improved 557 million 2005 compared 2004 increase reflects higher sales outside western europe margin improvements achieved productivity improvements new product introductions expense control measures pricing changes operating income south america decreased 892 million 2005 compared 2004 due sales declines resulting deterioration market conditions operating margins south america declined significantly 2005 resulting lower production levels unfavorable sales mix impact continued strengthening brazilian real sales outside brazil north america operating income decreased 151 million 2005 compared 2004 although higher sales volumes achieved improved market conditions sales performance north america benefits offset reduced margins due higher costs impact weak united states dollar products produced primarily brazil higher warranty costs increased engineering expenses related new product offerings operating income asiapacific region increased 21 million 2005 compared 2004 due higher sales asia retail sales worldwide industry equipment demand declined 2005 largest reductions europe south america north america industry demand remained relatively stable supported solid farm income although drought conditions certain areas united states impacted demand latter part year europe industry demand softened second half 2005 result lower agricultural production mainly due dry weather conditions southern europe well uncertainty related common agricultural policy farm subsidy reforms south america industry demand declined significantly 2005 due drought conditions southern brazil reduced farm profits resulting lower commodity prices continued strengthening brazilian real united states canada industry unit retail sales tractors relatively flat 2005 compared 2004 resulting decrease compact tractor segment offset increases utility high horsepower segments industry unit retail sales combines increased approximately 1 compared prior year unit retail sales tractors north america increased 2004 levels unit retail sales combines decreased compared 2004 levels europe industry unit retail sales tractors decreased approximately 4 2005 compared 2004 retail demand improved germany scandinavia eastern europe declined spain france united kingdom finland unit retail sales tractors relatively flat 2005 compared 2004 south america industry unit retail sales tractors 2005 decreased approximately 24 compared 2004 retail sales tractors major market brazil declined approximately 38 2005 industry unit retail sales combines 2005 58 lower prior year decline brazil approximately 73 compared prior year unit retail sales tractors combines south america also significantly lower 2005 compared 2004 international markets net sales 2005 approximately 26 higher prior year particularly middle east statements operations net sales 2005 54497 million compared 52733 million 2004 increase primarily attributable sales growth north america europeafricamiddle east regions well positive currency translation impacts currency translation positively impacted net sales approximately 946 million primarily due continued strengthening brazilian real following table sets forth periods indicated impact net sales currency translation geographical segment millions except percentages regionally net sales north america increased 2005 primarily due strong retail sales improved product availability europeafricamiddle east region net sales increased 2005 primarily due sales growth germany eastern europe middle east net sales south america decreased 2005 compared 2004 primarily result weak market conditions region asiapacific region net sales increased 2005 compared 2004 due increases industry demand region particularly asia estimate consolidated price increases 2005 contributed approximately 4 increase net sales consolidated net sales tractors combines consisted approximately 71 net sales 2005 increased approximately 3 2005 compared 2004 unit sales tractors combines decreased approximately 6 2005 compared 2004 difference unit sales decrease increase net sales result foreign currency translation pricing sales mix changes following table sets forth periods indicated percentage relationship net sales certain items included consolidated statements operations gross profit percentage net sales declined 2005 primarily due lower gross margins south america resulting lower production levels unfavorable sales mix negative currency impacts declines partially offset improved margins europeafricamiddle east region positively impacted improved productivity new product introductions expense control measures pricing changes productivity improvements achieved purchasing material cost initiatives outsourcing initiatives outsourcing combine manufacturing europe enhanced production processes resulting material flow assembly improvements margins north america impacted weak united states dollar products imported european brazilian facilities higher warranty costs sga expenses percentage net sales decreased slightly 2005 compared 2004 primarily result higher sales levels cost reduction initiatives engineering expenses increased 2005 result increase spending fund product improvements cost reduction projects recorded 04 million 05 million stock compensation expense 2005 2004 respectively within sga accordance accounting principles board opinion 25 “accounting stock issued employees” restructuring infrequent expenses 2005 primarily related rationalization randers denmark combine manufacturing operations second quarter 2005 completed auctions remaining machinery equipment randers facility recorded gain associated actions gain offset restructuring expenses associated randers rationalization consisting primarily employee retention payments facility closure costs also recorded restructuring expenses 2005 associated severance costs retention payments asset writedowns contract termination costs related rationalization finnish tractor manufacturing parts distribution sales operations restructuring expenses 2004 primarily related charges incurred resulting randers rationalization well costs associated various rationalization initiatives europe united states offset gains sale property plant equipment related coventry england facility closure well revision previously established provision resulted reduction estimated costs associated pension plan united kingdom see “restructuring infrequent expenses” interest expense net 800 million 2005 compared 770 million 2004 increase interest expense net 2005 due primarily redemption 250 million 912 senior notes second quarter 2005 redeemed notes price approximately 2619 million included premium 475 face amount notes premium approximately 119 million writeoff remaining balance deferred debt issuance costs associated senior notes approximately 22 million recognized interest expense net second quarter 2005 april 2004 completed common stock offering received net proceeds approximately 3001 million used net proceeds repay borrowings credit facility well repay 1000 million interim bridge loan facility expense net 346 million 2005 compared 221 million 2004 losses sales receivables primarily securitization facilities 224 million 2005 compared 156 million 2004 increase 2005 primarily due higher interest rates 2005 compared 2004 well additional outstanding funding portions 2005 also experienced foreign exchange losses 2005 compared foreign exchange gains 2004 recorded income tax provision 1511 million 2005 compared 862 million 2004 fourth quarter 2005 recognized noncash deferred income tax charge 908 million related increasing valuation allowance united states deferred tax assets sfas 109 requires establishment valuation allowance likely portion deferred tax assets realized accordance sfas 109 assessed likelihood deferred tax assets would recovered estimated future taxable income available income tax planning strategies determined adjustment valuation allowance appropriate effective tax rate excluding noncash deferred income tax charge 377 2005 compared 384 2004 years effective tax rate negatively impacted incurring losses tax jurisdictions recorded tax benefit significant impact related losses incurred united states 2005 denmark 2004 2005 incurred losses united states due part costs associated second quarter redemption senior notes discussed well lower operating margins discussed 2004 incurred losses denmark primarily due rationalization combine manufacturing operations randers denmark december 31 2005 2004 gross deferred tax assets 4298 million 4308 million respectively including 1929 million 1882 million respectively related net operating loss carryforwards december 31 2005 2004 recorded total valuation allowances offset gross deferred tax assets 2528 million 1429 million respectively primarily related net operating loss carryforwards argentina brazil denmark united states quarterly results following table presents unaudited interim operating results believe following information includes adjustments consisting normal recurring adjustments necessary present fairly results operations periods presented operating results period necessarily indicative results future period 1 2006 quarters ended march 31 june 30 september 30 december 31 included restructuring infrequent expenses 01 million 00 million 09 million 00 million respectively thereby impacting net income per common share diluted basis 000 001 000 respectively 2006 quarter ended december 31 included noncash goodwill impairment charge 1714 million 181 per share related sprayer business accordance provisions sfas 142 2005 quarter ended december 31 included noncash deferred income tax charge 908 million 095 per share related increasing valuation allowance us deferred tax assets accordance provisions sfas 109 2005 quarters ended march 31 june 30 september 30 december 31 included restructuring infrequent expenses income 10 million 08 million 00 million 00 million respectively thereby impacting net income per common share diluted basis 001 000 respectively restructuring infrequent expenses recorded restructuring infrequent expenses 10 million 00 million 01 million years ended december 31 2006 2005 2004 respectively charges 2006 include severance costs associated rationalization certain parts sales marketing administrative functions united kingdom germany well rationalization certain valtra european sales offices located denmark norway germany united kingdom net charges 2005 include 15 million gain sale property plant equipment related completion auctions machinery equipment associated rationalization randers denmark combine manufacturing operations gain offset 08 million employee retention payments facility closure costs incurred associated randers rationalization well 07 million severance asset writedowns facility closure costs related rationalization finnish tractor manufacturing sales parts operations record income tax benefit provision associated charges gain relating randers rationalization 2005 2004 net charges consisted 82 million pretax writedown property plant equipment associated randers rationalization 33 million severance facility closure costs associated randers rationalization 14 million charge associated rationalization certain administrative functions within finnish tractor manufacturing facility well 05 million charges associated various rationalization initiatives europe united states initiated 2002 2003 2004 charges offset gains sale coventry england manufacturing facility related machinery equipment 83 million 09 million restructuring reserve reversals related coventry closure reversal 41 million previously established provision related litigation involving uk pension plan record income tax benefit associated charges relating randers rationalization 2004 plan announced coventry united kingdom european headquarters rationalization third quarter 2006 initiated restructuring certain parts sales marketing administrative functions within coventry united kingdom european headquarters resulting termination approximately 13 employees recorded severance costs approximately 04 million associated restructuring 2006 employees terminated severance costs paid december 31 2006 rationalization completed improve ongoing cost structure reduce sga expenses rationalization fully described note 3 consolidated financial statements german sales office rationalizations third quarter 2006 announced closure two sales offices located germany one valtra sales office closures result termination approximately 16 employees recorded severance costs approximately 05 million associated closures 2006 none severance costs paid december 31 2006 none employees terminated severance costs related terminations expected paid completed 2007 closures completed improve ongoing cost structure reduce sga expenses rationalizations fully described note 3 consolidated financial statements valtra european sales office rationalizations second quarter 2005 announced changing distribution arrangements valtra fendt products scandinavia entering distribution agreement thirdparty distributor distribute valtra fendt equipment sweden valtra equipment norway denmark result agreement decision close valtra european sales offices initiated restructuring closure valtra sales offices located united kingdom spain denmark norway resulting termination approximately 24 employees danish norwegian sales offices transferred thirdparty scandinavian equipment distributor october 2005 included transfer certain employees assets lease supplier contracts recorded severance costs asset writedowns facility closure costs approximately 04 million 01 million 01 million respectively related closures 2005 fourth quarter 2005 completed sale property plant equipment associated sales offices united kingdom norway recorded gain approximately 02 million reflected within “restructuring infrequent expenses” within consolidated statements operations first quarter 2006 recorded additional 01 million severance costs related closures december 31 2006 employees terminated severance facility closure costs paid closures completed improve ongoing cost structure reduce sga expenses rationalizations fully described note 3 consolidated financial statements valtra finland administrative european parts rationalizations fourth quarter 2004 initiated restructuring certain administrative functions within finnish operations resulting termination approximately 58 employees 2004 recorded severance costs approximately 14 million associated rationalization recorded additional 01 million severance costs first quarter 2005 associated rationalization fourth quarter 2005 reversed 01 million previously established provisions related severance costs severance claims finalized quarter march 31 2006 58 employees terminated 06 million severance payments accrued december 31 2006 expected paid 2009 addition 2005 incurred expensed approximately 03 million contract termination costs associated rationalization valtra european parts distribution operations rationalizations completed improve ongoing cost structure sga expenses rationalizations fully described note 3 consolidated financial statements randers denmark rationalization third quarter 2004 announced initiated plan restructure european combine manufacturing operations located randers denmark order reduce cost complexity randers manufacturing operation simplifying model range eliminating facility’s component manufacturing operations component manufacturing operations ceased february 2005 outsource manufacturing majority parts components suppliers retained critical key assembly operations randers facility retaining facility assembly operations reduced randers workforce 298 employees permanently eliminated 70 square footage utilized plans also included rationalization combine model range assembled randers retaining production high specification high value combines achieved savings approximately 66 million 2005 additional 22 million 2006 associated restructuring plan savings primarily impacted cost goods sold total cash restructuring costs approximately 4 million 2004 recorded 82 million writedown property plant equipment well 33 million severance costs employee retention payments facility closure costs also recorded approximately 37 million inventory writedowns 2004 reflected costs goods sold related inventory identified obsolete result restructuring plan 2005 recorded additional 08 million restructuring costs related rationalization primarily related employee retention payments facility closure costs second quarter 2005 completed auctions remaining machinery equipment recorded gain approximately 15 million associated actions gain reflected “restructuring infrequent expenses” within consolidated statements operations december 31 2005 298 employees terminated components restructuring expenses incurred 2004 2005 summarized note 3 consolidated financial statements coventry rationalization 2002 announced initiated restructuring plan related closure tractor manufacturing facility coventry england relocation existing production coventry beauvais france canoas brazil manufacturing facilities resulting termination 1049 employees closure facility consistent strategy reduce excess manufacturing capacity 2003 completed transfer production beauvais facility estimate reduced manufacturing overhead costs result coventry rationalization project approximately 20 million adjusted changes production volume year 2004 recorded gain 69 million sale coventry facility well gains totaling approximately 23 million related sale machinery equipment coventry facility certain coventry closure reserve reductions 2004 also recorded 41 million reversal previously established provision related pension plan united kingdom components restructuring expenses incurred paid 2004 2005 related coventry rationalization summarized note 3 consolidated financial statements dekalb rationalization march 2003 announced closure challenger track tractor facility located dekalb illinois relocation production facility jackson minnesota production dekalb facility ceased may 2003 relocated resumed minnesota facility june 2003 dekalb plant assembled challenger track tractors range 235 500 horsepower review cost reduction alternatives determined current future production levels time sufficient support standalone track tractor site sold dekalb facility real estate fourth quarter 2004 approximately 30 million associated selling costs recorded net loss sale facilities approximately 01 million loss reflected “restructuring infrequent expenses” consolidated statements operations 2002 2003 2004 functional rationalizations addition 2002 2004 initiated several rationalization plans recorded restructuring infrequent expenses aggregate totaled approximately 50 million 2002 2003 2004 expenses primarily related severance costs certain lease termination exit costs associated rationalization european engineering marketing personnel rationalization certain components german manufacturing facilities located kempten marktoberdorf germany rationalization european combine engineering operations closure consolidation valtra united states canadian sales organizations rationalizations completed improve ongoing cost structure reduce cost goods sold well engineering sga expenses discussed fully note 3 consolidated financial statements critical accounting policies prepare consolidated financial statements conformity us generally accepted accounting principles preparation financial statements make judgments estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period significant accounting policies followed preparation financial statements detailed note 1 consolidated financial statements believe application policies discussed involves significant levels judgment estimates complexity due level judgment complexity period time many items resolved actual results could differ estimated time preparation financial statements adjustments estimates would impact financial position future results operations allowance doubtful accounts determine allowance doubtful accounts actively monitoring financial condition customers determine potential nonpayment trade receivables determining allowance doubtful accounts also consider economic factors aging trends believe process specific review customers combined overall analytical review provides effective evaluation ultimate collectibility trade receivables loss writeoff experience approximately 01 net sales 2006 discount sales incentive allowances discounts sales incentives made time sale based retail sales incentive programs available dealer retail customer cost programs depends various factors including timing retail sale programs place time retail sales incentives may also revised time record sale time retail sale occurs monitor factors revise provisions necessary december 31 2006 recorded allowance discounts sales incentives approximately 826 million allow additional 1 sales incentives discounts time retail sale sales subject discount programs reserve would increase approximately 73 million december 31 2006 conversely decrease sales incentives discounts 1 time retail sale reserve would decrease approximately 73 million december 31 2006 inventory reserves inventories valued lower cost market determination cost includes estimates surplus obsolete inventory based estimates future sales production changes demand product design impact estimates periodically evaluate update assumptions assessing adequacy inventory adjustments deferred income taxes establish valuation allowances deferred tax assets estimate likely tax assets realized base estimates projections future income including taxplanning strategies certain tax jurisdictions changes industry conditions competitive environment may impact accuracy projections sfas 109 requires establishment valuation allowance likely portion deferred tax assets realized accordance sfas 109 periodically assess likelihood deferred tax assets recovered estimated future taxable income available tax planning strategies determine adjustments valuation allowance appropriate result assessments certain tax jurisdictions benefit losses benefited losses generated united states 2004 2005 2006 respect losses incurred denmark 2004 fourth quarter 2005 recognized noncash deferred income tax charge 908 million related increasing valuation allowance united states deferred tax assets accordance sfas 109 assessed likelihood united states deferred tax assets would recovered future taxable income determined adjustment valuation allowance appropriate december 31 2006 2005 gross deferred tax assets 4725 million 4298 million respectively including 2466 million 1929 million respectively related net operating loss carryforwards december 31 2006 2005 recorded total valuation allowances offset gross deferred tax assets 2914 million 2528 million respectively primarily related net operating loss carryforwards brazil denmark united states realization remaining deferred tax assets december 31 2006 depends generating sufficient taxable income future periods net reversing deferred tax liabilities believe likely remaining net deferred tax assets realized warranty additional service actions make provisions estimated expenses related product warranties time products sold base estimates historical experience nature frequency average cost warranty claims addition number magnitude additional service actions expected approved policies related additional service actions taken consideration due uncertainty potential volatility estimated factors changes assumptions could materially affect net income estimate warranty obligations reevaluated quarterly basis experience shown initial data product series line volatile therefore process relies upon longterm historical averages sufficient data available actual experience becomes available used modify historical averages ensure forecast within range likely outcomes resulting balances compared present spending rates ensure accruals adequate meet expected future obligations see note 1 consolidated financial statements information regarding costs assumptions warranties insurance reserves provide insurance reserves estimates losses due claims worker’s compensation product liability liabilities selfinsured base estimates ultimate settlement amount claims often long periods resolution closely monitor claims maintain adequate reserves pensions defined benefit pension plans covering certain employees principally united states united kingdom germany finland norway france australia argentina primary plans cover certain employees united states united kingdom united states sponsor funded qualified plan salaried employees well separate funded qualified plan hourly employees plans frozen fund least minimum contributions required erisa internal revenue code plans addition sponsor unfunded nonqualified pension plan executives also provide postretirement health care life insurance benefits certain employees united states participation plans limited older employees existing retirees united kingdom sponsor funded pension plan provides annuity benefit based participants’ final average earnings service participation plan limited certain older longer service employees existing retirees future employees participate plan see note 8 consolidated financial statements information regarding costs assumptions employee retirement benefits nature estimates required measurement pension obligations costs liabilities dependent variety assumptions used actuaries provided management assumptions include estimates present value projected future pension payments plan participants taking consideration likelihood potential future events salary increases demographic experience assumptions may effect amount timing future contributions assumptions approach used assumptions used developing required estimates include following key factors year ended december 31 2006 based discount rate used determine projected benefit obligation us pension plans matching projected cash flows plans citibank pension discount curve prior december 31 2006 based discount rate used determine projected benefit obligation us pension plans moody’s investor service aa bond yield december 31 year nonus plans based discount rate comparable indices within countries 15year iboxx aa corporate bond yield united kingdom indices used united states united kingdom countries chosen match expected plan obligations related expected cash flows measurement date respect uk pension plan september 30 year measurement date respect us pension plan defined benefit plans december 31 year adopted provisions sfas 158 “employers’ accounting defined benefit pension postretirement plans amendment fasb statements 87 88 106 132r” sfas 158” year ended december 31 2006 sfas 158 require us measure defined benefit plan assets obligations date fiscal year end years beginning december 15 2008 therefore measurement date respect uk pension plan change upon adoption provision 2008 inflation assumption based evaluation external market indicators salary growth assumptions reflect longterm actual experience nearterm outlook assumed inflation expected return plan asset assumptions reflects asset allocations investment strategy historical experience views investment managers retirement termination rates based primarily actual plan experience actuarial standards practice mortality rates updated 2006 reflect recent study released society actuaries reflects pensioner experience distinctions blue white collar employees effects actual results differing assumptions accumulated amortized future periods therefore generally affect recognized expense periods us uk pension plans represent approximately 92 consolidated projected benefit obligation december 31 2006 discount rate used determine 2006 projected benefit obligation us plans decreased 25 basis points projected benefit obligation would increased approximately 12 million december 31 2006 2007 pension expense would increase nominal amount discount rate used determine 2006 projected benefit obligation us plans increased 25 basis points projected benefit obligation would decreased approximately 12 million 2007 pension expense would decrease nominal amount discount rate used determine projected benefit obligation uk plan decreased 25 basis points projected benefit obligation would increased approximately 284 million december 31 2006 2007 pension expense would increase approximately 23 million discount rate used determine projected benefit obligation uk plan increased 25 basis points projected benefit obligation would decreased approximately 267 million december 31 2006 2007 pension expense would decrease approximately 22 million unrecognized actuarial losses related pension plans 2414 million december 31 2006 compared 2513 million december 31 2005 decrease unrecognized losses years primarily reflects increasing discount rates worldwide gains result better expected asset returns partially offset currency translation unrecognized actuarial losses impacted future periods actual asset returns discount rate changes currency exchange rate fluctuations actual demographic experience certain factors losses amortized straightline basis average remaining service period active employees expected receive benefits defined benefit pension plans population covered predominantly inactive participants losses related plans amortized average remaining lives participants covered respective plan december 31 2006 average amortization period 18 years us pension plans 11 years nonus pension plans estimated net actuarial loss defined benefit pension plans amortized accumulated comprehensive loss year ended december 31 2007 approximately 150 million compared approximately 198 million year ended december 31 2006 weighted average asset allocation us pension benefit plans december 31 2006 2005 follows weighted average asset allocation nonus pension benefit plans december 31 2006 2005 follows tax qualified pension fund investments united states held agco corporation master pension trust global pension fund strategy diversify investments across broad categories equity fixed income securities appropriate use alternative investment categories minimize risk volatility us target allocation retirement fund investments 50 large cap domestic equity securities 10 international equity securities 20 domestic fixed income securities 20 invested investments noted long periods mix investments would achieve average return excess 9 arriving choice expected return assumption 8 us based plans tempered historical indicator lower expectations returns equity investments future well considered administrative costs plans date invested pension funds stock intention future nonus target allocation retirement fund investments 50 equity securities 30 fixed income securities 20 percent invested investments majority nonus pension fund investments related pension plan united kingdom noted long periods target mix investments would achieve average return excess 75 arriving choice expected return assumption 7 uk pension plan tempered historical indicator slightly lower expectation future returns equity investments well plan expenses december 31 2006 approximately 2386 million unfunded underfunded obligations related pension plans due primarily pension plans united states united kingdom 2006 contributed approximately 266 million towards obligations expect fund approximately 281 million 2007 future funding dependent upon compliance local laws regulations changes laws regulations future well generation operating cash flows future currently agreement place trustees uk defined benefit plan obligates us fund approximately £100 £120 million per year approximately 196 235 million towards obligation next 12 years funding arrangement based upon current underfunded status could change future discount rates local laws regulations factors change postretirement benefits retiree health care life insurance provide certain postretirement health care life insurance benefits certain employees principally united states see note 8 consolidated financial statements information regarding costs assumptions postretirement benefits nature estimates required measurement obligations costs liabilities associated postretirement benefits retiree health care life insurance requires make use estimates present value projected future payments participants taking consideration likelihood potential future events health care cost increases salary increases demographic experience may effect amount timing future payments assumptions approach used assumptions used developing required estimates include following key factors health care cost trend assumptions developed based historical cost data nearterm outlook efficiencies costmitigating actions including employee cost sharing administrative improvements efficiencies assessment likely longterm trends year ended december 31 2006 based discount rate used determine projected benefit obligation us postretirement benefit plans matching projected cash flows plans citibank pension discount curve prior december 31 2006 based discount rate used determine projected benefit obligation us postretirement benefit plans moody’s investor service aa bond yield december 31 year index used chosen match expected plan obligations related expected cash flows inflation assumption based evaluation external market indicators salary growth assumptions reflect longterm actual experience nearterm outlook assumed inflation retirement termination rates based primarily actual plan experience actuarial standards practice mortality rates updated 2006 reflect recent study released society actuaries reflects pensioner experience distinctions blue white collar employees effects actual results differing assumptions accumulated amortized future periods therefore generally affect recognized expense future periods discount rate used determine 2006 projected benefit obligation us postretirement benefit plans decreased 25 basis points projected benefit obligation would increased approximately 07 million december 31 2006 2007 postretirement benefit expense would increase nominal amount discount rate used determine 2006 projected benefit obligation us postretirement benefit plans increased 25 basis points projected benefit obligation would decreased approximately 07 million 2007 pension expense would decrease nominal amount unrecognized actuarial losses related us postretirement benefit plans 37 million december 31 2006 compared 101 million december 31 2005 decrease losses primarily reflects decreasing participation retiree medical plans result changes made plans 2004 2005 addition discount rate increases lower anticipated medical inflation also contributed decrease unrecognized actuarial losses impacted future periods discount rate changes actual demographic experience actual health care inflation certain factors losses amortized straightline basis average remaining service period active employees expected receive benefits average remaining lives inactive participants covered postretirement benefit plans december 31 2006 average amortization period 15 years us postretirement benefit plans estimated net actuarial loss postretirement health care benefits amortized accumulated comprehensive loss year ended december 31 2007 approximately 01 million compared approximately 06 million year ended december 31 2006 december 31 2006 approximately 267 million unfunded obligations related us postretirement health life insurance benefit plans 2006 contributed approximately 26 million towards obligations expect contribute approximately 22 million towards obligations 2007 measuring expected postretirement benefit obligation december 31 2006 9 health care cost trend rate assumed 2007 decreasing 1 per year 5 remaining level thereafter changing assumed health care cost trend rates one percentage point year holding assumptions constant would following effect service interest cost 2007 accumulated postretirement benefit obligation december 31 2006 millions litigation party various claims lawsuits arising normal course business closely monitor claims lawsuits frequently consult legal counsel determine whether may resolved material adverse effect financial position results operations goodwill indefinitelived assets sfas 142 establishes method testing goodwill indefinitelived intangible assets impairment annual basis interim basis event occurs circumstances change would reduce fair value reporting unit carrying value initial assessment annual assessments involve determining estimate fair value reporting units order evaluate whether impairment current carrying amount goodwill indefinitelived intangible assets exists fair values derived based evaluation past expected future performance reporting units reporting unit operating segment one level operating segment eg component operating segment reporting unit component constitutes business discrete financial information available executive management team regularly reviews operating results component addition combine aggregate two components operating segment single reporting unit components similar economic characteristics reportable segments reported guidance sfas 131 “disclosures segments enterprise related information” reporting units exception asiapacific geographical segment utilized combination valuation techniques including discounted cash flow approach market multiple approach making annual interim assessments stated goodwill tested impairment annual basis often indications impairment exist results analyses conducted october 1 2005 2004 indicated reduction carrying amount goodwill required result analysis october 1 2006 concluded goodwill associated sprayer operations impaired recognized writedown total amount recorded goodwill approximately 1714 million fourth quarter 2006 results analyses conducted october 1 2006 associated reporting units indicated reduction carrying amounts goodwill required liquidity capital resources financing requirements subject variations due seasonal changes inventory receivable levels internally generated funds supplemented necessary external sources primarily revolving credit facility accounts receivable securitization facilities current financing funding sources balances outstanding december 31 2006 2013 million principal amount 114 convertible senior subordinated notes due 2036 2013 million principal amount 134 convertible senior subordinated notes due 2033 2000 million approximately 2640 million principal amount 678 senior subordinated notes due 2014 approximately 4952 million accounts receivable securitization facilities approximately 4296 million outstanding funding december 31 2006 3000 million multicurrency revolving credit facility amounts outstanding december 31 2006 733 million united states dollar denominated term loan facility 289 million approximately 381 million term loan facility december 4 2006 issued 2013 million 114 convertible senior subordinated notes due december 15 2036 received proceeds approximately 1964 million related fees expenses notes unsecured obligations convertible cash shares common stock upon satisfaction certain conditions discussed notes provide settlement upon conversion cash principal amount notes excess conversion value settled shares common stock ii conversion rate increased certain circumstances notes converted connection certain change control transactions occurring prior december 15 2013 interest payable notes 114 per annum payable semiannually arrears cash june 15 december 15 year beginning june 15 2007 notes convertible shares common stock effective price 4073 per share subject adjustment holders may convert notes following circumstances 1 fiscal quarter closing sales price common stock exceeds 120 conversion price least 20 trading days 30 consecutive trading days ending last trading day preceding fiscal quarter 2 five business day period five consecutive trading day period trading price per note day period less 98 product closing sale price common stock conversion rate 3 notes called redemption 4 upon occurrence certain corporate transactions beginning december 15 2013 may redeem notes redemption price 100 principal amount plus accrued interest holders notes may require us repurchase notes repurchase price 100 principal amount plus accrued interest december 15 2013 2016 2021 2026 2031 holders may also require us repurchase portion notes upon fundamental change defined indenture repurchase price equal 100 principal amount notes repurchased plus accrued unpaid interest notes senior subordinated obligations subordinated existing future senior indebtedness effectively subordinated debt liabilities subsidiaries notes equal right payment 678 senior subordinated notes due 2014 134 convertible senior subordinated notes due 2033 used net proceeds received issuance 114 convertible senior subordinated notes well available cash repay 1969 million outstanding united states dollar denominated term loan 791 million outstanding euro denominated term loan addition recorded interest expense approximately 20 million proportionate writeoff deferred debt issuance costs associated term loan balances repaid united states dollar denominated euro denominated term loans discussed june 29 2005 exchanged 2013 million 134 convertible senior subordinated notes due 2033 new notes provide settlement upon conversion cash principal amount converted new notes excess conversion value settled shares common stock ii conversion rate increased certain circumstances new notes converted connection certain change control transactions occurring prior december 10 2010 otherwise substantially old notes unsecured obligations convertible cash shares common stock upon satisfaction certain conditions discussed interest payable notes 134 per annum payable semiannually arrears cash june 30 december 31 year notes convertible shares common stock effective price 2236 per share subject adjustment holders may convert notes following circumstances 1 fiscal quarter closing sales price common stock exceeds 120 conversion price least 20 trading days 30 consecutive trading days ending last trading day preceding fiscal quarter 2 five business day period five consecutive trading day period trading price per note day period less 98 product closing sale price common stock conversion rate 3 notes called redemption 4 upon occurrence certain corporate transactions beginning january 1 2011 may redeem notes redemption price 100 principal amount plus accrued interest holders notes may require us repurchase notes repurchase price 100 principal amount plus accrued interest december 31 2010 2013 2018 2023 2028 impact exchange completed june 2005 discussed reduces diluted weighted average shares outstanding future periods initial reduction diluted shares approximately 90 million shares varies based stock price market price trigger specified conversion circumstances met december 31 2006 closing sales price common stock exceeded 120 conversion price 2236 per share least 20 trading days 30 consecutive trading days ending december 31 2006 therefore classified 134 convertible senior subordinated notes current liability future classification notes current longterm debt dependent closing sales price common stock future quarters believe unlikely holders notes would convert notes provisions indenture agreement typically convertible securities converted prior expiration unless called redemption thereby requiring us repay principal portion cash event notes converted believe could repay notes available cash hand funds existing 3000 million multicurrency revolving credit facility combination sources redeemed 250 million 912 senior notes june 23 2005 price approximately 2619 million represented premium 475 senior notes face amount premium approximately 119 million reflected interest expense net second quarter 2005 connection redemption also wrote remaining balance deferred debt issuance costs approximately 22 million funding sources redemption combination cash generated transfer wholesale interestbearing receivables united states canadian retail finance joint ventures agco finance llc agco finance canada ltd discussed revolving credit facility borrowings available cash hand january 5 2004 entered new credit facility provides 3000 million multicurrency revolving credit facility 3000 million united states dollar denominated term loan 1200 million euro denominated term loan maturity date revolving credit facility december 2008 maturity date term loan facility june 2009 required make quarterly payments towards united states dollar denominated term loan euro denominated term loan 075 million 03 million respectively amortization one percent per annum maturity date term loan revolving credit term loan facilities secured majority us canadian finnish uk based assets pledge portion stock domestic material foreign subsidiaries interest accrues amounts outstanding revolving credit facility option either 1 libor plus margin ranging 125 20 based upon senior debt ratio 2 higher administrative agent’s base lending rate onehalf one percent federal funds rate plus margin ranging 00 075 based senior debt ratio interest accrues amounts outstanding term loans libor plus 175 credit facility contains covenants restricting among things incurrence indebtedness making certain payments including dividends also must fulfill financial covenants including among others total debt ebitda ratio senior debt ebitda ratio fixed charge coverage ratio defined facility december 31 2006 total borrowings 1114 million credit facility included 733 million united states dollar denominated term loan facility 289 million approximately 381 million euro denominated term loan facility amounts outstanding multicurrency revolving credit facility december 31 2006 availability borrow 2922 million revolving credit facility december 31 2005 total borrowings 4015 million credit facility included 2725 million united states dollar denominated term loan facility 1089 million approximately 1290 million euro denominated term loan facility amounts outstanding multicurrency revolving credit facility december 31 2005 availability borrow 2929 million revolving credit facility april 7 2004 sold 14720000 shares common stock underwritten public offering received net proceeds approximately 3001 million used net proceeds repay 1000 million interim bridge loan facility used part acquire valtra repay borrowings credit facility pay offering related fees expenses april 23 2004 sold 2000 million 678 senior subordinated notes due 2014 received proceeds approximately 2340 million offering related fees expenses 678 senior subordinated notes unsecured obligations subordinated right payment existing future senior indebtedness interest payable notes semiannually april 15 october 15 year beginning october 15 2004 beginning april 15 2009 may redeem notes whole part initially 103438 principal amount plus accrued interest declining 100 principal amount plus accrued interest time april 15 2012 addition april 15 2009 may redeem notes whole part redemption price equal 100 principal amount plus accrued interest makewhole premium april 15 2007 also may redeem 35 notes 106875 principal amount using proceeds sales certain kinds capital stock notes include covenants restricting incurrence indebtedness making certain restricted payments including dividends used net proceeds received issuance 678 senior subordinated notes well available cash redeem 2500 million principal amount 812 senior subordinated notes may 24 2004 securitization facilities sell accounts receivable united states canada europe revolving basis commercial paper conduits whollyowned special purpose us subsidiary qualifying special purpose entity “qspe” united kingdom united states canadian securitization facilities expire april 2009 european facility expires october 2011 subject annual renewal european facility renewed october 2006 restructured wholesale receivables sold qspe new european securitization also eliminates requirement maintain certain debt rating levels standard poor’s moody’s investor services applicable previous securitization facility december 31 2006 aggregate amount facilities 4952 million outstanding funded balance 4296 million december 31 2006 effect reducing accounts receivable shortterm liabilities amount risk loss securitization facilities limited portion unfunded balance receivables sold approximately 15 funded amount maintain reserves doubtful accounts associated risk facilities terminated would required repurchase previously sold receivables would prevented selling additional receivables commercial paper conduit facilities allow us sell accounts receivables financing conduits obtain funding commercial paper markets future funding securitization facilities depends upon adequacy receivables sufficient demand underlying commercial paper maintenance certain covenants concerning quality receivables financial condition event commercial paper demand adequate securitization facilities provide liquidity backing various financial institutions including rabobank liquidity commitments would provide us interim funding allow us find alternative sources working capital financing necessary may 2005 completed agreement permit transferring ongoing basis majority wholesale interestbearing receivables north america united states canadian retail finance joint ventures agco finance llc agco finance canada ltd 49 ownership interest joint ventures transfer wholesale interestbearing receivables without recourse agco continue service receivables initial transfer wholesale interestbearing receivables resulted net proceeds approximately 94 million used redeem 250 million 912 senior notes december 31 2006 2005 balance interestbearing receivables transferred agco finance llc agco finance canada ltd agreement approximately 1241 million 1099 million respectively business subject substantial cyclical variations generally difficult forecast results operations may also vary time resulting costs associated rationalization plans acquisitions result request relief lenders occasion respect financial covenant compliance currently anticipate asking relief possible would require relief future based upon historical working relationship lenders currently anticipate difficulty obtaining relief cash flow provided operating activities 4422 million 2006 compared 2463 million 2005 operating cash flows 2005 reflect approximately 1241 million interestbearing receivables transferred agco finance llc agco finance canada ltd discussed operating cash flows 2006 higher 2005 primarily due reductions working capital achieved 2006 working capital requirements seasonal investments working capital typically building first half year reducing second half year 6854 million working capital december 31 2006 compared 8258 million december 31 2005 accounts receivable inventories combined december 31 2006 238 million higher december 31 2005 excluding impact currency translation approximately 1108 million accounts receivable inventories december 31 2006 approximately 870 million lower december 31 2005 cash hand december 31 2006 approximately 1805 million higher prior year due increase operating cash flow generated 2006 capital expenditures 2006 1291 million compared 884 million 2005 capital expenditures 2006 used support development enhancement new existing products well expand engine manufacturing facility february 2005 made 213 million investment retail finance joint venture rabobank brazil fully described “ related parties” debt capitalization ratio total indebtedness divided sum total indebtedness stockholders’ equity 345 december 31 2006 compared 375 december 31 2005 decrease due lower debt levels 2006 time review continue review acquisition joint venture opportunities well changes capital markets consummate significant acquisition elect take advantage favorable opportunities capital markets may supplement availability revise terms credit facilities complete public private offerings equity debt securities believe available borrowings revolving credit facility funding accounts receivable securitization facilities available cash internally generated funds sufficient support working capital expenditures debt service requirements foreseeable future contractual obligations future payments required significant contractual obligations excluding foreign currency forward contracts december 31 2006 follows millions 1 estimated interest payments calculated assuming current interest rates minimum maturity periods specified debt agreements debt may repaid sooner later minimum maturity periods 2 unconditional purchase obligations exclude routine purchase orders entered normal course business result rationalization european combine manufacturing operations 2004 entered agreement thirdparty manufacturer produce certain combine model ranges fiveyear period agreement provides purchase minimum quantity 200 combines per year cost approximately 162 million per year approximately 214 million may 2009 3 shortterm longterm obligations include estimates future minimum contribution requirements us nonus defined benefit pension postretirement plans estimates based current legislation countries operate within subject change offbalance sheet arrangements guarantees december 31 2006 obligated certain circumstances purchase year 2010 72 million equipment upon expiration certain operating leases agco finance llc agco finance canada ltd retail finance joint ventures north america end users also maintain remarketing agreement joint ventures whereby obligated repurchase repossessed inventory market values agreement agco finance llc limits purchase obligations arrangement 60 million aggregate per calendar year believe losses might incurred resale equipment materially impact financial position results operations time sell certain trade receivables factoring arrangements financial institutions throughout world evaluate sale receivables pursuant guidelines sfas 140 “accounting transfers servicing financial assets extinguishments liabilities replacement fasb statement 125” determined facilities accounted offbalance sheet transactions accordance sfas 140 december 31 2006 guaranteed indebtedness owed third parties approximately 808 million primarily related dealer enduser financing equipment believe credit risk associated guarantees material financial position december 31 2006 foreign currency forward contracts buy aggregate approximately 1660 million united states dollar equivalents foreign currency forward contracts sell aggregate approximately 1723 million united states dollar equivalents contracts maturity less one year see “ foreign currency risk management” additional information contingencies result recent brazilian tax legislative changes impacting value added taxes “vat” recorded reserve approximately 200 million 214 million outstanding balance brazilian vat taxes receivable december 31 2006 2005 respectively due uncertainty ability collect amounts outstanding february 2006 received subpoena sec connection nonpublic factfinding inquiry entitled “in matter certain participants oil food program” subpoena requested documents concerning transactions united nations oil food program agco certain subsidiaries subpoena arises sales subsidiaries farm equipment iraq ministry agriculture cooperating fully inquiry subpoena imply violations federal securities laws however sec us department justice participating sec’s inquiry determine violated federal law could subject civil criminal fines penalties similar proceeding initiated one subsidiaries denmark november 28 2006 french government initiated investigation one subsidiaries france possible predict outcome inquiries impact us party various legal claims actions incidental business believe none claims actions either individually aggregate material business financial condition related parties rabobank aaa rated financial institution based netherlands 51 owner retail finance joint ventures located united states canada brazil germany france united kingdom australia ireland austria rabobank also principal agent participant revolving credit facility securitization facilities majority assets retail finance joint ventures represent finance receivables majority liabilities represent notes payable accrued interest various joint venture agreements rabobank affiliates obligated provide financing joint venture companies primarily lines credit guarantee debt obligations retail finance joint ventures portion retail portfolio brazil held outside joint venture rabobank brazil prior 2005 joint venture brazil agency relationship rabobank whereby rabobank provided funding february 2005 made 213 million investment retail finance joint venture rabobank brazil additional investment joint venture’s organizational structure comparable retail finance joint ventures result gradual elimination solvency guarantee rabobank portfolio originally funded rabobank brazil december 31 2006 solvency requirement portfolio held rabobank approximately 83 million retail finance joint ventures provide retail financing wholesale financing dealers terms financing arrangements offered dealers similar arrangements provide unaffiliated third parties discussed previously december 31 2005 obligated certain circumstances purchase year 2010 72 million equipment upon expiration certain operating leases agco finance llc agco finance canada ltd retail joint ventures north america end users also maintain remarketing agreement joint ventures discussed “offbalance sheet arrangements” addition part sales incentives provided end users may time subsidize interest rates retail financing provided retail joint ventures cost programs recognized time sale dealers addition discussed may 2005 completed agreement permit transferring ongoing basis majority wholesale interestbearing receivables north america agco finance llc agco finance canada ltd 49 ownership interest joint ventures transfer wholesale interestbearing receivables without recourse agco continue service receivables december 31 2006 2005 balance interestbearing receivables transferred agco finance llc agco finance canada ltd agreement approximately 1241 million 1099 million respectively 2006 2005 2004 net sales approximately 1909 million 1538 million 1628 million respectively baywa corporation german distributor ordinary course business president ceo baywa corporation member board directors 2006 2005 made license fee payments purchased raw materials including engines totaling approximately 2113 million 1845 million caterpillar inc ordinary course business one group presidents caterpillar inc member board directors 2006 2005 2004 purchased approximately 14 million 44 million 24 million respectively equipment components manufacturing joint venture deutz agco motores sa prices approximating cost outlook operations subject cyclical nature agricultural industry sales equipment expected continue affected changes net cash farm income farm land values weather conditions demand agricultural commodities farm industry related legislation general economic conditions worldwide industry retail sales farm equipment 2007 expected flat compared 2006 levels north america 2007 farm income projected modestly higher continued uncertainty surrounding renewal farm bill expected keep industry retail sales flat compared 2006 south america income soybean farmers expected improve however high farmer debt levels expected continue pressure investment farm equipment consequently industry sales south america forecasted flat compared 2006 europe continued expansion eastern europe expected offset slight reduction sales western europe based market outlook net sales full year 2007 expected slightly higher 2006 due pricing market share improvement growth eastern europe impact favorable currency translation net income expected improve 2007 compared 2006 resulting sales increases lower interest expense due debt refinancings 2007 strategic investments form increased engineering expense plant productivity initiatives european system initiative new market development distribution improvements expected limit operating margin improvement foreign currency risk management significant manufacturing operations france germany brazil finland denmark purchase portion tractors combines components thirdparty foreign suppliers primarily various european countries japan also sell products 140 countries throughout world majority net sales outside united states denominated currency customer location exception sales middle east africa asia parts south america net sales primarily denominated british pounds euros united states dollars see note 14 consolidated financial statements net sales customer location significant transactional foreign currency exposures euro brazilian real canadian dollar relation united states dollar fluctuations value foreign currencies create exposures adversely affect results operations attempt manage transactional foreign exchange exposure economically hedging foreign currency cash flow forecasts commitments arising settlement receivables payables future purchases sales naturally offsetting currency positions occur hedge certain exposures use foreign currency forward contracts hedging policy prohibits foreign currency forward contracts speculative trading purposes translation exposure resulting translating financial statements foreign subsidiaries united states dollars hedged significant translation exposures euro british pound brazilian real relation united states dollar practical translation impact reduced financing local operations local borrowings derivatives recognized condensed consolidated balance sheets fair value date derivative contract entered designate derivative either 1 fair value hedge recognized liability 2 cash flow hedge forecasted transaction 3 hedge net investment foreign operation 4 nondesignated derivative instrument currently engage derivatives nondesignated derivative instruments changes fair value nondesignated derivative contracts reported current earnings second quarter 2006 designated certain foreign currency option contracts cash flow hedges expected sales effective portion fair value gains losses cash flow hedges recorded comprehensive income subsequently reclassified net sales recognized amounts offset effect changes foreign exchange rates related sale transactions amount gain recorded comprehensive loss reclassified net sales year ended december 31 2006 approximately 40 million aftertax contracts expired prior december 31 2006 following summary foreign currency derivative contracts used hedge currency exposures contracts maturity less one year net notional amounts fair value gains losses december 31 2006 stated united states dollars follows millions except average contract rate per united states dollar contracts entered hedging purposes gains losses contracts would largely offset gains losses underlying firm commitment interest rates manage interest rate risk use fixed rate debt may future utilize interest rate swap contracts fixed rate debt senior subordinated notes convertible senior subordinated notes floating rate exposure related revolving credit facility securitization facilities tied changes united states european libor rates assuming 100 increase interest rates interest expense net cost securitization facilities year ended december 31 2006 would increased approximately 62 million interest rate swap contracts outstanding years ended december 31 2006 2005 2004 accounting changes february 2007 fasb issued sfas 159 “the fair value option financial assets financial liabilities” “sfas 159” sfas 159 provides companies option report selected financial assets liabilities fair value provide additional information help investors users financial statements understand easily effect earnings company ’s choice use fair value also requires companies display fair value assets liabilities company chosen use fair value face balance sheet required adopt sfas 159 january 1 2008 currently evaluating impact sfas 159 consolidated financial statements september 2006 sec staff issued staff accounting bulletin 108 “considering effects prior year misstatements quantifying misstatements current year financial statements” “sab 108” sab 108 requires public companies utilize “dualapproach” assessing quantitative effects financial misstatements dual approach includes income statement focused assessment balance sheet focused assessment guidance sab 108 must applied annual financial statements fiscal years ending november 15 2006 adoption sab 108 impact increasing consolidated retained earnings balance approximately 136 million january 1 2006 refer note 1 consolidated financial statements adoption sab 108 discussed september 2006 financial accounting standards board “fasb” issued sfas 158 sfas 158 requires employer sponsors one singleemployer defined benefit plans recognize overfunded underfunded status benefit plan statement financial position ii recognize component comprehensive income net tax gains losses prior service costs credits arise period recognized components net periodic benefit cost pursuant sfas 87 “employers’ accounting pensions” sfas 106 “employers’ accounting postretirement benefits pensions” iii measure defined benefit plan assets obligations date employer’s fiscal yearend iv disclose notes financial statements additional information certain effects net periodic benefit cost next fiscal year arise delayed recognition gains losses prior service costs credits transition assets obligations sfas 158 effective year ended december 31 2006 adoption sfas 158 268 million impact consolidated accumulated comprehensive loss balance december 31 2006 related underfunded defined benefit pension plans primarily uk us refer note 8 consolidated financial statements discussion defined benefit pension postretirement health care benefit plans september 2006 fasb issued sfas 157 “fair value measurements” “sfas 157” sfas 157 establishes common definition fair value applied guidance regarding us generally accepted accounting principles requiring use fair value establishes framework measuring fair value expands disclosure fair value measurements sfas 157 effective fiscal years beginning november 15 2007 currently assessing impact adoption sfas 157 2008 consolidated financial position results operations september 2006 fasb issued fasb staff position “fsp” aug air1 “accounting planned major maintenance activities” “fsp aug air1” fsp aug air1 amends guidance accounting planned major maintenance activities specifically precludes use previously acceptable “accrue advance” method fsp aug air1 effective fiscal years beginning december 15 2006 implementation standard expected material impact consolidated financial position results operations employ “accrue advance” method june 2006 eitf reached consensus eitf issue 064 “accounting deferred compensation postretirement benefit aspects endorsement splitdollar life insurance arrangements” “eitf 064” requires application provisions sfas 106 “employers’ accounting postretirement benefits pensions” “sfas 106” endorsement splitdollar life insurance arrangements sfas 106 would require us recognize liability discounted future benefit obligation pay upon death underlying insured employee endorsementtype arrangement generally exists control incidents ownership underlying policies eitf 064 effective fiscal years beginning december 15 2007 may certain policies subject provisions new pronouncement believe adoption eitf 064 material impact consolidated results operations financial position 2008 fiscal year june 2006 fasb issued fasb interpretation 48 “accounting uncertainty income taxes interpretation fasb statement 109” “fin 48” fin 48 clarifies accounting uncertainty income taxes prescribing recognition threshold measurement attribute financial statement recognition measurement tax position taken expected taken tax return interpretation also provides guidance derecognition classification interest penalties accounting interim periods disclosure fin 48 effective fiscal years beginning december 15 2006 adoption fin 48 expected material effect 2007 consolidated financial statements march 2006 fasb issued sfas 156 “accounting servicing financial assets amendment fasb statement 140” “sfas 156” sfas 156 requires entity recognize servicing asset liability time undertakes obligation service financial asset entering servicing contract specified situations servicing assets liabilities would initially measured fair value practicable subsequently measured amortized value fair value based upon election reporting entity sfas 156 also specifies certain financial statement presentations disclosures connection servicing assets liabilities sfas 156 effective fiscal years beginning september 15 2006 may adopted earlier adoption first quarter fiscal year adoption sfas 156 expected material effect 2007 consolidated financial statements march 2006 eitf reached consensus eitf issue 063 “how taxes collected customers remitted governmental authorities presented income statement gross versus net presentation” “eitf 063” allows companies adopt policy presenting taxes income statement either gross net basis taxes within scope eitf would include taxes imposed revenue transaction seller customer example sales taxes use taxes valueadded taxes types excise taxes eitf 063 effective interim annual reporting periods beginning december 15 2006 eitf 063 impact method recording reporting sales taxes consolidated results operations financial position policy exclude taxes net sales present taxes consolidated statements operations net basis april 2005 sec adopted new rule changed adoption date sfas 123r adopted sfas 123r effective january 1 2006 using modified prospective method adoption application expensing provisions sfas 123r 2006 resulted pretax expense approximately 36 million refer notes 1 10 consolidated financial statements stock compensation plans discussed november 2004 fasb issued sfas 151 “inventory costsan amendment arb 43 chapter 4” “sfas 151” sfas 151 amends guidance accounting research bulletin 43 chapter 4 “inventory pricing” “arb 43” clarify accounting abnormal amounts idle facility expense freight handling costs wasted material spoilage among provisions new rule requires items idle facility expense excessive spoilage double freight rehandling costs recognized currentperiod charges regardless whether meet criterion “so abnormal” stated arb 43 additionally sfas 151 requires allocation fixed production overheads costs conversion based normal capacity production facilities sfas 151 effective fiscal years beginning june 15 2005 adoption sfas 151 2006 material impact consolidated results operations financial position item 7aitem 7 management’s discussion analysis financial condition results operations leading manufacturer distributor agricultural equipment related replacement parts throughout world sell full range agricultural equipment including tractors combines hay tools sprayers forage equipment implements line diesel engines products widely recognized agricultural equipment industry marketed number wellknown brand names including agco® challenger® fendt® gleaner® hesston® massey ferguson® rogator® spracoupe® sunflower® terragator® valtra® whitetm planters distribute products combination approximately 3000 independent dealers distributors associates licensees addition provide retail financing united states canada brazil germany france united kingdom australia ireland austria finance joint ventures rabobank results operations sell equipment replacement parts independent dealers distributors customers large majority sales independent dealers distributors sell products end user extent practicable attempt sell products dealers distributors level basis throughout year reduce effect seasonal demands manufacturing operations minimize investment inventory however retail sales dealers farmers highly seasonal linked planting harvesting seasons certain markets particularly north america often time lag varies based timing level retail demand sale equipment dealer’s sale retail customer following table sets forth periods indicated percentage relationship net sales certain items included consolidated statements operations compared 2006 net income 2007 2463 million 255 per diluted share compared net loss 2006 649 million 071 per diluted share results 2007 included following items • restructuring infrequent income 23 million 003 per share primarily related 32 million gain sale portion land buildings improvements randers denmark facility proceeds approximately 44 million partially offset 09 million charges primarily related severance employee relocation costs associated rationalization valtra sales office located france well rationalization certain parts sales marketing administrative functions germany results 2006 included following items • noncash goodwill impairment charge 1714 million 181 per share related sprayer business accordance provisions statement financial standards “sfas” sfas 142 “goodwill intangible assets” “sfas 142” • restructuring infrequent expenses 10 million 001 per share primarily related rationalization certain parts sales marketing administrative functions united kingdom germany well rationalization certain valtra european sales offices net sales 2007 approximately 14 billion 256 higher 2006 primarily due improved industry conditions major global agricultural equipment markets positive impact foreign currency translation sales growth achieved geographic operating segments income operations 3948 million 2007 compared 689 million 2006 income operations 2006 negatively impacted 1714 million goodwill impairment charge increase income operations operating margins 2007 due primarily sales volume growth improved product mix cost control initiatives europeafricamiddle east operations income operations improved approximately 1186 million 2007 compared 2006 primarily due increased sales volumes currency translation better mix high horsepower tractors margin improvements achieved higher production volumes cost reduction initiatives income operations south american operations increased approximately 561 million 2007 compared 2006 primarily due sales growth resulting stronger market conditions primarily major market brazil well margin improvement related higher sales production well cost management north america income operations increased approximately 21 million 2007 compared 2006 primarily due higher sales result improved market conditions results north america continue affected negative impacts currency movements products sourced brazil europe income operations asiapacific region decreased approximately 04 million 2007 compared 2006 primarily due lower operating margins resulting foreign currency impacts sales mix retail sales worldwide industry equipment demand farm equipment increased 2007 major markets improved farm income driven higher farm commodity prices contributed improved demand equipment farm commodity prices supported result strong global demand historically low inventories commodities population growth increased protein consumption asia accelerating trend towards renewable energies contributed solid demand farm commodities north america industry demand increased particularly higher horsepower equipment segments due higher farm income europe industry demand increased compared prior year due growth french uk scandinavian central eastern european markets south america industry demand improved due recovery brazil argentina markets resulting improved farm income region united states canada industry unit retail sales tractors increased approximately 1 2007 compared 2006 due increases high horsepower utility tractor segments offset decrease compact tractor segment industry unit retail sales combines increased approximately 13 compared prior year unit retail sales high horsepower tractors combines north america increased unit retail sales utility compact tractors decreased 2007 compared 2006 levels europe industry unit retail sales tractors increased approximately 4 2007 compared 2006 demand strongest high horsepower segment markets central eastern europe united kingdom scandinavia france offset weaker markets spain italy germany unit retail sales tractors 2007 europe also higher compared 2006 south america industry unit retail sales tractors 2007 increased approximately 50 compared 2006 retail sales tractors major market brazil increased approximately 53 2007 industry unit retail sales combines 2007 approximately 79 higher prior year increase brazil approximately 131 compared prior year unit retail sales tractors combines south america also higher 2007 compared 2006 international markets net sales 2007 approximately 96 lower prior year due lower sales middle east results operations net sales 2007 68281 million compared 54350 million 2006 increase primarily attributable significant net sales increases south america europeafricamiddle east regions well positive currency translation impacts currency translation positively impacted net sales approximately 4733 million primarily due continued strengthening brazilian real euro following table sets forth periods indicated impact net sales currency translation geographical segment millions except percentages regionally net sales north america increased 2007 primarily due higher sales higher horsepower tractors combines hay equipment due market growth segments europeafricamiddle east region net sales increased 2007 primarily due sales growth tractors parts particularly markets france germany united kingdom scandinavia eastern central europe south america net sales increased 2007 compared 2006 primarily result recovery major market brazil sales growth argentina asiapacific region net sales increased 2007 compared 2006 due improved industry demand region estimate worldwide average price increases 2007 contributed approximately 15 increase net sales consolidated net sales tractors combines consisted approximately 73 net sales 2007 increased approximately 29 2007 compared 2006 unit sales tractors combines increased approximately 13 2007 compared 2006 difference unit sales increase net sales result foreign currency translation pricing sales mix changes following table sets forth periods indicated percentage relationship net sales certain items included consolidated statements operations millions except percentages gross profit percentage net sales increased 2007 compared 2006 primarily due increased net sales higher production improved sales mix partially offset negative currency impacts margins north america affected weak united states dollar products imported european brazilian manufacturing facilities unit production tractors combines 2007 approximately 20 higher 2006 gross margins also benefited productivity improvements achieved purchasing initiatives resourcing components labor efficiencies recorded approximately 10 million stock compensation expense within cost goods sold 2007 accordance sfas 123r revised 2004 “sharebased payment” “sfas 123r” fully explained note 1 consolidated financial statements selling general administrative “sga” expenses percentage net sales decreased 2007 compared 2006 primarily result higher sales volumes 2007 cost control initiatives recorded approximately 250 million 35 million stock compensation expense within sga 2007 2006 respectively accordance sfas 123r fully explained note 1 consolidated financial statements engineering expenses increased 2007 result continued spending fund product improvements cost reduction projects restructuring infrequent income recorded 2007 primarily related 32 million gain sale portion buildings land improvements associated randers denmark facility gain partially offset 09 million charges primarily related severance employee relocation costs associated rationalization valtra sales office located france well rationalization certain parts sales marketing administrative functions germany restructuring infrequent expenses 2006 primarily related severance costs associated rationalization certain parts sales marketing administrative functions united kingdom germany well rationalization certain valtra european sales offices located denmark norway germany united kingdom see “restructuring infrequent income expenses” 2006 sales operating income sprayer business declined significantly compared prior years primarily due increased competition resulting updated product offerings major competitors shift industry demand away strength commercial application segment farmerowned segment addition projections sprayer business result valuation sufficient support carrying amount goodwill balance consolidated balance sheet attributable sprayer business result fourth quarter 2006 recorded noncash goodwill impairment charge 1714 million related sprayer business accordance provisions sfas 142 results annual impairment analyses conducted october 1 2007 indicated reduction carrying amount goodwill reporting units required 2007 refer “critical accounting estimates” note 1 consolidated financial statements discussion interest expense net 241 million 2007 compared 552 million 2006 decrease primarily due debt refinancing well reduction debt levels 2006 december 2006 issued 2013 million aggregate principal amount 114 convertible senior subordinated notes net proceeds received issuance notes well available cash hand used repay portion outstanding united states dollar euro denominated term loans carried higher variable interest rate june 2007 repaid remaining balances outstanding united states dollar euro denominated term loans available cash hand see “liquidity capital resources” expense net 434 million 2007 compared 329 million 2006 losses sales receivables primarily securitization facilities 361 million 2007 compared 299 million 2006 increase 2007 primarily due higher interest rates 2007 compared 2006 recorded income tax provision 1114 million 2007 compared 735 million 2006 sfas 109 “accounting income taxes” “sfas 109” requires establishment valuation allowance likely portion company’s deferred tax assets realized accordance sfas 109 assessed likelihood deferred tax assets would recovered estimated future taxable income available income tax planning strategies 2007 2006 effective tax rate negatively impacted incurring losses tax jurisdictions recorded tax benefit significant impact related losses incurred united states losses primarily due lower operating margins discussed december 31 2007 2006 gross deferred tax assets 4791 million 4725 million respectively including 2478 million 2466 million respectively related net operating loss carryforwards december 31 2007 2006 recorded total valuation allowances offset gross deferred tax assets 3153 million 2914 million respectively primarily related net operating loss carryforwards brazil denmark united states realization remaining deferred tax assets december 31 2007 depends generating sufficient taxable income future periods net reversing deferred tax liabilities believe likely remaining net deferred tax assets realized 2006 financial accounting standards board “fasb” issued fasb interpretation “fin” 48 “accounting uncertainty income taxes interpretation fasb statement 109” “fin 48” fin 48 clarifies accounting uncertainty income taxes recognized enterprise’s financial statements accordance sfas 109 fin 48 also prescribes recognition threshold measurement tax position taken expected taken enterprise’s tax return fin 48 effective fiscal years beginning december 15 2006 accordingly adopted provisions fin 48 january 1 2007 result implementation fin 48 recognize material adjustment respect liabilities unrecognized tax benefits december 31 2007 approximately 227 million unrecognized tax benefits would impact effective tax rate recognized december 31 2007 approximately 140 million current accrued taxes related uncertain income tax positions connected ongoing tax audits various jurisdictions expect settle pay next 12 months recognize interest penalties related uncertain income tax positions income tax expense december 31 2007 accrued interest penalties related unrecognized tax benefits 11 million see note 6 consolidated financial statements discussion adoption fin 48 equity net earnings affiliates 304 million 2007 compared 278 million 2006 increase 2007 related 50 interest laverda operating joint venture acquired september 2007 well increased earnings retail finance joint ventures december 31 2007 retail finance portfolio agco finance joint venture brazil approximately 11 billion result weak market conditions 2005 2006 substantial portion portfolio included payment deferral program directed brazilian government joint venture currently considers reserves loan losses adequate joint venture continue monitor reserves considering borrower payment history value underlying equipment financed payment deferral programs implemented brazilian government compared 2005 net loss 2006 649 million 071 per diluted share compared net income 2005 316 million 035 per diluted share results 2006 included following items • noncash goodwill impairment charge 1714 million 181 per share related sprayer business accordance provisions sfas 142 • restructuring infrequent expenses 10 million 001 per share primarily related rationalization certain parts sales marketing administrative functions united kingdom germany well rationalization certain valtra european sales offices results 2005 included following items • noncash deferred income tax charge 908 million 095 per share related increasing valuation allowance united states deferred tax assets accordance sfas 109 • redemption 250 million 912 senior notes due 2008 price approximately 2619 million included premium 475 face amount notes time redemption recorded interest expense premium approximately 119 million 013 per share approximately 22 million 002 per share writeoff remaining balance deferred debt issuance costs • exchange former 134 convertible senior subordinated notes new notes june 2005 resulted reduction diluted weighted average shares outstanding approximately 90 million shares prospective basis net sales 2006 approximately 03 lower 2005 primarily due significant sales declines north america south america asiapacific regions primarily due weak market demand decline partially offset sales growth europeafricamiddle east region particularly europe income operations including restructuring infrequent expenses 1714 million goodwill impairment charge 689 million 2006 compared 2747 million 2005 addition impairment charge decrease income operations due primarily lower operating income north america asiapacific regions result sales declines partially offset improvements europeafricamiddle east south american regions operating margins declined 2006 result reduced production levels sales declines higher engineering expenses negative currency impacts productivity improvements favorable sales mix helped offset portion decline europeafricamiddle east region income operations improved approximately 369 million 2006 compared 2005 increase result higher sales levels compared 2005 particularly germany united kingdom scandinavia central eastern europe well margin improvements achieved productivity improvements sales mix income operations south american region increased approximately 74 million 2006 compared 2005 improvement result higher margins north america income operations decreased approximately 549 million 2006 compared 2005 primarily due reduction net sales resulting lower dealer deliveries led reduction dealer inventory levels well weaker market conditions estimate dealer inventory levels north america december 31 2006 declined approximately 14 compared end year 2005 levels income operations asiapacific region decreased approximately 147 million 2006 compared 2005 due lower sales weaker market conditions asia particularly japan new zealand australia retail sales worldwide industry equipment demand declined 2006 largest reductions north america south america well asiapacific region north america industry demand declined particularly higher horsepower equipment segments reduction net farm income caused increase fuel fertilizer input costs contributed decline demand europe industry demand increased slightly compared prior year due growth german uk scandinavian eastern central european markets south america industry demand continued decline 2006 due reduced farm profits resulting dry weather conditions impact strong brazilian currency exports commodities high farmer debt levels demand stabilized latter half year major market brazil primarily due solid growth citrus sugar cane sectors united states canada industry unit retail sales tractors decreased approximately 3 2006 compared 2005 resulting declines compact high horsepower tractor segments offset slight increase utility tractor segment industry unit retail sales combines decreased approximately 6 compared prior year unit retail sales tractors combines north america also decreased compared 2005 levels europe industry unit retail sales tractors increased approximately 3 2006 compared 2005 retail demand improved germany united kingdom scandinavia central eastern europe declined france italy finland unit retail sales tractors europe higher 2006 compared 2005 south america industry unit retail sales tractors 2006 decreased approximately 1 compared 2005 retail sales tractors major market brazil increased approximately 15 2006 industry unit retail sales combines 2006 37 lower prior year decline brazil approximately 33 compared prior year unit retail sales tractors combines south america also lower 2006 compared 2005 international markets net sales 2006 approximately 16 lower prior year particularly asia middle east australia new zealand results operations net sales 2006 54350 million compared 54497 million 2005 decrease primarily attributable significant sales declines north america south america asiapacific regions partially offset sales growth europeafricamiddle east region well positive currency translation impacts currency translation positively impacted net sales approximately 1147 million primarily due continued strengthening brazilian real euro following table sets forth periods indicated impact net sales currency translation geographical segment millions except percentages regionally net sales north america decreased 2006 primarily resulting weaker market conditions lower dealer deliveries led reduction dealer inventory levels europeafricamiddle east region net sales increased 2006 primarily due sales growth germany united kingdom scandinavia central eastern europe south america net sales excluding impact currency translation decreased 2006 compared 2005 primarily result weak market conditions region asiapacific region net sales decreased 2006 compared 2005 due decreases industry demand region particularly asia australia new zealand estimate worldwide average price increases 2006 contributed approximately 2 offset decrease net sales consolidated net sales tractors combines consisted approximately 71 net sales 2006 relatively flat compared 2005 unit sales tractors combines decreased approximately 5 2006 compared 2005 difference unit sales decrease change net sales result foreign currency translation pricing sales mix changes following table sets forth periods indicated percentage relationship net sales certain items included consolidated statements operations gross profit percentage net sales flat 2006 compared 2005 impact lower production levels negative currency impacts offset impact pricing improved productivity new products margins north america affected weak united states dollar products imported european brazilian facilities higher warranty costs unit production tractors combines 2006 approximately 9 lower 2005 productivity improvements achieved purchasing initiatives resourcing components labor efficiencies recorded approximately 01 million stock compensation expense within cost goods sold 2006 associated applying provisions sfas 123r fully explained note 1 consolidated financial statements sga expenses percentage net sales increased 2006 compared 2005 primarily result impact lower sales volumes 2006 increase sga expenses primarily result currency translation impacts recorded approximately 35 million stock compensation expense within sga 2006 associated applying provisions sfas 123r fully explained note 1 consolidated financial statements engineering expenses increased 2006 result increase spending fund product improvements cost reduction projects restructuring infrequent expenses 2006 primarily related severance costs associated rationalization certain parts sales marketing administrative functions united kingdom germany well rationalization certain valtra european sales offices located denmark norway germany united kingdom restructuring infrequent expenses 2005 primarily related rationalization randers denmark combine manufacturing operations second quarter 2005 completed auctions remaining machinery equipment randers facility recorded gain associated actions gain offset restructuring expenses associated randers rationalization consisting primarily employee retention payments facility closure costs also recorded restructuring expenses 2005 associated severance costs retention payments asset writedowns contract termination costs related rationalization finnish tractor manufacturing parts distribution sales operations 2006 sales operating income sprayer operations declined significantly compared prior years primarily due increased competition resulting updated product offerings major competitors shift industry demand away strength commercial application segment farmerowned segment addition projections sprayer business result valuation sufficient support carrying amount goodwill balance consolidated balance sheet attributable sprayer business result fourth quarter 2006 recorded noncash goodwill impairment charge 1714 million related sprayer operations accordance provisions sfas 142 refer “critical accounting estimates” note 1 consolidated financial statements discussion interest expense net 552 million 2006 compared 800 million 2005 decrease interest expense net 2006 primarily due redemption 250 million 912 senior notes second quarter 2005 redeemed notes price approximately 2619 million included premium 475 face amount notes premium approximately 119 million writeoff remaining balance deferred debt issuance costs associated senior notes approximately 22 million recognized interest expense net second quarter 2005 december 2006 issued 2013 million 114 convertible senior subordinated notes received proceeds approximately 1964 million related fees expenses used net proceeds received issuance notes well available cash hand repay portion outstanding united states euro denominated term loans recorded interest expense approximately 20 million proportionate writeoff deferred debt issuance costs associated term loan balances repaid expense net 329 million 2006 compared 346 million 2005 losses sales receivables primarily securitization facilities 299 million 2006 compared 224 million 2005 increase 2006 primarily due higher interest rates 2006 compared 2005 increase expense net offset foreign exchange gains 2006 versus foreign exchange losses 2005 recorded income tax provision 735 million 2006 compared 1511 million 2005 fourth quarter 2005 recognized noncash deferred income tax charge 908 million related increasing valuation allowance united states deferred tax assets sfas 109 requires establishment valuation allowance likely portion deferred tax assets realized accordance sfas 109 assessed likelihood deferred tax assets would recovered estimated future taxable income available income tax planning strategies 2006 2005 effective tax rate negatively impacted incurring losses tax jurisdictions recorded tax benefit significant impact related losses incurred united states 2006 incurred losses united states primarily due lower operating margins 2005 incurred losses united states due part costs associated second quarter redemption senior notes discussed well lower operating margins december 31 2006 2005 gross deferred tax assets 4725 million 4298 million respectively including 2466 million 1929 million respectively related net operating loss carryforwards december 31 2006 2005 recorded total valuation allowances offset gross deferred tax assets 2914 million 2528 million respectively primarily related net operating loss carryforwards brazil denmark united states equity net earnings affiliates 278 million 2006 compared 226 million 2005 increase 2006 related increased earnings retail finance joint ventures result weak market conditions 2005 2006 brazil substantial portion retail finance portfolio agco finance joint venture brazil included payment deferral program directed brazilian government joint venture considered reserves loan losses adequate december 31 2006 quarterly results following table presents unaudited interim operating results believe following information includes adjustments consisting normal recurring adjustments necessary present fairly results operations periods presented operating results period necessarily indicative results future period 1 2007 quarters ended march 31 june 30 september 30 december 31 included restructuring infrequent income expenses 00 million 03 million 25 million 01 million respectively thereby impacting net income per common share diluted basis 000 003 000 respectively 2006 quarters ended march 31 june 30 september 30 december 31 included restructuring infrequent expenses 01 million 00 million 09 million 00 million respectively thereby impacting net income per common share diluted basis 000 001 000 respectively 2006 quarter ended december 31 included noncash goodwill impairment charge 1714 million 181 per share related sprayer business accordance provisions sfas 142 recent joint venture acquisition september 28 2007 acquired 50 laverda approximately 460 million approximately 656 million thereby creating operating joint venture agco italian argo group laverda located breganze italy manufactures harvesting equipment addition producing laverda branded combines breganze factory manufacturing midrange combine harvesters massey ferguson fendt challenger brands distribution europe africa middle east since 2004 joint venture also includes laverda’s ownership fella german manufacturer grass hay machinery 50 stake gallignani italian manufacturer balers addition fella gallignani product lines enables us provide comprehensive harvesting offering customers investment financed available cash hand accounted operating joint venture accordance accounting principle board opinion 18 “the equity method accounting investments common stock” see note 2 consolidated financial statements laverda operating joint venture fully discussed september 10 2007 acquired sfil brazilian company approximately 380 million brazilian reais approximately 200 million sfil located ibirubá rio grande sul brazil manufactures distributes line farm implements including drills planters corn headers front loaders addition line implements allow us leverage strength brands dealer networks south american region acquisition financed available cash hand sfil acquisition accounted accordance sfas 141 “business combinations” results operations sfil acquisition included results operations balance sheet date acquisition see note 2 consolidated financial statements sfil acquisition fully discussed restructuring infrequent income expenses recorded restructuring infrequent income expenses 23 million 10 million 00 million years ended december 31 2007 2006 2005 respectively income 2007 primarily related 32 million gain sale portion buildings land improvements associated randers denmark facility gain partially offset 09 million severance employee relocation facility closure costs associated rationalization valtra sales office located france well rationalization certain parts sales marketing administrative functions germany charges 2006 included severance costs associated rationalization certain parts sales marketing administrative functions united kingdom germany well rationalization certain valtra european sales offices located denmark norway germany united kingdom net charges 2005 included 15 million gain sale property plant equipment related completion auctions machinery equipment associated rationalization randers denmark combine manufacturing operations gain offset 08 million employee retention payments facility closure costs incurred associated randers rationalization well 07 million severance asset writedowns facility closure costs related rationalization finnish tractor manufacturing sales parts operations record income tax benefit provision associated charges gain relating randers rationalization 2005 also record tax provision associated gain sale randers property 2007 randers denmark rationalization third quarter 2004 announced initiated plan restructure european combine manufacturing operations located randers denmark order reduce cost complexity randers manufacturing operation simplifying model range eliminating facility’s component manufacturing operations facility’s component manufacturing operations ceased february 2005 outsource manufacturing majority parts components suppliers retained critical key assembly operations randers facility retaining facility assembly operations reduced randers workforce 298 employees permanently eliminated 70 square footage utilized plans also included rationalization combine model range assembled randers retaining production high specification high value combines achieved savings approximately 66 million additional 22 million 2005 2006 respectively result rationalization 2004 recorded 82 million writedown property plant equipment associated component manufacturing operations addition restructuring charges incurred associated rationalization 2005 recorded additional 08 million restructuring costs related rationalization primarily related employee retention payments facility closure costs addition 2005 completed auctions remaining machinery equipment recorded gain approximately 15 million associated actions gain reflected “restructuring infrequent income expenses” within consolidated statements operations 2007 sold portion land buildings improvements randers facility proceeds approximately 44 million recorded gain approximately 32 million associated sale gain reflected “restructuring infrequent income expenses” within consolidated statements operations december 31 2005 298 employees terminated components restructuring expenses incurred 2005 summarized note 3 consolidated financial statements valtra european sales office rationalizations second quarter 2007 announced closure valtra sales office located france closure result termination approximately 15 employees closure intended improve ongoing cost structure reduce sga expenses recorded severance facility closure costs approximately 08 million associated closure 2007 approximately 03 million severance costs paid december 31 2007 5 employees terminated 05 million severance costs accrued december 31 2007 expected paid 2008 second quarter 2005 announced changing distribution arrangements valtra fendt products scandinavia entering distribution agreement thirdparty distributor distribute valtra fendt equipment sweden valtra equipment norway denmark result agreement decision close valtra european sales offices initiated restructuring closure valtra sales offices located united kingdom spain denmark norway resulting termination 24 employees danish norwegian sales offices transferred thirdparty scandinavian equipment distributor october 2005 included transfer certain employees assets lease supplier contracts recorded severance costs asset writedowns facility closure costs approximately 04 million 01 million 01 million respectively related closures 2005 fourth quarter 2005 completed sale property plant equipment associated sales offices united kingdom norway recorded gain approximately 02 million reflected within “restructuring infrequent income expenses” within consolidated statements operations first quarter 2006 recorded additional 01 million severance costs related closures december 31 2006 employees terminated severance facility closure costs paid closures completed improve ongoing cost structure reduce sga expenses rationalizations fully described note 3 consolidated financial statements german sales office rationalizations third quarter 2006 announced closure two sales offices located germany one valtra sales office closures resulted termination seven employees closures completed improve ongoing cost structure reduce sga expenses recorded severance costs approximately 05 million associated closures 2006 2007 recorded additional severance relocation costs approximately 01 million associated closures december 31 2007 employees terminated severance costs paid rationalizations fully described note 3 consolidated financial statements coventry united kingdom sales administrative office rationalization third quarter 2006 initiated restructuring certain parts sales marketing administrative functions within coventry united kingdom location resulting termination 13 employees recorded severance costs approximately 04 million associated restructuring 2006 employees terminated severance costs paid december 31 2006 rationalization completed improve ongoing cost structure reduce sga expenses rationalization fully described note 3 consolidated financial statements valtra finland administrative european parts rationalizations fourth quarter 2004 initiated restructuring certain administrative functions within finnish operations resulting termination 58 employees 2004 recorded severance costs approximately 14 million associated rationalization 2005 paid approximately 08 million severance costs 2007 paid additional 03 million severance costs march 31 2006 58 employees terminated 04 million severance payments accrued december 31 2007 expected paid 2008 addition 2005 incurred expensed approximately 03 million contract termination costs associated rationalization valtra european parts distribution operations rationalizations completed improve ongoing cost structure sga expenses rationalizations fully described note 3 consolidated financial statements critical accounting estimates prepare consolidated financial statements conformity us generally accepted accounting principles preparation financial statements make judgments estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period significant accounting policies followed preparation financial statements detailed note 1 consolidated financial statements believe application policies discussed involves significant levels judgment estimates complexity due level judgment complexity period time many items resolved actual results could differ estimated time preparation financial statements adjustments estimates would impact financial position future results operations allowance doubtful accounts determine allowance doubtful accounts actively monitoring financial condition customers determine potential nonpayment trade receivables determining allowance doubtful accounts also consider economic factors aging trends believe process specific review customers combined overall analytical review provides effective evaluation ultimate collectibility trade receivables loss writeoff experience approximately 01 net sales 2007 discount sales incentive allowances provide various incentive programs respect products incentive programs include reductions invoice prices reductions retail financing rates dealer commissions dealer incentive allowances volume discounts cases incentive programs established communicated dealers quarterly basis incentives paid either time invoice reduction invoice price time settlement receivable time retail financing time warranty registration subsequent time based dealer purchases incentive programs product line specific generally vary dealer cost sales incentives associated dealer commissions dealer incentive allowances estimated based upon terms programs historical experience based percentage sales price recorded later date related revenue recognized b date sales incentive offered related provisions accruals made product line basis monitored adequacy revised least quarterly event subsequent modifications programs volume discounts estimated recognized based historical experience related reserves monitored adjusted based actual dealer purchases dealers’ progress towards achieving specified cumulative target levels company records cost interest subsidy payments reduction retail financing rates later date related revenue recognized b date sales incentive offered estimates incentives based terms programs historical experience incentive programs recorded presented reduction revenue due fact receive identifiable benefit exchange consideration provided reserves incentive programs paid either reduction future invoices credit memos recorded “accounts receivable allowances” within consolidated balance sheet reserves incentive programs paid cash case volume discount programs recorded within “accrued expenses” within consolidated balance sheet december 31 2007 recorded allowance discounts sales incentives approximately 1079 million allow additional 1 sales incentives discounts time retail sale sales subject discount programs reserve would increase approximately 88 million december 31 2007 conversely decrease sales incentives discounts 1 time retail sale reserve would decrease approximately 88 million december 31 2007 inventory reserves inventories valued lower cost market using firstin firstout method market current replacement cost purchase reproduction dependent type inventory cases market exceeds net realizable value ie estimated selling price less reasonably predictable costs completion disposal inventories stated net realizable value market considered less net realizable value reduced allowance approximately normal profit margin determination cost includes estimates surplus obsolete inventory based estimates future sales production changes demand product design impact estimates periodically evaluate update assumptions assessing adequacy inventory adjustments deferred income taxes uncertain income tax positions establish valuation allowances deferred tax assets estimate likely tax assets realized base estimates projections future income including taxplanning strategies certain tax jurisdictions changes industry conditions competitive environment may impact accuracy projections sfas 109 requires establishment valuation allowance likely portion deferred tax assets realized accordance sfas 109 periodically assess likelihood deferred tax assets recovered estimated future taxable income available tax planning strategies determine adjustments valuation allowance appropriate result assessments certain tax jurisdictions benefit losses benefited losses generated united states 2007 2006 2005 fourth quarter 2005 recognized noncash deferred income tax charge 908 million related increasing valuation allowance united states deferred tax assets accordance sfas 109 assessed likelihood united states deferred tax assets would recovered future taxable income determined adjustment valuation allowance appropriate december 31 2007 2006 gross deferred tax assets 4791 million 4725 million respectively including 2478 million 2466 million respectively related net operating loss carryforwards december 31 2007 2006 recorded total valuation allowances offset gross deferred tax assets 3153 million 2914 million respectively primarily related net operating loss carryforwards brazil denmark united states realization remaining deferred tax assets december 31 2007 depends generating sufficient taxable income future periods net reversing deferred tax liabilities believe likely remaining net deferred tax assets realized 2006 fasb issued fin 48 fin 48 clarifies accounting uncertainty income taxes recognized enterprise’s financial statements accordance sfas 109 fin 48 also prescribes recognition threshold measurement tax position taken expected taken enterprise’s tax return fin 48 effective fiscal years beginning december 15 2006 accordingly adopted provisions fin 48 january 1 2007 result implementation fin 48 recognize material adjustment respect liabilities unrecognized tax benefits december 31 2007 approximately 227 million unrecognized tax benefits would impact effective tax rate recognized december 31 2007 approximately 140 million current accrued taxes related uncertain income tax positions connected ongoing tax audits various jurisdictions expect settle pay next 12 months recognize interest penalties related uncertain income tax positions income tax expense december 31 2007 accrued interest penalties related unrecognized tax benefits 11 million see note 6 consolidated financial statements discussion adoption fin 48 maintain procedures designed appropriately reflect uncertain income tax positions consolidated financial statements accordance provisions fin 48 procedures include evaluation uncertainties internally necessary externally third party advisors warranty additional service actions make provisions estimated expenses related product warranties time products sold base estimates historical experience nature frequency average cost warranty claims addition number magnitude additional service actions expected approved policies related additional service actions taken consideration due uncertainty potential volatility estimated factors changes assumptions could materially affect net income estimate warranty obligations reevaluated quarterly basis experience shown initial data product series line volatile therefore process relies upon longterm historical averages sufficient data available actual experience becomes available used modify historical averages ensure forecast within range likely outcomes resulting balances compared present spending rates ensure accruals adequate meet expected future obligations see note 1 consolidated financial statements information regarding costs assumptions warranties insurance reserves provide insurance reserves estimates losses due claims worker’s compensation product liability liabilities selfinsured base estimates ultimate settlement amount claims often long periods resolution closely monitor claims maintain adequate reserves pensions defined benefit pension plans covering certain employees principally united states united kingdom germany finland norway france australia argentina primary plans cover certain employees united states united kingdom united states sponsor funded qualified pension plan salaried employees well separate funded qualified pension plan hourly employees plans frozen fund least minimum contributions required employee retirement income security act 1974 internal revenue code plans addition sponsor unfunded nonqualified pension plan executives united kingdom sponsor funded pension plan provides annuity benefit based participants’ final average earnings service participation plan limited certain older longer service employees existing retirees future employees participate plan see note 8 consolidated financial statements information regarding costs assumptions employee retirement benefits nature estimates required measurement pension obligations costs liabilities dependent variety assumptions provided management used actuaries assumptions include estimates present value projected future pension payments plan participants taking consideration likelihood potential future events salary increases demographic experience assumptions may effect amount timing future contributions assumptions approach used assumptions used developing required estimates include following key factors years ended december 31 2007 2006 based discount rate used determine projected benefit obligation us pension plans matching projected cash flows plans citigroup pension discount curve prior december 31 2006 based discount rate used determine projected benefit obligation us pension plans moody’s investor service aa bond yield december 31 year nonus plans based discount rate comparable indices within countries 15year iboxx aa corporate bond yield united kingdom indices used united states united kingdom countries chosen match expected plan obligations related expected cash flows measurement date respect uk pension plan september 30 year measurement date respect us pension plan defined benefit plans december 31 year adopted provisions sfas 158 “employers’ accounting defined benefit pension postretirement plans amendment fasb statements 87 88 106 132r” “sfas 158” year ended december 31 2006 sfas 158 require measurement defined benefit plan assets obligations date fiscal year end years ending december 15 2008 therefore measurement date respect uk pension plan change upon adoption provision 2008 inflation assumption based evaluation external market indicators salary growth assumptions reflect longterm actual experience nearterm outlook assumed inflation expected return plan asset assumptions reflects asset allocations investment strategy historical experience views investment managers retirement termination rates based primarily actual plan experience actuarial standards practice mortality rates us plans updated 2006 reflect recent study released society actuaries reflects pensioner experience distinctions blue white collar employees effects actual results differing assumptions accumulated amortized future periods therefore generally affect recognized expense periods us uk pension plans represent approximately 91 consolidated projected benefit obligation december 31 2007 discount rate used determine 2007 projected benefit obligation us plans decreased 25 basis points projected benefit obligation would increased approximately 11 million december 31 2007 2008 pension expense would increase nominal amount discount rate used determine 2007 projected benefit obligation us plans increased 25 basis points projected benefit obligation would decreased approximately 10 million 2008 pension expense would decrease nominal amount discount rate used determine projected benefit obligation uk plan decreased 25 basis points projected benefit obligation would increased approximately 257 million december 31 2007 2008 pension expense would increase approximately 23 million discount rate used determine projected benefit obligation uk plan increased 25 basis points projected benefit obligation would decreased approximately 251 million december 31 2007 2008 pension expense would decrease approximately 23 million unrecognized actuarial losses related pension plans 1269 million december 31 2007 compared 2414 million december 31 2006 decrease unrecognized losses years primarily reflects increasing discount rates worldwide gains result better expected asset returns partially offset currency translation unrecognized actuarial losses impacted future periods actual asset returns discount rate changes currency exchange rate fluctuations actual demographic experience certain factors losses amortized straightline basis average remaining service period active employees expected receive benefits defined benefit pension plans population covered predominantly inactive participants losses related plans amortized average remaining lives participants covered respective plan december 31 2007 average amortization period 16 years us pension plans 10 years nonus pension plans estimated net actuarial loss defined benefit pension plans amortized accumulated comprehensive loss year ended december 31 2008 approximately 56 million compared approximately 149 million year ended december 31 2007 weighted average asset allocation us pension benefit plans december 31 2007 2006 follows weighted average asset allocation nonus pension benefit plans december 31 2007 2006 follows tax qualified pension fund investments united states held agco corporation master pension trust global pension fund strategy diversify investments across broad categories equity fixed income securities appropriate use alternative investment categories minimize risk volatility us target allocation retirement fund investments 35 large small cap domestic equity securities 15 international equity securities 20 domestic fixed income securities 30 invested investments noted long periods mix investments would achieve average return excess 9 arriving choice expected return assumption 8 us based plans tempered historical indicator lower expectations returns equity investments future well considered administrative costs plans date invested pension funds common stock intention future nonus target allocation retirement fund investments 50 equity securities 30 fixed income securities 20 invested investments majority nonus pension fund investments related pension plan united kingdom noted long periods target mix investments would achieve average return excess 75 arriving choice expected return assumption 7 uk pension plan tempered historical indicator slightly lower expectation future returns equity investments well plan expenses december 31 2007 approximately 1192 million unfunded underfunded obligations related pension plans due primarily pension plan united kingdom 2007 contributed approximately 371 million towards obligations expect fund approximately 338 million 2008 future funding dependent upon compliance local laws regulations changes laws regulations future well generation operating cash flows future currently agreement place trustees uk defined benefit plan obligates us fund approximately £100 £120 million per year approximately 199 238 million towards obligation next 11 years funding arrangement based upon current underfunded status could change future discount rates local laws regulations factors change postretirement benefits retiree health care life insurance provide certain postretirement health care life insurance benefits certain employees principally united states participation plans limited older employees existing retirees see note 8 consolidated financial statements information regarding costs assumptions postretirement benefits nature estimates required measurement obligations costs liabilities associated postretirement benefits retiree health care life insurance requires make use estimates present value projected future payments participants taking consideration likelihood potential future events health care cost increases demographic experience may effect amount timing future payments assumptions approach used assumptions used developing required estimates include following key factors health care cost trend assumptions developed based historical cost data nearterm outlook efficiencies costmitigating actions including employee cost sharing administrative improvements efficiencies assessment likely longterm trends years ended december 31 2007 2006 based discount rate used determine projected benefit obligation us postretirement benefit plans matching projected cash flows plans citigroup pension discount curve prior december 31 2006 based discount rate used determine projected benefit obligation us postretirement benefit plans moody’s investor service aa bond yield december 31 year index used chosen match expected plan obligations related expected cash flows inflation assumption based evaluation external market indicators retirement termination rates based primarily actual plan experience actuarial standards practice mortality rates updated 2006 reflect recent study released society actuaries reflects pensioner experience distinctions blue white collar employees effects actual results differing assumptions accumulated amortized future periods therefore generally affect recognized expense future periods discount rate used determine 2007 projected benefit obligation us postretirement benefit plans decreased 25 basis points projected benefit obligation would increased approximately 07 million december 31 2007 2008 postretirement benefit expense would increase nominal amount discount rate used determine 2007 projected benefit obligation us postretirement benefit plans increased 25 basis points projected benefit obligation would decreased approximately 06 million 2008 pension expense would decrease nominal amount unrecognized actuarial losses related us postretirement benefit plans 43 million december 31 2007 compared 37 million december 31 2006 increase losses primarily reflects higher expected medical claims 2007 increase assumptions regarding future medical costs losses partially offset increase discount rate december 31 2007 unrecognized actuarial losses impacted future periods discount rate changes actual demographic experience actual health care inflation certain factors losses amortized straightline basis average remaining service period active employees expected receive benefits average remaining lives inactive participants covered postretirement benefit plans december 31 2007 average amortization period 14 years us postretirement benefit plans estimated net actuarial loss postretirement health care benefits amortized accumulated comprehensive loss year ended december 31 2008 approximately 02 million compared approximately 01 million year ended december 31 2007 december 31 2007 approximately 256 million unfunded obligations related us postretirement health life insurance benefit plans 2007 made benefit payments approximately 21 million towards obligations expect make benefit payments approximately 21 million towards obligations 2008 measuring expected postretirement benefit obligation december 31 2007 assumed 9 health care cost trend rate 2008 decreasing 1 per year 5 remaining level thereafter changing assumed health care cost trend rates one percentage point year holding assumptions constant would following effect service interest cost 2008 accumulated postretirement benefit obligation december 31 2007 millions litigation party various claims lawsuits arising normal course business closely monitor claims lawsuits frequently consult legal counsel determine whether may resolved material adverse effect financial position results operations goodwill indefinitelived assets sfas 142 establishes method testing goodwill indefinitelived intangible assets impairment annual basis interim basis event occurs circumstances change would reduce fair value reporting unit carrying value initial assessment annual assessments involve determining estimate fair value reporting units order evaluate whether impairment current carrying amount goodwill indefinitelived intangible assets exists first step goodwill impairment test used identify potential impairment compares fair value reporting unit carrying amount including goodwill fair value reporting unit exceeds carrying amount goodwill reporting unit considered impaired thus second step impairment unnecessary carrying amount reporting unit exceeds fair value second step goodwill impairment test performed measure amount impairment loss fair values derived based evaluation past expected future performance reporting units reporting unit operating segment one level operating segment eg component operating segment reporting unit component constitutes business discrete financial information available executive management team regularly reviews operating results component addition combine aggregate two components operating segment single reporting unit components similar economic characteristics reportable segments reported guidance sfas 131 “disclosures segments enterprise related information” reporting units exception asiapacific south american geographical segments second step goodwill impairment test used measure amount impairment loss compares implied fair value reporting unit goodwill carrying amount goodwill carrying amount reporting unit goodwill exceeds implied fair value goodwill impairment loss recognized amount equal excess loss recognized cannot exceed carrying amount goodwill implied fair value goodwill determined manner amount goodwill recognized business combination determined allocate fair value reporting unit assets liabilities unit including unrecognized intangible assets reporting unit acquired business combination fair value reporting unit price paid acquire reporting unit excess fair value reporting unit amounts assigned assets liabilities implied fair value goodwill utilized combination valuation techniques including discounted cash flow approach market multiple approach making annual interim assessments stated goodwill tested impairment annual basis often indications impairment exist results analyses conducted october 1 2007 2005 indicated reduction carrying amount goodwill required 2006 sales operating income sprayer operations declined significantly compared prior years primarily due increased competition resulting updated product offerings major competitors shift industry demand away strength commercial application segment farmerowned segment addition projections sprayer operations result valuation sufficient support carrying amount goodwill balance consolidated balance sheet excess fair value reporting unit amounts assigned assets liabilities could allocated implied fair value goodwill result concluded goodwill associated sprayer operations impaired recognized writedown total amount recorded goodwill approximately 1714 million fourth quarter 2006 results analyses conducted october 1 2006 associated reporting units indicated reduction carrying amounts goodwill required liquidity capital resources financing requirements subject variations due seasonal changes inventory receivable levels internally generated funds supplemented necessary external sources primarily revolving credit facility accounts receivable securitization facilities current financing funding sources balances outstanding december 31 2007 2013 million principal amount 114 convertible senior subordinated notes due 2036 2013 million principal amount 134 convertible senior subordinated notes due 2033 2000 million approximately 2918 million principal amount 678 senior subordinated notes due 2014 approximately 4959 million accounts receivable securitization facilities approximately 4463 million outstanding funding december 31 2007 3000 million multicurrency revolving credit facility amounts outstanding december 31 2007 december 4 2006 issued 2013 million 114 convertible senior subordinated notes due december 15 2036 received proceeds approximately 1964 million related fees expenses notes unsecured obligations convertible cash shares common stock upon satisfaction certain conditions discussed notes provide settlement upon conversion cash principal amount notes excess conversion value settled shares common stock ii conversion rate increased certain circumstances notes converted connection certain change control transactions occurring prior december 15 2013 interest payable notes 114 per annum payable semiannually arrears cash june 15 december 15 year notes convertible shares common stock effective price 4073 per share subject adjustment reflects initial conversion rate notes 245525 shares common stock per 1000 principal amount notes event stock dividend split common stock certain dilutive events conversion rate adjusted upon conversion notes holders notes would entitled receive number shares common stock would entitled receive converted notes common stock immediately prior events change control transaction qualifies “fundamental change” occurs prior december 15 2013 certain circumstances increase conversion rate notes converted connection transaction number additional shares used paragraph “make whole shares” fundamental change transaction event connection 50 common stock exchanged converted acquired constitutes solely right receive consideration least 90 common stock listed us national securities exchange approved quotation automated quotation system amount increase conversion rate depend effective date transaction average price per share common stock effective date adjustment conversion rate made price per share common stock less 3133 per share 18000 per share number additional make whole shares range 73658 shares per 1000 principal amount 3133 per share 01063 shares per 1000 principal amount 18000 per share year ended december 15 2008 number make whole shares generally declining time acquirer certain affiliates fundamental change transaction publicly traded common stock may instead increasing conversion rate described cause notes become convertible publicly traded common stock acquirer principal notes repaid cash balance payable shares acquirer common stock time issue aggregate number shares common stock upon conversion notes excess 319183 shares per 1000 principal amount thereof holders common stock receive cash fundamental change transaction holders notes receive cash well holders may convert notes following circumstances 1 fiscal quarter closing sales price common stock exceeds 120 conversion price least 20 trading days 30 consecutive trading days ending last trading day preceding fiscal quarter 2 five business day period five consecutive trading day period trading price per note day period less 98 product closing sale price common stock conversion rate 3 notes called redemption 4 upon occurrence certain corporate transactions beginning december 15 2013 may redeem notes redemption price 100 principal amount plus accrued interest holders notes may require us repurchase notes repurchase price 100 principal amount plus accrued interest december 15 2013 2016 2021 2026 2031 holders may also require us repurchase portion notes upon fundamental change defined indenture repurchase price equal 100 principal amount notes repurchased plus accrued unpaid interest notes senior subordinated obligations subordinated existing future senior indebtedness effectively subordinated debt liabilities subsidiaries notes equal right payment 678 senior subordinated notes due 2014 134 convertible senior subordinated notes due 2033 used net proceeds received issuance 114 convertible senior subordinated notes well available cash repay 1969 million outstanding united states dollar denominated term loan 791 million outstanding euro denominated term loan addition recorded interest expense approximately 20 million proportionate writeoff deferred debt issuance costs associated term loan balances repaid united states dollar denominated euro denominated term loans discussed june 29 2005 exchanged 2013 million 134 convertible senior subordinated notes due 2033 new notes provide settlement upon conversion cash principal amount converted new notes excess conversion value settled shares common stock ii conversion rate increased certain circumstances new notes converted connection certain change control transactions occurring prior december 10 2010 otherwise substantially old notes unsecured obligations convertible cash shares common stock upon satisfaction certain conditions discussed interest payable notes 134 per annum payable semiannually arrears cash june 30 december 31 year notes convertible shares common stock effective price 2236 per share subject adjustment reflects initial conversion rate notes 447193 shares common stock per 1000 principal amount notes event stock dividend split common stock certain dilutive events conversion rate adjusted upon conversion notes holders notes would entitled receive number shares common stock would entitled receive converted notes common stock immediately prior events change control transaction qualifies “fundamental change” occurs prior december 31 2010 certain circumstances increase conversion rate notes converted connection transaction number additional shares used paragraph “make whole shares” fundamental change transaction event connection 50 common stock exchanged converted acquired constitutes solely right receive consideration least 90 common stock listed us national securities exchange approved quotation automated quotation system amount increase conversion rate depend effective date transaction average price per share common stock effective date adjustment conversion rate made price per share common stock less 1707 per share 11000 per share number additional make whole shares range 132 shares per 1000 principal amount 1707 per share 01 shares per 1000 principal amount 11000 per share year ended december 31 2008 number make whole shares generally declining time acquirer certain affiliates fundamental change transaction publicly traded common stock may instead increasing conversion rate described cause notes become convertible publicly traded common stock acquirer principal notes repaid cash balance payable shares acquirer common stock time issue aggregate number shares common stock upon conversion notes excess 585823 shares per 1000 principal amount thereof holders common stock receive cash fundamental change transaction holders notes receive cash well holders may convert notes following circumstances 1 fiscal quarter closing sales price common stock exceeds 120 conversion price least 20 trading days 30 consecutive trading days ending last trading day preceding fiscal quarter 2 five business day period five consecutive trading day period trading price per note day period less 98 product closing sale price common stock conversion rate 3 notes called redemption 4 upon occurrence certain corporate transactions beginning january 1 2011 may redeem notes redemption price 100 principal amount plus accrued interest holders notes may require us repurchase notes repurchase price 100 principal amount plus accrued interest december 31 2010 2013 2018 2023 2028 impact exchange completed june 2005 discussed reduced diluted weighted average shares outstanding future periods initial reduction diluted shares approximately 90 million shares varies based stock price market price trigger specified conversion circumstances met december 31 2007 closing sales price common stock exceeded 120 conversion price 2236 4073 per share respectively 134 convertible senior subordinated notes 114 convertible senior subordinated notes least 20 trading days 30 consecutive trading days ending december 31 2007 therefore classified notes current liabilities future classification notes current longterm debt dependent closing sales price common stock future quarters believe unlikely holders notes would convert notes provisions indenture agreement typically convertible securities converted prior expiration unless called redemption thereby requiring us repay principal portion cash event notes converted believe could repay notes available cash hand funds existing 3000 million multicurrency revolving credit facility combination sources redeemed 250 million 912 senior notes june 23 2005 price approximately 2619 million represented premium 475 senior notes face amount premium approximately 119 million reflected interest expense net second quarter 2005 connection redemption also wrote remaining balance deferred debt issuance costs approximately 22 million funding sources redemption combination cash generated transfer wholesale interestbearing receivables united states canadian retail finance joint ventures agco finance llc agco finance canada ltd discussed revolving credit facility borrowings available cash hand january 5 2004 entered credit facility provides 3000 million multicurrency revolving credit facility 3000 million united states dollar denominated term loan 1200 million euro denominated term loan maturity date revolving credit facility december 2008 maturity date term loan facility june 2009 anticipate entering new revolving credit facility 2008 replace current revolving credit facility required make quarterly payments towards united states dollar denominated term loan euro denominated term loan 075 million 03 million respectively amortization one percent per annum maturity date term loan june 29 2007 repaid remaining balances outstanding united states dollar euro denominated term loans totaling 725 million 286 million respectively available cash hand revolving credit facility secured majority us canadian finnish uk based assets pledge portion stock domestic material foreign subsidiaries interest accrues amounts outstanding revolving credit facility option either 1 libor plus margin ranging 125 20 based upon senior debt ratio 2 higher administrative agent’s base lending rate onehalf one percent federal funds rate plus margin ranging 00 075 based senior debt ratio interest accrued amounts outstanding term loans libor plus 175 credit facility contains covenants restricting among things incurrence indebtedness making certain payments including dividends also must fulfill financial covenants including among others total debt ebitda ratio senior debt ebitda ratio fixed charge coverage ratio defined facility december 31 2007 outstanding borrowings multicurrency revolving credit facility december 31 2007 availability borrow 2911 million revolving credit facility december 31 2006 total borrowings 1114 million credit facility included 733 million united states dollar denominated term loan facility 289 million approximately 381 million euro denominated term loan facility amounts outstanding multicurrency revolving credit facility december 31 2006 availability borrow 2922 million revolving credit facility april 23 2004 sold 2000 million 678 senior subordinated notes due 2014 received proceeds approximately 2340 million offering related fees expenses 678 senior subordinated notes unsecured obligations subordinated right payment existing future senior indebtedness interest payable notes semiannually april 15 october 15 year beginning april 15 2009 may redeem notes whole part initially 103438 principal amount plus accrued interest declining 100 principal amount plus accrued interest time april 15 2012 addition april 15 2009 may redeem notes whole part redemption price equal 100 principal amount plus accrued interest makewhole premium notes include covenants restricting incurrence indebtedness making certain restricted payments including dividends securitization facilities sell accounts receivable united states canada europe revolving basis commercial paper conduits whollyowned special purpose us subsidiary qualifying special purpose entity “qspe” united kingdom united states canadian securitization facilities expire april 2009 european facility expires october 2011 subject annual renewal december 31 2007 aggregate amount facilities 4959 million outstanding funded balance 4463 million december 31 2007 effect reducing accounts receivable shortterm liabilities amount risk loss securitization facilities limited portion unfunded balance receivables sold approximately 15 funded amount maintain reserves doubtful accounts associated risk facilities terminated would required repurchase previously sold receivables would prevented selling additional receivables commercial paper conduits facilities allow us sell accounts receivables financing conduits obtain funding commercial paper markets future funding securitization facilities depends upon adequacy receivables sufficient demand underlying commercial paper maintenance certain covenants concerning quality receivables financial condition event commercial paper demand adequate securitization facilities provide liquidity backing various financial institutions including rabobank liquidity commitments would provide us interim funding allow us find alternative sources working capital financing necessary may 2005 completed agreement permit transferring ongoing basis majority wholesale interestbearing receivables north america united states canadian retail finance joint ventures agco finance llc agco finance canada ltd 49 ownership interest joint ventures transfer wholesale interestbearing receivables without recourse agco continue service receivables initial transfer wholesale interestbearing receivables resulted net proceeds approximately 94 million used redeem 250 million 912 senior notes december 31 2007 2006 balance interestbearing receivables transferred agco finance llc agco finance canada ltd agreement approximately 733 million 1241 million respectively business subject substantial cyclical variations generally difficult forecast results operations may also vary time resulting costs associated rationalization plans acquisitions result request relief lenders occasion respect financial covenant compliance currently anticipate asking relief possible would require relief future based upon historical working relationship lenders currently anticipate difficulty obtaining relief cash flow provided operating activities 5043 million 2007 compared 4422 million 2006 cash flows 2007 higher 2006 primarily due higher net income 2007 compared 2006 2007 2006 cash flow provided operating activities improved reduction net working capital working capital requirements seasonal investments working capital typically building first half year reducing second half year 6384 million working capital december 31 2007 compared 6854 million december 31 2006 accounts receivable inventories combined december 31 2007 1586 million higher december 31 2006 cash hand december 31 2007 approximately 1813 million higher prior year due increase operating cash flow generated 2007 capital expenditures 2007 1414 million compared 1291 million 2006 capital expenditures 2007 used support manufacturing operations systems initiatives development enhancement new existing products september 2007 made 668 million investment laverda operating joint venture manufactures harvesting equipment paid 205 million connection sfil acquisition fully described “recent joint venture acquisition” february 2005 made 213 million investment retail finance joint venture rabobank brazil fully described “related parties” debt capitalization ratio total indebtedness divided sum total indebtedness stockholders’ equity 254 december 31 2007 compared 345 december 31 2006 decrease primarily due lower debt levels 2007 partially due repayment united states dollar euro denominated term loans credit facility described time review continue review acquisition joint venture opportunities well changes capital markets consummate significant acquisition elect take advantage favorable opportunities capital markets may supplement availability revise terms credit facilities complete public private offerings equity debt securities believe available borrowings revolving credit facility funding accounts receivable securitization facilities available cash internally generated funds sufficient support working capital expenditures debt service requirements foreseeable future contractual obligations future payments required significant contractual obligations excluding foreign currency forward contracts december 31 2007 follows millions 1 estimated interest payments calculated assuming current interest rates minimum maturity periods specified debt agreements debt may repaid sooner later minimum maturity periods 2 unconditional purchase obligations exclude routine purchase orders entered normal course business result rationalization european combine manufacturing operations 2004 entered agreement laverda produce certain combine model ranges fiveyear period agreement provides purchase minimum quantity 200 combines per year cost approximately 162 million per year approximately 236 million may 2009 3 shortterm longterm obligations include estimates future minimum contribution requirements us nonus defined benefit pension postretirement plans estimates based current legislation countries operate within subject change shortterm longterm obligations also include income tax liabilities related uncertain income tax positions whether connected ongoing income tax audits various jurisdictions accordance fin 48 offbalance sheet arrangements guarantees december 31 2007 obligated certain circumstances purchase year 2010 50 million equipment upon expiration certain operating leases agco finance llc agco finance canada ltd retail finance joint ventures north america end users also maintain remarketing agreement joint ventures whereby obligated repurchase repossessed inventory market values agreement agco finance llc limits purchase obligations arrangement 60 million aggregate per calendar year believe losses might incurred resale equipment materially impact financial position results operations time sell certain trade receivables factoring arrangements financial institutions throughout world evaluate sale receivables pursuant guidelines sfas 140 “accounting transfers servicing financial assets extinguishments liabilities replacement fasb statement 125” determined facilities accounted offbalance sheet transactions accordance sfas 140 december 31 2007 guaranteed indebtedness owed third parties approximately 1634 million primarily related dealer enduser financing equipment believe credit risk associated guarantees material financial position losses guarantees historically insignificant december 31 2007 foreign currency forward contracts buy aggregate approximately 5314 million united states dollar equivalents foreign currency forward contracts sell aggregate approximately 1202 million united states dollar equivalents contracts maturity less one year see “foreign currency risk management” additional information contingencies result brazilian tax legislative changes impacting value added taxes “vat” recorded reserve approximately 219 million 200 million outstanding balance brazilian vat taxes receivable december 31 2007 2006 respectively due uncertainty ability collect amounts outstanding february 2006 received subpoena sec connection nonpublic factfinding inquiry entitled “in matter certain participants oil food program” subpoena requested documents concerning transactions iraq united nations oil food program agco certain subsidiaries subsequently contacted doj regarding transactions although subpoena formal process initiated doj similar inquiries initiated danish french governments regarding two subsidiaries inquiries arose sales approximately 580 million farm equipment iraq ministry agriculture 2000 2002 sec’s staff asserted certain aspects transactions properly recorded books records cooperating fully inquiries possible predict outcome inquiries impact us although outcomes adverse could required pay fines make payments well take appropriate remedial actions party various legal claims actions incidental business believe none claims actions either individually aggregate material business financial condition related parties rabobank aaa rated financial institution based netherlands 51 owner retail finance joint ventures located united states canada brazil germany france united kingdom australia ireland austria rabobank also principal agent participant revolving credit facility securitization facilities majority assets retail finance joint ventures represent finance receivables majority liabilities represent notes payable accrued interest various joint venture agreements rabobank affiliates obligated provide financing joint venture companies primarily lines credit guarantee debt obligations retail finance joint ventures portion retail portfolio brazil held outside joint venture rabobank brazil prior 2005 joint venture brazil agency relationship rabobank whereby rabobank provided funding february 2005 made 213 million investment retail finance joint venture rabobank brazil additional investment joint venture’s organizational structure comparable retail finance joint ventures result gradual elimination solvency guarantee rabobank portfolio originally funded rabobank brazil december 31 2007 solvency requirement portfolio held rabobank approximately 75 million retail finance joint ventures provide retail financing wholesale financing dealers terms financing arrangements offered dealers similar arrangements provide unaffiliated third parties discussed previously december 31 2007 obligated certain circumstances purchase year 2010 50 million equipment upon expiration certain operating leases agco finance llc agco finance canada ltd retail joint ventures north america end users also maintain remarketing agreement joint ventures discussed “offbalance sheet arrangements” addition part sales incentives provided end users may time subsidize interest rates retail financing provided retail joint ventures cost programs recognized time sale dealers addition discussed may 2005 completed agreement permit transferring ongoing basis majority wholesale interestbearing receivables north america agco finance llc agco finance canada ltd 49 ownership interest joint ventures transfer wholesale interestbearing receivables without recourse agco continue service receivables december 31 2007 2006 balance interestbearing receivables transferred agco finance llc agco finance canada ltd agreement approximately 733 million 1241 million respectively 2007 2006 2005 net sales approximately 2754 million 1909 million 1538 million respectively baywa corporation german distributor ordinary course business president ceo baywa corporation member board directors 2007 2006 paid license fees purchased raw materials including engines totaling approximately 1919 million 2113 million respectively caterpillar inc ordinary course business one members board directors group president caterpillar inc retirement position february 2008 outlook operations subject cyclical nature agricultural industry sales equipment expected continue affected changes net cash farm income farm land values weather conditions demand agricultural commodities farm industry related legislation general economic conditions worldwide industry retail sales farm equipment 2008 expected increase modestly strong 2007 levels north america 2008 farm income projected higher driving increased demand industry retail sales compared 2007 south america strong demand brazil argentina expected produce increased industry retail sales europe industry retail demand expected relatively flat market expansion eastern europe expected continue net sales 2008 expected increase compared 2007 due pricing strengthening markets market share improvement impact currency translation 2008 projected operating margin improvement resulting higher sales volumes cost reduction efforts expected limited strategic investments form increased engineering expenses european information system initiative new market development distribution improvements foreign currency risk management significant manufacturing operations france germany brazil finland purchase portion tractors combines components thirdparty foreign suppliers primarily various european countries japan also sell products 140 countries throughout world majority net sales outside united states denominated currency customer location exception sales middle east africa asia parts south america net sales primarily denominated british pounds euros united states dollars see note 14 consolidated financial statements net sales customer location significant transactional foreign currency exposures euro brazilian real canadian dollar relation united states dollar fluctuations value foreign currencies create exposures adversely affect results operations attempt manage transactional foreign exchange exposure economically hedging foreign currency cash flow forecasts commitments arising settlement receivables payables future purchases sales naturally offsetting currency positions occur hedge certain exposures use foreign currency forward option contracts hedging policy prohibits entering contracts speculative trading purposes translation exposure resulting translating financial statements foreign subsidiaries united states dollars hedged significant translation exposures euro british pound brazilian real relation united states dollar practical translation impact reduced financing local operations local borrowings derivatives recognized consolidated balance sheets fair value date derivative contract entered designate derivative either 1 fair value hedge recognized liability 2 cash flow hedge forecasted transaction 3 hedge net investment foreign operation 4 nondesignated derivative instrument discussed use foreign currency forward contracts economically hedge receivables payables consolidated balance sheet subsidiaries’ balance sheets denominated foreign currencies functional currency forward contracts classified nondesignated derivative instruments gains losses contracts historically substantially offset losses gains remeasurement underlying asset liability hedged changes fair value nondesignated derivative contracts reported current earnings 2007 2006 designated certain foreign currency option contracts cash flow hedges expected future sales effective portion fair value gains losses cash flow hedges recorded comprehensive income subsequently reclassified cost goods sold period sales recognized amounts offset effect changes foreign exchange rates related sale transactions amount gain recorded comprehensive income loss reclassified cost goods sold years ended december 31 2007 2006 approximately 41 million 40 million respectively aftertax basis amount gain recorded comprehensive income loss related outstanding cash flow hedges december 31 2007 2006 approximately 77 million 01 million respectively aftertax basis outstanding contracts december 31 2007 range maturity december 2008 following summary foreign currency derivative contracts used hedge currency exposures contracts maturity less one year net notional amounts fair value gains losses december 31 2007 stated united states dollars follows millions except average contract rate per united states dollar contracts entered hedging purposes gains losses contracts would largely offset gains losses underlying firm commitment forecasted transaction interest rates manage interest rate risk use fixed rate debt may future utilize interest rate swap contracts fixed rate debt senior subordinated notes convertible senior subordinated notes floating rate exposure related revolving credit facility securitization facilities tied changes united states european libor rates assuming 100 increase interest rates interest expense net cost securitization facilities year ended december 31 2007 would increased approximately 30 million interest rate swap contracts outstanding years ended december 31 2007 2006 2005 accounting changes december 2007 fasb issued sfas 141 revised 2007 “business combinations” “sfas 141r” sfas 160 “noncontrolling interests consolidated financial statements” “sfas 160” sfas 141r requires acquirer measure identifiable assets acquired liabilities assumed noncontrolling interest acquiree fair values acquisition date goodwill excess value net identifiable assets acquired sfas 141r also requires fair value measurement certain assets liabilities related acquisition contingencies research development sfas 160 clarifies noncontrolling interest subsidiary reported equity company’s consolidated financial statements consolidated net income include net income parent noncontrolling interest disclosure amounts company’s consolidated statement operations calculation earnings per share continue based income amounts attributable parent required adopt sfas 141r sfas 160 january 1 2009 currently evaluating impact sfas 141r sfas 160 consolidated financial statements march 2007 emerging issues task force “eitf” reached consensus eitf issue 0610 “accounting collateral assignment splitdollar life insurance arrangements” “eitf 0610” requires employer recognize liability postretirement benefit related collateral assignment splitdollar life insurance arrangement accordance either sfas 106 “employers’ accounting postretirement benefits pensions” “sfas 106” substance postretirement benefit plan exists apb opinion 12 arrangement substance individual deferred compensation contract employer agreed maintain life insurance policy employee’s retirement provide employee death benefit based substantive agreement employee addition eitf reached consensus employer recognize measure asset based nature substance collateral assignment splitdollar life insurance arrangement eitf observed determining nature substance arrangement employer assess future cash flows employer entitled well employee’s obligation ability repay employer eitf 0610 effective fiscal years beginning december 15 2007 certain insurance policies subject provisions new pronouncement believe adoption eitf 0610 material impact consolidated results operations financial position february 2007 fasb issued sfas 159 “the fair value option financial assets financial liabilities” “sfas 159” sfas 159 provides companies option report selected financial assets liabilities fair value provide additional information help investors users financial statements understand easily effect earnings company’s choice use fair value also requires companies display fair value assets liabilities company chosen use fair value face balance sheet required adopt sfas 159 january 1 2008 believe adoption sfas 159 material impact consolidated financial statements september 2006 fasb issued sfas 157 “fair value measurements” “sfas 157” sfas 157 establishes common definition fair value applied guidance regarding us generally accepted accounting principles requiring use fair value establishes framework measuring fair value expands disclosure fair value measurements sfas 157 effective fair value measures already required permitted standards fiscal years beginning november 15 2007 november 2007 fasb proposed oneyear deferral sfas 157’s fair value measurement requirements nonfinancial assets liabilities required permitted measured fair value recurring basis currently assessing impact sfas 157 consolidated financial position results operations 2008 believe adoption sfas 157 material impact consolidated results operations financial position september 2006 fasb issued fasb staff position aug air1 “accounting planned major maintenance activities” “fsp aug air1” fsp aug air1 amends guidance accounting planned major maintenance activities specifically precludes use previously acceptable “accrue advance” method fsp aug air1 effective fiscal years beginning december 15 2006 implementation standard material impact consolidated financial position results operations employ “accrue advance” method june 2006 eitf reached consensus eitf issue 064 “accounting deferred compensation postretirement benefit aspects endorsement splitdollar life insurance arrangements” “eitf 064” requires application provisions sfas 106 endorsement splitdollar life insurance arrangements sfas 106 would require us recognize liability discounted future benefit obligation pay upon death underlying insured employee endorsementtype arrangement generally exists company owns controls incidents ownership underlying policies eitf 064 effective fiscal years beginning december 15 2007 certain insurance policies subject provisions new pronouncement believe adoption eitf 064 material impact consolidated results operations financial position june 2006 fasb issued fin 48 fin 48 clarifies accounting uncertainty income taxes prescribing recognition threshold measurement attribute financial statement recognition measurement tax position taken expected taken tax return interpretation also provides guidance derecognition classification interest penalties accounting interim periods disclosure adopted fin 48 effective january 1 2007 adoption fin 48 material effect consolidated results operations financial position see note 6 consolidated financial statements adoption fin 48 discussed march 2006 fasb issued sfas 156 “accounting servicing financial assets amendment fasb statement 140” “sfas 156” sfas 156 requires entity recognize servicing asset liability time undertakes obligation service financial asset entering servicing contract specified situations servicing assets liabilities would initially measured fair value practicable subsequently measured amortized value fair value based upon election reporting entity sfas 156 also specifies certain financial statement presentations disclosures connection servicing assets liabilities sfas 156 effective fiscal years beginning september 15 2006 adoption sfas 156 material effect consolidated financial position march 2006 eitf reached consensus eitf issue 063 “how taxes collected customers remitted governmental authorities presented income statement gross versus net presentation” “eitf 063” allows companies adopt policy presenting taxes income statement either gross net basis taxes within scope eitf 063 would include taxes imposed revenue transaction seller customer sales taxes use taxes valueadded taxes types excise taxes eitf 063 effective interim annual reporting periods beginning december 15 2006 adoption eitf 063 impact method recording reporting taxes consolidated results operations financial position policy exclude taxes net sales present taxes consolidated statements operations net basis item 7aitem 7 management’s discussion analysis financial condition results operations leading manufacturer distributor agricultural equipment related replacement parts throughout world sell full range agricultural equipment including tractors combines hay tools sprayers forage equipment implements line diesel engines products widely recognized agricultural equipment industry marketed number wellknown brand names including challenger® fendt® massey ferguson® valtra® distribute products combination approximately 2800 distributors associates licensees addition provide retail financing united states canada brazil germany france united kingdom australia ireland austria finance joint ventures rabobank results operations sell equipment replacement parts independent dealers distributors customers large majority sales independent dealers distributors sell products end user extent practicable attempt sell products dealers distributors level basis throughout year reduce effect seasonal demands manufacturing operations minimize investment inventory however retail sales dealers farmers highly seasonal linked planting harvesting seasons certain markets particularly north america often time lag varies based timing level retail demand sale equipment dealer’s sale retail customer following table sets forth periods indicated percentage relationship net sales certain items included consolidated statements operations compared 2007 net income 2008 4000 million 409 per diluted share compared net income 2007 2463 million 255 per diluted share net sales 2008 approximately 15965 million 234 higher 2007 primarily due improved industry conditions major global agricultural equipment markets positive impact foreign currency translation sales growth achieved geographic operating segments income operations 5650 million 2008 compared 3948 million 2007 increase income operations operating margins 2008 due primarily sales volume growth price increases improved product mix cost control initiatives partially offset higher material costs europeafricamiddle east operations income operations improved approximately 1191 million 2008 compared 2007 primarily due increased sales volumes favorable currency translation impacts improved product mix margin improvements achieved cost reduction initiatives income operations south american operations increased approximately 329 million 2008 compared 2007 primarily due higher sales volume resulting stronger market conditions particularly major market brazil well favorable currency translation impacts north america income operations increased approximately 443 million 2008 compared 2007 primarily due higher sales result strong industry demand large farm equipment operating efficiencies income operations asiapacific region increased approximately 84 million 2008 compared 2007 primarily due sales growth australian new zealand markets retail sales worldwide industry equipment demand farm equipment increased 2008 major markets healthy farm income driven higher farm commodity prices contributed improved demand equipment particularly large farm equipment sector 2008 farm commodity prices continued supported result strong global demand historically low inventories commodities population growth increased protein consumption asia accelerating trend towards renewable energies contributed strengthened demand farm commodities united states canada industry unit retail sales tractors decreased approximately 7 2008 compared 2007 due decreases compact utility tractor segments offset increases high horsepower tractor segment industry unit retail sales combines increased approximately 22 2008 compared prior year north america unit retail sales compact high horsepower tractors well combines increased unit retail sales utility tractors decreased 2008 compared 2007 levels europe industry unit retail sales tractors increased approximately 7 2008 compared 2007 demand strongest high horsepower segment markets france germany central eastern europe russia offset weaker markets spain finland scandinavia unit retail sales tractors 2008 europe also higher compared 2007 south america industry unit retail sales tractors 2008 increased approximately 30 compared 2007 retail sales tractors major market brazil increased approximately 39 2008 industry unit retail sales combines 2008 approximately 50 higher prior year increase brazil approximately 88 compared prior year improved commodity prices contributed strength row crop sugar cane sectors brazil resulting increased industry demand unit retail sales tractors combines south america also higher 2008 compared 2007 international markets net sales 2008 approximately 103 higher prior year due primarily higher sales australia new zealand resulting improved harvests rate retail sales increases declined major markets fourth quarter 2008 lower commodity prices tightened credit availability began impact sales demand particularly south america eastern europe russia results operations net sales 2008 84246 million compared 68281 million 2007 increase primarily attributable net sales growth four geographical regions well positive currency translation impacts currency translation positively impacted net sales approximately 2479 million primarily due strength brazilian real euro first nine months year following table sets forth periods indicated impact net sales currency translation geographical segment millions except percentages regionally net sales north america increased 2008 compared 2007 primarily due strong industry conditions supporting increased sales high horsepower tractors combines hay equipment sprayers europeafricamiddle east region net sales increased 2008 primarily due sales growth france germany united kingdom austria eastern central europe russia south america net sales increased 2008 compared 2007 primarily result stronger market conditions region particularly major market brazil asiapacific region net sales increased 2008 compared 2007 due sales growth australia new zealand estimate worldwide consolidated average price increases 2008 contributed approximately 4 increase net sales consolidated net sales tractors combines consisted approximately 72 net sales 2008 increased approximately 23 2008 compared 2007 unit sales tractors combines increased approximately 11 2008 compared 2007 difference unit sales increase net sales result foreign currency translation pricing sales mix changes following table sets forth periods indicated percentage relationship net sales certain items included consolidated statements operations millions except percentages gross profit percentage net sales increased 2008 compared 2007 primarily due increased net sales benefits higher production cost reduction initiatives partially offset negative currency impacts raw material cost inflation unit production tractors combines 2008 approximately 18 higher 2007 response increases manufacturing input costs driven primarily increases steel energy costs instituted series price increases 2008 pricing actions helped partially offset impact rising manufacturing input costs gross margins 2008 2007 north america also affected weak united states dollar products imported european brazilian manufacturing facilities recorded approximately 15 million 10 million stock compensation expense within cost goods sold 2008 2007 respectively accordance sfas 123r revised 2004 “sharebased payment” “sfas 123r” fully explained note 1 consolidated financial statements selling general administrative “sga” expenses percentage net sales decreased 2008 compared 2007 primarily result higher sales volumes 2008 cost control initiatives recorded approximately 320 million 250 million stock compensation expense within sga 2008 2007 respectively accordance statement financial accounting standard “sfas” 123r fully explained note 1 consolidated financial statements engineering expenses increased 2008 result continued spending fund new products product improvements cost reduction projects restructuring infrequent expenses recorded 2008 related primarily severance employee relocation costs associated rationalization valtra sales office located france restructuring infrequent income recorded 2007 primarily related 32 million gain sale portion buildings land improvements associated randers denmark facility gain partially offset 09 million charges primarily related severance employee relocation costs associated rationalization valtra sales office located france well rationalization certain parts sales marketing administrative functions germany interest expense net 191 million 2008 compared 241 million 2007 decrease primarily due reduction debt levels increased interest income earned 2008 compared 2007 see “liquidity capital resources” discussion expense net 201 million 2008 compared 434 million 2007 losses sales receivables primarily securitization facilities 273 million 2008 compared 361 million 2007 decrease 2008 primarily due lower interest rates 2008 compared 2007 partially offset higher outstanding funding securitizations 2008 compared 2007 also increase foreign exchange gains 2008 compared 2007 recorded income tax provision 1646 million 2008 compared 1114 million 2007 sfas 109 “accounting income taxes” “sfas 109” requires establishment valuation allowance likely portion company’s deferred tax assets realized accordance sfas 109 assessed likelihood deferred tax assets would recovered estimated future taxable income available income tax planning strategies effective tax rate positively impacted 2008 primarily due reductions statutory tax rates united kingdom germany decrease losses incurred united states december 31 2008 2007 gross deferred tax assets 4714 million 479l million respectively including 2108 million 2478 million respectively related net operating loss carryforwards december 31 2008 2007 recorded total valuation allowances offset gross deferred tax assets 3166 million 3153 million respectively primarily related net operating loss carryforwards brazil denmark netherlands united states realization remaining deferred tax assets december 31 2008 depend generating sufficient taxable income future periods net reversing deferred tax liabilities believe likely remaining net deferred tax assets realized 2006 financial accounting standards board “fasb” issued fasb interpretation “fin” 48 “accounting uncertainty income taxes interpretation fasb statement 109” “fin 48” fin 48 clarifies accounting uncertainty income taxes recognized enterprise’s financial statements accordance sfas 109 fin 48 also prescribes recognition threshold measurement tax position taken expected taken enterprise’s tax return fin 48 effective fiscal years beginning december 15 2006 accordingly adopted provisions fin 48 january 1 2007 december 31 2008 2007 approximately 201 million 227 million respectively unrecognized tax benefits would impact effective tax rate recognized december 31 2008 2007 approximately 76 million 140 million respectively current accrued taxes related uncertain income tax positions connected ongoing tax audits various jurisdictions expect settle pay next 12 months recognize interest penalties related uncertain income tax positions income tax expense december 31 2008 2007 accrued interest penalties related unrecognized tax benefits approximately 18 million 11 million respectively see note 6 consolidated financial statements discussion uncertain income tax positions equity net earnings affiliates 388 million 2008 compared 304 million 2007 increase 2008 primarily due income associated investment laverda spa operating joint venture acquired september 2007 well increased earnings retail finance joint ventures see “retail finance joint ventures” discussion compared 2006 net income 2007 2463 million 255 per diluted share compared net loss 2006 649 million 071 per diluted share results 2007 included following items • restructuring infrequent income 23 million 003 per share primarily related 32 million gain sale portion land buildings improvements randers denmark facility proceeds approximately 44 million partially offset 09 million charges primarily related severance employee relocation costs associated rationalization valtra sales office located france well rationalization certain parts sales marketing administrative functions germany results 2006 included following items • noncash goodwill impairment charge 1714 million 181 per share related sprayer business accordance provisions sfas 142 “goodwill intangible assets” “sfas 142” • restructuring infrequent expenses 10 million 001 per share primarily related rationalization certain parts sales marketing administrative functions united kingdom germany well rationalization certain valtra european sales offices net sales 2007 approximately 13931 million 256 higher 2006 primarily due improved industry conditions major global agricultural equipment markets positive impact foreign currency translation sales growth achieved geographic operating segments income operations 3948 million 2007 compared 689 million 2006 income operations 2006 negatively impacted 1714 million goodwill impairment charge increase income operations operating margins 2007 due primarily sales volume growth improved product mix cost control initiatives europeafricamiddle east operations income operations improved approximately 1186 million 2007 compared 2006 primarily due increased sales volumes currency translation better mix high horsepower tractors margin improvements achieved higher production volumes cost reduction initiatives income operations south american operations increased approximately 561 million 2007 compared 2006 primarily due sales growth resulting stronger market conditions primarily major market brazil well margin improvement related higher sales production well cost management north america income operations increased approximately 21 million 2007 compared 2006 primarily due higher sales result improved market conditions results north america affected negative impacts currency movements products sourced brazil europe income operations asiapacific region decreased approximately 04 million 2007 compared 2006 primarily due lower operating margins resulting foreign currency impacts sales mix retail sales worldwide industry equipment demand farm equipment increased 2007 major markets improved farm income driven higher farm commodity prices contributed improved demand equipment farm commodity prices supported result strong global demand historically low inventories commodities united states canada industry unit retail sales tractors increased approximately 1 2007 compared 2006 due increases high horsepower utility tractor segments offset decrease compact tractor segment industry unit retail sales combines increased approximately 13 compared prior year unit retail sales high horsepower tractors combines north america increased unit retail sales utility compact tractors decreased 2007 compared 2006 levels europe industry unit retail sales tractors increased approximately 4 2007 compared 2006 demand strongest high horsepower segment markets central eastern europe united kingdom scandinavia france offset weaker markets spain italy germany unit retail sales tractors 2007 europe also higher compared 2006 south america industry unit retail sales tractors 2007 increased approximately 50 compared 2006 retail sales tractors major market brazil increased approximately 53 2007 industry unit retail sales combines 2007 approximately 79 higher prior year increase brazil approximately 131 compared prior year unit retail sales tractors combines south america also higher 2007 compared 2006 international markets net sales 2007 approximately 96 lower prior year due lower sales middle east results operations net sales 2007 68281 million compared 54350 million 2006 increase primarily attributable significant net sales increases south america europeafricamiddle east regions well positive currency translation impacts currency translation positively impacted net sales approximately 4733 million primarily due continued strengthening brazilian real euro following table sets forth periods indicated impact net sales currency translation geographical segment millions except percentages regionally net sales north america increased 2007 compared 2006 primarily due higher sales high horsepower tractors combines hay equipment due market growth segments europeafricamiddle east region net sales increased 2007 primarily due sales growth tractors parts particularly markets france germany united kingdom scandinavia eastern central europe south america net sales increased 2007 compared 2006 primarily result recovery major market brazil sales growth argentina asiapacific region net sales increased 2007 compared 2006 due improved industry demand region estimate worldwide average price increases 2007 contributed approximately 15 increase net sales consolidated net sales tractors combines consisted approximately 73 net sales 2007 increased approximately 29 2007 compared 2006 unit sales tractors combines increased approximately 13 2007 compared 2006 difference unit sales increase net sales result foreign currency translation pricing sales mix changes following table sets forth periods indicated percentage relationship net sales certain items included consolidated statements operations millions except percentages gross profit percentage net sales increased 2007 compared 2006 primarily due increased net sales higher production improved sales mix partially offset negative currency impacts margins north america affected weak united states dollar products imported european brazilian manufacturing facilities unit production tractors combines 2007 approximately 20 higher 2006 gross margins also benefited productivity improvements achieved purchasing initiatives resourcing components labor efficiencies recorded approximately 10 million stock compensation expense within cost goods sold 2007 accordance sfas 123r fully explained note 1 consolidated financial statements sga expenses percentage net sales decreased 2007 compared 2006 primarily result higher sales volumes 2007 cost control initiatives recorded approximately 250 million 35 million stock compensation expense within sga 2007 2006 respectively accordance sfas 123r fully explained note 1 consolidated financial statements engineering expenses increased 2007 result continued spending fund product improvements cost reduction projects restructuring infrequent income recorded 2007 primarily related 32 million gain sale portion buildings land improvements associated randers denmark facility gain partially offset 09 million charges primarily related severance employee relocation costs associated rationalization valtra sales office located france well rationalization certain parts sales marketing administrative functions germany restructuring infrequent expenses 2006 primarily related severance costs associated rationalization certain parts sales marketing administrative functions united kingdom germany well rationalization certain valtra european sales offices located denmark norway germany united kingdom 2006 sales operating income sprayer business declined significantly compared prior years primarily due increased competition resulting updated product offerings major competitors shift industry demand away strength commercial application segment farmerowned segment addition projections sprayer business result valuation sufficient support carrying amount goodwill balance consolidated balance sheet attributable sprayer business result fourth quarter 2006 recorded noncash goodwill impairment charge 1714 million related sprayer business accordance provisions sfas 142 results annual impairment analyses conducted october 1 2007 indicated reduction carrying amount goodwill reporting units required 2007 refer “critical accounting estimates” note 1 consolidated financial statements discussion interest expense net 241 million 2007 compared 552 million 2006 decrease primarily due debt refinancing well reduction debt levels 2006 december 2006 issued 2013 million aggregate principal amount 114 convertible senior subordinated notes net proceeds received issuance notes well available cash hand used repay portion former outstanding united states dollar euro denominated term loans carried higher variable interest rate june 2007 repaid remaining balances loans available cash hand see “liquidity capital resources” expense net 434 million 2007 compared 329 million 2006 losses sales receivables primarily securitization facilities 361 million 2007 compared 299 million 2006 increase 2007 primarily due higher interest rates 2007 compared 2006 recorded income tax provision 1114 million 2007 compared 735 million 2006 accordance sfas 109 assessed likelihood deferred tax assets would recovered estimated future taxable income available income tax planning strategies 2007 2006 effective tax rate negatively impacted incurring losses tax jurisdictions recorded tax benefit significant impact related losses incurred united states losses primarily due lower operating margins discussed december 31 2007 2006 gross deferred tax assets 4791 million 4725 million respectively including 2478 million 2466 million respectively related net operating loss carryforwards december 31 2007 2006 recorded total valuation allowances offset gross deferred tax assets 3153 million 2914 million respectively primarily related net operating loss carryforwards brazil denmark united states adopted provisions fin 48 january 1 2007 result implementation fin 48 recognize material adjustment respect liabilities unrecognized tax benefits 2007 december 31 2007 approximately 227 million unrecognized tax benefits would impacted effective tax rate recognized december 31 2007 approximately 140 million current accrued taxes related uncertain income tax positions connected ongoing tax audits various jurisdictions expected settle pay succeeding 12 months recognize interest penalties related uncertain income tax positions income tax expense december 31 2007 accrued interest penalties related unrecognized tax benefits 11 million see note 6 consolidated financial statements discussion adoption fin 48 uncertain income tax positions equity net earnings affiliates 304 million 2007 compared 278 million 2006 increase 2007 related 50 interest laverda operating joint venture acquired september 2007 well increased earnings retail finance joint ventures see “retail finance joint ventures” discussion quarterly results following table presents unaudited interim operating results believe following information includes adjustments consisting normal recurring adjustments necessary present fairly results operations periods presented operating results period necessarily indicative results future period 1 2008 quarters ended march 31 june 30 september 30 december 31 included restructuring infrequent expenses income 01 million 01 million 01 million 01 million respectively impact net income per common share diluted basis 2007 quarters ended march 31 june 30 september 30 december 31 included restructuring infrequent income expenses 00 million 03 million 25 million 01 million respectively thereby impacting net income per common share diluted basis 000 003 000 respectively retail finance joint ventures agco finance retail finance joint ventures provide retail financing wholesale financing dealers united states canada brazil germany france united kingdom australia ireland austria argentina joint ventures owned 49 agco 51 wholly owned subsidiary rabobank aaa rated financial institution based netherlands majority assets retail finance joint ventures represent finance receivables majority liabilities represent notes payable accrued interest various joint venture agreements rabobank affiliates provide financing joint ventures primarily lines credit guarantee debt obligations joint ventures portion retail portfolio brazil held outside joint venture rabobank brazil approximately 39 million december 31 2008 gradually eliminated time december 31 2008 capital investment retail finance joint ventures included “investment affiliates” consolidated balance sheets approximately 1878 million compared 1972 million december 31 2007 total finance portfolio retail finance joint ventures approximately 48 billion december 31 2008 2007 2008 share earnings retail finance joint ventures included “equity net earnings affiliates” consolidated statements operations 297 million compared 266 million 2007 increase 2008 due primarily higher finance revenues generated result higher average retail finance portfolios particularly europe favorable impact currency translation retail finance portfolio retail finance joint venture brazil 12 billion december 31 2008 compared 13 billion december 31 2007 result weak market conditions brazil 2005 2006 substantial portion portfolio included payment deferral program directed brazilian government impact deferral program resulted higher delinquencies lower collateral coverage portfolio joint venture currently considers reserves loan losses adequate continually monitors reserves considering borrower payment history value underlying equipment financed payment deferral programs implemented brazilian government date retail finance joint ventures markets outside brazil experienced significant changes credit quality finance portfolios result recent global economic challenges however assurance portfolio credit quality deteriorate given size portfolio relative joint ventures’ level equity significant adverse change joint ventures’ performance would material impact joint ventures operating results critical accounting estimates prepare consolidated financial statements conformity us generally accepted accounting principles preparation financial statements make judgments estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period significant accounting policies followed preparation financial statements detailed note 1 consolidated financial statements believe application policies discussed involves significant levels judgment estimates complexity due level judgment complexity period time many items resolved actual results could differ estimated time preparation financial statements adjustments estimates would impact financial position future results operations allowance doubtful accounts determine allowance doubtful accounts actively monitoring financial condition customers determine potential nonpayment trade receivables determining allowance doubtful accounts also consider economic factors aging trends believe process specific review customers combined overall analytical review provides effective evaluation ultimate collectability trade receivables loss writeoff experience approximately 003 net sales 2008 discount sales incentive allowances provide various incentive programs respect products incentive programs include reductions invoice prices reductions retail financing rates dealer commissions dealer incentive allowances volume discounts cases incentive programs established communicated dealers quarterly basis incentives paid either time invoice reduction invoice price time settlement receivable time retail financing time warranty registration subsequent time based dealer purchases incentive programs product line specific generally vary dealer cost sales incentives associated dealer commissions dealer incentive allowances estimated based upon terms programs historical experience based percentage sales price recorded later date related revenue recognized b date sales incentive offered related provisions accruals made product line basis monitored adequacy revised least quarterly event subsequent modifications programs volume discounts estimated recognized based historical experience related reserves monitored adjusted based actual dealer purchases dealers’ progress towards achieving specified cumulative target levels company records cost interest subsidy payments reduction retail financing rates later date related revenue recognized b date sales incentive offered estimates incentives based terms programs historical experience incentive programs recorded presented reduction revenue due fact receive identifiable benefit exchange consideration provided reserves incentive programs paid either reduction future invoices credit memos recorded “accounts receivable allowances” within consolidated balance sheets reserves incentive programs paid cash case volume discount programs recorded within “accrued expenses” within consolidated balance sheets december 31 2008 recorded allowance discounts sales incentives approximately 1251 million allow additional 1 sales incentives discounts time retail sale sales subject discount programs reserve would increase approximately 69 million december 31 2008 conversely decrease sales incentives discounts 1 time retail sale reserve would decrease approximately 69 million december 31 2008 inventory reserves inventories valued lower cost market using firstin firstout method market current replacement cost purchase reproduction dependent type inventory cases market exceeds net realizable value ie estimated selling price less reasonably predictable costs completion disposal inventories stated net realizable value market considered less net realizable value reduced allowance approximately normal profit margin determination cost includes estimates surplus obsolete inventory based estimates future sales production changes demand product design impact estimates periodically evaluate update assumptions assessing adequacy inventory adjustments deferred income taxes uncertain income tax positions sfas 109 requires establishment valuation allowance likely portion deferred tax assets realized accordance sfas 109 establish valuation allowances deferred tax assets estimate likely tax assets realized periodically assess likelihood deferred tax assets recovered estimated future projected taxable income available tax planning strategies determine adjustments valuation allowance appropriate result assessments certain tax jurisdictions benefit losses changes industry conditions competitive environment may impact accuracy projections december 31 2008 2007 gross deferred tax assets 4714 million 4791 million respectively including 2108 million 2478 million respectively related net operating loss carryforwards december 31 2008 2007 recorded total valuation allowances offset gross deferred tax assets 3166 million 3153 million respectively primarily related net operating loss carryforwards brazil denmark netherlands united states realization remaining deferred tax assets december 31 2008 depends generating sufficient taxable income future periods net reversing deferred tax liabilities believe likely remaining net deferred tax assets realized 2006 fasb issued fin 48 fin 48 clarifies accounting uncertainty income taxes recognized enterprise’s financial statements accordance sfas 109 fin 48 also prescribes recognition threshold measurement tax position taken expected taken enterprise’s tax return fin 48 effective fiscal years beginning december 15 2006 accordingly adopted provisions fin 48 january 1 2007 december 31 2008 2007 approximately 201 million 227 million respectively unrecognized tax benefits would impact effective tax rate recognized december 31 2008 2007 approximately 76 million 140 million respectively current accrued taxes related uncertain income tax positions connected ongoing tax audits various jurisdictions expect settle pay next 12 months recognize interest penalties related uncertain income tax positions income tax expense december 31 2008 2007 accrued interest penalties related unrecognized tax benefits approximately 18 million 11 million respectively maintain procedures designed appropriately reflect uncertain income tax positions consolidated financial statements accordance provisions fin 48 procedures include evaluation uncertainties internally necessary externally third party advisors see note 6 consolidated financial statements discussion uncertain income tax positions warranty additional service actions make provisions estimated expenses related product warranties time products sold base estimates historical experience nature frequency average cost warranty claims addition number magnitude additional service actions expected approved policies related additional service actions taken consideration due uncertainty potential volatility estimated factors changes assumptions could materially affect net income estimate warranty obligations reevaluated quarterly basis experience shown initial data product series line volatile therefore process relies upon longterm historical averages sufficient data available actual experience becomes available used modify historical averages ensure forecast within range likely outcomes resulting balances compared present spending rates ensure accruals adequate meet expected future obligations see note 1 consolidated financial statements information regarding costs assumptions warranties insurance reserves provide insurance reserves estimates losses due claims worker’s compensation product liability liabilities selfinsured base estimates ultimate settlement amount claims often long periods resolution closely monitor claims maintain adequate reserves pensions defined benefit pension plans covering certain employees principally united states united kingdom germany finland norway france switzerland australia argentina primary plans cover certain employees united states united kingdom united states sponsor funded qualified pension plan salaried employees well separate funded qualified pension plan hourly employees plans frozen fund least minimum contributions required employee retirement income security act 1974 internal revenue code plans addition sponsor unfunded nonqualified pension plan executives united kingdom sponsor funded pension plan provides annuity benefit based participants’ final average earnings service participation plan limited certain older longer service employees existing retirees future employees participate plan see note 8 consolidated financial statements information regarding costs assumptions employee retirement benefits nature estimates required measurement pension obligations costs liabilities dependent variety assumptions provided management used actuaries assumptions include estimates present value projected future pension payments plan participants taking consideration likelihood potential future events salary increases demographic experience assumptions may effect amount timing future contributions assumptions approach used assumptions used developing required estimates include following key factors years ended december 31 2008 2007 based discount rate used determine projected benefit obligation us pension plans executive nonqualified pension plan matching projected cash flows plans citigroup pension discount curve nonus plans based discount rate comparable indices within countries merrill lynch aarated corporate bond index united kingdom 10year iboxx aa corporate bond yield euro zone countries indices used united states united kingdom countries chosen match expected plan obligations related expected cash flows december 31 2008 measurement date respect us uk pension plans defined benefit plans december 31 year adopted provisions sfas 158 “employers’ accounting defined benefit pension postretirement plans amendment fasb statements 87 88 106 132r” “sfas 158” year ended december 31 2006 sfas 158 requires measurement defined benefit plan assets obligations date fiscal year end years ending december 15 2008 therefore measurement date respect uk pension plan changed september 30 december 31 upon adoption measurement provision 2008 inflation assumption based evaluation external market indicators salary growth assumptions reflect longterm actual experience nearterm outlook assumed inflation expected return plan asset assumptions reflects asset allocations investment strategy historical experience views investment managers retirement termination rates based primarily actual plan experience actuarial standards practice mortality rates us plans updated 2006 reflect recent study released society actuaries reflects pensioner experience distinctions blue white collar employees mortality rates uk plan updated 2007 reflect expected improvements life expectancy plan participants effects actual results differing assumptions accumulated amortized future periods therefore generally affect recognized expense periods us uk pension plans represent approximately 88 consolidated projected benefit obligation december 31 2008 discount rate used determine 2008 projected benefit obligation us pension plans decreased 25 basis points projected benefit obligation would increased approximately 14 million december 31 2008 2009 pension expense would increase approximately 01 million discount rate used determine 2008 projected benefit obligation us pension plans increased 25 basis points projected benefit obligation would decreased approximately 13 million 2009 pension expense would decrease approximately 01 million discount rate used determine projected benefit obligation uk pension plan decreased 25 basis points projected benefit obligation would increased approximately 152 million december 31 2008 2009 pension expense would increase approximately 14 million discount rate used determine projected benefit obligation uk pension plan increased 25 basis points projected benefit obligation would decreased approximately 146 million december 31 2008 2009 pension expense would decrease approximately 14 million unrecognized actuarial losses related qualified pension plans 1861 million december 31 2008 compared 1269 million december 31 2007 increase unrecognized losses years primarily reflects losses result poorer expected asset returns partially offset increase discount rates impact foreign currency translation unrecognized actuarial losses impacted future periods actual asset returns discount rate changes currency exchange rate fluctuations actual demographic experience certain factors losses amortized straightline basis average remaining service period active employees expected receive benefits qualified defined benefit pension plans population covered predominantly inactive participants losses related plans amortized average remaining lives participants covered respective plan december 31 2008 average amortization period 18 years us pension plans 11 years nonus pension plans estimated net actuarial loss qualified defined benefit pension plans amortized accumulated comprehensive loss year ended december 31 2009 approximately 91 million compared approximately 83 million year ended december 31 2008 weighted average asset allocation us pension benefit plans december 31 2008 2007 follows weighted average asset allocation nonus pension benefit plans december 31 2008 2007 follows taxqualified pension fund investments united states held agco corporation master pension trust global pension fund strategy diversify investments across broad categories equity fixed income securities appropriate use alternative investment categories minimize risk volatility us target allocation retirement fund investments 35 large small cap domestic equity securities 15 international equity securities 20 domestic fixed income securities 30 invested investments noted long periods mix investments would achieve average return excess 85 arriving choice expected return assumption 8 usbased plans tempered historical indicator lower expectations returns equity investments future well considered administrative costs plans date invested pension funds common stock intention future nonus target allocation retirement fund investments 42 equity securities 28 fixed income securities 30 invested investments majority nonus pension fund investments related pension plan united kingdom noted long periods target mix investments would achieve average return excess 75 arriving choice expected return assumption 7 uk pension plan tempered historical indicator slightly lower expectation future returns equity investments well plan expenses december 31 2008 approximately 1392 million unfunded underfunded obligations related qualified pension plans due primarily pension plan united kingdom 2008 contributed approximately 317 million towards obligations expect fund approximately 265 million 2009 future funding dependent upon compliance local laws regulations changes laws regulations future well generation operating cash flows future currently agreement place trustees uk defined benefit plan obligates us fund approximately £135 million per year approximately 196 million towards obligation next seven years funding arrangement based upon current underfunded status could change future discount rates local laws regulations factors change postretirement benefits retiree health care life insurance provide certain postretirement health care life insurance benefits certain employees principally united states brazil participation plans generally limited older employees existing retirees see note 8 consolidated financial statements information regarding costs assumptions postretirement benefits nature estimates required measurement obligations costs liabilities associated postretirement benefits retiree health care life insurance requires make use estimates present value projected future payments participants taking consideration likelihood potential future events health care cost increases demographic experience may effect amount timing future payments assumptions approach used assumptions used developing required estimates include following key factors health care cost trend assumptions developed based historical cost data nearterm outlook efficiencies costmitigating actions including employee cost sharing administrative improvements efficiencies assessment likely longterm trends years ended december 31 2008 2007 based discount rate used determine projected benefit obligation us postretirement benefit plans matching projected cash flows plans citigroup pension discount curve brazilian plan based discount rate government bond indices within country indices used chosen match expected plan obligations related expected cash flows inflation assumptions based evaluation external market indicators retirement termination rates based primarily actual plan experience actuarial standards practice mortality rates us plans updated 2006 reflect recent study released society actuaries reflects pensioner experience distinctions blue white collar employees effects actual results differing assumptions accumulated amortized future periods therefore generally affect recognized expense future periods us postretirement health care life insurance plans represent approximately 98 consolidated projected benefit obligation discount rate used determine 2008 projected benefit obligation us postretirement benefit plans decreased 25 basis points projected benefit obligation would increased approximately 07 million december 31 2008 2009 postretirement benefit expense would increase nominal amount discount rate used determine 2008 projected benefit obligation us postretirement benefit plans increased 25 basis points projected benefit obligation would decreased approximately 07 million 2009 pension expense would decrease nominal amount unrecognized actuarial losses related us postretirement benefit plans 71 million december 31 2008 compared 43 million december 31 2007 increase losses primarily reflects increase assumptions regarding future medical costs unrecognized actuarial losses impacted future periods discount rate changes actual demographic experience actual health care inflation certain factors losses amortized straightline basis average remaining service period active employees expected receive benefits average remaining lives inactive participants covered postretirement benefit plans december 31 2008 average amortization period 14 years us postretirement benefit plans estimated net actuarial loss postretirement health care benefits amortized accumulated comprehensive loss year ended december 31 2009 approximately 03 million compared approximately 02 million year ended december 31 2008 december 31 2008 approximately 286 million unfunded obligations related us brazilian postretirement health life insurance benefit plans 2008 made benefit payments approximately 20 million towards obligations expect make benefit payments approximately 20 million towards obligations 2009 measuring expected us postretirement benefit obligation december 31 2008 assumed 85 health care cost trend rate 2009 decreasing 49 2060 changing assumed health care cost trend rates one percentage point year holding assumptions constant would following effect service interest cost 2009 accumulated postretirement benefit obligation december 31 2008 millions litigation party various claims lawsuits arising normal course business closely monitor claims lawsuits frequently consult legal counsel determine whether may resolved material adverse effect financial position results operations accrue andor disclose loss contingencies appropriate goodwill indefinitelived assets sfas 142 establishes method testing goodwill indefinitelived intangible assets impairment annual basis interim basis event occurs circumstances change would reduce fair value reporting unit carrying value initial assessment annual assessments involve determining estimate fair value reporting units order evaluate whether impairment current carrying amount goodwill indefinitelived intangible assets exists first step goodwill impairment test used identify potential impairment compares fair value reporting unit carrying amount including goodwill fair value reporting unit exceeds carrying amount goodwill reporting unit considered impaired thus second step impairment unnecessary carrying amount reporting unit exceeds fair value second step goodwill impairment test performed measure amount impairment loss fair values derived based evaluation past expected future performance reporting units reporting unit operating segment one level operating segment eg component operating segment reporting unit component constitutes business discrete financial information available executive management team regularly reviews operating results component addition combine aggregate two components operating segment single reporting unit components similar economic characteristics reportable segments reported guidance sfas 131 “disclosures segments enterprise related information” reporting units exception asiapacific geographical segment second step goodwill impairment test used measure amount impairment loss compares implied fair value reporting unit goodwill carrying amount goodwill carrying amount reporting unit goodwill exceeds implied fair value goodwill impairment loss recognized amount equal excess loss recognized cannot exceed carrying amount goodwill implied fair value goodwill determined manner amount goodwill recognized business combination determined allocate fair value reporting unit assets liabilities unit including unrecognized intangible assets reporting unit acquired business combination fair value reporting unit price paid acquire reporting unit excess fair value reporting unit amounts assigned assets liabilities implied fair value goodwill utilized combination valuation techniques including discounted cash flow approach market multiple approach making annual interim assessments stated goodwill tested impairment annual basis often indications impairment exist results analyses conducted october 1 2008 2007 indicated reduction carrying amount goodwill required 2006 sales operating income sprayer operations declined significantly compared prior years primarily due increased competition resulting updated product offerings major competitors shift industry demand away strength commercial application segment farmerowned segment addition projections sprayer operations result valuation sufficient support carrying amount goodwill balance consolidated balance sheet excess fair value reporting unit amounts assigned assets liabilities could allocated implied fair value goodwill result concluded goodwill associated sprayer operations impaired recognized writedown total amount recorded goodwill approximately 1714 million fourth quarter 2006 results analyses conducted october 1 2006 associated reporting units indicated reduction carrying amounts goodwill required tests required sfas 142 require us make various assumptions including assumptions regarding future cash flows market multiples growth rates discount rates assumptions future cash flows growth rates based current longterm business plans reporting unit discount rate assumptions based assessment risk inherent future cash flows reporting unit assumptions require significant judgments part conclusions reach could vary significantly based upon judgments december 31 2008 approximately 5870 million goodwill annual impairment testing 2008 supported carrying amount goodwill may required reevaluate carrying amount future periods thus utilizing different assumptions reflect current market conditions expectations therefore could conclude impairment occurred liquidity capital resources financing requirements subject variations due seasonal changes inventory receivable levels internally generated funds supplemented necessary external sources primarily revolving credit facility accounts receivable securitization facilities believe facilities together available cash internally generated funds sufficient support working capital expenditures debt service requirements foreseeable future addition none facilities matures earliest december 2010 • 300 million revolving credit facility extended 2008 expire may 2013 amounts outstanding december 31 2008 • 2000 million approximately 2794 million 678 senior subordinated notes mature 2014 • absent significant increase stock price earliest could required redeem 2013 million 114 convertible senior subordinated notes december 2010 december 2013 respect 2013 million 134 convertible senior subordinated notes • 4897 million securitization facilities us canada europe expire december 2013 october 2011 respectively outstanding funding 4832 million december 31 2008 addition although complete compliance financial covenants contained facilities foresee difficulty continuing meet financial covenants ever encounter difficulties historical relationship lenders strong anticipate continued longterm support business however impossible predict length severity current tightened credit environment may impact ability obtain additional financing sources ability renew extend maturity existing financing sources current facilities 2013 million 114 convertible senior subordinated notes due december 15 2036 issued december 2006 received proceeds approximately 1964 million related fees expenses notes unsecured obligations convertible cash shares common stock upon satisfaction certain conditions discussed notes provide settlement upon conversion cash principal amount notes excess conversion value settled shares common stock ii conversion rate increased certain circumstances notes converted connection certain change control transactions occurring prior december 15 2013 interest payable notes 114 per annum payable semiannually arrears cash june 15 december 15 year notes convertible shares common stock effective price 4073 per share subject adjustment reflects initial conversion rate notes 245525 shares common stock per 1000 principal amount notes contain certain antidilution provisions designed protect holders’ interests change control transaction qualifies “fundamental change” occurs prior december 15 2013 certain circumstances increase conversion rate notes converted connection transaction number additional shares used paragraph “make whole shares” fundamental change transaction event connection 50 common stock exchanged converted acquired constitutes solely right receive consideration least 90 common stock listed us national securities exchange approved quotation automated quotation system amount increase conversion rate depend effective date transaction average price per share common stock effective date adjustment conversion rate made price per share common stock less 3133 per share 18000 per share number additional make whole shares range 73658 shares per 1000 principal amount 3133 per share 00483 shares per 1000 principal amount 18000 per share year ended december 15 2009 number make whole shares generally declining time acquirer certain affiliates fundamental change transaction publicly traded common stock may instead increasing conversion rate described cause notes become convertible publicly traded common stock acquirer principal notes repaid cash balance payable shares acquirer common stock time issue aggregate number shares common stock upon conversion notes excess 319183 shares per 1000 principal amount thereof holders common stock receive cash fundamental change transaction holders notes receive cash well holders may convert notes following circumstances 1 fiscal quarter closing sales price common stock exceeds 120 conversion price least 20 trading days 30 consecutive trading days ending last trading day preceding fiscal quarter 2 five business day period five consecutive trading day period trading price per note day period less 98 product closing sale price common stock conversion rate 3 notes called redemption 4 upon occurrence certain corporate transactions beginning december 15 2013 may redeem notes redemption price 100 principal amount plus accrued interest holders notes may require us repurchase notes repurchase price 100 principal amount plus accrued interest december 15 2013 2016 2021 2026 2031 holders may also require us repurchase portion notes upon fundamental change defined indenture repurchase price equal 100 principal amount notes repurchased plus accrued unpaid interest notes senior subordinated obligations subordinated existing future senior indebtedness effectively subordinated debt liabilities subsidiaries notes equal right payment 678 senior subordinated notes due 2014 134 convertible senior subordinated notes due 2033 used net proceeds received issuance 114 convertible senior subordinated notes well available cash repay 1969 million former outstanding united states dollar denominated term loan 791 million former outstanding euro denominated term loan addition recorded interest expense approximately 20 million proportionate writeoff deferred debt issuance costs associated former term loan balances repaid former united states dollar denominated euro denominated term loans discussed 2013 million 134 convertible senior subordinated notes due december 31 2033 exchanged issued june 2005 provide settlement upon conversion cash principal amount converted new notes excess conversion value settled shares common stock ii conversion rate increased certain circumstances new notes converted connection certain change control transactions occurring prior december 10 2010 otherwise substantially old notes unsecured obligations convertible cash shares common stock upon satisfaction certain conditions discussed interest payable notes 134 per annum payable semiannually arrears cash june 30 december 31 year notes convertible shares common stock effective price 2236 per share subject adjustment reflects initial conversion rate notes 447193 shares common stock per 1000 principal amount notes contain certain antidilution provisions designed protect holders’ interests change control transaction qualifies “fundamental change” occurs prior december 31 2010 certain circumstances increase conversion rate notes converted connection transaction number additional shares used paragraph “make whole shares” fundamental change transaction event connection 50 common stock exchanged converted acquired constitutes solely right receive consideration least 90 common stock listed us national securities exchange approved quotation automated quotation system amount increase conversion rate depend effective date transaction average price per share common stock effective date adjustment conversion rate made price per share common stock less 1707 per share 11000 per share number additional make whole shares range 130 shares per 1000 principal amount 1707 per share 00 shares per 1000 principal amount 11000 per share year ended december 31 2009 number make whole shares generally declining time acquirer certain affiliates fundamental change transaction publicly traded common stock may instead increasing conversion rate described cause notes become convertible publicly traded common stock acquirer principal notes repaid cash balance payable shares acquirer common stock time issue aggregate number shares common stock upon conversion notes excess 585823 shares per 1000 principal amount thereof holders common stock receive cash fundamental change transaction holders notes receive cash well holders may convert notes following circumstances 1 fiscal quarter closing sales price common stock exceeds 120 conversion price least 20 trading days 30 consecutive trading days ending last trading day preceding fiscal quarter 2 five business day period five consecutive trading day period trading price per note day period less 98 product closing sale price common stock conversion rate 3 notes called redemption 4 upon occurrence certain corporate transactions beginning january 1 2011 may redeem notes redemption price 100 principal amount plus accrued interest holders notes may require us repurchase notes repurchase price 100 principal amount plus accrued interest december 31 2010 2013 2018 2023 2028 december 31 2008 closing sales price common stock exceed 120 conversion price 2236 4073 per share respectively 134 convertible senior subordinated notes 114 convertible senior subordinated notes least 20 trading days 30 consecutive trading days ending december 31 2008 therefore classified notes longterm debt december 31 2007 closing sales price common stock exceeded 120 conversion price 2236 4073 per share respectively 134 convertible senior subordinated notes 114 convertible senior subordinated notes least 20 trading days 30 consecutive trading days ending december 31 2007 therefore classified notes current liabilities future classification notes current longterm debt dependent closing sales price common stock future quarters 134 convertible senior subordinated notes 114 convertible senior subordinated notes impact diluted weighted average shares outstanding future periods depending stock price excess conversion value using treasury stock method may 2008 fasb issued fasb staff position “fsp” apb 141 “accounting convertible debt instruments may settled cash upon conversion including partial cash settlement” fsp requires liability equity components convertible debt instruments may settled cash upon conversion including partial cash settlement commonly referred instrument c emerging issues task force “eitf” issue 9019 “convertible bonds issuer options settle cash upon conversion” “eitf 9019” separated account fair value debt equity components date issuance reflect issuer’s nonconvertible debt borrowing rate fsp effective financial statements issued fiscal years beginning december 15 2008 applied retrospectively periods presented retroactive restatement pursuant guidance sfas 154 “accounting changes error corrections” “sfas 154” fsp impact accounting treatment 134 convertible senior subordinated notes due 2033 114 convertible senior subordinated notes due 2036 reclassifying portion convertible notes balances additional paidin capital representing estimated fair value conversion feature date issuance creating discount convertible notes amortized interest expense life convertible notes fsp result significant increase interest expense therefore reduce net income basic diluted earnings per share within consolidated statements operations adopt requirements fsp january 1 2009 estimate upon adoption “retained earnings” balance reduced approximately 37 million “convertible senior subordinated notes” balance reduced approximately 57 million “additional paidin capital” balance increase approximately 57 million including deferred tax impact approximately 37 million “interest expense net” attributable convertible senior subordinated notes fiscal year ended december 31 2009 expected increase approximately 15 million compared 2008 result adoption may 16 2008 entered new 3000 million unsecured multicurrency revolving credit facility new credit facility replaced former 3000 million secured multicurrency revolving credit facility maturity date new facility may 16 2013 interest accrues amounts outstanding new facility option either 1 libor plus margin ranging 100 175 based upon company’s total debt ratio 2 higher administrative agent’s base lending rate onehalf one percent federal funds rate plus margin ranging 00 050 based upon company’s total debt ratio new facility contains covenants restricting among things incurrence indebtedness making certain payments including dividends subject acceleration event default defined new facility company also must fulfill financial covenants respect total debt ebitda ratio interest coverage ratio defined facility december 31 2008 outstanding borrowings multicurrency revolving credit facility december 31 2008 availability borrow approximately 2913 million revolving credit facility former credit facility provided 3000 million multicurrency revolving credit facility 3000 million united states dollar denominated term loan 1200 million euro denominated term loan maturity date revolving credit facility december 2008 maturity date term loan facility june 2009 required make quarterly payments towards united states dollar denominated term loan euro denominated term loan 075 million 03 million respectively amortization one percent per annum maturity date term loan previously discussed december 2006 used net proceeds received issuance 114 convertible senior subordinated notes well available cash repay 1969 million united states dollar denominated term loan 791 million euro denominated term loan addition june 29 2007 repaid remaining balances united states dollar euro denominated term loans totaling 725 million 286 million respectively available cash hand revolving credit facility secured majority us canadian finnish ukbased assets pledge portion stock domestic material foreign subsidiaries interest accrued amounts outstanding revolving credit facility option either 1 libor plus margin ranging 125 20 based upon senior debt ratio 2 higher administrative agent’s base lending rate onehalf one percent federal funds rate plus margin ranging 00 075 based senior debt ratio interest accrued amounts outstanding term loans libor plus 175 credit facility contained covenants restricting among things incurrence indebtedness making certain payments including dividends also fulfill financial covenants including among others total debt ebitda ratio senior debt ebitda ratio fixed charge coverage ratio defined facility december 31 2007 outstanding borrowings former credit facility december 31 2007 availability borrow 2911 million former revolving credit facility 2000 million 678 senior subordinated notes due april 15 2014 issued april 2004 received proceeds approximately 2340 million offering related fees expenses 678 senior subordinated notes unsecured obligations subordinated right payment existing future senior indebtedness interest payable notes semiannually april 15 october 15 year beginning april 15 2009 may redeem notes whole part initially 103438 principal amount plus accrued interest declining 100 principal amount plus accrued interest time april 15 2012 addition april 15 2009 may redeem notes whole part redemption price equal 100 principal amount plus accrued interest makewhole premium notes include covenants restricting incurrence indebtedness making certain restricted payments including dividends securitization facilities sell accounts receivable united states canada europe revolving basis commercial paper conduits whollyowned special purpose us subsidiary qualifying special purpose entity “qspe” united kingdom united states canadian securitization facilities expire december 2013 european facility expires october 2011 subject annual renewal december 2008 renewed amended united states canadian securitization facilities extending expiration date april 2009 december 2013 december 31 2008 aggregate amount facilities 4897 million outstanding funded balance 4832 million december 31 2008 effect reducing accounts receivable shortterm liabilities amount risk loss securitization facilities limited portion unfunded balance receivables sold approximately 15 funded amount maintain reserves doubtful accounts associated risk facilities terminated would required repurchase previously sold receivables would prevented selling additional receivables commercial paper conduits facilities allow us sell accounts receivables financing conduits obtain funding commercial paper markets future funding securitization facilities depends upon adequacy receivables sufficient demand underlying commercial paper maintenance certain covenants concerning quality receivables financial condition event commercial paper demand adequate securitization facilities provide liquidity backing various financial institutions including rabobank liquidity commitments would provide us interim funding allow us find alternative sources working capital financing necessary agreement permit transferring ongoing basis majority wholesale interestbearing receivables north america united states canadian retail finance joint ventures agco finance llc agco finance canada ltd 49 ownership interest joint ventures transfer wholesale interestbearing receivables without recourse agco continue service receivables december 31 2008 2007 balance interestbearing receivables transferred agco finance llc agco finance canada ltd agreement approximately 590 million 733 million respectively cash flows cash flow provided operating activities 2913 million 2008 compared 5043 million 2007 decrease cash flow provided operating activities 2008 primarily due increase net working capital used support growth sales 2008 partially offset increase net income addition supplier delays limited credit eastern european russian markets softening demand fourth quarter 2008 caused inventory levels increase year end working capital requirements seasonal investments working capital typically building first half year reducing second half year 10267 million working capital december 31 2008 compared 6384 million december 31 2007 accounts receivable inventories combined december 31 2008 3049 million higher december 31 2007 capital expenditures 2008 2513 million compared 1414 million 2007 capital expenditures 2008 used support manufacturing operations systems initiatives development enhancement new existing products september 2007 made 668 million investment laverda operating joint venture manufactures harvesting equipment paid 205 million connection acquisition industria agricola fortaleza limitada “sfil” brazil debt capitalization ratio total indebtedness divided sum total indebtedness stockholders’ equity 258 december 31 2008 compared 254 december 31 2007 contractual obligations future payments required significant contractual obligations excluding foreign currency option forward contracts december 31 2008 follows millions 1 estimated interest payments calculated assuming current interest rates minimum maturity periods specified debt agreements debt may repaid sooner later minimum maturity periods 2 unconditional purchase obligations exclude routine purchase orders entered normal course business result rationalization european combine manufacturing operations 2004 entered agreement laverda produce certain combine model ranges fiveyear period agreement provides purchase minimum quantity approximately 83 combines may 2009 cost approximately 67 million approximately 94 million 3 shortterm longterm obligations include estimates future minimum contribution requirements us nonus defined benefit pension postretirement plans estimates based current legislation countries operate within subject change shortterm longterm obligations also include income tax liabilities related uncertain income tax positions connected ongoing income tax audits various jurisdictions accordance fin 48 addition shortterm obligations include amounts due financial institutions related sales certain receivables meet offbalance sheet criteria sfas 140 offbalance sheet arrangements guarantees december 31 2008 obligated certain circumstances purchase year 2010 approximately 30 million equipment upon expiration certain operating leases agco finance llc agco finance canada ltd retail finance joint ventures north america end users also maintain remarketing agreement joint ventures whereby obligated repurchase repossessed inventory market values agreement agco finance llc limits purchase obligations arrangement 60 million aggregate per calendar year believe losses might incurred resale equipment materially impact financial position results operations due fair value underlying equipment time sell certain trade receivables factoring arrangements financial institutions throughout world evaluate sale receivables pursuant guidelines sfas 140 “accounting transfers servicing financial assets extinguishments liabilities replacement fasb statement 125” determined facilities accounted offbalance sheet transactions accordance sfas 140 december 31 2008 guaranteed indebtedness owed third parties approximately 1239 million primarily related dealer enduser financing equipment guarantees generally obligate us repay outstanding finance obligations owed financial institutions dealers end users default loans 2012 believe credit risk associated guarantees material financial position losses guarantees historically insignificant addition would able recover amounts paid guarantees sale underlying financed farm equipment fair value equipment would sufficient offset substantial portion amounts paid december 31 2008 foreign currency forward contracts buy aggregate approximately 4190 million united states dollar equivalents foreign currency forward contracts sell aggregate approximately 3260 million united states dollar equivalents outstanding contracts december 31 2008 range maturity december 2009 see “foreign currency risk management” additional information contingencies result brazilian tax legislative changes impacting value added taxes “vat” recorded reserve approximately 139 million 219 million outstanding balance brazilian vat taxes receivable december 31 2008 2007 respectively due uncertainty ability collect amounts outstanding february 2006 received subpoena sec connection nonpublic factfinding inquiry entitled “in matter certain participants oil food program” subpoena requested documents concerning transactions iraq agco certain subsidiaries united nations oil food program subsequently contacted doj regarding transactions although subpoena formal process initiated doj inquiries initiated brazilian danish french uk governments regarding subsidiaries agco inquiries arose sales approximately 580 million farm equipment iraq ministry agriculture 2000 2002 sec’s staff asserted certain aspects transactions properly recorded books records cooperating fully inquiries including discussions regarding settlement possible time predict outcome inquiries impact us although outcomes adverse could required pay fines make payments well take appropriate remedial actions june 27 2008 republic iraq filed civil action federal court new york case 08 civ 59617 naming defendants three foreign subsidiaries participated united nations oil food program ninetyone entities companies also named defendants civil action due participation united nations oil food program complaint purports assert claims defendants seeking damages unspecified amount although subsidiaries intend vigorously defend action possible time predict outcome action impact us although outcome adverse could required pay damages august 2008 part routine audit brazilian taxing authorities disallowed deductions relating amortization certain goodwill recognized connection reorganization brazilian operations related transfer certain assets brazilian subsidiaries amount tax disallowance december 31 2008 including interest penalties approximately 775 million brazilian reais approximately 337 million amount ultimately dispute greater interest penalties future deductions advised legal tax advisors position respect deductions allowable tax laws brazil contesting disallowance believe likely assessment interest penalties required paid however ultimate outcome determined brazilian tax appeal process complete could take several years party various legal claims actions incidental business believe none claims actions either individually aggregate material business financial condition related parties rabobank 51 owner retail finance joint ventures located united states canada brazil germany france united kingdom australia ireland austria rabobank also principal agent participant revolving credit facility securitization facilities majority assets retail finance joint ventures represent finance receivables majority liabilities represent notes payable accrued interest various joint venture agreements rabobank affiliates provide financing joint venture companies primarily lines credit guarantee debt obligations retail finance joint ventures portion retail portfolio brazil held outside joint venture rabobank brazil prior 2005 joint venture brazil agency relationship rabobank whereby rabobank provided funding february 2005 made 213 million investment retail finance joint venture rabobank brazil additional investment joint venture’s organizational structure comparable retail finance joint ventures result gradual elimination solvency guarantee rabobank portfolio originally funded rabobank brazil december 31 2008 solvency requirement portfolio held rabobank approximately 39 million retail finance joint ventures provide retail financing wholesale financing dealers terms financing arrangements offered dealers similar arrangements provide unaffiliated third parties discussed previously december 31 2008 obligated certain circumstances purchase year 2010 30 million equipment upon expiration certain operating leases agco finance llc agco finance canada ltd retail joint ventures north america end users also maintain remarketing agreement joint ventures discussed “offbalance sheet arrangements” addition part sales incentives provided end users may time subsidize interest rates retail financing provided retail joint ventures cost programs recognized time sale dealers addition discussed agreement permit transferring ongoing basis majority wholesale interestbearing receivables north america agco finance llc agco finance canada ltd 49 ownership interest joint ventures transfer wholesale interestbearing receivables without recourse agco continue service receivables december 31 2008 2007 balance interestbearing receivables transferred agco finance llc agco finance canada ltd agreement approximately 590 million 733 million respectively outlook operations subject cyclical nature agricultural industry sales equipment expected continue affected changes net cash farm income farm land values weather conditions demand agricultural commodities farm industry related legislation availability financing general economic conditions outlook 2009 farm equipment industry reflects significant uncertainty softening demand major farm equipment markets record 2008 market conditions expect 2009 south american industry retail sales significantly due dry weather conditions impact tightened credit environment planted acreage crop production european industry retail sales expected decline moderately 2009 stronger declines credit challenged markets central eastern europe russia north america expect 2009 industry retail sales decline moderately lower demand small tractors reflecting weakness general economy residential construction demand professional farming sector north america expected moderate second half year result weaker industry outlook 2009 net sales expected decrease compared 2008 result softer end market demand well impact unfavorable foreign currency translation 2009 projected operating income expected impacted lower net sales production volumes well increased engineering expenses new product development tier 4 emission requirements result net income expected decline 2009 compared 2008 foreign currency risk management significant manufacturing operations france germany brazil finland purchase portion tractors combines components thirdparty foreign suppliers primarily various european countries japan also sell products 140 countries throughout world majority net sales outside united states denominated currency customer location exception sales middle east africa asia parts south america net sales primarily denominated british pounds euros united states dollars see note 14 consolidated financial statements net sales customer location significant transactional foreign currency exposures euro brazilian real canadian dollar russian rouble relation united states dollar fluctuations value foreign currencies create exposures adversely affect results operations attempt manage transactional foreign exchange exposure hedging foreign currency cash flow forecasts commitments arising anticipated settlement receivables payables future purchases sales naturally offsetting currency positions occur hedge certain exposures use foreign currency forward option contracts hedging policy prohibits entering contracts speculative trading purposes translation exposure resulting translating financial statements foreign subsidiaries united states dollars hedged significant translation exposures euro british pound brazilian real relation united states dollar practical translation impact reduced financing local operations local borrowings derivatives recognized consolidated balance sheets fair value date derivative contract entered designate derivative either 1 fair value hedge recognized liability 2 cash flow hedge forecasted transaction 3 hedge net investment foreign operation 4 nondesignated derivative instrument discussed use foreign currency forward contracts hedge receivables payables consolidated balance sheet subsidiaries’ balance sheets denominated foreign currencies functional currency forward contracts classified nondesignated derivative instruments gains losses contracts historically substantially offset losses gains remeasurement underlying asset liability hedged changes fair value nondesignated derivative contracts reported current earnings 2008 2007 2006 designated certain foreign currency option forward contracts cash flow hedges expected future sales effective portion fair value gains losses cash flow hedges recorded comprehensive income loss subsequently reclassified cost goods sold period sales recognized amounts offset effect changes foreign exchange rates related sale transactions amount gain recorded comprehensive income loss reclassified cost goods sold years ended december 31 2008 2007 2006 approximately 141 million 41 million 40 million respectively aftertax basis amount loss gain recorded comprehensive income loss related outstanding cash flow hedges december 31 2008 2007 2006 approximately 367 million 77 million 01 million respectively aftertax basis outstanding contracts december 31 2008 range maturity december 2009 2008 cash deposited financial institution security outstanding foreign exchange contracts mature throughout 2009 december 31 2008 amount deposited approximately 338 million classified “restricted cash” consolidated balance sheets amount posted security either increase decrease future depending value outstanding amount contracts secured arrangement relative impact gains losses outstanding contracts following summary foreign currency derivative contracts used hedge currency exposures outstanding contracts december 31 2008 range maturity december 2009 net notional amounts fair value gains losses december 31 2008 stated united states dollars follows millions except average contract rate per united states dollar contracts entered hedging purposes gains losses contracts would largely offset gains losses underlying firm commitment forecasted transaction interest rates manage interest rate risk use fixed rate debt may future utilize interest rate swap contracts fixed rate debt senior subordinated notes convertible senior subordinated notes floating rate exposure related revolving credit facility securitization facilities tied changes united states european libor rates assuming 10 increase interest rates interest expense net cost securitization facilities year ended december 31 2008 would increased approximately 16 million interest rate swap contracts outstanding years ended december 31 2008 2007 2006 recent accounting pronouncements december 2008 fasb affirmed fsp fas 132r1 “employers’ disclosures postretirement benefit plan assets” “fsp fas 132r1” fsp fas 132r1 requires additional disclosures assets held employer’s defined benefit pension postretirement plan primarily related categories fair value measurements plan assets fsp fas 132r1 effective fiscal years ending december 15 2009 therefore adopt disclosure requirements fiscal year ended december 31 2009 september 2008 fasb issued fsp fin 454 “an amendment fin 45 guarantor’s accounting disclosure requirements guarantees including indirect guarantees indebtedness others” fsp requires additional disclosure current status paymentperformance risk guarantee fsp effective financial statements issued fiscal years interim periods ending november 15 2008 early adoption encouraged adopted provisions fsp year ended december 31 2008 may 2008 fasb issued fsp apb 141 fsp requires liability equity components convertible debt instruments may settled cash upon conversion including partial cash settlement commonly referred instrument c eitf 9019 separated account fair value debt equity components date issuance reflect issuer’s nonconvertible debt borrowing rate fsp effective financial statements issued fiscal years beginning december 15 2008 applied retrospectively periods presented retroactive restatement pursuant guidance sfas 154 fsp impact accounting treatment 134 convertible senior subordinated notes due 2033 114 convertible senior subordinated notes due 2036 reclassifying portion convertible notes balances additional paidin capital representing estimated fair value conversion feature date issuance creating discount convertible notes amortized interest expense life convertible notes fsp result significant increase interest expense therefore reduce net income basic diluted earnings per share within consolidated statements operations adopt requirements fsp january 1 2009 estimate upon adoption “retained earnings” balance reduced approximately 37 million “convertible senior subordinated notes” balance reduced approximately 57 million “additional paidin capital” balance increase approximately 57 million including deferred tax impact approximately 37 million “interest expense net” attributable convertible senior subordinated notes fiscal year ended december 31 2009 expected increase approximately 15 million compared 2008 result adoption march 2008 fasb issued sfas 161 “disclosures derivative instruments hedging activitiesan amendment fasb statement 133” “sfas 161” sfas 161 intended improve financial reporting derivative instruments hedging activities requiring enhanced disclosures enable investors better understand effects entity’s financial position financial performance cash flows sfas 161 effective financial statements issued fiscal years interim periods beginning november 15 2008 early adoption encouraged adopt sfas 161 january 1 2009 december 2007 fasb issued sfas 141 revised 2007 “business combinations” “sfas 141r” sfas 160 “noncontrolling interests consolidated financial statements” “sfas 160” sfas 141r requires acquirer measure identifiable assets acquired liabilities assumed noncontrolling interest acquiree fair values acquisition date goodwill excess value net identifiable assets acquired sfas 141r also requires fair value measurement certain assets liabilities related acquisition contingencies research development sfas 160 clarifies noncontrolling interest subsidiary reported equity company’s consolidated financial statements consolidated net income include net income parent noncontrolling interest disclosure amounts company’s consolidated statement operations calculation earnings per share continue based income amounts attributable parent required adopt sfas 141r sfas 160 january 1 2009 march 2007 eitf reached consensus eitf issue 0610 “accounting collateral assignment splitdollar life insurance arrangements” “eitf 0610” requires employer recognize liability postretirement benefit related collateral assignment splitdollar life insurance arrangement accordance either sfas 106 “employers’ accounting postretirement benefits pensions” “sfas 106” substance postretirement benefit plan exists accounting principles board opinion 12 arrangement substance individual deferred compensation contract employer agreed maintain life insurance policy employee’s retirement provide employee death benefit based substantive agreement employee addition eitf reached consensus employer recognize measure asset based nature substance collateral assignment splitdollar life insurance arrangement eitf observed determining nature substance arrangement employer assess future cash flows employer entitled well employee’s obligation ability repay employer eitf 0610 effective fiscal years beginning december 15 2007 adoption eitf 0610 january 1 2008 material effect consolidated results operations financial position february 2007 fasb issued sfas 159 “the fair value option financial assets financial liabilities” “sfas 159” sfas 159 provides companies option report selected financial assets liabilities fair value provide additional information help investors users financial statements understand easily effect earnings company’s choice use fair value also requires companies display fair value assets liabilities chosen use fair value face balance sheets adoption sfas 159 january 1 2008 material effect consolidated results operations financial position september 2006 fasb issued sfas 157 “fair value measurements” “sfas 157” sfas 157 establishes common definition fair value applied guidance regarding us generally accepted accounting principles requiring use fair value establishes framework measuring fair value expands disclosure fair value measurements sfas 157 effective fair value measures already required permitted standards fiscal years beginning november 15 2007 november 2007 fasb proposed oneyear deferral sfas 157’s fair value measurement requirements nonfinancial assets liabilities required permitted measured fair value recurring basis adoption sfas 157 january 1 2008 material effect consolidated results operations financial position june 2006 eitf reached consensus eitf issue 064 “accounting deferred compensation postretirement benefit aspects endorsement splitdollar life insurance arrangements” “eitf 064” requires application provisions sfas 106 endorsement splitdollar life insurance arrangements sfas 106 would require company recognize liability discounted future benefit obligation company would pay upon death underlying insured employee endorsementtype arrangement generally exists company owns controls incidents ownership underlying policies eitf 064 effective fiscal years beginning december 15 2007 adoption eitf 064 january 1 2008 material effect consolidated results operations financial position item 7aitem 7 management’s discussion analysis financial condition results operations leading manufacturer distributor agricultural equipment related replacement parts throughout world sell full range agricultural equipment including tractors combines hay tools sprayers forage equipment implements line diesel engines products widely recognized agricultural equipment industry marketed number wellknown brand names including challenger® fendt® massey ferguson® valtra® distribute products combination approximately 2700 dealers distributors associates licensees addition provide retail financing united states canada brazil germany france united kingdom australia ireland austria retail finance joint ventures rabobank results operations sell equipment replacement parts independent dealers distributors customers large majority sales independent dealers distributors sell products end user extent practicable attempt sell products dealers distributors level basis throughout year reduce effect seasonal demands manufacturing operations minimize investment inventory however retail sales dealers farmers highly seasonal linked planting harvesting seasons certain markets particularly north america often time lag varies based timing level retail demand sale equipment dealer’s sale retail customer following table sets forth periods indicated percentage relationship net sales certain items included consolidated statements operations compared 2008 net income 2009 1357 million 144 per diluted share compared net income 2008 3859 million 395 per diluted share net sales 2009 approximately 17942 million 213 lower 2008 primarily due sales declines geographical segments well unfavorable impact currency translation volatility commodity prices expectation lower farm income contributed weaker demand major markets income operations 2193 million 2009 compared 5650 million 2008 decrease income operations operating margins 2009 due primarily lower net sales reduced production volumes weaker product mix partially offset cost containment initiatives europeafricamiddle east operations income operations decreased approximately 2948 million 2009 compared 2008 primarily due decreased net sales lower production levels unfavorable currency translation impacts increased engineering expenses income operations south american operations decreased approximately 696 million 2009 compared 2008 primarily due lower net sales lower production levels unfavorable currency translation impacts shift sales mix brazil higher horsepower tractors lower horsepower tractors north america income operations increased approximately 133 million 2009 compared 2008 primarily due improved margins new products productivity initiatives lower selling general administrative “sga” expenses partially offset higher levels engineering costs impact lower production income operations asiapacific region decreased approximately 71 million 2009 compared 2008 primarily due lower gross margins unfavorable currency translation impacts retail sales worldwide industry equipment demand farm equipment decreased 2009 major markets current global economic downturn volatility farm commodity prices prospects lower farm income 2009 contributed decreased demand equipment united states canada industry unit retail sales tractors decreased approximately 21 2009 compared 2008 resulting decreases industry unit retail sales compact utility high horsepower tractors industry unit retail sales combines increased approximately 15 2009 compared prior year north america unit retail sales tractors well combines decreased 2009 compared 2008 levels europe industry unit retail sales tractors decreased approximately 18 2009 compared 2008 due lower retail volumes major european markets industry unit retail sales western europe declined approximately 13 2009 compared 2008 despite strong harvests across western europe lower commodity prices outlook reduced farmer profitability generated softer demand industry unit retail sales eastern europe russia declined significantly compared 2008 levels due ongoing credit constraints unit retail sales tractors 2009 europe also lower compared 2008 south america industry unit retail sales tractors 2009 decreased approximately 17 compared 2008 weak industry conditions argentina markets outside brazil contributed decline industry demand region retail sales tractors major market brazil increased approximately 5 2009 brazilian governmentfunded financing program small tractors well new governmentsponsored lowinterest financing program equipment supported sales brazilian market primarily low horsepower sector industry unit retail sales combines 2009 approximately 36 lower prior year decrease brazil approximately 14 compared 2008 unit retail sales tractors combines south america also lower 2009 compared 2008 international markets net sales 2009 approximately 47 higher prior year due primarily higher sales australia new zealand resulting improved harvests results operations net sales 2009 66304 million compared 84246 million 2008 decrease primarily attributable net sales decreases geographical regions well unfavorable foreign currency translation impacts foreign currency translation negatively impacted net sales approximately 4044 million primarily due weakening euro brazilian real first nine months 2009 compared 2008 following table sets forth year ended december 31 2009 impact net sales currency translation geographical segment millions except percentages following reconciliation net sales year ended december 31 2009 actual exchange rates compared 2008 adjusted exchange rates millions 1 adjusted exchange rates 2008 exchange rates regionally net sales north america decreased 2009 compared 2008 primarily due weaker market demand efforts reduce dealer inventory levels europeafricamiddle east region net sales decreased 2009 compared 2008 primarily due sales declines germany france scandinavia well eastern central europe russia south america net sales decreased 2009 compared 2008 primarily result weaker market conditions region particularly argentina shift sales mix lower horsepower tractors region asiapacific region net sales increased 2009 compared 2008 due sales growth australia new zealand estimate worldwide average price increases 2009 2008 approximately 3 4 respectively consolidated net sales tractors combines consisted approximately 72 net sales 2009 decreased approximately 22 2009 compared 2008 unit sales tractors combines decreased approximately 20 2009 compared 2008 difference unit sales decrease net sales primarily result foreign currency translation pricing sales mix changes following table sets forth years ended december 31 2009 2008 percentage relationship net sales certain items included consolidated statements operations millions except percentages gross profit percentage net sales decreased 2009 compared 2008 primarily due lower production volumes weaker sales mix partially offset impact reduced workforce levels cost control initiatives sales mix impacted margins primarily south america due shift demand toward low horsepower tractors away high horsepower tractors combines unit production tractors combines 2009 approximately 24 lower 2008 recorded approximately 01 million 15 million stock compensation expense within cost goods sold 2009 2008 respectively fully explained note 1 consolidated financial statements sga expenses percentage net sales increased 2009 compared 2008 primarily due decline net sales recorded approximately 82 million 320 million stock compensation expense within sga 2009 2008 respectively fully explained note 1 consolidated financial statements engineering expenses decreased slightly increased percentage sales 2009 compared 2008 maintained level engineering expenses relative prior year fund projects related new product development tier 4 emission requirements recorded restructuring infrequent expenses approximately 132 million 02 million 2009 2008 respectively restructuring infrequent expenses recorded 2009 related primarily severance related costs associated rationalization operations france united kingdom finland germany united states denmark restructuring infrequent expenses recorded 2008 related primarily severance employee relocation costs associated rationalization valtra sales office located france interest expense net 433 million 2009 compared 332 million 2008 increase primarily due lower interest income result lower interest rates lower amounts invested cash expense net 222 million 2009 compared 201 million 2008 losses sales receivables primarily securitization facilities 156 million 2009 compared 273 million 2008 decrease primarily due reduction interest rates 2009 compared 2008 addition foreign exchange losses 2009 compared foreign exchange gains 2008 recorded income tax provision 565 million 2009 compared 1646 million 2008 tax provision impacted differing tax rates various tax jurisdictions operate permanent differences items treated differently financial accounting income tax purposes losses jurisdictions income tax benefit recorded 2009 income tax rate reconciliation provided note 6 consolidated financial statements includes 395 million favorable “change valuation allowance” fully offset writeoff certain foreign tax assets reflected “tax effects permanent differences” due fact tax assets expected utilized future years previously maintained valuation allowance tax assets accordingly writeoff resulted impact income tax provision year ended december 31 2009 valuation allowance established likely portion company’s deferred tax assets realized assessed likelihood deferred tax assets would recovered estimated future taxable income available income tax planning strategies december 31 2009 2008 gross deferred tax assets 4850 million 4714 million respectively including 2150 million 2108 million respectively related net operating loss carryforwards december 31 2009 2008 recorded total valuation allowances offset gross deferred tax assets 2617 million 2944 million respectively primarily related net operating loss carryforwards brazil denmark switzerland netherlands united states realization remaining deferred tax assets december 31 2009 depend generating sufficient taxable income future periods net reversing deferred tax liabilities believe likely remaining net deferred tax assets realized december 31 2009 2008 approximately 218 million 201 million respectively unrecognized tax benefits would impact effective tax rate recognized december 31 2009 2008 approximately 35 million 76 million respectively current accrued taxes related uncertain income tax positions connected ongoing tax audits various jurisdictions expect settle pay next 12 months recognize interest penalties related uncertain income tax positions income tax expense december 31 2009 2008 accrued interest penalties related unrecognized tax benefits approximately 19 million 18 million respectively see note 6 consolidated financial statements discussion uncertain income tax positions equity net earnings affiliates 384 million 2009 compared 388 million 2008 increase earnings associated retail finance joint ventures offset decrease earnings associated laverda operating joint venture 2009 compared 2008 refer “retail finance joint ventures” information regarding retail finance joint ventures results operations compared 2007 net income 2008 3859 million 395 per diluted share compared net income 2007 2329 million 241 per diluted share net sales 2008 approximately 15965 million 234 higher 2007 primarily due improved industry conditions major global agricultural equipment markets positive impact foreign currency translation sales growth achieved geographic operating segments income operations 5650 million 2008 compared 3948 million 2007 increase income operations operating margins 2008 due primarily sales volume growth price increases improved product mix cost control initiatives partially offset higher material costs europeafricamiddle east operations income operations improved approximately 1191 million 2008 compared 2007 primarily due increased sales volumes favorable currency translation impacts improved product mix margin improvements achieved cost reduction initiatives income operations south american operations increased approximately 329 million 2008 compared 2007 primarily due higher sales volume resulting stronger market conditions particularly major market brazil well favorable currency translation impacts north america income operations increased approximately 443 million 2008 compared 2007 primarily due higher sales result strong industry demand large farm equipment operating efficiencies income operations asiapacific region increased approximately 84 million 2008 compared 2007 primarily due sales growth australian new zealand markets retail sales worldwide industry equipment demand farm equipment increased 2008 major markets healthy farm income driven higher farm commodity prices contributed improved demand equipment particularly large farm equipment sector 2008 farm commodity prices continued supported result strong global demand historically low inventories commodities united states canada industry unit retail sales tractors decreased approximately 7 2008 compared 2007 due decreases compact utility tractor segments offset increases high horsepower tractor segment industry unit retail sales combines increased approximately 22 2008 compared prior year north america unit retail sales compact high horsepower tractors well combines increased unit retail sales utility tractors decreased 2008 compared 2007 levels europe industry unit retail sales tractors increased approximately 7 2008 compared 2007 demand strongest high horsepower segment markets france germany central eastern europe russia offset weaker markets spain finland scandinavia unit retail sales tractors 2008 europe also higher compared 2007 south america industry unit retail sales tractors 2008 increased approximately 30 compared 2007 retail sales tractors major market brazil increased approximately 39 2008 industry unit retail sales combines 2008 approximately 50 higher prior year increase brazil approximately 88 compared prior year improved commodity prices contributed strength row crop sugar cane sectors brazil resulting increased industry demand unit retail sales tractors combines south america also higher 2008 compared 2007 international markets net sales 2008 approximately 103 higher prior year due primarily higher sales australia new zealand resulting improved harvests rate retail sales increases declined major markets fourth quarter 2008 lower commodity prices tightened credit availability began impact sales demand particularly south america eastern europe russia results operations net sales 2008 84246 million compared 68281 million 2007 increase primarily attributable net sales growth four geographical regions well positive currency translation impacts currency translation positively impacted net sales approximately 2479 million primarily due strength brazilian real euro first nine months year following table sets forth year ended december 31 2008 impact net sales currency translation geographical segment millions except percentages following reconciliation net sales year ended december 31 2008 actual exchange rates compared 2007 adjusted exchange rates millions 1 adjusted exchange rates 2007 exchange rates regionally net sales north america increased 2008 compared 2007 primarily due strong industry conditions supporting increased sales high horsepower tractors combines hay equipment sprayers europeafricamiddle east region net sales increased 2008 primarily due sales growth france germany united kingdom austria eastern central europe russia south america net sales increased 2008 compared 2007 primarily result stronger market conditions region particularly major market brazil asiapacific region net sales increased 2008 compared 2007 due sales growth australia new zealand estimate worldwide consolidated average price increases 2008 contributed approximately 4 increase net sales consolidated net sales tractors combines consisted approximately 72 net sales 2008 increased approximately 23 2008 compared 2007 unit sales tractors combines increased approximately 11 2008 compared 2007 difference unit sales increase net sales result foreign currency translation pricing sales mix changes following table sets forth years ended december 31 2008 2007 percentage relationship net sales certain items included consolidated statements operations millions except percentages gross profit percentage net sales increased 2008 compared 2007 primarily due benefits higher production cost reduction initiatives partially offset negative currency impacts raw material cost inflation unit production tractors combines 2008 approximately 18 higher 2007 response increases manufacturing input costs driven primarily increases steel energy costs instituted series price increases 2008 pricing actions helped partially offset impact rising manufacturing input costs gross margins 2008 2007 north america also affected weak united states dollar products imported european brazilian manufacturing facilities recorded approximately 15 million 10 million stock compensation expense within cost goods sold 2008 2007 respectively sga expenses percentage net sales decreased 2008 compared 2007 primarily result higher sales volumes 2008 cost control initiatives recorded approximately 320 million 250 million stock compensation expense within sga 2008 2007 respectively engineering expenses increased 2008 result continued spending fund new products product improvements cost reduction projects restructuring infrequent expenses recorded 2008 related primarily severance employee relocation costs associated rationalization valtra sales office located france restructuring infrequent income recorded 2007 primarily related 32 million gain sale portion buildings land improvements associated randers denmark facility gain partially offset 09 million charges primarily related severance employee relocation costs associated rationalization valtra sales office located france well rationalization certain parts sales marketing administrative functions germany interest expense net 332 million 2008 compared 375 million 2007 decrease primarily due reduction debt levels increased interest income earned 2008 compared 2007 expense net 201 million 2008 compared 434 million 2007 losses sales receivables primarily securitization facilities 273 million 2008 compared 361 million 2007 decrease 2008 primarily due lower interest rates 2008 compared 2007 partially offset higher outstanding funding securitizations 2008 compared 2007 also increase foreign exchange gains 2008 compared 2007 recorded income tax provision 1646 million 2008 compared 1114 million 2007 assessed likelihood deferred tax assets would recovered estimated future taxable income available income tax planning strategies effective tax rate positively impacted 2008 primarily due reductions statutory tax rates united kingdom germany decrease losses incurred united states december 31 2008 2007 gross deferred tax assets 4714 million 479l million respectively including 2108 million 2478 million respectively related net operating loss carryforwards december 31 2008 2007 recorded total valuation allowances offset gross deferred tax assets 2944 million 3153 million respectively primarily related net operating loss carryforwards brazil denmark netherlands united states december 31 2008 2007 approximately 201 million 227 million respectively unrecognized tax benefits would impact effective tax rate recognized december 31 2008 2007 approximately 76 million 140 million respectively current accrued taxes related uncertain income tax positions connected ongoing tax audits various jurisdictions expected settle pay next 12 months recognize interest penalties related uncertain income tax positions income tax expense december 31 2008 2007 accrued interest penalties related unrecognized tax benefits approximately 18 million 11 million respectively equity net earnings affiliates 388 million 2008 compared 304 million 2007 increase 2008 primarily due income associated investment laverda operating joint venture acquired september 2007 well increased earnings retail finance joint ventures quarterly results following table presents unaudited interim operating results believe following information includes adjustments consisting normal recurring adjustments necessary present fairly results operations periods presented operating results period necessarily indicative results future period 1 2009 quarters ended march 31 june 30 september 30 december 31 included restructuring infrequent expenses 00 million 28 million 10 million 94 million respectively thereby impacting net income per common share diluted basis 000 002 001 007 respectively 2008 quarters ended march 31 june 30 september 30 december 31 included restructuring infrequent expenses income 01 million 01 million 01 million 01 million respectively impact net income per common share diluted basis 2 amounts presented three months ended march 31 june 30 september 30 december 31 2008 retroactively restated reflect adjustments made amortization debt discounts related convertible senior subordinated notes refer notes 1 7 consolidated financial statements discussion retail finance joint ventures agco finance retail finance joint ventures provide retail financing wholesale financing dealers united states canada brazil germany france united kingdom australia ireland austria argentina joint ventures owned 49 agco 51 wholly owned subsidiary rabobank aaa rated financial institution based netherlands majority assets retail finance joint ventures represent finance receivables majority liabilities represent notes payable accrued interest various joint venture agreements rabobank affiliates provide financing joint ventures primarily lines credit guarantee debt obligations joint ventures portion retail portfolio brazil held outside joint venture rabobank brazil approximately 37 million december 31 2009 gradually eliminated time december 31 2009 capital investment retail finance joint ventures included “investment affiliates” consolidated balance sheets approximately 2587 million compared 1878 million december 31 2008 total finance portfolio retail finance joint ventures approximately 63 billion 48 billion december 31 2009 2008 respectively total finance portfolio december 31 2009 included approximately 56 billion retail receivables 07 billion wholesale receivables agco dealers total finance portfolio december 31 2008 included approximately 46 billion retail receivables 02 billion wholesale receivables agco dealers wholesale receivables either sold directly agco finance without recourse operating companies agco finance provided financing directly dealers december 22 2009 terminated us canadian accounts receivable securitization facilities replaced new accounts receivable sales agreements permit transfer ongoing basis substantially wholesale interestbearing noninterest bearing receivables north america agco finance llc agco finance canada ltd us canadian retail finance joint ventures 2009 share earnings retail finance joint ventures included “equity net earnings affiliates” consolidated statements operations 364 million compared 297 million 2008 increase 2009 due primarily higher finance revenues generated result higher average retail finance portfolios particularly europe brazil retail finance portfolio retail finance joint venture brazil 17 billion december 31 2009 compared 12 billion december 31 2008 result weak market conditions brazil 2005 2006 substantial portion portfolio included payment deferral program directed brazilian government impact deferral program resulted higher delinquencies lower collateral coverage portfolio joint venture currently considers reserves loan losses adequate continually monitors reserves considering borrower payment history value underlying equipment financed payment deferral programs implemented brazilian government date retail finance joint ventures markets outside brazil experienced significant changes credit quality finance portfolios result recent global economic challenges however assurance portfolio credit quality deteriorate given size portfolio relative joint ventures’ level equity significant adverse change joint ventures’ performance would material impact joint ventures operating results outlook operations subject cyclical nature agricultural industry sales equipment expected continue affected changes net cash farm income farm land values weather conditions demand agricultural commodities farm industry related legislation availability financing general economic conditions worldwide industry demand expected mixed first six months 2010 stronger market conditions brazil expected offset weaker conditions north america europe demand north america western europe expected stabilize 2010 making comparisons 2009 favorable second half year continued economic weakness eastern central europe russia expected keep industry demand low levels markets throughout 2010 net sales 2010 expected flat compared 2009 targeting gross margin improvements offset higher engineering expenses new product development tier 4 emission requirements well higher pension costs net income projected flat slightly higher 2009 liquidity capital resources financing requirements subject variations due seasonal changes inventory receivable levels internally generated funds supplemented necessary external sources primarily revolving credit facility accounts receivable securitization facilities believe facilities together available cash internally generated funds sufficient support working capital expenditures debt service requirements foreseeable future • 300 million revolving credit facility expires may 2013 amounts outstanding december 31 2009 • 2000 million approximately 2865 million december 31 2009 678 senior subordinated notes mature 2014 • 2013 million 134 convertible senior subordinated notes may required repurchased december 31 2010 could converted earlier based closing sales price common stock see discussion 2013 million 114 convertible senior subordinated notes may required repurchased december 15 2013 could converted earlier based closing sales price common stock see discussion • 1400 million approximately 2006 million december 31 2009 securitization facility europe expires october 2011 december 31 2009 outstanding funding related facility approximately 1046 million approximately 1499 million • new accounts receivable sales agreements united states canada agco finance llc agco finance canada ltd total funding 6000 million us wholesale accounts receivable c25000 million approximately 2347 million december 31 2009 canadian wholesale accounts receivable december 31 2009 approximately 4446 million proceeds received agreements addition although complete compliance financial covenants contained facilities currently expect continue maintain compliance ever encounter difficulties historical relationship lenders strong anticipate continued longterm support business however impossible predict length severity current tightened credit environment may impact ability obtain additional financing sources ability renew extend maturity existing financing sources current facilities 2013 million 134 convertible senior subordinated notes due december 31 2033 issued june 2005 provide settlement upon conversion cash principal amount converted notes excess conversion value settled shares common stock ii conversion rate increased certain circumstances notes converted connection certain change control transactions occurring prior december 10 2010 notes unsecured obligations convertible cash shares common stock upon satisfaction certain conditions interest payable notes 134 per annum payable semiannually arrears cash june 30 december 31 year notes convertible shares common stock effective price 2236 per share subject adjustment reflects initial conversion rate notes 447193 shares common stock per 1000 principal amount notes beginning january 1 2011 may redeem notes redemption price 100 principal amount plus accrued interest holders notes may require us repurchase notes repurchase price 100 principal amount plus accrued interest december 31 2010 2013 2018 2023 2028 see note 7 consolidated financial statements full description notes 2013 million 114 convertible senior subordinated notes due december 15 2036 issued december 2006 provide settlement upon conversion cash principal amount notes excess conversion value settled shares common stock ii conversion rate increased certain circumstances notes converted connection certain change control transactions occurring prior december 15 2013 interest payable notes 114 per annum payable semiannually arrears cash june 15 december 15 year notes convertible shares common stock effective price 4073 per share subject adjustment reflects initial conversion rate notes 245525 shares common stock per 1000 principal amount notes beginning december 15 2013 may redeem notes redemption price 100 principal amount plus accrued interest holders notes may require us repurchase notes repurchase price 100 principal amount plus accrued interest december 15 2013 2016 2021 2026 2031 see note 7 consolidated financial statements full description notes december 31 2009 closing sales price common stock exceeded 120 conversion price 2236 per share 134 convertible senior subordinated notes least 20 trading days 30 consecutive trading days ending december 31 2009 therefore classified notes current liability event notes converted believe could repay notes available cash hand funds 3000 million multicurrency revolving credit facility combination sources december 31 2008 closing sales price common stock exceed 120 conversion price 2236 4073 per share respectively 134 convertible senior subordinated notes 114 convertible senior subordinated notes least 20 trading days 30 consecutive trading days ending december 31 2008 therefore classified notes longterm debt future classification 134 convertible senior subordinated notes 114 convertible senior subordinated notes current longterm debt dependent closing sales price common stock future quarters 134 convertible senior subordinated notes 114 convertible senior subordinated notes impact diluted weighted average shares outstanding future periods depending stock price excess conversion value using treasury stock method refer notes 1 7 company’s consolidated financial statements discussion 3000 million unsecured multicurrency revolving credit facility matures may 16 2013 interest accrues amounts outstanding facility option either 1 libor plus margin ranging 100 175 based upon total debt ratio 2 higher administrative agent’s base lending rate onehalf one percent federal funds rate plus margin ranging 00 050 based upon total debt ratio facility contains covenants restricting among things incurrence indebtedness making certain payments including dividends subject acceleration event default defined facility also must fulfill financial covenants respect total debt ebitda ratio interest coverage ratio defined facility december 31 2009 2008 outstanding borrowings facility december 31 2009 2008 availability borrow approximately 2907 million 2913 million respectively facility 2000 million 678 senior subordinated notes due 2014 unsecured obligations subordinated right payment existing future senior indebtedness interest payable notes semiannually april 15 october 15 year subsequent april 15 2009 may redeem notes whole part initially 103438 principal amount plus accrued interest declining 100 principal amount plus accrued interest time april 15 2012 notes include covenants restricting incurrence indebtedness making certain restricted payments including dividends european securitization facility sell accounts receivable europe revolving basis commercial paper conduits qualifying special purpose entity “qspe” united kingdom european facility expires october 2011 subject annual renewal december 31 2009 expanded european facility 400 million total amount facility 1400 million approximately 2006 million outstanding funded balance approximately 1046 million approximately 1499 million december 31 2009 effect reducing accounts receivable shortterm liabilities amount risk loss securitization facilities limited portion unfunded balance receivables sold approximately 10 funded amount maintain reserves doubtful accounts associated risk necessary facilities terminated would required repurchase previously sold receivables would prevented selling additional receivables commercial paper conduits facility allow us sell accounts receivables financing conduits obtain funding commercial paper markets future funding securitization facility depends upon adequacy receivables sufficient demand underlying commercial paper maintenance certain covenants concerning quality receivables financial condition event commercial paper demand adequate securitization facility provides liquidity backing various financial institutions including rabobank liquidity commitments would provide us interim funding allow us find alternative sources working capital financing necessary december 22 2009 terminated us canadian accounts receivable securitization facilities 2800 million 700 million respectively outstanding funding approximately 2800 million 650 million respectively replaced securitization facilities new accounts receivable sales agreements permit transfer ongoing basis substantially wholesale interestbearing noninterest bearing receivables north america agco finance llc agco finance canada ltd us canadian retail finance joint ventures 49 ownership joint ventures agreement also replaces may 2005 agreement whereby previously sold interestbearing receivables agco finance llc agco finance canada ltd ongoing basis new accounts receivable sales agreements provide funding 6000 million us accounts receivable c2500 million approximately 2347 million december 31 2009 canadian accounts receivable may increased future discretion agco finance llc agco finance canada ltd respectively transfer receivables without recourse us agreements accounted offbalance sheet transactions similar securitization facility effect reducing accounts receivable shortterm liabilities amount december 31 2009 net cash received receivables sold us canadian accounts receivable sales agreements agco finance llc agco finance canada ltd approximately 4446 million december 31 2008 balance interestbearing receivables transferred agco finance llc agco finance canada ltd former arrangement transfer wholesale interestbearing receivables approximately 590 million net cash impact proceeds sale accounts receivable new sales agreements less 3450 million previously funded former securitization facilities approximately 406 million reflected within “net cash provided operating activities” within consolidated statement cash flows year ended december 31 2009 agco finance retail joint ventures europe brazil australia also provide wholesale financing dealers receivables associated arrangements also without recourse us december 31 2009 retail finance joint ventures approximately 1769 million outstanding accounts receivable associated arrangements accounted offbalance sheet transactions addition sell certain trade receivables factoring arrangements financial institutions around world arrangements also accounted offbalance sheet transactions cash flows cash flow provided operating activities 3517 million 2009 compared 2913 million 2008 increase cash flow provided operating activities 2009 primarily due reduction net working capital lowered inventory accounts receivable levels approximately 5587 million 2008 yearend levels reduction positive impact cash flow partially offset lower net income well reduction accounts payable resulting significant production cuts throughout 2009 reduction accounts receivable levels also includes net cash impact proceeds sale accounts receivable new accounts receivable sales agreements discussed less 3450 million previously funded former securitization facilities approximately 406 million working capital requirements seasonal investments working capital typically building first half year reducing second half year 10708 million working capital december 31 2009 compared 10267 million december 31 2008 accounts receivable inventories combined december 31 2009 2865 million lower december 31 2008 accounts payable december 31 2009 3828 million lower december 31 2008 capital expenditures 2009 2153 million compared 2513 million 2008 capital expenditures 2009 used support manufacturing operations systems initiatives development enhancement new existing products debt capitalization ratio total indebtedness divided sum total indebtedness stockholders’ equity 214 december 31 2009 compared 248 december 31 2008 contractual obligations future payments required significant contractual obligations excluding foreign currency option forward contracts december 31 2009 follows millions 1 estimated interest payments calculated assuming current interest rates minimum maturity periods specified debt agreements debt may repaid sooner later minimum maturity periods indebtedness amounts reflect principal amount convertible senior subordinated notes 2 shortterm longterm obligations include estimates future minimum contribution requirements us nonus defined benefit pension postretirement plans estimates based current legislation countries operate within subject change shortterm longterm obligations also include income tax liabilities related uncertain income tax positions connected ongoing income tax audits various jurisdictions addition shortterm obligations include amounts due financial institutions related sales certain receivables meet offbalance sheet criteria commitments offbalance sheet arrangements guarantees maintain remarketing agreement agco finance llc agco finance canada ltd retail finance joint ventures north america whereby obligated repurchase repossessed inventory market values agreement agco finance llc limits purchase obligations arrangement 60 million aggregate per calendar year believe losses might incurred resale equipment materially impact financial position results operations due fair value underlying equipment december 31 2009 guaranteed indebtedness owed third parties approximately 741 million primarily related dealer enduser financing equipment guarantees generally obligate us repay outstanding finance obligations owed financial institutions dealers end users default loans 2014 believe credit risk associated guarantees material financial position losses guarantees historically insignificant addition would able recover amounts paid guarantees sale underlying financed farm equipment fair value equipment would sufficient offset substantial portion amounts paid december 31 2009 outstanding foreign exchange contracts gross notional amount approximately 12477 million outstanding contracts december 31 2009 range maturity december 2010 gains losses contracts historically substantially offset losses gains exposures hedged see “foreign currency risk management” additional information discussed “liquidity capital resources” sell substantially wholesale accounts receivable north america us canadian retail finance joint ventures sell certain accounts receivable european securitization facility sell certain accounts receivable factoring arrangements financial institutions around world evaluate sale receivables pursuant guidelines accounting standards codification “asc” 860 “transfers servicing” “asc 860” determined facilities accounted offbalance sheet transactions contingencies result brazilian tax legislation impacting value added taxes “vat” recorded reserve approximately 116 million 139 million outstanding balance brazilian vat taxes receivable december 31 2009 2008 respectively due uncertainty ability collect amounts outstanding february 2006 received subpoena sec connection nonpublic factfinding inquiry entitled “in matter certain participants oil food program” settled matter sec doj well danish government september 2009 june 2008 republic iraq filed civil action three foreign subsidiaries participated united nations oil food program august 2008 part routine audit brazilian taxing authorities disallowed deductions relating amortization certain goodwill recognized connection reorganization brazilian operations related transfer certain assets brazilian subsidiaries see note 12 consolidated financial statements discussion matters related parties rabobank 51 owner retail finance joint ventures located united states canada brazil germany france united kingdom australia ireland austria rabobank also principal agent participant revolving credit facility european securitization facility majority assets retail finance joint ventures represent finance receivables majority liabilities represent notes payable accrued interest various joint venture agreements rabobank affiliates provide financing joint venture companies primarily lines credit guarantee debt obligations retail finance joint ventures portion retail portfolio brazil held outside joint venture rabobank brazil prior 2005 joint venture brazil agency relationship rabobank whereby rabobank provided funding february 2005 made 213 million investment retail finance joint venture rabobank brazil additional investment joint venture’s organizational structure comparable retail finance joint ventures result gradual elimination solvency guarantee rabobank portfolio originally funded rabobank brazil december 31 2009 solvency requirement portfolio held rabobank approximately 37 million retail finance joint ventures provide retail financing wholesale financing dealers terms financing arrangements offered dealers similar arrangements provide unaffiliated third parties addition transfer ongoing basis substantially wholesale interestbearing noninterest bearing accounts receivable north america agco finance llc agco finance canada ltd retail finance joint ventures north america see note 4 consolidated financial statements discussion agreements maintain remarketing agreement us retail finance joint venture agco finance llc discussed “commitments offbalance sheet arrangements” addition part sales incentives provided end users may time subsidize interest rates retail financing provided retail finance joint ventures cost programs recognized time sale dealers foreign currency risk management significant manufacturing operations united states france germany finland brazil purchase portion tractors combines components thirdparty foreign suppliers primarily various european countries japan also sell products 140 countries throughout world majority net sales outside united states denominated currency customer location exception sales middle east africa asia parts south america net sales primarily denominated british pounds euros united states dollars see note 14 consolidated financial statements net sales customer location significant transactional foreign currency exposures euro brazilian real canadian dollar relation united states dollar euro relation british pound fluctuations value foreign currencies create exposures adversely affect results operations attempt manage transactional foreign currency exposure hedging foreign currency cash flow forecasts commitments arising anticipated settlement receivables payables future purchases sales naturally offsetting currency positions occur hedge certain exposures use foreign currency contracts translation exposure resulting translating financial statements foreign subsidiaries united states dollars hedged significant translation exposures euro british pound brazilian real relation united states dollar practical translation impact reduced financing local operations local borrowings hedging policy prohibits use foreign currency contracts speculative trading purposes derivatives recognized consolidated balance sheets fair value date derivative contract entered designate derivative either 1 fair value hedge recognized liability 2 cash flow hedge forecasted transaction 3 hedge net investment foreign operation 4 nondesignated derivative instrument currently engage derivatives cash flow hedges forecasted transactions well nondesignated derivative instruments changes fair value nondesignated derivative contracts reported current earnings 2009 2008 2007 designated certain foreign currency contracts cash flow hedges forecasted sales purchases effective portion fair value gains losses cash flow hedges recorded comprehensive income subsequently reclassified cost goods sold period sales purchases recognized amounts offset effect changes foreign currency rates related sale purchase transactions amount loss gain recorded comprehensive income loss reclassified cost goods sold years ended december 31 2009 2008 2007 approximately 145 million 141 million 41 million respectively aftertax basis amount loss gain recorded comprehensive income loss related outstanding cash flow hedges december 31 2009 2008 2007 approximately 13 million 367 million 77 million respectively aftertax basis outstanding contracts december 31 2009 range maturity december 2010 generally required collateral counterparties historically asked post collateral respect hedging transactions except 2009 2008 deposited cash financial institution security outstanding foreign currency contracts matured throughout 2009 december 31 2008 amount deposited approximately 338 million classified “restricted cash” consolidated balance sheets amount recovered 2009 contracts matured december 31 2009 collateral requirements hedge transactions previous years provided form 10k form 10qs table summarized foreign currency contracts used hedge foreign currency exposures included disclosure notional amounts well fair value gains losses hedges denoted foreign currency throughout 2009 prospectively disclosing market risk relates foreign currency exchange rate risk using sensitivity model analyze impact outstanding foreign currency contracts 10 change applicable currency hedge contract believe provides better clarity risk related foreign currency instruments assuming 10 change relative currency hedge contract could negatively impact fair value foreign currency instruments approximately 1049 million december 31 2009 using sensitivity analysis december 31 2008 fair value instruments would negatively impacted approximately 1190 million due fact instruments primarily entered hedging purposes gains losses contracts would largely offset losses gains underlying firm commitment forecasted transaction interest rates manage interest rate risk use fixed rate debt may future utilize interest rate swap contracts fixed rate debt senior subordinated notes convertible senior subordinated notes floating rate exposure related revolving credit facility securitization facilities tied changes united states european libor rates assuming 10 increase interest rates interest expense net cost securitization facilities year ended december 31 2009 would increased approximately 16 million interest rate swap contracts outstanding years ended december 31 2009 2008 2007 recent accounting pronouncements june 2009 financial accounting standards board “fasb” issued statement financial accounting standards “sfas” 167 “amendments fasb interpretation 46r” “sfas 167” subsequently codified asc 810 “consolidation” sfas 167 amends fasb interpretation 46r “consolidation variable interest entities” eliminate quantitative approach previously required determining primary beneficiary variable interest entity requires qualitative analysis determine whether enterprise’s variable interest gives controlling financial interest variable interest entity standard also requires ongoing assessments whether enterprise primary beneficiary variable interest entity sfas 167 effective financial statements issued fiscal years interim periods beginning november 15 2009 earlier adoption sfas 167 prohibited adoption standard impact consolidation joint venture gima refer note 1 consolidated financial statements discussion gima joint venture completed qualitative analysis joint ventures including gima joint venture determined controlling financial interest gima based shared powers joint venture partners direct activities significantly impact gima’s financial performance deconsolidation gima result prospective reclassification “noncontrolling interests” within equity “investments affiliates” consolidated balance sheets approximately 51 million reflect reclassification first quarter ended march 31 2010 deconsolidation also result reduction “net sales” “income operations” within consolidated statements operations overall impact consolidated net income result reduction “total assets” “total liabilities” within consolidated balance sheets net impact “total stockholders’ equity” reclassification previously mentioned june 2009 fasb issued sfas 166 “accounting transfers financial assets amendment sfas 140 ‘accounting transfers servicing financial assets extinguishments liabilities’ ” “sfas 166” subsequently codified asc 860 sfas 166 eliminates concept qualifying specialpurpose entity “qspe” changes requirements derecognizing financial assets requires additional disclosures order enhance information reported users financial statements providing greater transparency transfers financial assets including securitization transactions entity’s continuing involvement exposure risks related transferred financial assets sfas 166 effective fiscal years interim periods beginning november 15 2009 earlier adoption prohibited evaluated impact adoption sfas 166 accounts receivable securitization facility europe new accounts receivable sales agreements us canada well various financing facilities around world fully described note 4 consolidated financial statements upon adoption sfas 166 required recognize accounts receivable sold european securitization facility within consolidated balance sheets corresponding liability equivalent funded balance facility accounts receivable securitization facility europe approximately 1400 million approximately 2006 million december 31 2009 see note 1 consolidated financial statements information regarding recent accounting pronouncements recent restructuring actions recorded approximately 132 million restructuring infrequent expenses 2009 charges include severance related costs associated rationalization operations france united kingdom finland germany united states denmark refer note 3 consolidated financial statements detailed description rationalizations european north american manufacturing administrative headcount reductions 2009 january 2010 announced initiated several actions rationalize employee headcount various manufacturing facilities located france finland germany united states well various administrative offices located united kingdom united states headcount reductions initiated order reduce costs sga expenses response softening global market demand reduced production volumes recorded approximately 128 million severance related costs associated actions 2009 severance costs recorded related termination approximately 766 employees total cash restructuring costs associated actions expected approximately 230 million 250 million actions completed 2010 estimate results headcount reductions generate annual savings within sga expenses approximately 160 million 2010 savings associated manufacturing employee headcount reductions future periods dependent future production volumes randers denmark closure november 2009 announced intention close combine assembly operations located randers denmark intend cease operations july 2010 transfer assembly harvesting equipment manufacturing joint venture laverda located breganze italy land buildings associated randers facility marketed sale assembly operations cease machinery equipment tooling either transferred laverda one manufacturing operations closure result termination approximately 90 employees recorded approximately 04 million severance related costs 2009 associated facility closure employee retention payments paid employees remain employed certain future termination dates 2010 accrued term retention period commencing january 2010 expected approximately 23 million anticipate savings associated closure approximately 30 million commencing 2011 critical accounting estimates prepare consolidated financial statements conformity us generally accepted accounting principles preparation financial statements make judgments estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period significant accounting policies followed preparation financial statements detailed note 1 consolidated financial statements believe application policies discussed involves significant levels judgment estimates complexity due level judgment complexity period time many items resolved actual results could differ estimated time preparation financial statements adjustments estimates would impact financial position future results operations allowance doubtful accounts determine allowance doubtful accounts actively monitoring financial condition customers determine potential nonpayment trade receivables determining allowance doubtful accounts also consider economic factors aging trends believe process specific review customers combined overall analytical review provides effective evaluation ultimate collectability trade receivables loss writeoff experience approximately 01 net sales 2009 discount sales incentive allowances provide various incentive programs respect products incentive programs include reductions invoice prices reductions retail financing rates dealer commissions dealer incentive allowances volume discounts cases incentive programs established communicated dealers quarterly basis incentives paid either time invoice reduction invoice price time settlement receivable time retail financing time warranty registration subsequent time based dealer purchases incentive programs product line specific generally vary dealer cost sales incentives associated dealer commissions dealer incentive allowances estimated based upon terms programs historical experience based percentage sales price recorded later date related revenue recognized b date sales incentive offered related provisions accruals made product line basis monitored adequacy revised least quarterly event subsequent modifications programs volume discounts estimated recognized based historical experience related reserves monitored adjusted based actual dealer purchases dealers’ progress towards achieving specified cumulative target levels record cost interest subsidy payments reduction retail financing rates later date related revenue recognized b date sales incentive offered estimates incentives based terms programs historical experience incentive programs recorded presented reduction revenue due fact receive identifiable benefit exchange consideration provided reserves incentive programs paid either reduction future invoices credit memos recorded “accounts receivable allowances” within consolidated balance sheets reserves incentive programs paid cash case volume discount programs well sales incentives associated accounts receivable sold us canadian retail finance joint ventures recorded within “accrued expenses” within consolidated balance sheets december 31 2009 recorded allowance discounts sales incentives approximately 975 million primarily related reserves north america geographical segment paid either reduction future invoices credit memos dealers allow additional 1 sales incentives discounts time retail sale sales subject discount programs reserve would increase approximately 57 million december 31 2009 conversely decrease sales incentives discounts 1 time retail sale reserve would decrease approximately 57 million december 31 2009 inventory reserves inventories valued lower cost market using firstin firstout method market current replacement cost purchase reproduction dependent type inventory cases market exceeds net realizable value ie estimated selling price less reasonably predictable costs completion disposal inventories stated net realizable value market considered less net realizable value reduced allowance approximately normal profit margin determination cost includes estimates surplus obsolete inventory based estimates future sales production changes demand product design impact estimates periodically evaluate update assumptions assessing adequacy inventory adjustments deferred income taxes uncertain income tax positions valuation allowance established likely portion deferred tax assets realized establish valuation allowances deferred tax assets estimate likely tax assets realized periodically assess likelihood deferred tax assets recovered estimated future projected taxable income available tax planning strategies determine adjustments valuation allowance appropriate result assessments certain tax jurisdictions benefit losses changes industry conditions competitive environment may impact accuracy projections december 31 2009 2008 gross deferred tax assets 4850 million 4714 million respectively including 2150 million 2108 million respectively related net operating loss carryforwards december 31 2009 2008 recorded total valuation allowances offset gross deferred tax assets 2617 million 2944 million respectively primarily related net operating loss carryforwards brazil denmark switzerland netherlands united states realization remaining deferred tax assets december 31 2009 depends generating sufficient taxable income future periods net reversing deferred tax liabilities believe likely remaining net deferred tax assets realized december 31 2009 2008 approximately 218 million 201 million respectively unrecognized tax benefits would impact effective tax rate recognized december 31 2009 2008 approximately 35 million 76 million respectively current accrued taxes related uncertain income tax positions connected ongoing tax audits various jurisdictions expect settle pay next 12 months recognize interest penalties related uncertain income tax positions income tax expense december 31 2009 2008 accrued interest penalties related unrecognized tax benefits approximately 19 million 18 million respectively maintain procedures designed appropriately reflect uncertain income tax positions consolidated financial statements procedures include evaluation uncertainties internally necessary externally thirdparty advisors see note 6 consolidated financial statements discussion uncertain income tax positions warranty additional service actions make provisions estimated expenses related product warranties time products sold base estimates historical experience nature frequency average cost warranty claims addition number magnitude additional service actions expected approved policies related additional service actions taken consideration due uncertainty potential volatility estimated factors changes assumptions could materially affect net income estimate warranty obligations reevaluated quarterly basis experience shown initial data product series line volatile therefore process relies upon longterm historical averages sufficient data available actual experience becomes available used modify historical averages ensure forecast within range likely outcomes resulting balances compared present spending rates ensure accruals adequate meet expected future obligations see note 1 consolidated financial statements information regarding costs assumptions warranties insurance reserves insurance programs coverage obtained significant liability limits well risks required law contract policy selfinsure portion certain expected losses related primarily workers’ compensation comprehensive general product liability vehicle liability provide insurance reserves estimates losses due claims items selfinsured base estimates expected ultimate settlement amount claims often long periods resolution closely monitor claims maintain adequate reserves pensions sponsor defined benefit pension plans covering certain employees principally united states united kingdom germany finland norway france switzerland australia argentina primary plans cover certain employees united states united kingdom united states sponsor funded qualified pension plan salaried employees well separate funded qualified pension plan hourly employees plans frozen fund least minimum contributions required employee retirement income security act 1974 internal revenue code plans addition sponsor unfunded nonqualified pension plan executives united kingdom sponsor funded pension plan provides annuity benefit based participants’ final average earnings service participation plan limited certain older longer service employees existing retirees future employees participate plan see note 8 consolidated financial statements information regarding costs assumptions employee retirement benefits nature estimates required measurement pension obligations costs liabilities dependent variety assumptions provided management used actuaries assumptions include estimates present value projected future pension payments plan participants taking consideration likelihood potential future events salary increases demographic experience assumptions may effect amount timing future contributions assumptions approach used assumptions used developing required estimates include following key factors years ended december 31 2009 2008 based discount rate used determine projected benefit obligation us qualified pension plans executive nonqualified pension plan matching projected cash flows largest pension plan citigroup pension discount curve uk plan derived discount rate based yield curve developed constituents merrill lynch aarated corporate bond index discount rate uk plan single weightedaverage rate based approximate future cash flows plan countries within euro zone derived aarated corporate bond yield curve selecting bonds included iboxx corporate indices creating discount rate curve based series model cash flows discount rates plan determined based plan’s liability duration indices used united states united kingdom countries chosen match expected plan obligations related expected cash flows december 31 2009 measurement date respect defined benefit plans december 31 asc 715 “compensationretirement benefits” requires measurement defined benefit plan assets obligations date fiscal year end years ending december 15 2008 therefore measurement date respect uk pension plan changed september 30 december 31 upon adoption measurement provision 2008 inflation assumption based evaluation external market indicators salary growth assumptions reflect longterm actual experience nearterm outlook assumed inflation expected return plan asset assumptions reflects asset allocations investment strategy historical experience views investment managers retirement termination rates based primarily actual plan experience actuarial standards practice mortality rates us plans updated 2006 reflect recent study released society actuaries reflects pensioner experience distinctions blue white collar employees mortality rates uk plan updated 2009 reflect expected improvements life expectancy plan participants effects actual results differing assumptions accumulated amortized future periods therefore generally affect recognized expense periods us uk pension plans comprise approximately 89 consolidated projected benefit obligation december 31 2009 discount rate used determine 2009 projected benefit obligation us pension plans decreased 25 basis points projected benefit obligation would increased approximately 16 million december 31 2009 2010 pension expense would increase less 01 million discount rate used determine 2009 projected benefit obligation us pension plans increased 25 basis points projected benefit obligation would decreased approximately 15 million 2010 pension expense would decrease less 01 million discount rate used determine projected benefit obligation uk pension plan decreased 25 basis points projected benefit obligation would increased approximately 228 million december 31 2009 2010 pension expense would increase approximately 09 million discount rate used determine projected benefit obligation uk pension plan increased 25 basis points projected benefit obligation would decreased approximately 218 million december 31 2009 2010 pension expense would decrease approximately 09 million unrecognized actuarial losses related qualified pension plans 2821 million december 31 2009 compared 1861 million december 31 2008 increase unrecognized losses years primarily reflects decrease discount rates impact foreign currency translation unrecognized actuarial losses impacted future periods actual asset returns discount rate changes currency exchange rate fluctuations actual demographic experience certain factors qualified defined benefit pension plans losses amortized straightline basis average remaining service period active employees expected receive benefits us salaried us hourly uk pension plans population covered predominantly inactive participants losses related plans amortized average remaining lives participants covered respective plan december 31 2009 average amortization period 18 years us pension plans 22 years non us pension plans estimated net actuarial loss qualified defined benefit pension plans amortized accumulated comprehensive loss year ended december 31 2010 approximately 87 million compared approximately 65 million year ended december 31 2009 investment strategy concentration risk weighted average asset allocation us pension benefit plans december 31 2009 2008 follows weighted average asset allocation nonus pension benefit plans december 31 2009 2008 follows taxqualified pension fund investments united states held agco corporation master pension trust global pension fund strategy diversify investments across broad categories equity fixed income securities appropriate use alternative investment categories minimize risk volatility primary investment objective pension plans secure participant retirement benefits key objective pension plans’ financial management promote stability extent appropriate growth funded status investment strategy plans’ portfolio assets balances requirement generate returns need control risk asset mix recognized primary mechanism influence reward risk structure pension fund investments effort accomplish plans’ funding objectives overall investment strategy usbased pension plans achieve mix approximately 20 assets nearterm benefit payments 80 longerterm growth overall us pension funds invest broad diversification asset types us target allocation retirement fund investments 35 large small cap domestic equity securities 15 international equity securities 20 broad fixed income securities 30 alternative investments noted long investment horizons mix investments would achieve average return excess 85 arriving choice expected return assumption 8 usbased plans tempered historical indicator lower expectation returns equity investment future well administrative costs plans overall investment strategy nonus based pension plans achieve mix approximately 28 assets nearterm benefit payments 72 longerterm growth overall nonus pension funds invest broad diversification asset types nonus target allocation retirement fund investments 40 equity securities 30 broad fixed income investments 30 alternative investments majority nonus pension fund investments related pension plan united kingdom noted long periods mix investments would achieve average return excess 75 arriving choice expected return assumption 7 ukbased plans tempered historical indicator lower expectation returns equity investment future well administrative costs plans equity securities primarily include investments largecap smallcap companies located across globe fixed income securities include corporate bonds companies diversified industries mortgage backed securities agency mortgages assetbacked securities government securities alternative assets include investments hedge fund funds follow diversified investment strategies date invested pension funds stock intention future within asset class careful consideration given balancing portfolio among industry sectors geographies interest rate sensitivity dependence economic growth currency factors affecting investment returns assets managed professional investment firms bound precise mandates measured specific benchmarks among assets managers consideration given among others balancing security concentration issuer concentration investment style reliance particular active investment strategies december 31 2009 unfunded underfunded obligations related qualified pension plans approximately 2421 million due primarily pension plan united kingdom 2009 contributed approximately 284 million towards obligations expect fund approximately 301 million 2010 future funding dependent upon compliance local laws regulations changes laws regulations future well generation operating cash flows future currently agreement place trustees uk defined benefit plan obligates us fund approximately £130 million per year approximately 212 million towards obligation next 10 years funding arrangement based upon current underfunded status could change future discount rates local laws regulations factors change postretirement benefits retiree health care life insurance provide certain postretirement health care life insurance benefits certain employees principally united states brazil participation plans generally limited older employees existing retirees see note 8 consolidated financial statements information regarding costs assumptions postretirement benefits nature estimates required measurement obligations costs liabilities associated postretirement benefits retiree health care life insurance requires make use estimates present value projected future payments participants taking consideration likelihood potential future events health care cost increases demographic experience may effect amount timing future payments assumptions approach used assumptions used developing required estimates include following key factors health care cost trend assumptions developed based historical cost data nearterm outlook efficiencies costmitigating actions including employee cost sharing administrative improvements efficiencies assessment likely longterm trends years ended december 31 2009 2008 based discount rate used determine projected benefit obligation us postretirement benefit plans matching projected cash flows largest pension plan citigroup pension discount curve brazilian plan based discount rate government bond indices within country indices used chosen match expected plan obligations related expected cash flows inflation assumptions based evaluation external market indicators retirement termination rates based primarily actual plan experience actuarial standards practice mortality rates us plans updated 2006 reflect recent study released society actuaries reflects pensioner experience distinctions blue white collar employees effects actual results differing assumptions accumulated amortized future periods therefore generally affect recognized expense future periods us postretirement health care life insurance plans represent approximately 97 consolidated projected benefit obligation discount rate used determine 2009 projected benefit obligation us postretirement benefit plans decreased 25 basis points projected benefit obligation would increased approximately 07 million december 31 2009 2010 postretirement benefit expense would increase nominal amount discount rate used determine 2009 projected benefit obligation us postretirement benefit plans increased 25 basis points projected benefit obligation would decreased approximately 07 million 2010 pension expense would decrease nominal amount unrecognized actuarial losses related us postretirement benefit plans 60 million december 31 2009 compared 71 million december 31 2008 decrease losses primarily reflects favorable claims experience 2009 unrecognized actuarial losses impacted future periods discount rate changes actual demographic experience actual health care inflation certain factors losses amortized straightline basis average remaining service period active employees expected receive benefits average remaining lives inactive participants covered postretirement benefit plans december 31 2009 average amortization period 14 years us postretirement benefit plans estimated net actuarial loss postretirement health care benefits amortized accumulated comprehensive loss year ended december 31 2010 approximately 02 million compared approximately 03 million year ended december 31 2009 december 31 2009 approximately 281 million unfunded obligations related us brazilian postretirement health life insurance benefit plans 2009 made benefit payments approximately 17 million towards obligations expect make benefit payments approximately 18 million towards obligations 2010 measuring expected us postretirement benefit obligation december 31 2009 assumed 85 health care cost trend rate 2010 decreasing 49 2060 measuring brazilian postretirement benefit plan obligation december 31 2009 assumed 100 health care cost trend rate 2010 decreasing 55 2019 changing assumed health care cost trend rates one percentage point year holding assumptions constant would following effect service interest cost 2010 accumulated postretirement benefit obligation december 31 2009 millions litigation party various claims lawsuits arising normal course business closely monitor claims lawsuits frequently consult legal counsel determine whether may resolved material adverse effect financial position results operations accrue andor disclose loss contingencies appropriate goodwill indefinitelived assets test goodwill indefinitelived intangible assets impairment annual basis interim basis event occurs circumstances change would reduce fair value reporting unit carrying value initial assessment annual assessments involve determining estimate fair value reporting units order evaluate whether impairment current carrying amount goodwill indefinitelived intangible assets exists first step goodwill impairment test used identify potential impairment compares fair value reporting unit carrying amount including goodwill fair value reporting unit exceeds carrying amount goodwill reporting unit considered impaired thus second step impairment unnecessary carrying amount reporting unit exceeds fair value second step goodwill impairment test performed measure amount impairment loss fair values derived based evaluation past expected future performance reporting units reporting unit operating segment one level operating segment eg component operating segment reporting unit component constitutes business discrete financial information available executive management team regularly reviews operating results component addition combine aggregate two components operating segment single reporting unit components similar economic characteristics reportable segments reporting units exception asiapacific geographical segment second step goodwill impairment test used measure amount impairment loss compares implied fair value reporting unit goodwill carrying amount goodwill carrying amount reporting unit goodwill exceeds implied fair value goodwill impairment loss recognized amount equal excess loss recognized cannot exceed carrying amount goodwill implied fair value goodwill determined manner amount goodwill recognized business combination allocate fair value reporting unit assets liabilities unit including unrecognized intangible assets reporting unit acquired business combination fair value reporting unit price paid acquire reporting unit excess fair value reporting unit amounts assigned assets liabilities implied fair value goodwill utilized combination valuation techniques including discounted cash flow approach market multiple approach making annual interim assessments stated goodwill tested impairment annual basis often indications impairment exist results analyses conducted october 1 2009 2008 2007 indicated reduction carrying amount goodwill required fair value reporting units substantially excess carrying amounts 2009 2008 2007 make various assumptions including assumptions regarding future cash flows market multiples growth rates discount rates assumptions future cash flows growth rates based current longterm business plans reporting unit discount rate assumptions based assessment risk inherent future cash flows reporting unit assumptions require significant judgments part conclusions reach could vary significantly based upon judgments december 31 2009 approximately 6340 million goodwill annual impairment testing 2009 supported carrying amount goodwill may required reevaluate carrying amount future periods thus utilizing different assumptions reflect current market conditions expectations therefore could conclude impairment occurred item 7aitem 7 management’s discussion analysis financial condition results operations leading manufacturer distributor agricultural equipment related replacement parts throughout world sell full range agricultural equipment including tractors combines hay tools sprayers forage equipment implements line diesel engines products widely recognized agricultural equipment industry marketed number wellknown brand names including challenger® fendt® massey ferguson® valtra® distribute products combination approximately 2650 dealers distributors associates licensees addition provide retail financing united states canada brazil germany france united kingdom australia ireland austria retail finance joint ventures rabobank results operations sell equipment replacement parts independent dealers distributors customers large majority sales independent dealers distributors sell products end user extent practicable attempt sell products dealers distributors level basis throughout year reduce effect seasonal demands manufacturing operations minimize investment inventory however retail sales dealers farmers highly seasonal linked planting harvesting seasons certain markets particularly north america often time lag varies based timing level retail demand sale equipment dealer’s sale retail customer discussed note 1 consolidated financial statements adopted provisions accounting standards update “asu” 200917 “consolidations topic 810 improvements financial reporting enterprises involved variable interest entities” “asu 200917” january 1 2010 result adoption determined longer consolidate gima joint venture results operations financial position therefore retroactively restated prior period information set forth years ended december 31 2009 2008 reflect deconsolidation gima addition discussed note 14 consolidated financial statements modified system reporting resulting changes internal management organizational structure effective january 1 2010 changed reportable segments north america south america europeafricamiddle east asiapacific north america south america europeafricamiddle east rest world rest world reportable segment includes regions eastern europe asia australia new zealand europeafricamiddle east segment longer includes certain markets eastern europe information set forth years ended december 31 2010 2009 adjusted reflect change reporting segments within “2010 compared 2009” information related disclosures year ended december 31 2008 adjusted reflect change reportable segments impracticable therefore information supplied within “2009 compared 2008” reflect change reportable segments following table sets forth periods indicated percentage relationship net sales certain items included consolidated statements operations compared 2009 net income 2010 2205 million 229 per diluted share compared net income 2009 1357 million 144 per diluted share net sales 2010 approximately 3802 million 58 higher 2009 primarily due sales increases south american north american geographical segments partially offset slight decrease europemiddle eastafrica geographical segment well unfavorable impact currency translation strong market conditions south america 2010 helped contribute overall sales growth 2010 income operations 3242 million 2010 compared 2187 million 2009 increase income operations operating margins 2010 primarily due higher net sales material cost control initiatives increased production volumes improved product mix partially offset higher engineering expenses europeafricamiddle east region income operations decreased approximately 173 million 2010 compared 2009 primarily due reduction net sales lower production levels increased engineering expenses income operations south american region increased approximately 971 million 2010 compared 2009 primarily due significant sales growth improved factory productivity result higher production levels shift product sales mix higher margin higher horsepower products north america region income operations increased approximately 276 million 2010 compared 2009 primarily due improved margins new products favorable product mix factory efficiencies partially offset increased engineering expenditures income operations rest world region decreased approximately 42 million 2010 compared 2009 primarily due weaker net sales unfavorable product mix increased expenses related growth initiatives retail sales worldwide industry equipment demand farm equipment mixed 2010 south america strong industry conditions result positive farm economics continued availability favorable government financing programs north american industry demand stable throughout 2010 robust market demand large equipment industry conditions western europe weak first half 2010 especially dairy livestock sectors improved major european markets towards end 2010 united states canada industry unit retail sales tractors increased approximately 5 2010 compared 2009 resulting strong growth industry unit retail sales high horsepower tractors modest growth industry retail sales compact tractors partially offset small decline unit retail sales utility tractors industry unit retail sales combines increased approximately 9 2010 compared prior year strong improving economics professional producer sector contributed strength retail sales high horsepower tractors combines continued weakness dairy livestock sectors contributed lower industry unit retail sales midrange utility tractors hay equipment north america unit retail sales tractors decreased 2010 unit retailed sales combines increased 2010 compared 2009 levels western europe industry unit retail sales tractors decreased approximately 10 2010 compared 2009 due lower retail volumes major western european markets demand weakest france spain italy united kingdom slow pace macroeconomic recovery weak farmer sentiment soft demand dairy livestock sectors contributed decline 2010 unit retail sales tractors 2010 western europe also lower compared 2009 south america industry unit retail sales tractors 2010 increased approximately 31 compared 2009 industry retail sales combines 2010 approximately 29 higher 2009 industry unit retail sales tractors major market brazil increased approximately 24 2010 compared 2009 strong farm fundamentals favorable governmentsponsored financing programs brazil contributed strong industry demand began accelerate second half 2009 improved weather increased crop production argentina contributed significant increases industry unit retail sales tractors combines 2010 compared 2009 south american unit retail sales tractors combines also higher 2010 compared 2009 net sales rest word segment 2010 approximately 47 lower 2009 primarily due lower sales australia new zealand partially offset higher sales asia weak market conditions australia new zealand tightened credit environment markets eastern europe russia contributed decline results operations net sales 2010 68966 million compared 65164 million 2009 foreign currency translation negatively impacted net sales approximately 188 million 03 primarily due weakening euro largely offset strengthening brazilian real 2010 compared 2009 following table sets forth year ended december 31 2010 impact net sales currency translation geographical segment millions except percentages following reconciliation net sales year ended december 31 2010 actual exchange rates compared 2009 adjusted exchange rates millions 1 adjusted exchange rates 2009 exchange rates regionally net sales north america increased modestly 2010 compared 2009 increased net sales sprayers combines parts offset declines net sales hay forage equipment utility tractors europeafricamiddle east region net sales decreased slightly 2010 compared 2009 primarily due weaker market conditions western europe experienced largest net sales declines france germany africa partially offset sales growth poland finland south america net sales increased 2010 compared 2009 primarily result strong market conditions region particularly brazil argentina rest world net sales decreased 2010 compared 2009 primarily due net sales declines australia new zealand estimate worldwide average price increases 2010 2009 approximately 2 3 respectively consolidated net sales tractors combines consisted approximately 74 net sales 2010 increased approximately 7 2010 compared 2009 unit sales tractors combines increased approximately 8 2010 compared 2009 difference unit sales increase net sales primarily result foreign currency translation pricing sales mix changes following table sets forth years ended december 31 2010 2009 percentage relationship net sales certain items included consolidated statements operations millions except percentages gross profit percentage net sales increased 2010 compared 2009 higher production volumes material cost control initiatives helped produce higher gross margins unit production tractors combines 2010 approximately 8 higher 2009 recorded approximately 07 million 01 million stock compensation expense within cost goods sold 2010 2009 respectively fully explained note 1 consolidated financial statements selling general administrative expenses “sga” expenses percentage net sales increased slightly 2010 compared 2009 recorded approximately 129 million 82 million stock compensation expense within sga 2010 2009 respectively fully explained note 1 consolidated financial statements engineering expenses increased 2010 compared 2009 primarily due higher spending development new products costs meet new engine emission standards recorded restructuring infrequent expenses approximately 44 million 132 million 2010 2009 respectively restructuring infrequent expenses recorded 2010 primarily related severance related costs associated rationalization operations denmark spain finland france restructuring infrequent expenses recorded 2009 primarily related severance related costs associated rationalization operations france united kingdom finland germany united states denmark interest expense net 333 million 2010 compared 421 million 2009 decrease primarily due higher interest income due higher amounts invested cash expense net 160 million 2010 compared 222 million 2009 losses sales receivables primarily accounts receivable sales agreements approximately 137 million 2010 losses sales receivables primarily former us canadian securitization facilities european securitization facilities approximately 156 million 2009 decrease primarily due reduction interest rates 2010 compared 2009 expense net also decreased 2010 due favorable foreign exchange impacts 2010 compared 2009 recorded income tax provision 1044 million 2010 compared 577 million 2009 tax provision impacted differing tax rates various tax jurisdictions operate permanent differences items treated differently financial accounting income tax purposes losses jurisdictions income tax benefit recorded 2009 income tax rate reconciliation provided note 6 consolidated financial statements includes 395 million favorable “change valuation allowance” fully offset writeoff certain foreign tax assets reflected “tax effects permanent differences” due fact tax assets expected utilized future years previously maintained valuation allowance tax assets accordingly writeoff resulted impact income tax provision year ended december 31 2009 valuation allowance established likely portion company’s deferred tax assets realized assessed likelihood deferred tax assets would recovered estimated future taxable income available income tax planning strategies december 31 2010 2009 gross deferred tax assets 4664 million 4847 million respectively including 2107 million 2150 million respectively related net operating loss carryforwards december 31 2010 2009 recorded total valuation allowances offset gross deferred tax assets 2625 million 2617 million respectively primarily related net operating loss carryforwards brazil denmark switzerland netherlands united states realization remaining deferred tax assets december 31 2010 depend generating sufficient taxable income future periods net reversing deferred tax liabilities believe likely remaining net deferred tax assets realized december 31 2010 2009 approximately 482 million 218 million respectively unrecognized tax benefits would impact effective tax rate recognized december 31 2010 2009 approximately 142 million 35 million respectively current accrued taxes related uncertain income tax positions connected ongoing tax audits various jurisdictions expect settle pay next 12 months recognize interest penalties related uncertain income tax positions income tax expense december 31 2010 2009 accrued interest penalties related unrecognized tax benefits approximately 52 million 19 million respectively see note 6 consolidated financial statements discussion uncertain income tax positions equity net earnings affiliates 497 million 2010 compared 387 million 2009 increase primarily due increased earnings retail finance joint ventures refer “retail finance joint ventures” information regarding retail finance joint ventures results operations compared 2008 net income 2009 1357 million 144 per diluted share compared net income 2008 3859 million 395 per diluted share net sales 2009 approximately 17567 million 212 lower 2008 primarily due sales declines geographical segments well unfavorable impact currency translation volatility commodity prices expectation lower farm income contributed weaker demand major markets income operations 2187 million 2009 compared 5637 million 2008 decrease income operations operating margins 2009 primarily due lower net sales reduced production volumes weaker product mix partially offset cost containment initiatives europeafricamiddle east region income operations decreased approximately 2941 million 2009 compared 2008 primarily due decreased net sales lower production levels unfavorable currency translation impacts increased engineering expenses income operations south american region decreased approximately 696 million 2009 compared 2008 primarily due lower net sales lower production levels unfavorable currency translation impacts shift sales mix brazil higher horsepower tractors lower horsepower tractors north american region income operations increased approximately 133 million 2009 compared 2008 primarily due improved margins new products productivity initiatives lower sga expenses partially offset higher levels engineering costs impact lower production income operations asiapacific region decreased approximately 71 million 2009 compared 2008 primarily due lower gross margins unfavorable currency translation impacts retail sales worldwide industry equipment demand farm equipment decreased 2009 major markets current global economic downturn volatility farm commodity prices prospects lower farm income 2009 contributed decreased demand equipment united states canada industry unit retail sales tractors decreased approximately 21 2009 compared 2008 resulting decreases industry unit retail sales compact utility high horsepower tractors industry unit retail sales combines increased approximately 15 2009 compared prior year north america unit retail sales tractors well combines decreased 2009 compared 2008 levels europe industry unit retail sales tractors decreased approximately 18 2009 compared 2008 due lower retail volumes major european markets industry unit retail sales western europe declined approximately 13 2009 compared 2008 despite strong harvests across western europe lower commodity prices outlook reduced farmer profitability generated softer demand industry unit retail sales eastern europe russia declined significantly compared 2008 levels due ongoing credit constraints unit retail sales tractors 2009 europe also lower compared 2008 south america industry unit retail sales tractors 2009 decreased approximately 17 compared 2008 weak industry conditions argentina markets outside brazil contributed decline industry demand region industry unit retail sales tractors major market brazil increased approximately 5 2009 brazilian governmentfunded financing program small tractors well new governmentsponsored lowinterest financing program equipment supported sales brazilian market primarily low horsepower sector industry unit retail sales combines 2009 approximately 36 lower prior year decrease brazil approximately 14 compared 2008 unit retail sales tractors combines south america also lower 2009 compared 2008 rest world net sales 2009 approximately 47 higher prior year primarily due higher sales australia new zealand resulting improved harvests results operations net sales 2009 65164 million compared 82731 million 2008 decrease primarily attributable net sales decreases geographical regions well unfavorable foreign currency translation impacts foreign currency translation negatively impacted net sales approximately 3950 million primarily due weakening euro brazilian real first nine months 2009 compared 2008 following table sets forth year ended december 31 2009 impact net sales currency translation geographical segment millions except percentages following reconciliation net sales year ended december 31 2009 actual exchange rates compared 2008 adjusted exchange rates millions 1 adjusted exchange rates 2008 exchange rates regionally net sales north america decreased 2009 compared 2008 primarily due weaker market demand efforts reduce dealer inventory levels europeafricamiddle east region net sales decreased 2009 compared 2008 primarily due sales declines germany france scandinavia well eastern central europe russia south america net sales decreased 2009 compared 2008 primarily result weaker market conditions region particularly argentina shift sales mix lower horsepower tractors region asiapacific region net sales increased 2009 compared 2008 due sales growth australia new zealand estimate worldwide average price increases 2009 2008 approximately 3 4 respectively consolidated net sales tractors combines consisted approximately 72 net sales 2009 decreased approximately 22 2009 compared 2008 unit sales tractors combines decreased approximately 20 2009 compared 2008 difference unit sales decrease net sales primarily result foreign currency translation pricing sales mix changes following table sets forth years ended december 31 2009 2008 percentage relationship net sales certain items included consolidated statements operations millions except percentages gross profit percentage net sales decreased 2009 compared 2008 primarily due lower production volumes weaker sales mix partially offset impact reduced workforce levels cost control initiatives sales mix impacted margins primarily south america due shift demand toward low horsepower tractors away high horsepower tractors combines unit production tractors combines 2009 approximately 24 lower 2008 recorded approximately 01 million 15 million stock compensation expense within cost goods sold 2009 2008 respectively sga expenses percentage net sales increased 2009 compared 2008 primarily due decline net sales recorded approximately 82 million 320 million stock compensation expense within sga 2009 2008 respectively engineering expenses decreased slightly increased percentage sales 2009 compared 2008 maintained level engineering expenses relative prior year fund projects related new product development tier 4 emission requirements recorded restructuring infrequent expenses approximately 132 million 02 million 2009 2008 respectively restructuring infrequent expenses recorded 2009 primarily related severance related costs associated rationalization operations france united kingdom finland germany united states denmark restructuring infrequent expenses recorded 2008 primarily related severance employee relocation costs associated rationalization valtra sales office located france interest expense net 421 million 2009 compared 321 million 2008 increase primarily due lower interest income result lower interest rates lower amounts invested cash expense net 222 million 2009 compared 201 million 2008 losses sales receivables primarily securitization facilities 156 million 2009 compared 273 million 2008 decrease primarily due reduction interest rates 2009 compared 2008 addition foreign exchange losses 2009 compared foreign exchange gains 2008 recorded income tax provision 577 million 2009 compared 1644 million 2008 tax provision impacted differing tax rates various tax jurisdictions operate permanent differences items treated differently financial accounting income tax purposes losses jurisdictions income tax benefit recorded valuation allowance established likely portion company’s deferred tax assets realized assessed likelihood deferred tax assets would recovered estimated future taxable income available income tax planning strategies december 31 2009 2008 gross deferred tax assets 4847 million 4712 million respectively including 2150 million 2108 million respectively related net operating loss carryforwards december 31 2009 2008 recorded total valuation allowances offset gross deferred tax assets 2617 million 2944 million respectively primarily related net operating loss carryforwards brazil denmark switzerland netherlands united states december 31 2009 2008 approximately 218 million 201 million respectively unrecognized tax benefits would impacted effective tax rate recognized december 31 2009 2008 approximately 35 million 76 million respectively current accrued taxes related uncertain income tax positions connected ongoing tax audits various jurisdictions expected settle pay next 12 months recognize interest penalties related uncertain income tax positions income tax expense december 31 2009 2008 accrued interest penalties related unrecognized tax benefits approximately 19 million 18 million respectively equity net earnings affiliates 387 million 2009 compared 388 million 2008 increase earnings associated retail finance joint ventures offset decrease earnings associated laverda operating joint venture 2009 compared 2008 refer “retail finance joint ventures” information regarding retail finance joint ventures results operations quarterly results following table presents unaudited interim operating results believe following information includes adjustments consisting normal recurring adjustments necessary present fairly results operations periods presented operating results period necessarily indicative results future period 1 2010 quarters ended march 31 june 30 september 30 december 31 included restructuring infrequent expenses 16 million 05 million 12 million 11 million respectively thereby impacting net income per common share diluted basis 001 000 001 respectively 2009 quarters ended march 31 june 30 september 30 december 31 included restructuring infrequent expenses 00 million 28 million 10 million 94 million respectively thereby impacting net income per common share diluted basis 000 002 001 007 respectively 2 amounts presented quarters ended march 31 june 30 september 30 december 31 2009 retroactively restated reflect deconsolidation gima refer note 1 consolidated financial statements discussion retail finance joint ventures agco finance retail finance joint ventures provide retail financing wholesale financing dealers united states canada brazil germany france united kingdom australia ireland austria argentina joint ventures owned 49 agco 51 wholly owned subsidiary rabobank aaa rated financial institution based netherlands majority assets retail finance joint ventures represent finance receivables majority liabilities represent notes payable accrued interest various joint venture agreements rabobank affiliates provide financing joint ventures primarily lines credit guarantee debt obligations joint ventures portion retail portfolio brazil held outside joint venture rabobank brazil approximately 28 million december 31 2010 gradually eliminated time december 31 2010 capital investment retail finance joint ventures included “investment affiliates” consolidated balance sheets approximately 3057 million compared 2587 million december 31 2009 total finance portfolio retail finance joint ventures approximately 70 billion 63 billion december 31 2010 2009 respectively total finance portfolio december 31 2010 included approximately 62 billion retail receivables 08 billion wholesale receivables agco dealers total finance portfolio december 31 2009 included approximately 56 billion retail receivables 07 billion wholesale receivables agco dealers wholesale receivables either sold directly agco finance without recourse operating companies agco finance provided financing directly dealers 2010 made 254 million investment retail finance joint venture brazil due increase capital required local brazilian solvency requirements result increased retail finance portfolio 2010 discussed 2010 share earnings retail finance joint ventures included “equity net earnings affiliates” consolidated statements operations 434 million compared 364 million 2009 increase 2010 primarily due higher finance revenues generated result higher average retail finance portfolios particularly europe brazil retail finance portfolio retail finance joint venture brazil 22 billion december 31 2010 compared 17 billion december 31 2009 increase retail finance portfolio primarily due favorable farm economics region previously discussed result weak market conditions brazil 2005 2006 substantial portion portfolio included payment deferral program directed brazilian government relating retail contracts entered 2004 scheduled payments rescheduled several times 2005 2008 impact deferral program resulted higher delinquencies lower collateral coverage portfolio joint venture currently considers reserves loan losses adequate continually monitors reserves considering borrower payment history value underlying equipment financed payment deferral programs implemented brazilian government date retail finance joint ventures markets outside brazil experienced significant changes credit quality finance portfolios however assurance portfolio credit quality deteriorate given size portfolio relative joint ventures’ level equity significant adverse change joint ventures’ performance would material impact joint ventures operating results outlook operations subject cyclical nature agricultural industry sales equipment expected continue affected changes net cash farm income farm land values weather conditions demand agricultural commodities farm industry related legislation availability financing general economic conditions worldwide industry demand expected flat increase modestly 2011 compared 2010 levels higher crop prices grain dairy farmers western europe improving farmer sentiment expected generate modest growth western european market north america industry sales expected flat 2011 compared high level experienced 2010 strong financial position row crop farmers expectation farm income historical averages expected support demand professional farming sector favorable farm fundamentals expected continue brazil 2011 however less attractive government financing programs expected result softening demand compared record demand 2010 net sales 2011 expected higher compared 2010 primarily due expected positive impacts pricing currency translation impacts based current exchange rates recent acquisitions marketing initiatives targeting gross margin improvements partially offset higher expenses new product new market development net income projected modestly higher 2010 liquidity capital resources financing requirements subject variations due seasonal changes inventory receivable levels internally generated funds supplemented necessary external sources primarily revolving credit facility accounts receivable securitization facilities believe facilities together available cash internally generated funds sufficient support working capital expenditures debt service requirements foreseeable future • 300 million revolving credit facility expires may 2013 amounts outstanding december 31 2010 • 2000 million approximately 2677 million december 31 2010 678 senior subordinated notes mature 2014 • 1610 million 134 convertible senior subordinated notes could converted based closing sales price common stock see discussion 2013 million 114 convertible senior subordinated notes may required repurchased december 15 2013 could converted earlier based closing sales price common stock see discussion • 1100 million approximately 1472 million december 31 2010 securitization facility europe expires october 2011 december 31 2010 outstanding funding related facility approximately 851 million approximately 1139 million • accounts receivable sales agreements united states canada agco finance llc agco finance canada ltd total funding 6000 million us wholesale accounts receivable c25000 million approximately 2506 million december 31 2010 canadian wholesale accounts receivable december 31 2010 approximately 3759 million net proceeds received agreements addition although complete compliance financial covenants contained facilities currently expect continue maintain compliance ever encounter difficulties historical relationship lenders strong anticipate continued longterm support business current facilities 1610 million 134 convertible senior subordinated notes due december 31 2033 issued june 2005 provide settlement upon conversion cash principal amount converted notes excess conversion value settled shares common stock ii conversion rate increased certain circumstances notes converted connection certain change control transactions occurring prior december 10 2010 notes unsecured obligations convertible cash shares common stock upon satisfaction certain conditions interest payable notes 134 per annum payable semiannually arrears cash june 30 december 31 year notes convertible shares common stock effective price 2236 per share subject adjustment reflects initial conversion rate notes 447193 shares common stock per 1000 principal amount notes december 31 2010 may redeem notes redemption price 100 principal amount plus accrued interest well settle excess conversion value shares common stock holders notes may also require us repurchase notes repurchase price 100 principal amount plus accrued interest december 31 2010 see note 7 consolidated financial statements full description notes well settle excess conversion value shares common stock 2013 million 114 convertible senior subordinated notes due december 15 2036 issued december 2006 provide settlement upon conversion cash principal amount notes excess conversion value settled shares common stock ii conversion rate increased certain circumstances notes converted connection certain change control transactions occurring prior december 15 2013 interest payable notes 114 per annum payable semiannually arrears cash june 15 december 15 year notes convertible shares common stock effective price 4073 per share subject adjustment reflects initial conversion rate notes 245525 shares common stock per 1000 principal amount notes beginning december 15 2013 may redeem notes redemption price 100 principal amount plus accrued interest well settle excess conversion value shares common stock holders notes may require us repurchase notes repurchase price 100 principal amount plus accrued interest december 15 2013 2016 2021 2026 2031 well settle excess conversion value shares common stock see note 7 consolidated financial statements full description notes december 31 2010 2009 closing sales price common stock exceeded 120 conversion price 134 convertible senior subordinated notes least 20 trading days 30 consecutive trading days ending december 31 2010 2009 respectively therefore classified notes current liability accordance asu 200904 “accounting redeemable equity instruments” also classified equity component 134 convertible senior subordinated notes “temporary equity” december 31 2009 amount classified “temporary equity” measured excess amount cash would required paid upon conversion b carrying amount liabilityclassified component december 31 2010 principal amount cash required repaid upon conversion 134 convertible senior subordinated notes equivalent carrying amount liabilityclassified component future classification series notes current longterm debt classification equity component 114 convertible senior subordinated notes “temporary equity” dependent closing sales price common stock future quarters 2010 repurchased approximately 375 million principal amount 134 convertible senior subordinated notes plus accrued interest approximately 581 million repurchase included approximately 211 million associated excess conversion value notes resulted loss extinguishment approximately 02 million reflected “interest expense net” reflected repurchase principal excess conversion value notes totaling 581 million within “repurchase conversion convertible senior subordinated notes” within consolidated statements cash flows year ended december 31 2010 addition 2010 holders 134 convertible senior subordinated notes converted 27 million principal amount notes issued 60986 shares associated 27 million excess conversion value notes loss extinguishment associated conversions notes less 01 million reflected “interest expense net” reflected repayment principal notes totaling 27 million within “repurchase conversion convertible senior subordinated notes” within consolidated statements cash flows year ended december 31 2010 january february 2011 holders 134 convertible senior subordinated notes converted additional 606 million principal amount notes issued 1568995 million shares associated 838 million excess conversion value notes 134 convertible senior subordinated notes 114 convertible senior subordinated notes impact diluted weighted average shares outstanding future periods depending stock price excess conversion value using treasury stock method refer notes 1 7 company’s consolidated financial statements discussion 3000 million unsecured multicurrency revolving credit facility matures may 16 2013 interest accrues amounts outstanding facility option either 1 libor plus margin ranging 100 175 based upon total debt ratio 2 higher administrative agent’s base lending rate onehalf one percent federal funds rate plus margin ranging 00 050 based upon total debt ratio facility contains covenants restricting among things incurrence indebtedness making certain payments including dividends subject acceleration event default defined facility also must fulfill financial covenants respect total debt ebitda ratio interest coverage ratio defined facility december 31 2010 2009 outstanding borrowings facility december 31 2010 2009 availability borrow approximately 2902 million 2907 million respectively facility 2000 million 678 senior subordinated notes due 2014 unsecured obligations subordinated right payment existing future senior indebtedness interest payable notes semiannually april 15 october 15 year subsequent april 15 2009 may redeem notes whole part initially 103438 principal amount plus accrued interest declining 100 principal amount plus accrued interest time april 15 2012 notes include covenants restricting incurrence indebtedness making certain restricted payments including dividends european securitization facilities sell accounts receivable europe revolving basis commercial paper conduits qualifying specialpurpose entity united kingdom european facilities expire october 2011 subject annual renewal december 31 2010 accounts receivable securitization facilities europe totaling approximately 1100 million approximately 1472 million amended european securitization facilities 2010 decrease total size facilities 300 million december 31 2010 outstanding funded balance european securitization facilities approximately 851 million approximately 1139 million adopted provisions asu 2009 16 “transfers servicing topic 860 accounting transfers financial assets” “asu 2009 16” asu 2009 17 january 1 2010 result adoption european securitization facilities required recognized within condensed consolidated balance sheets therefore recognized approximately 1139 million accounts receivable sold european securitization facilities december 31 2010 corresponding liability equivalent funded balance facilities risk loss securitization facilities limited portion unfunded balance receivables sold approximately 10 funded amount maintain reserves doubtful accounts associated risk facilities terminated would required repurchase previously sold receivables would prevented selling additional receivables commercial paper conduits european securitization facilities allow us sell accounts receivables financing conduits obtain funding commercial paper markets future funding securitization facility depends upon adequacy receivables sufficient demand underlying commercial paper maintenance certain covenants concerning quality receivables financial condition event commercial paper demand adequate securitization facility provides liquidity backing various financial institutions including rabobank liquidity commitments would provide us interim funding allow us find alternative sources working capital financing necessary accounts receivable sales agreements permit sale ongoing basis substantially wholesale interestbearing noninterest bearing receivables north america agco finance llc agco finance canada ltd us canadian retail finance joint ventures 49 ownership joint ventures accounts receivable sales agreements replaced former us canadian accounts receivable securitization facilities terminated december 2009 december 31 2010 2009 funded balance receivables sold us canadian accounts receivable sales agreements agco finance llc agco finance canada ltd approximately 3759 million 4446 million respectively accounts receivable sales agreements provide funding 6000 million us accounts receivable c2500 million approximately 2506 million december 31 2010 canadian accounts receivable sale receivables without recourse us service receivables sale occurs maintain direct retained interest receivables agreements accounted offbalance sheet transactions effect reducing accounts receivable shortterm liabilities amount agco finance retail finance joint ventures europe brazil australia also provide wholesale financing dealers receivables associated arrangements also without recourse us december 31 2010 2009 retail finance joint ventures approximately 2218 million 1769 million respectively outstanding accounts receivable associated arrangements accounted offbalance sheet transactions addition sell certain trade receivables factoring arrangements financial institutions around world arrangements also accounted offbalance sheet transactions cash flows cash flows provided operating activities 4387 million 2010 compared 3479 million 2009 increase cash flow provided operating activities 2010 primarily due increase net income cash flows provided operating activities 2009 included significant reduction accounts payable due reduction raw material purchases result sharp production cuts north american european factories throughout 2009 addition lower inventory accounts receivable levels 2009 result dealer destocking initiatives north american europe 2009 working capital requirements seasonal investments working capital typically building first half year reducing second half year 12081 million working capital december 31 2010 compared 10796 million december 31 2009 accounts receivable inventories combined december 31 2010 2601 million higher december 31 2009 increase accounts receivable inventories december 31 2010 compared december 31 2009 result adoption asu 200916 asu 200917 discussed increased accounts receivable approximately 1139 million well due increased production levels impact inventory levels debt capitalization ratio total indebtedness temporary equity divided sum total indebtedness temporary equity stockholders’ equity 213 december 31 2010 compared 215 december 31 2009 contractual obligations future payments required significant contractual obligations excluding foreign currency option forward contracts december 31 2010 follows millions 1 estimated interest payments calculated assuming current interest rates minimum maturity periods specified debt agreements debt may repaid sooner later minimum maturity periods indebtedness amounts reflect principal amount convertible senior subordinated notes well amounts outstanding european securitization facilities 2 shortterm longterm obligations include estimates future minimum contribution requirements us nonus defined benefit pension postretirement plans estimates based current legislation countries operate within subject change shortterm longterm obligations also include income tax liabilities related uncertain income tax positions connected ongoing income tax audits various jurisdictions addition shortterm obligations include amounts due financial institutions related sales certain receivables meet offbalance sheet criteria commitments offbalance sheet arrangements guarantees maintain remarketing agreement agco finance llc agco finance canada ltd retail finance joint ventures north america whereby obligated repurchase repossessed inventory market values agreement agco finance llc limits purchase obligations arrangement 60 million aggregate per calendar year believe losses might incurred resale equipment materially impact financial position results operations due fact repurchase obligation would equivalent fair value underlying equipment december 31 2010 guaranteed indebtedness owed third parties approximately 1284 million primarily related dealer enduser financing equipment guarantees generally obligate us repay outstanding finance obligations owed financial institutions dealers end users default loans 2015 believe credit risk associated guarantees material financial position losses guarantees historically insignificant addition would able recover amounts paid guarantees sale underlying financed farm equipment fair value equipment would sufficient offset substantial portion amounts paid december 31 2010 outstanding designated nondesignated foreign exchange contracts gross notional amount approximately 11134 million outstanding contracts december 31 2010 range maturity december 2011 gains losses contracts historically substantially offset losses gains exposures hedged see “foreign currency risk management” additional information discussed “liquidity capital resources” sell substantially wholesale accounts receivable north america us canadian retail finance joint ventures sell certain accounts receivable factoring arrangements financial institutions around world reviewed sale receivables pursuant guidelines asu 200916 determined facilities accounted offbalance sheet transactions contingencies result brazilian tax legislation impacting value added taxes “vat” recorded reserve approximately 223 million 116 million outstanding balance brazilian vat taxes receivable december 31 2010 2009 respectively due uncertainty ability collect amounts outstanding june 2008 republic iraq filed civil action three foreign subsidiaries participated united nations oil food program french government also investigating french subsidiary connection participation program august 2008 part routine audit brazilian taxing authorities disallowed deductions relating amortization certain goodwill recognized connection reorganization brazilian operations related transfer certain assets brazilian subsidiaries see note 12 consolidated financial statements discussion matters related parties rabobank 51 owner retail finance joint ventures located united states canada brazil germany france united kingdom australia ireland austria rabobank also principal agent participant revolving credit facility european securitization facility majority assets retail finance joint ventures represent finance receivables majority liabilities represent notes payable accrued interest various joint venture agreements rabobank affiliates provide financing joint venture companies primarily lines credit guarantee debt obligations retail finance joint ventures portion retail portfolio brazil held outside joint venture rabobank brazil prior 2005 joint venture brazil agency relationship rabobank whereby rabobank provided funding february 2005 made 213 million investment retail finance joint venture rabobank brazil additional investment joint venture’s organizational structure comparable retail finance joint ventures expect solvency guarantee rabobank portfolio originally funded rabobank brazil gradually eliminated december 31 2010 solvency requirement portfolio held rabobank approximately 28 million 2010 made 254 million investment retail finance joint venture brazil due increase capital required local brazilian solvency requirements result increased retail finance portfolio joint venture 2010 retail finance joint ventures provide retail financing wholesale financing dealers terms financing arrangements offered dealers similar arrangements provide unaffiliated third parties addition transfer ongoing basis substantially wholesale interestbearing noninterest bearing accounts receivable north america agco finance llc agco finance canada ltd retail finance joint ventures north america see note 4 consolidated financial statements discussion agreements maintain remarketing agreement us retail finance joint venture agco finance llc discussed “commitments offbalance sheet arrangements” addition part sales incentives provided end users may time subsidize interest rates retail financing provided retail finance joint ventures cost programs recognized time sale dealers foreign currency risk management significant manufacturing operations united states france germany finland brazil purchase portion tractors combines components thirdparty foreign suppliers primarily various european countries japan also sell products 140 countries throughout world majority net sales outside united states denominated currency customer location exception sales middle east africa asia parts south america net sales primarily denominated british pounds euros united states dollars see note 14 consolidated financial statements net sales customer location significant transactional foreign currency exposures euro brazilian real canadian dollar relation united states dollar euro relation british pound fluctuations value foreign currencies create exposures adversely affect results operations attempt manage transactional foreign currency exposure hedging foreign currency cash flow forecasts commitments arising anticipated settlement receivables payables future purchases sales naturally offsetting currency positions occur hedge certain exposures use foreign currency contracts translation exposure resulting translating financial statements foreign subsidiaries united states dollars hedged significant translation exposures euro british pound brazilian real relation united states dollar practical translation impact reduced financing local operations local borrowings hedging policy prohibits use foreign currency contracts speculative trading purposes derivatives recognized consolidated balance sheets fair value date derivative contract entered designate derivative either 1 fair value hedge recognized liability 2 cash flow hedge forecasted transaction 3 hedge net investment foreign operation 4 nondesignated derivative instrument currently engage derivatives cash flow hedges forecasted transactions well nondesignated derivative instruments changes fair value nondesignated derivative contracts reported current earnings 2010 2009 2008 designated certain foreign currency contracts cash flow hedges forecasted sales purchases effective portion fair value gains losses cash flow hedges recorded comprehensive income subsequently reclassified cost goods sold period sales purchases recognized amounts offset effect changes foreign currency rates related sale purchase transactions amount loss gain recorded comprehensive income loss reclassified cost goods sold years ended december 31 2010 2009 2008 approximately 31 million 145 million 141 million respectively aftertax basis amount loss gain recorded comprehensive income loss related outstanding cash flow hedges december 31 2010 2009 2008 approximately 12 million 13 million 367 million respectively aftertax basis outstanding contracts december 31 2010 range maturity december 2011 assuming 10 change relative currency hedge contract fair value foreign currency instruments could negatively impacted approximately 271 million december 31 2010 due fact instruments primarily entered hedging purposes gains losses contracts would largely offset losses gains underlying firm commitment forecasted transaction interest rates manage interest rate risk use fixed rate debt may future utilize interest rate swap contracts fixed rate debt senior subordinated notes convertible senior subordinated notes floating rate exposure related revolving credit facility securitization facilities tied changes united states european libor rates assuming 10 increase interest rates interest expense net cost securitization facilities year ended december 31 2010 would increased approximately 05 million interest rate swap contracts outstanding years ended december 31 2010 2009 2008 recent accounting pronouncements december 2009 financial accounting standards board “fasb” issued asu 200917 asu 200917 eliminated quantitative approach previously required determining primary beneficiary variable interest entity requires qualitative analysis determine whether enterprise’s variable interest gives controlling financial interest variable interest entity standard also requires ongoing assessments whether enterprise controlling financial interest variable interest entity january 1 2010 adopted provisions asu 200917 performed qualitative analysis joint ventures including gima joint venture determine whether controlling financial interest ventures result analysis determined gima joint venture longer consolidated results operations financial position controlling financial interest gima based shared powers joint venture partners direct activities significantly impact gima’s financial performance see note 1 consolidated financial statements information regarding gima deconsolidation december 2009 fasb issued asu 200916 asu 200916 eliminated concept qualifying specialpurpose entity changed requirements derecognizing financial assets added requirements additional disclosures order enhance information reported users financial statements providing greater transparency transfers financial assets including securitization transactions entity’s continuing involvement exposure risks related transferred financial assets asu 200916 effective fiscal years interim periods beginning november 15 2009 january 1 2010 adopted provisions asu 200916 accordance standard recognized approximately 1139 million accounts receivable sold european securitization facilities within consolidated balance sheets december 31 2010 corresponding liability equivalent funded balance facility see note 1 consolidated financial statements information recent acquisition december 15 2010 acquired sparex £516 million net approximately £27 million cash acquired approximately 815 million net sparex headquartered exeter united kingdom global distributor accessories tractor replacement parts serving agricultural aftermarket operations 17 countries acquisition sparex provided us opportunity extend reach agricultural aftermarket provide customers wider range replacement parts accessories well related services acquisition financed available cash hand results operations sparex acquisition included consolidated financial statements date acquisition allocated purchase price assets acquired liabilities assumed based preliminary estimate fair values acquisition date acquired net assets consist primarily accounts receivable property plant equipment inventories trademarks intangible assets recorded approximately 268 million goodwill approximately 270 million preliminary estimated trademark customer relationship intangible assets associated acquisition sparex recent restructuring actions recorded approximately 44 million 132 million restructuring infrequent expenses 2010 2009 respectively charges included severance related costs associated rationalization operations france united kingdom finland spain germany united states denmark refer note 3 consolidated financial statements detailed description rationalizations european north american manufacturing administrative headcount reductions 2009 2010 announced initiated several actions rationalize employee headcount various manufacturing facilities located france finland germany united states well various administrative offices located united kingdom spain united states headcount reductions initiated order reduce costs sga expenses response softening global market demand reduced production volumes recorded approximately 128 million severance related costs associated actions 2009 2010 recorded additional severance related costs approximately 22 million associated actions rationalizations resulted termination approximately 653 employees total cash restructuring costs associated actions expected approximately 150 million 160 million rationalizations completed early 2011 randers denmark closure november 2009 announced closure assembly operations located randers denmark ceased operations july 2010 completed transfer assembly operations harvesting equipment manufacturing joint venture laverda located breganze italy august 2010 recorded approximately 04 million severance related costs 2009 associated facility closure 2010 recorded additional restructuring infrequent expenses approximately 22 million associated closure primarily related employee retention payments accrued term retention period closure resulted termination approximately 79 employees anticipate savings associated closure approximately 30 million commencing 2011 critical accounting estimates prepare consolidated financial statements conformity us generally accepted accounting principles preparation financial statements make judgments estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period significant accounting policies followed preparation financial statements detailed note 1 consolidated financial statements believe application policies discussed involves significant levels judgment estimates complexity due level judgment complexity period time many items resolved actual results could differ estimated time preparation financial statements adjustments estimates would impact financial position future results operations allowance doubtful accounts determine allowance doubtful accounts actively monitoring financial condition customers determine potential nonpayment trade receivables determining allowance doubtful accounts also consider economic factors aging trends believe process specific review customers combined overall analytical review provides effective evaluation ultimate collectability trade receivables loss writeoff experience approximately 01 net sales 2010 discount sales incentive allowances provide various incentive programs respect products incentive programs include reductions invoice prices reductions retail financing rates dealer commissions dealer incentive allowances volume discounts cases incentive programs established communicated dealers quarterly basis incentives paid either time invoice reduction invoice price time settlement receivable time retail financing time warranty registration subsequent time based dealer purchases incentive programs product line specific generally vary dealer cost sales incentives associated dealer commissions dealer incentive allowances estimated based upon terms programs historical experience based percentage sales price recorded later date related revenue recognized b date sales incentive offered related provisions accruals made product productline basis monitored adequacy revised least quarterly event subsequent modifications programs volume discounts estimated recognized based historical experience related reserves monitored adjusted based actual dealer purchases dealers’ progress towards achieving specified cumulative target levels record cost interest subsidy payments reduction retail financing rates later date related revenue recognized b date sales incentive offered estimates incentives based terms programs historical experience incentive programs recorded presented reduction revenue due fact receive identifiable benefit exchange consideration provided reserves incentive programs paid either reduction future invoices credit memos recorded “accounts receivable allowances” within consolidated balance sheets reserves incentive programs paid cash case volume discount programs well sales incentives associated accounts receivable sold us canadian retail finance joint ventures recorded within “accrued expenses” within consolidated balance sheets december 31 2010 recorded allowance discounts sales incentives approximately 987 million primarily related reserves north america geographical segment paid either reduction future invoices credit memos dealers allow additional 1 sales incentives discounts time retail sale sales subject discount programs reserve would increase approximately 59 million december 31 2010 conversely decrease sales incentives discounts 1 time retail sale reserve would decrease approximately 59 million december 31 2010 inventory reserves inventories valued lower cost market using firstin firstout method market current replacement cost purchase reproduction dependent type inventory cases market exceeds net realizable value ie estimated selling price less reasonably predictable costs completion disposal inventories stated net realizable value market considered less net realizable value reduced allowance approximately normal profit margin determination cost includes estimates surplus obsolete inventory based estimates future sales production changes demand product design impact estimates periodically evaluate update assumptions assessing adequacy inventory adjustments deferred income taxes uncertain income tax positions recorded income tax provision 1044 million 2010 compared 577 million 2009 tax provision impacted differing tax rates various tax jurisdictions operate permanent differences items treated differently financial accounting income tax purposes losses jurisdictions income tax benefit recorded 2009 income tax rate reconciliation provided note 6 consolidated financial statements includes 395 million favorable adjustment fully offset writeoff certain foreign tax assets reflected “tax effects permanent differences” due fact tax assets expected utilized future years company previously maintained valuation allowance tax assets accordingly writeoff resulted impact income tax provision year ended december 31 2009 valuation allowance established likely portion company’s deferred tax assets realized assessed likelihood deferred tax assets would recovered estimated future taxable income available income tax planning strategies december 31 2010 2009 gross deferred tax assets 4664 million 4847 million respectively including 2107 million 2150 million respectively related net operating loss carryforwards december 31 2010 2009 recorded total valuation allowances offset gross deferred tax assets 2625 million 2617 million respectively primarily related net operating loss carryforwards brazil denmark switzerland netherlands united states realization remaining deferred tax assets december 31 2010 depend generating sufficient taxable income future periods net reversing deferred tax liabilities believe likely remaining net deferred tax assets realized december 31 2010 2009 approximately 482 million 218 million respectively unrecognized tax benefits would impact effective tax rate recognized december 31 2010 2009 approximately 142 million 35 million respectively current accrued taxes related uncertain income tax positions connected ongoing tax audits various jurisdictions expect settle pay next 12 months recognize interest penalties related uncertain income tax positions income tax expense december 31 2010 2009 accrued interest penalties related unrecognized tax benefits approximately 52 million 19 million respectively see note 6 consolidated financial statements discussion uncertain income tax positions warranty additional service actions make provisions estimated expenses related product warranties time products sold base estimates historical experience nature frequency average cost warranty claims addition number magnitude additional service actions expected approved policies related additional service actions taken consideration due uncertainty potential volatility estimated factors changes assumptions could materially affect net income estimate warranty obligations reevaluated quarterly basis experience shown initial data product series line volatile therefore process relies upon longterm historical averages sufficient data available actual experience becomes available used modify historical averages ensure forecast within range likely outcomes resulting balances compared present spending rates ensure accruals adequate meet expected future obligations see note 1 consolidated financial statements information regarding costs assumptions warranties insurance reserves insurance programs coverage obtained significant liability limits well risks required law contract policy selfinsure portion certain expected losses related primarily workers’ compensation comprehensive general product liability vehicle liability provide insurance reserves estimates losses due claims items selfinsured base estimates expected ultimate settlement amount claims often long periods resolution closely monitor claims maintain adequate reserves pensions sponsor defined benefit pension plans covering certain employees principally united states united kingdom germany finland norway france switzerland australia argentina primary plans cover certain employees united states united kingdom united states sponsor funded qualified pension plan salaried employees well separate funded qualified pension plan hourly employees plans frozen fund least minimum contributions required employee retirement income security act 1974 internal revenue code plans addition sponsor unfunded nonqualified pension plan executives united kingdom sponsor funded pension plan provides annuity benefit based participants’ final average earnings service participation plan limited certain older longer service employees existing retirees future employees participate plan see note 8 consolidated financial statements information regarding costs assumptions employee retirement benefits nature estimates required measurement pension obligations costs liabilities dependent variety assumptions provided management used actuaries assumptions include estimates present value projected future pension payments plan participants taking consideration likelihood potential future events salary increases demographic experience assumptions may effect amount timing future contributions assumptions approach used assumptions used developing required estimates include following key factors year ended december 31 2010 changed discount rate setting methodology countries largest benefit obligations exist take advantage globally consistent methodology united states united kingdom euro zone constructed hypothetical bond portfolio high quality corporate bonds applied cash flows benefit plans bond yields derive discount rate bond portfolio planspecific cash flows vary country methodology yield curve constructed consistent united states bond portfolio sufficiently large enough result taking “settlement approach” derive discount rate high quality corporate bonds assumed purchased resulting coupon payments maturities used satisfy largest us pension plan’s projected benefit payments united kingdom euro zone discount rate derived using “yield curve approach” individual spot rate zero coupon bond yield future annual period developed discount future benefit payment thereby determines present value future payments year ended december 31 2009 based discount rate used determine projected benefit obligation us pension plans postretirement health care benefit plans executive nonqualified pension plan “enpp” matching projected cash flows largest pension plan citigroup pension discount curve uk plan derived discount rate based yield curve developed constituents merrill lynch aa rated corporate bond index discount rate uk plan year ended december 31 2009 single weightedaverage rate based approximate future cash flows plan countries within euro zone derived aarated corporate bond yield curve selecting bonds included iboxx corporate indices creating discount rate curve based series model cash flows discount rates plan determined based plan’s liability duration indices used united states united kingdom countries chosen match expected plan obligations related expected cash flows december 31 2010 measurement date respect defined benefit plans december 31 inflation assumption based evaluation external market indicators salary growth assumptions reflect longterm actual experience nearterm outlook assumed inflation expected return plan asset assumptions reflects asset allocations investment strategy historical experience views investment managers retirement termination rates primarily based actual plan experience actuarial standards practice mortality rates us uk plans updated 2010 2009 respectively reflect expected improvements life expectancy plan participants effects actual results differing assumptions accumulated amortized future periods therefore generally affect recognized expense periods us uk pension plans comprise approximately 88 consolidated projected benefit obligation december 31 2010 discount rate used determine 2010 projected benefit obligation us pension plans decreased 25 basis points projected benefit obligation would increased approximately 17 million december 31 2010 2011 pension expense would increase approximately 01 million discount rate used determine 2010 projected benefit obligation us pension plans increased 25 basis points projected benefit obligation would decreased approximately 16 million 2011 pension expense would decrease approximately 01 million discount rate used determine projected benefit obligation uk pension plan decreased 25 basis points projected benefit obligation would increased approximately 216 million december 31 2010 2011 pension expense would increase approximately 08 million discount rate used determine projected benefit obligation uk pension plan increased 25 basis points projected benefit obligation would decreased approximately 207 million december 31 2010 2011 pension expense would decrease approximately 08 million unrecognized actuarial losses related qualified pension plans 2349 million december 31 2010 compared 2813 million december 31 2009 decrease unrecognized losses years primarily reflects increase actual asset returns experienced 2010 unrecognized actuarial losses impacted future periods actual asset returns discount rate changes currency exchange rate fluctuations actual demographic experience certain factors qualified defined benefit pension plans losses amortized straightline basis average remaining service period active employees expected receive benefits us salaried us hourly uk pension plans population covered predominantly inactive participants losses related plans amortized average remaining lives participants covered respective plan december 31 2010 average amortization period 19 years us qualified pension plans 22 years non us pension plans estimated net actuarial loss qualified defined benefit pension plans amortized accumulated comprehensive loss year ended december 31 2011 approximately 67 million compared approximately 86 million year ended december 31 2010 investment strategy concentration risk weighted average asset allocation us pension benefit plans december 31 2010 2009 follows weighted average asset allocation nonus pension benefit plans december 31 2010 2009 follows taxqualified pension fund investments united states held agco corporation master pension trust global pension fund strategy diversify investments across broad categories equity fixed income securities appropriate use alternative investment categories minimize risk volatility primary investment objective pension plans secure participant retirement benefits key objective pension plans’ financial management promote stability extent appropriate growth funded status investment strategy plans’ portfolio assets balances requirement generate returns need control risk asset mix recognized primary mechanism influence reward risk structure pension fund investments effort accomplish plans’ funding objectives overall investment strategy usbased pension plans achieve mix approximately 20 assets nearterm benefit payments 80 longerterm growth overall us pension funds invest broad diversification asset types us target allocation retirement fund investments 31 large small cap domestic equity securities 15 international equity securities 24 broad fixed income securities 30 alternative investments noted long investment horizons mix investments would achieve average return excess 85 arriving choice expected return assumption 8 usbased plans tempered historical indicator lower expectation returns equity investment future well administrative costs plans overall investment strategy nonus based pension plans achieve mix approximately 28 assets nearterm benefit payments 72 longerterm growth overall nonus pension funds invest broad diversification asset types nonus target allocation retirement fund investments 40 equity securities 30 broad fixed income investments 30 alternative investments majority nonus pension fund investments related pension plan united kingdom noted long periods mix investments would achieve average return excess 75 arriving choice expected return assumption 7 ukbased plans tempered historical indicator lower expectation returns equity investment future well administrative costs plans equity securities primarily include investments largecap smallcap companies located across globe fixed income securities include corporate bonds companies diversified industries mortgage backed securities agency mortgages assetbacked securities government securities alternative assets include investments hedge fund funds follow diversified investment strategies date invested pension funds stock intention future within asset class careful consideration given balancing portfolio among industry sectors geographies interest rate sensitivity dependence economic growth currency factors affecting investment returns assets managed professional investment firms bound precise mandates measured specific benchmarks among assets managers consideration given among others balancing security concentration issuer concentration investment style reliance particular active investment strategies december 31 2010 unfunded underfunded obligations related qualified pension plans approximately 1843 million primarily due pension plan united kingdom 2010 contributed approximately 312 million towards obligations expect fund approximately 304 million 2011 future funding dependent upon compliance local laws regulations changes laws regulations future well generation operating cash flows future currently agreement place trustees uk defined benefit plan obligates us fund approximately £130 million per year approximately 203 million towards obligation next 14 years funding arrangement based upon current underfunded status could change future discount rates local laws regulations factors change instance believe given current expected asset investment returns obligation fund uk benefit plan level would likely necessary next nine years postretirement benefits retiree health care life insurance provide certain postretirement health care life insurance benefits certain employees principally united states brazil participation plans generally limited older employees existing retirees see note 8 consolidated financial statements information regarding costs assumptions postretirement benefits nature estimates required measurement obligations costs liabilities associated postretirement benefits retiree health care life insurance requires make use estimates present value projected future payments participants taking consideration likelihood potential future events health care cost increases demographic experience may effect amount timing future payments assumptions approach used assumptions used developing required estimates include following key factors health care cost trend assumptions developed based historical cost data nearterm outlook efficiencies costmitigating actions including employee cost sharing administrative improvements efficiencies assessment likely longterm trends year ended december 31 2010 previously discussed changed discount rate setting methodology countries largest benefit obligations exist take advantage globally consistent methodology united states discount rate model constructs universe high quality corporate bonds applies cash flows benefit plans bond yields derive discount rate bond universe united states sufficiently large enough result taking “settlement approach” derive discount rate high quality corporate bonds assumed purchased resulting coupon payments maturities used satisfy largest us pension plan’s projected benefit payments bond portfolio selected single discount rate determined market value bonds purchased equals discounted value plan’s benefit payments year ended december 31 2009 based discount rate used determine projected benefit obligation us postretirement benefit plans matching projected cash flows largest pension plan citigroup pension discount curve brazilian plan based discount rate government bond indices within country indices used chosen match expected plan obligations related expected cash flows inflation assumptions based evaluation external market indicators retirement termination rates based primarily actual plan experience actuarial standards practice mortality rates us plans updated 2010 reflect expected movements life expectancy plan participants effects actual results differing assumptions accumulated amortized future periods therefore generally affect recognized expense future periods us postretirement health care life insurance plans represent approximately 97 consolidated projected benefit obligation discount rate used determine 2010 projected benefit obligation us postretirement benefit plans decreased 25 basis points projected benefit obligation would increased approximately 07 million december 31 2010 2011 postretirement benefit expense would increase nominal amount discount rate used determine 2010 projected benefit obligation us postretirement benefit plans increased 25 basis points projected benefit obligation would decreased approximately 07 million 2011 pension expense would decrease nominal amount unrecognized actuarial losses related us postretirement benefit plans 67 million december 31 2010 compared 60 million december 31 2009 increase losses primarily reflects inclusion certain aspects us healthcare reform legislation well slight decrease discount rate 2010 unrecognized actuarial losses impacted future periods discount rate changes actual demographic experience actual health care inflation certain factors losses amortized straightline basis average remaining service period active employees expected receive benefits average remaining lives inactive participants covered postretirement benefit plans december 31 2010 average amortization period 12 years us postretirement benefit plans estimated net actuarial loss postretirement health care benefits amortized accumulated comprehensive loss year ended december 31 2011 approximately 03 million compared approximately 02 million year ended december 31 2010 december 31 2010 approximately 288 million unfunded obligations related us brazilian postretirement health life insurance benefit plans 2010 made benefit payments approximately 19 million towards obligations expect make benefit payments approximately 17 million towards obligations 2011 measuring expected us postretirement benefit obligation december 31 2010 assumed 85 health care cost trend rate 2011 decreasing 50 2018 measuring expected us postretirement benefit obligation december 31 2009 assumed 85 health care cost trend rate 2010 decreasing 49 2060 measuring brazilian postretirement benefit plan obligation december 31 2010 2009 assumed 100 health care cost trend rate 2011 2010 respectively decreasing 55 2020 2019 respectively changing assumed health care cost trend rates one percentage point year holding assumptions constant would following effect service interest cost 2011 accumulated postretirement benefit obligation december 31 2010 millions litigation party various claims lawsuits arising normal course business closely monitor claims lawsuits frequently consult legal counsel determine whether may resolved material adverse effect financial position results operations accrue andor disclose loss contingencies appropriate goodwill indefinitelived assets test goodwill indefinitelived intangible assets impairment annual basis interim basis event occurs circumstances change would reduce fair value reporting unit carrying value initial assessment annual assessments involve determining estimate fair value reporting units order evaluate whether impairment current carrying amount goodwill indefinitelived intangible assets exists first step goodwill impairment test used identify potential impairment compares fair value reporting unit carrying amount including goodwill fair value reporting unit exceeds carrying amount goodwill reporting unit considered impaired thus second step impairment unnecessary carrying amount reporting unit exceeds fair value second step goodwill impairment test performed measure amount impairment loss fair values derived based evaluation past expected future performance reporting units reporting unit operating segment one level operating segment example component operating segment reporting unit component constitutes business discrete financial information available executive management team regularly reviews operating results component addition combine aggregate two components operating segment single reporting unit components similar economic characteristics reportable segments reporting units second step goodwill impairment test used measure amount impairment loss compares implied fair value reporting unit goodwill carrying amount goodwill carrying amount reporting unit goodwill exceeds implied fair value goodwill impairment loss recognized amount equal excess loss recognized cannot exceed carrying amount goodwill implied fair value goodwill determined manner amount goodwill recognized business combination allocate fair value reporting unit assets liabilities unit including unrecognized intangible assets reporting unit acquired business combination fair value reporting unit price paid acquire reporting unit excess fair value reporting unit amounts assigned assets liabilities implied fair value goodwill utilized combination valuation techniques including discounted cash flow approach market multiple approach making annual interim assessments stated goodwill tested impairment annual basis often indications impairment exist results analyses conducted october 1 2010 2009 2008 indicated reduction carrying amount goodwill required fair value reporting units substantially excess carrying amounts 2010 2009 2008 make various assumptions including assumptions regarding future cash flows market multiples growth rates discount rates assumptions future cash flows growth rates based current longterm business plans reporting unit discount rate assumptions based assessment risk inherent future cash flows reporting unit assumptions require significant judgments part conclusions reach could vary significantly based upon judgments december 31 2010 approximately 6327 million goodwill annual impairment testing 2010 supported carrying amount goodwill may required reevaluate carrying amount future periods thus utilizing different assumptions reflect current market conditions expectations therefore could conclude impairment occurred item 7aitem 7 management’s discussion analysis financial condition results operations leading manufacturer distributor agricultural equipment related replacement parts throughout world sell full range agricultural equipment including tractors combines selfpropelled sprayers hay tools forage equipment implements also manufacture distribute grain storage handling equipment systems well protein production systems products widely recognized agricultural equipment industry marketed number wellknown brand names including challenger® fendt® massey ferguson® valtra® distribute products combination approximately 3100 dealers distributors associates licensees addition provide retail financing retail finance joint ventures rabobank results operations sell equipment replacement parts independent dealers distributors customers large majority sales independent dealers distributors sell products end user extent practicable attempt sell products dealers distributors level basis throughout year reduce effect seasonal demands manufacturing operations minimize investment inventory however retail sales dealers farmers highly seasonal linked planting harvesting seasons certain markets particularly north america often time lag varies based timing level retail demand sale equipment dealer’s sale retail customer following table sets forth periods indicated percentage relationship net sales certain items included consolidated statements operations 1 rounding may impact summation amounts 2011 compared 2010 net income 2011 5833 million 595 per diluted share compared net income 2010 2205 million 229 per diluted share net sales 2011 approximately 87732 million 272 higher 2010 primarily due sales increases geographical segments acquisitions favorable impact currency translation income operations 6103 million 2011 compared 3242 million 2010 increase income operations operating margins 2011 primarily due higher net sales favorable pricing impacts increased production volumes europe north america partially offset higher material costs increased engineering marketing expenses europeafricamiddle east region income operations increased approximately 2722 million 2011 compared 2010 primarily due higher net sales production volumes favorable pricing improved product mix income operations south american region decreased approximately 186 million 2011 compared 2010 primarily due less favorable geographic sales mix material labor cost inflation higher engineering product introduction expenses north america region income operations increased approximately 414 million 2011 compared 2010 primarily due increased net sales higher production volumes cost control initiatives income operations rest world region increased approximately 172 million 2011 compared 2010 primarily due increased net sales retail sales worldwide industry equipment demand farm equipment relatively high levels 2011 major markets industry conditions western europe strong compared weaker industry conditions 2010 primarily due improved dairy meat grain prices overall market recovery resulted improved farm income across western europe south america despite modest decline industry conditions industry demand remained higher level due positive farm economics continued availability favorable government financing programs north american industry demand robust 2011 stable market demand larger equipment united states canada industry unit retail sales tractors increased approximately 2 2011 compared 2010 resulting growth industry unit retail sales high horsepower midrange utility tractors industry unit retail sales combines decreased approximately 4 2011 compared 2010 remained higher levels record farm income 2011 supported strong industry retail sales tractors combines sprayers hay equipment western europe industry unit retail sales tractors combines increased approximately 12 35 2011 respectively compared 2010 due higher retail volumes major western european markets demand strongest germany france scandinavia finland higher commodity prices improvement demand dairy livestock sectors contributed increase 2011 south america industry unit retail sales tractors 2011 decreased approximately 3 compared 2010 industry unit retail sales tractors major markets brazil argentina decreased approximately 7 37 respectively 2011 compared 2010 declines two largest south american markets mostly offset strong growth south american markets compared 2010 despite modest decline industry unit retail sales brazil remained high levels due attractive farm economics supportive government financing rates extended end 2012 industry retail sales combines south america 2011 approximately 20 higher 2010 industry unit retail sales combines brazil argentina increased approximately 18 11 respectively 2011 compared 2010 net sales rest word segment 2011 approximately 448 higher 2010 primarily due improved market conditions russia eastern europe australia new zealand results operations net sales 2011 87732 million compared 68966 million 2010 primarily due positive impacts market growth foreign currency translation acquisitions foreign currency translation positively impacted net sales approximately 3438 million 50 primarily due strengthening euro brazilian real 2011 compared 2010 following table sets forth year ended december 31 2011 impact net sales currency translation geographical segment millions except percentages following reconciliation net sales year ended december 31 2011 actual exchange rates compared 2010 exchange rates millions regionally net sales north america increased 2011 compared 2010 primarily due increased net sales high horsepower tractors combines sprayers europeafricamiddle east region net sales increased significantly 2011 compared 2010 primarily due stronger market conditions western europe experienced largest net sales increases germany france united kingdom scandinavia south america net sales increased 2011 compared 2010 net sales increased smaller south american countries benefited higher commodity prices healthy crop production sales brazil flat compared strong levels 2010 rest world net sales increased 2011 compared 2010 primarily due net sales increases russia eastern europe australia new zealand estimate worldwide average price increases 2011 2010 approximately 3 2 respectively consolidated net sales tractors combines consisted approximately 73 net sales 2011 increased approximately 26 2011 compared 2010 unit sales tractors combines increased approximately 8 2011 compared 2010 difference unit sales increase net sales primarily result foreign currency translation pricing sales mix changes following table sets forth years ended december 31 2011 2010 percentage relationship net sales certain items included consolidated statements operations millions except percentages gross profit percentage net sales increased 2011 compared 2010 pricing higher production volumes material cost control initiatives helped produce higher gross margins unit production tractors combines 2011 approximately 9 higher 2010 recorded approximately 16 million 07 million stock compensation expense within cost goods sold 2011 2010 respectively fully explained note 1 consolidated financial statements selling general administrative expenses “sga” percentage net sales decreased slightly 2011 compared 2010 recorded approximately 230 million 129 million stock compensation expense within sga 2011 2010 respectively fully explained note 1 consolidated financial statements engineering expenses increased 2011 compared 2010 primarily due higher spending development new products costs meet new engine emission standards united states europe recorded restructuring infrequent income expense approximately 07 million 44 million 2011 2010 respectively restructuring infrequent income recorded 2011 primarily related reversal approximately 09 million previously accrued severance payments associated rationalization french operations restructuring infrequent expenses recorded 2010 primarily related severance related costs associated rationalization operations denmark spain finland france interest expense net 302 million 2011 compared 333 million 2010 2011 redeemed €2000 million 6 78 senior subordinated notes due april 15 2014 fully discussed “liquidity capital resources” connection redemption recorded loss approximately 31 million associated premium paid holders notes writeoff approximately 12 million unamortized deferred debt issuance costs addition 2011 holders former 1¾ convertible senior subordinated notes converted approximately 1610 million principal amount notes fully discussed “liquidity capital resources” expense net 191 million 2011 compared 160 million 2010 losses sales receivables primarily accounts receivable sales agreements approximately 197 million 137 million 2011 2010 respectively increase 2011 due higher amount receivables sold europe accounts receivable sales agreement agco finance entities europe fully discussed “retail finance joint ventures” recorded income tax provision 246 million 2011 compared 1044 million 2010 tax provision impacted differing tax rates various tax jurisdictions operate permanent differences items treated differently financial accounting income tax purposes losses jurisdictions income tax benefit recorded 2011 income tax rate provision reconciled note 6 consolidated financial statements includes reversal approximately 1493 million valuation allowance previously established deferred tax assets united states reversal required offset deferred tax liabilities established part acquisition accounting gsi primarily related acquired intangible assets valuation allowance established likely portion company’s deferred tax assets realized assessed likelihood deferred tax assets would recovered estimated future taxable income available income tax planning strategies december 31 2011 2010 gross deferred tax assets 4982 million 4664 million respectively including 1816 million 2107 million respectively related net operating loss carryforwards december 31 2011 2010 recorded total valuation allowances offset gross deferred tax assets 1458 million 2625 million respectively primarily related net operating loss carryforwards brazil denmark switzerland netherlands china russia united states realization remaining deferred tax assets december 31 2011 depend generating sufficient taxable income future periods net reversing deferred tax liabilities believe likely remaining net deferred tax assets realized december 31 2011 2010 approximately 711 million 482 million respectively unrecognized tax benefits would impact effective tax rate recognized december 31 2011 2010 approximately 230 million 142 million respectively current accrued taxes related uncertain income tax positions connected ongoing tax audits various jurisdictions expect settle pay next 12 months recognize interest penalties related uncertain income tax positions income tax expense december 31 2011 2010 accrued interest penalties related unrecognized tax benefits approximately 76 million 52 million respectively see note 6 consolidated financial statements discussion uncertain income tax positions equity net earnings affiliates primarily comprised income retail finance joint ventures 489 million 2011 compared 497 million 2010 refer “retail finance joint ventures” information regarding retail finance joint ventures results operations 2010 compared 2009 net income 2010 2205 million 229 per diluted share compared net income 2009 1357 million 144 per diluted share net sales 2010 approximately 3802 million 58 higher 2009 primarily due sales increases south american north american geographical segments partially offset slight decrease europeafricamiddle east geographical segment well unfavorable impact currency translation strong market conditions south america 2010 helped contribute overall sales growth 2010 income operations 3242 million 2010 compared 2187 million 2009 increase income operations operating margins 2010 primarily due higher net sales material cost control initiatives increased production volumes improved product mix partially offset higher engineering expenses europeafricamiddle east region income operations decreased approximately 173 million 2010 compared 2009 primarily due reduction net sales lower production levels increased engineering expenses income operations south american region increased approximately 971 million 2010 compared 2009 primarily due significant sales growth improved factory productivity result higher production levels shift product sales mix higher margin higher horsepower products north america region income operations increased approximately 276 million 2010 compared 2009 primarily due improved margins new products favorable product mix factory efficiencies partially offset increased engineering expenditures income operations rest world segment decreased approximately 42 million 2010 compared 2009 primarily due weaker net sales unfavorable product mix increased expenses related growth initiatives retail sales worldwide industry equipment demand farm equipment mixed 2010 south america strong industry conditions result positive farm economics continued availability favorable government financing programs north american industry demand stable throughout 2010 robust market demand large equipment industry conditions western europe weak first half 2010 especially dairy livestock sectors improved major european markets towards end 2010 united states canada industry unit retail sales tractors increased approximately 5 2010 compared 2009 resulting strong growth industry unit retail sales high horsepower tractors modest growth industry retail sales compact tractors partially offset small decline unit retail sales utility tractors industry unit retail sales combines increased approximately 9 2010 compared prior year strong improving economics professional producer sector contributed strength retail sales high horsepower tractors combines continued weakness dairy livestock sectors contributed lower industry unit retail sales midrange utility tractors hay equipment north america unit retail sales tractors decreased 2010 unit retail sales combines increased 2010 compared 2009 levels western europe industry unit retail sales tractors decreased approximately 10 2010 compared 2009 due lower retail volumes major western european markets demand weakest france spain italy united kingdom slow pace macroeconomic recovery weak farmer sentiment soft demand dairy livestock sectors contributed decline 2010 unit retail sales tractors 2010 western europe also lower compared 2009 south america industry unit retail sales tractors 2010 increased approximately 31 compared 2009 industry unit retail sales combines 2010 approximately 29 higher 2009 industry unit retail sales tractors major market brazil increased approximately 24 2010 compared 2009 strong farm fundamentals favorable governmentsponsored financing programs brazil contributed strong industry demand began accelerate second half 2009 improved weather increased crop production argentina contributed significant increases industry unit retail sales tractors combines 2010 compared 2009 south american unit retail sales tractors combines also higher 2010 compared 2009 net sales rest word segment 2010 approximately 47 lower 2009 primarily due lower sales australia new zealand partially offset higher sales asia weak market conditions australia new zealand tightened credit environment markets eastern europe russia contributed decline results operations net sales 2010 68966 million compared 65164 million 2009 foreign currency translation negatively impacted net sales approximately 188 million 03 primarily due weakening euro largely offset strengthening brazilian real 2010 compared 2009 following table sets forth year ended december 31 2010 impact net sales currency translation geographical segment millions except percentages following reconciliation net sales year ended december 31 2010 actual exchange rates compared 2009 exchange rates millions regionally net sales north america increased modestly 2010 compared 2009 increased net sales sprayers combines parts offset declines net sales hay forage equipment utility tractors europeafricamiddle east region net sales decreased slightly 2010 compared 2009 primarily due weaker market conditions western europe experienced largest net sales declines france germany africa partially offset sales growth poland finland south america net sales increased 2010 compared 2009 primarily result strong market conditions region particularly brazil argentina rest world net sales decreased 2010 compared 2009 primarily due net sales declines australia new zealand estimate worldwide average price increases 2010 2009 approximately 2 3 respectively consolidated net sales tractors combines consisted approximately 74 net sales 2010 increased approximately 7 2010 compared 2009 unit sales tractors combines increased approximately 8 2010 compared 2009 difference unit sales increase net sales primarily result foreign currency translation pricing sales mix changes following table sets forth years ended december 31 2010 2009 percentage relationship net sales certain items included consolidated statements operations millions except percentages gross profit percentage net sales increased 2010 compared 2009 higher production volumes material cost control initiatives helped produce higher gross margins unit production tractors combines 2010 approximately 8 higher 2009 recorded approximately 07 million 01 million stock compensation expense within cost goods sold 2010 2009 respectively fully explained note 1 consolidated financial statements sga expenses percentage net sales increased slightly 2010 compared 2009 recorded approximately 129 million 82 million stock compensation expense within sga 2010 2009 respectively fully explained note 1 consolidated financial statements engineering expenses increased 2010 compared 2009 primarily due higher spending development new products costs meet new engine emission standards united states europe recorded restructuring infrequent expenses approximately 44 million 132 million 2010 2009 respectively restructuring infrequent expenses recorded 2010 primarily related severance related costs associated rationalization operations denmark spain finland france restructuring infrequent expenses recorded 2009 primarily related severance related costs associated rationalization operations france united kingdom finland germany united states denmark interest expense net 333 million 2010 compared 421 million 2009 decrease primarily due higher interest income due higher amounts invested cash expense net 160 million 2010 compared 222 million 2009 losses sales receivables primarily accounts receivable sales agreements approximately 137 million 2010 losses sales receivables primarily former us canadian securitization facilities european securitization facilities approximately 156 million 2009 decrease primarily due reduction interest rates 2010 compared 2009 expense net also decreased 2010 due favorable foreign exchange impacts 2010 compared 2009 recorded income tax provision 1044 million 2010 compared 577 million 2009 tax provision impacted differing tax rates various tax jurisdictions operate permanent differences items treated differently financial accounting income tax purposes losses jurisdictions income tax benefit recorded 2009 income tax rate reconciliation provided note 6 consolidated financial statements includes 395 million favorable “change valuation allowance” fully offset writeoff certain foreign tax assets reflected “tax effects permanent differences” due fact tax assets expected utilized future years previously maintained valuation allowance tax assets accordingly writeoff resulted impact income tax provision year ended december 31 2009 valuation allowance established likely portion company’s deferred tax assets realized assessed likelihood deferred tax assets would recovered estimated future taxable income available income tax planning strategies december 31 2010 2009 gross deferred tax assets 4664 million 4847 million respectively including 2107 million 2150 million respectively related net operating loss carryforwards december 31 2010 2009 recorded total valuation allowances offset gross deferred tax assets 2625 million 2617 million respectively primarily related net operating loss carryforwards brazil denmark switzerland netherlands united states december 31 2010 2009 approximately 482 million 218 million respectively unrecognized tax benefits would impact effective tax rate recognized december 31 2010 2009 approximately 142 million 35 million respectively current accrued taxes related uncertain income tax positions connected ongoing tax audits various jurisdictions expect settle pay next 12 months recognize interest penalties related uncertain income tax positions income tax expense december 31 2010 2009 accrued interest penalties related unrecognized tax benefits approximately 52 million 19 million respectively see note 6 consolidated financial statements discussion uncertain income tax positions equity net earnings affiliates 497 million 2010 compared 387 million 2009 increase primarily due increased earnings retail finance joint ventures refer “retail finance joint ventures” information regarding retail finance joint ventures results operations quarterly results following table presents unaudited interim operating results believe following information includes adjustments consisting normal recurring adjustments necessary present fairly results operations periods presented 1 2011 quarters ended march 31 june 30 september 30 december 31 included restructuring infrequent expense income 02 million 09 million 00 million 00 million respectively thereby impacting net income per common share diluted basis 000 001 000 respectively 2010 quarters ended march 31 june 30 september 30 december 31 included restructuring infrequent expenses 16 million 05 million 12 million 11 million respectively thereby impacting net income per common share diluted basis 001 000 001 respectively retail finance joint ventures agco finance retail finance joint ventures provide retail financing wholesale financing dealers united states canada germany france united kingdom austria ireland netherlands denmark italy sweden brazil argentina australia joint ventures owned 49 agco 51 wholly owned subsidiary rabobank financial institution based netherlands majority assets retail finance joint ventures represents finance receivables majority liabilities represents notes payable accrued interest various joint venture agreements rabobank affiliates provide financing joint ventures primarily lines credit guarantee debt obligations joint ventures december 31 2011 capital investment retail finance joint ventures included “investment affiliates” consolidated balance sheets approximately 3222 million compared 3057 million december 31 2010 total finance portfolio retail finance joint ventures approximately 74 billion 70 billion december 31 2011 2010 respectively total finance portfolio december 31 2011 included approximately 64 billion retail receivables 10 billion wholesale receivables agco dealers total finance portfolio december 31 2010 included approximately 62 billion retail receivables 08 billion wholesale receivables agco dealers wholesale receivables either sold directly agco finance without recourse operating companies agco finance provided financing directly dealers 2011 2010 made total approximately 83 million 254 million respectively investments retail finance joint ventures germany netherlands brazil primarily related additional capital required result increased retail finance portfolios 2011 2010 2011 share earnings retail finance joint ventures included “equity net earnings affiliates” within consolidated statements operations 436 million compared 434 million 2010 retail finance portfolio retail finance joint venture brazil 20 billion december 31 2011 compared 22 billion december 31 2010 result weak market conditions brazil 2005 2006 substantial portion portfolio included payment deferral program directed brazilian government relating retail contracts entered 2004 scheduled payments rescheduled several times 2005 2008 impact deferral program resulted higher delinquencies lower collateral coverage portfolio joint venture currently considers reserves loan losses adequate continually monitors reserves considering borrower payment history value underlying equipment financed payment deferral programs implemented brazilian government date retail finance joint ventures markets outside brazil experienced significant changes credit quality finance portfolios however assurance portfolio credit quality deteriorate given size portfolio relative joint ventures’ level equity significant adverse change joint ventures’ performance would material impact joint ventures operating results outlook operations subject cyclical nature agricultural industry sales equipment expected continue affected changes net cash farm income farm land values weather conditions demand agricultural commodities farm industry related legislation availability financing general economic conditions worldwide industry demand expected stable 2012 compared 2011 levels tight supplies soft commodities expected support healthy farm income sustain strong equipment demand net sales 2012 expected higher compared 2011 primarily due expected favorable pricing market share improvements acquisition impacts partially offset unfavorable impact currency translation targeting gross margin improvements partially offset increased expenditures product development new market expansion recent acquisitions november 30 2011 acquired gsi 9322 million net approximately 279 million cash acquired gsi headquartered assumption illinois leading manufacturer grain storage protein production systems gsi sells products globally independent dealers acquisition gsi provides us strong positions grain storage protein production opportunity benefit increases global grain production protein demand acquisition financed issuance 3000 million 578 senior notes new credit facility result acquisition recorded tax benefit approximately 1493 million within “income tax provision” consolidated statement operations year ended december 31 2011 resulting reversal portion previously established deferred tax valuation allowance reversal required offset deferred tax liabilities established part acquisition accounting gsi relating acquired amortizable intangible assets november 30 2011 acquired 80 shandong dafeng machinery co ltd “dafeng” approximately 1720 million yuan approximately 270 million acquired approximately 171 million cash assumed approximately 411 million current indebtedness associated transaction dafeng located yanzhou china manufactures complete range corn grain rice soybean harvesting machines chinese domestic markets acquisition funded available cash hand march 3 2011 acquired remaining 50 interest laverda spa “laverda” approximately €638 million net approximately €12 million cash acquired approximately 883 million net laverda previously operating joint venture agco italian argo group located breganze italy manufactures harvesting equipment addition producing laverdabranded combines breganze factory manufactures midrange combine harvesters massey ferguson fendt challenger brands distribution europe africa middle east 100 ownership laverda includes ownership fellawerke gmbh german manufacturer grass hay machinery acquisition funded available cash hand january 3 2011 acquired 50 agcoamity jv approximately 250 million net approximately 50 million cash acquired thereby creating joint venture us amity technology llc joint venture approximately 62 million indebtedness date acquisition agcoamity jv located north dakota manufactures airseeding tillage equipment investment funded available cash hand controlling voting interest direct activities significantly impact joint venture consolidated joint venture’s operations consolidated financial statements commencing date formation joint venture results operations acquisitions gsi dafeng laverda agcoamity jv included consolidated financial statements dates respective acquisitions allocated purchase price acquisition assets acquired liabilities assumed based preliminary estimates fair values respective acquisition dates recorded approximately 6066 million goodwill approximately 5190 million identifiable intangible assets associated acquisitions liquidity capital resources financing requirements subject variations due seasonal changes inventory receivable levels internally generated funds supplemented necessary external sources primarily credit facility accounts receivable sales agreement facilities believe facilities together available cash internally generated funds sufficient support working capital expenditures debt service requirements foreseeable future • 3000 million 578 senior notes mature 2021 see discussion • new 10 billion credit facility consisting 6000 million multicurrency revolving credit facility 4000 million term loan facility expires december 2016 december 31 2011 2650 million outstanding multicurrency revolving credit facility 4000 million outstanding term loan facility see discussion • €2000 million approximately 2594 million december 31 2011 412 senior term loan matures 2016 see discussion • 2013 million 114 convertible senior subordinated notes mature 2033 may required repurchased december 15 2013 could converted earlier based closing sales price common stock see discussion • accounts receivable sales agreements retail finance joint ventures united states canada december 31 2011 approximately 5175 million cash received agreements see discussion • accounts receivable sales agreements europe whereby sell large portion wholesale accounts receivable ongoing basis relevant agco finance entities located germany france austria norway sweden december 31 2011 cash received receivables sold accounts receivable agreements europe approximately 3100 million see discussion addition although complete compliance financial covenants contained facilities currently expect continue maintain compliance ever encounter difficulties historical relationship lenders strong anticipate continued longterm support business current facilities december 5 2011 completed offering 3000 million 578 senior notes due 2021 received proceeds approximately 2966 million offering related fees expenses used net proceeds fund portion acquisition gsi notes constitute senior unsecured unsubordinated indebtedness interest payable semiannually arrears june 1 december 1 year time prior september 1 2021 may redeem notes whole part time option redemption price equal greater 100 principal amount plus accrued unpaid interest including additional interest excluding redemption date ii sum present values remaining scheduled payments principal interest exclusive interest accrued date redemption discounted redemption date treasury rate plus 05 plus accrued unpaid interest including additional interest beginning september 1 2021 may redeem notes whole part time option redemption price equal 100 principal amount plus accrued unpaid interest including additional interest december 1 2011 entered new credit facility agreement providing 10 billion revolving credit term loan facility consisting 6000 million multicurrency revolving credit facility 4000 million term loan facility used credit facility together 3000 million 578 senior notes previously discussed fund acquisition gsi new credit facility replaced former 3000 million revolving credit facility discussed new credit facility expires december 1 2016 required make quarterly payments towards term loan 50 million commencing march 2012 increasing 100 million commencing march 2015 interest accrues amounts outstanding credit facility option either 1 libor plus margin ranging 10 20 based leverage ratio 2 base rate equal higher administrative agent’s base lending rate applicable currency ii federal funds rate plus 05 iii onemonth libor loans denominated us dollars plus 10 plus margin ranging 0 05 based leverage ratio credit facility contains covenants restricting among things incurrence indebtedness making certain payments including dividends subject acceleration event default also must fulfill financial covenants respect total debt ebitda ratio interest coverage ratio december 31 2011 6650 million outstanding borrowings credit facility availability borrow approximately 3350 million €2000 million 6 78 senior subordinated notes due april 15 2014 issued april 2004 redeemed price 101146 principal amount may 2 2011 recorded loss approximately 31 million associated premium paid holders former 6 78 senior subordinated notes writeoff approximately 12 million unamortized deferred debt issuance costs associated redemption within “interest expense net” consolidated statements operations funded redemption notes new €2000 million term loan rabobank new term loan due may 2 2016 ability prepay term loan maturity date interest payable term loan 4 12 per annum payable quarterly arrears march 31 june 30 september 30 december 31 year term loan contains covenants restricting among things incurrence indebtedness making certain payments including dividends subject acceleration event default also must fulfill financial covenants respect total debt ebitda ratio interest coverage ratio 2013 million 114 convertible senior subordinated notes due december 15 2036 issued december 2006 provide settlement upon conversion cash principal amount notes excess conversion value settled shares common stock ii conversion rate increased certain circumstances notes converted connection certain change control transactions occurring prior december 15 2013 interest payable notes 114 per annum payable semiannually arrears cash june 15 december 15 year notes convertible shares common stock effective price 4073 per share subject adjustment reflects initial conversion rate notes 245525 shares common stock per 1000 principal amount notes beginning december 15 2013 may redeem notes redemption price 100 principal amount plus accrued interest well settle excess conversion value shares common stock holders notes may require us repurchase notes repurchase price 100 principal amount plus accrued interest december 15 2013 2016 2021 2026 2031 well settle excess conversion value shares common stock see note 7 consolidated financial statements full description notes 114 convertible senior subordinated notes impact diluted weighted average shares outstanding future periods depending stock price excess conversion value using treasury stock method refer notes 1 7 consolidated financial statements discussion accounts receivable sales agreements north america europe permit sale ongoing basis large portion receivables relevant agco finance entities us canada germany france austria norway sweden 49 ownership joint ventures sale receivables respective agco finance entities north american europe without recourse us service receivables sale occurs maintain direct retained interest receivables agreements accounted offbalance sheet transactions effect reducing accounts receivable shortterm liabilities amount december 31 2011 2010 cash received receivables sold us canadian accounts receivable agreements approximately 5175 million 5312 million respectively december 31 2011 2010 cash received receivables sold accounts receivable sales agreements europe approximately 3100 million 1692 million respectively agco finance retail joint ventures brazil australia also provide wholesale financing dealers receivables associated arrangements also without recourse us december 31 2011 2010 retail finance joint ventures approximately 620 million 502 million respectively outstanding accounts receivable associated arrangements accounted offbalance sheet transactions addition sell certain trade receivables factoring arrangements financial institutions around world arrangements also accounted offbalance sheet transactions former facilities former 1¾ convertible senior subordinated notes due december 31 2033 originally issued december 2003 exchanged june 2005 provided settlement upon conversion cash principal amount converted notes excess conversion value settled shares common stock notes unsecured obligations convertible cash shares common stock upon satisfaction certain conditions interest payable notes 1¾ per annum payable semiannually arrears cash june 30 december 31 year notes convertible shares common stock effective price 2236 per share subject adjustment reflected initial conversion rate notes 447193 shares common stock per 1000 principal amount notes 2011 holders former 1¾ convertible senior subordinated notes converted approximately 1610 million principal amount notes issued 3926574 shares associated 1959 million excess conversion value notes repayment principal notes totaling 1610 million 2011 reflected within “repurchase conversion convertible senior subordinated notes” within consolidated statement cash flows year ended december 31 2011 2010 repurchased approximately 375 million principal amount 1¾ convertible senior subordinated notes plus accrued interest approximately 581 million repurchase included approximately 211 million associated excess conversion value notes resulted loss extinguishment approximately 02 million reflected “interest expense net” reflected repurchase principal excess conversion value notes totaling 581 million within “repurchase conversion convertible senior subordinated notes” within consolidated statement cash flows year ended december 31 2010 addition 2010 holders 1¾ convertible senior subordinated notes converted 27 million principal amount notes issued 60986 shares associated 27 million excess conversion value notes loss extinguishment associated conversions notes less 01 million reflected “interest expense net” reflected repayment principal notes totaling 27 million within “repurchase conversion convertible senior subordinated notes” within consolidated statement cash flows year ended december 31 2010 see note 7 consolidated financial statements full description notes former european securitization facilities sold accounts receivable europe revolving basis commercial paper conduits qualifying specialpurpose entity united kingdom european facilities expired october 2011 december 31 2010 outstanding funded balance european securitization facilities approximately €851 million approximately 1139 million funded balance reflected accounts receivable corresponding equivalent liability former credit facility provided 3000 million unsecured multicurrency revolving credit facility interest accrued amounts outstanding facility option either 1 libor plus margin ranging 100 175 based upon total debt ratio 2 higher administrative agent’s base lending rate onehalf one percent federal funds rate plus margin ranging 00 05 based upon total debt ratio cash flows cash flows provided operating activities 7259 million 2011 compared 4387 million 2010 increase cash flows provided operating activities 2011 primarily due increase net income addition operating cash flow 2011 benefited approximately 1267 million increase accounts receivable sold retail finance joint ventures europe working capital requirements seasonal investments working capital typically building first half year reducing second half year 14573 million working capital december 31 2011 compared 12081 million december 31 2010 accounts receivable inventories combined december 31 2011 4118 million higher december 31 2010 increase accounts receivable inventories december 31 2011 compared december 31 2010 result recent acquisitions increase production levels net sales growth debt capitalization ratio total indebtedness divided sum total indebtedness stockholders’ equity 327 december 31 2011 compared 213 december 31 2010 increase ratio reflects new indebtedness incurred 2011 fund gsi acquisition contractual obligations future payments required significant contractual obligations excluding foreign currency option forward contracts december 31 2011 follows millions 1 estimated interest payments calculated assuming current interest rates minimum maturity periods specified debt agreements debt may repaid sooner later minimum maturity periods indebtedness amounts reflect principal amount convertible senior subordinated notes senior term loan senior notes credit facility 2 shortterm longterm obligations include estimates future minimum contribution requirements us nonus defined benefit pension postretirement plans estimates based current legislation countries operate within subject change shortterm longterm obligations also include income tax liabilities related uncertain income tax positions connected ongoing income tax audits various jurisdictions commitments offbalance sheet arrangements guarantees maintain remarketing agreement retail finance joint venture united states whereby obligated repurchase repossessed inventory market values agreement retail finance joint venture united states limits purchase obligations arrangement 60 million aggregate per calendar year believe losses might incurred resale equipment materially impact financial position results operations due fact repurchase obligation would equivalent fair value underlying equipment december 31 2011 guaranteed indebtedness owed third parties approximately 1346 million primarily related dealer enduser financing equipment guarantees generally obligate us repay outstanding finance obligations owed financial institutions dealers end users default loans 2016 believe credit risk associated guarantees material financial position results operations losses guarantees historically insignificant addition generally would expect able recover significant portion amounts paid guarantees sale underlying financed farm equipment fair value equipment expected offset substantial portion amounts paid december 31 2011 outstanding designated nondesignated foreign exchange contracts gross notional amount approximately 12327 million outstanding contracts december 31 2011 range maturity december 2012 gains losses contracts historically substantially offset losses gains exposures hedged see “foreign currency risk management” additional information discussed “liquidity capital resources” sell substantially wholesale accounts receivable north america us canadian retail finance joint ventures large portion wholesale accounts receivable europe agco finance entities certain european countries also sell certain accounts receivable factoring arrangements financial institutions around world determined facilities accounted offbalance sheet transactions contingencies result brazilian tax legislation impacting value added taxes “vat” recorded reserve approximately 374 million 223 million outstanding balance brazilian vat taxes receivable december 31 2011 2010 respectively due uncertainty ability collect amounts outstanding june 2008 republic iraq filed civil action three foreign subsidiaries participated united nations oil food program french government also investigating french subsidiary connection participation program august 2008 part routine audit brazilian taxing authorities disallowed deductions relating amortization certain goodwill recognized connection reorganization brazilian operations related transfer certain assets brazilian subsidiaries see note 12 consolidated financial statements discussion matters related parties rabobank 51 owner retail finance joint ventures located united states canada brazil germany france united kingdom australia ireland austria rabobank also principal agent participant credit facility majority assets retail finance joint ventures represent finance receivables majority liabilities represent notes payable accrued interest various joint venture agreements rabobank affiliates provide financing joint venture companies primarily lines credit guarantee debt obligations retail finance joint ventures 2011 2010 made total approximately 83 million 254 million respectively investments retail finance joint ventures germany netherlands brazil primarily related additional capital required result increased retail finance portfolios 2011 2010 retail finance joint ventures provide retail financing wholesale financing dealers terms financing arrangements offered dealers similar arrangements retail finance joint ventures provide unaffiliated third parties addition transfer ongoing basis substantially wholesale interestbearing noninterest bearing accounts receivable north america retail finance joint ventures north america also accounts receivable sales agreements europe permit sale ongoing basis large portion wholesale receivables germany france austria norway sweden relevant agco finance entities countries see note 4 consolidated financial statements discussion agreements maintain remarketing agreement us retail finance joint venture agco finance llc discussed “commitments offbalance sheet arrangements” addition part sales incentives provided end users may time subsidize interest rates retail financing provided retail finance joint ventures cost programs recognized time sale dealers 2011 2010 2009 paid approximately 52 million 36 million 34 million respectively ppg industries inc painting materials used manufacturing processes chairman president chief executive officer currently member board directors ppg industries inc foreign currency risk management significant manufacturing operations united states france germany finland brazil purchase portion tractors combines components thirdparty foreign suppliers primarily various european countries japan also sell products 140 countries throughout world majority net sales outside united states denominated currency customer location exception sales middle east africa asia parts south america net sales primarily denominated british pounds euros united states dollars see note 14 consolidated financial statements net sales customer location significant transactional foreign currency exposures euro brazilian real canadian dollar relation united states dollar euro relation british pound fluctuations value foreign currencies create exposures adversely affect results operations attempt manage transactional foreign currency exposure hedging foreign currency cash flow forecasts commitments arising anticipated settlement receivables payables future purchases sales naturally offsetting currency positions occur hedge certain exposures use foreign currency contracts translation exposure resulting translating financial statements foreign subsidiaries united states dollars hedged significant translation exposures euro british pound brazilian real relation united states dollar practical translation impact reduced financing local operations local borrowings hedging policy prohibits use foreign currency contracts speculative trading purposes derivatives recognized consolidated balance sheets fair value date derivative contract entered designate derivative either 1 fair value hedge recognized liability 2 cash flow hedge forecasted transaction 3 hedge net investment foreign operation 4 nondesignated derivative instrument currently engage derivatives cash flow hedges forecasted transactions well nondesignated derivative instruments changes fair value nondesignated derivative contracts reported current earnings 2011 2010 2009 designated certain foreign currency contracts cash flow hedges forecasted sales purchases effective portion fair value gains losses cash flow hedges recorded comprehensive income subsequently reclassified cost goods sold period sales purchases recognized amounts offset effect changes foreign currency rates related sale purchase transactions amount gain loss recorded comprehensive income loss reclassified cost goods sold years ended december 31 2011 2010 2009 approximately 52 million 31 million 145 million respectively aftertax basis amount loss gain recorded comprehensive income loss related outstanding cash flow hedges december 31 2011 2010 2009 approximately 43 million 12 million 13 million respectively aftertax basis outstanding contracts december 31 2011 range maturity december 2012 assuming 10 change relative currency hedge contract fair value foreign currency instruments could negatively impacted approximately 520 million december 31 2011 due fact instruments primarily entered hedging purposes gains losses contracts would largely offset losses gains underlying firm commitment forecasted transaction interest rates manage interest rate risk use fixed rate debt may future utilize interest rate swap contracts fixed rate debt convertible senior subordinated notes senior notes senior term loan floating rate exposure related credit facility accounts receivable sales facilities tied changes united states european libor rates assuming 10 increase interest rates interest expense net year ended december 31 2011 would increased approximately 15 million interest rate swap contracts outstanding years ended december 31 2011 2010 2009 recent accounting pronouncements see note 1 consolidated financial statements information regarding recent accounting pronouncements impact consolidated results operations financial position restructuring actions recorded restructuring infrequent income expense 07 million 44 million 132 million years ended december 31 2011 2010 2009 respectively income 2011 charges 2010 2009 related severance related costs associated rationalization operations france united kingdom finland spain germany united states denmark refer note 3 consolidated financial statements detailed description rationalizations european north american manufacturing administrative headcount reductions 2009 2010 announced initiated several actions rationalize employee headcount various manufacturing facilities including located france finland germany united states well various administrative offices located united kingdom spain united states 2009 2010 recorded severance related costs approximately 128 million 22 million respectively associated actions 2011 recorded reversal approximately 09 million previously accrued legally required severance payments associated rationalization french operations due improvement european market conditions 2011 certain employees previously identified terminated france terminated planned also recorded approximately 02 million additional severance related costs 2011 associated french rationalization rationalizations resulted termination approximately 653 employees randers denmark closure november 2009 announced closure assembly operations located randers denmark ceased operations july 2010 completed transfer assembly operations harvesting equipment manufacturing operations laverda located breganze italy august 2010 recorded approximately 04 million 22 million expenses 2009 2010 respectively associated facility closure primarily related employee retention payments accrued term retention period closure resulted termination approximately 79 employees critical accounting estimates prepare consolidated financial statements conformity us generally accepted accounting principles preparation financial statements make judgments estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period significant accounting policies followed preparation financial statements detailed note 1 consolidated financial statements believe application policies discussed involves significant levels judgment estimates complexity due level judgment complexity period time many items resolved actual results could differ estimated time preparation financial statements adjustments estimates would impact financial position future results operations allowance doubtful accounts determine allowance doubtful accounts actively monitoring financial condition customers determine potential nonpayment trade receivables determining allowance doubtful accounts also consider economic factors aging trends believe process specific review customers combined overall analytical review provides effective evaluation ultimate collectability trade receivables loss writeoff experience approximately 01 net sales 2011 discount sales incentive allowances provide various volume bonus sales incentive programs respect products sales incentive programs include reductions invoice prices reductions retail financing rates dealer commissions dealer incentive allowances cases incentive programs established communicated dealers quarterly basis incentives paid either time invoice reduction invoice price time settlement receivable time retail financing time warranty registration subsequent time based dealer purchases incentive programs product line specific generally vary dealer cost sales incentives associated dealer commissions dealer incentive allowances estimated based upon terms programs historical experience based percentage sales price recorded later date related revenue recognized b date sales incentive offered related provisions accruals made product productline basis monitored adequacy revised least quarterly event subsequent modifications programs volume discounts estimated recognized based historical experience related reserves monitored adjusted based actual dealer purchases dealers’ progress towards achieving specified cumulative target levels record cost interest subsidy payments reduction retail financing rates later date related revenue recognized b date sales incentive offered estimates incentives based terms programs historical experience incentive programs recorded presented reduction revenue due fact receive identifiable benefit exchange consideration provided reserves incentive programs paid either reduction future invoices credit memos recorded “accounts receivable allowances” within consolidated balance sheets reserves incentive programs paid cash case volume discount programs well sales incentives associated accounts receivable sold us canadian retail finance joint ventures recorded within “accrued expenses” within consolidated balance sheets december 31 2011 recorded allowance discounts sales incentives approximately 1035 million primarily related reserves north america geographical segment paid either reduction future invoices credit memos dealers reductions retail financing rates allow additional 1 sales incentives discounts time retail sale sales subject discount programs reserve would increase approximately 65 million december 31 2011 conversely decrease sales incentives discounts 1 time retail sale reserve would decrease approximately 65 million december 31 2011 inventory reserves inventories valued lower cost market using firstin firstout method market current replacement cost purchase reproduction dependent type inventory cases market exceeds net realizable value ie estimated selling price less reasonably predictable costs completion disposal inventories stated net realizable value market considered less net realizable value reduced allowance approximately normal profit margin determination cost includes estimates surplus obsolete inventory based estimates future sales production changes demand product design impact estimates periodically evaluate update assumptions assessing adequacy inventory adjustments deferred income taxes uncertain income tax positions recorded income tax provision 246 million 2011 compared 1044 million 2010 tax provision impacted differing tax rates various tax jurisdictions operate permanent differences items treated differently financial accounting income tax purposes losses jurisdictions income tax benefit recorded 2011 income tax rate provision reconciled note 6 consolidated financial statements includes reversal approximately 1493 million valuation allowance previously established deferred tax assets united states reversal required offset deferred tax liabilities established part acquisition accounting gsi primarily related acquired intangible assets valuation allowance established likely portion company’s deferred tax assets realized assessed likelihood deferred tax assets would recovered estimated future taxable income available income tax planning strategies december 31 2011 2010 gross deferred tax assets 4982 million 4664 million respectively including 1816 million 2107 million respectively related net operating loss carryforwards december 31 2011 2010 recorded total valuation allowances offset gross deferred tax assets 1458 million 2625 million respectively primarily related net operating loss carryforwards brazil denmark switzerland netherlands china russia united states realization remaining deferred tax assets december 31 2011 depend generating sufficient taxable income future periods net reversing deferred tax liabilities believe likely remaining net deferred tax assets realized december 31 2011 2010 approximately 711 million 482 million respectively unrecognized tax benefits would impact effective tax rate recognized december 31 2011 2010 approximately 230 million 142 million respectively current accrued taxes related uncertain income tax positions connected ongoing tax audits various jurisdictions expect settle pay next 12 months recognize interest penalties related uncertain income tax positions income tax expense december 31 2011 2010 accrued interest penalties related unrecognized income tax benefits approximately 76 million 52 million respectively see note 6 consolidated financial statements discussion uncertain income tax positions warranty additional service actions make provisions estimated expenses related product warranties time products sold base estimates historical experience nature frequency average cost warranty claims addition number magnitude additional service actions expected approved policies related additional service actions taken consideration due uncertainty potential volatility estimated factors changes assumptions could materially affect net income estimate warranty obligations reevaluated quarterly basis experience shown initial data product series line volatile therefore process relies upon longterm historical averages sufficient data available actual experience becomes available used modify historical averages ensure forecast within range likely outcomes resulting balances compared present spending rates ensure accruals adequate meet expected future obligations see note 1 consolidated financial statements information regarding costs assumptions warranties insurance reserves insurance programs coverage obtained significant liability limits well risks required law contract policy selfinsure portion certain expected losses related primarily workers’ compensation comprehensive general product liability vehicle liability provide insurance reserves estimates losses due claims items selfinsured base estimates expected ultimate settlement amount claims often long periods resolution closely monitor claims maintain adequate reserves pensions sponsor defined benefit pension plans covering certain employees principally united states united kingdom germany finland norway france switzerland australia argentina primary plans cover certain employees united states united kingdom united states sponsor funded qualified pension plan salaried employees well separate funded qualified pension plan hourly employees plans frozen fund least minimum contributions required employee retirement income security act 1974 internal revenue code plans addition sponsor unfunded nonqualified pension plan executives united kingdom sponsor funded pension plan provides annuity benefit based participants’ final average earnings service participation plan limited certain older longer service employees existing retirees future employees participate plan see note 8 consolidated financial statements information regarding costs assumptions employee retirement benefits nature estimates required measurement date benefit plans december 31 measurement pension obligations costs liabilities dependent variety assumptions provided management used actuaries assumptions include estimates present value projected future pension payments plan participants taking consideration likelihood potential future events salary increases demographic experience assumptions may effect amount timing future contributions assumptions approach used assumptions used developing required estimates include following key factors • discount rates • inflation • salary growth • expected return plan assets • retirement rates • mortality rates years ended december 31 2011 2010 used discount rate setting methodology countries largest benefit obligations exist take advantage globally consistent methodology united states united kingdom euro zone constructed hypothetical bond portfolio high quality corporate bonds applied cash flows benefit plans bond yields derive discount rate bond portfolio planspecific cash flows vary country methodology yield curve constructed consistent united states bond portfolio large enough result taking “settlement approach” derive discount rate high quality corporate bonds assumed purchased resulting coupon payments maturities used satisfy largest us pension plan’s projected benefit payments united kingdom euro zone discount rate derived using “yield curve approach” individual spot rate zero coupon bond yield future annual period developed discount future benefit payment thereby determine present value future payments key assumptions set follows • inflation assumption based evaluation external market indicators • salary growth assumptions reflect longterm actual experience nearterm outlook assumed inflation • expected return plan asset assumptions reflects asset allocations investment strategy historical experience views investment managers • retirement termination rates primarily based actual plan experience actuarial standards practice • mortality rates us uk plans updated 2010 2009 respectively reflect expected improvements life expectancy plan participants effects actual results differing assumptions accumulated amortized future periods therefore generally affect recognized expense periods us uk pension plans comprised approximately 88 consolidated projected benefit obligation december 31 2011 discount rate used determine 2011 projected benefit obligation us pension plans decreased increased 25 basis points projected benefit obligation would increased decreased approximately 21 million december 31 2011 2012 pension expense would increase decrease approximately 01 million discount rate used determine projected benefit obligation uk pension plan decreased 25 basis points projected benefit obligation would increased approximately 245 million december 31 2011 2012 pension expense would increase approximately 08 million discount rate used determine projected benefit obligation uk pension plan increased 25 basis points projected benefit obligation would decreased approximately 225 million december 31 2011 2012 pension expense would decrease approximately 07 million unrecognized actuarial losses related qualified pension plans 2993 million december 31 2011 compared 2349 million december 31 2010 increase unrecognized losses years primarily resulted lower expected actual asset returns 2011 well decrease discount rates unrecognized actuarial losses impacted future periods actual asset returns discount rate changes currency exchange rate fluctuations actual demographic experience certain factors qualified defined benefit pension plans losses amortized straightline basis average remaining service period active employees expected receive benefits us salaried us hourly uk pension plans population covered predominantly inactive participants losses related plans amortized average remaining lives participants covered respective plan december 31 2011 average amortization period 18 years us qualified pension plans 22 years nonus pension plans estimated net actuarial loss qualified defined benefit pension plans expected amortized accumulated comprehensive loss year ended december 31 2012 approximately 94 million compared approximately 64 million year ended december 31 2011 investment strategy concentration risk weighted average asset allocation us pension benefit plans december 31 2011 2010 follows weighted average asset allocation nonus pension benefit plans december 31 2011 2010 follows taxqualified pension fund investments united states held agco corporation master pension trust global pension fund strategy diversify investments across broad categories equity fixed income securities appropriate use alternative investment categories minimize risk volatility primary investment objective pension plans secure participant retirement benefits key objective pension plans’ financial management promote stability extent appropriate growth funded status investment strategy plans’ portfolio assets balances requirement generate returns need control risk asset mix recognized primary mechanism influence reward risk structure pension fund investments effort accomplish plans’ funding objectives overall investment strategy usbased pension plans achieve mix approximately 20 assets nearterm benefit payments 80 longerterm growth overall us pension funds invest broad diversification asset types us target allocation retirement fund investments 40 large small cap domestic equity securities 15 international equity securities 20 broad fixed income securities 25 alternative investments noted long investment horizons mix investments would achieve average return excess 785 arriving choice expected return assumption 775 december 31 2011 usbased plans tempered historical indicator lower expectations returns equity investment future well administrative costs plans overall investment strategy nonus based pension plans achieve mix approximately 32 assets nearterm benefit payments 68 longerterm growth overall nonus pension funds invest broad diversification asset types nonus target allocation retirement fund investments 40 equity securities 30 broad fixed income investments 30 alternative investments majority nonus pension fund investments related pension plan united kingdom noted long periods mix investments would achieve average return excess 75 arriving choice expected return assumption 7 ukbased plans tempered historical indicator lower expectations returns equity investment future well administrative costs plans equity securities primarily include investments largecap smallcap companies located across globe fixed income securities include corporate bonds companies diversified industries mortgagebacked securities agency mortgages assetbacked securities government securities alternative assets include investments hedge fund funds follow diversified investment strategies date invested pension funds stock intention future within asset class careful consideration given balancing portfolio among industry sectors geographies interest rate sensitivity dependence economic growth currency factors affecting investment returns assets managed professional investment firms bound precise mandates measured specific benchmarks among asset managers consideration given among others balancing security concentration issuer concentration investment style reliance particular active investment strategies december 31 2011 unfunded underfunded obligations related qualified pension plans approximately 2451 million primarily due pension plan united kingdom 2011 contributed approximately 324 million towards obligations expect fund approximately 356 million 2012 future funding dependent upon compliance local laws regulations changes laws regulations future well generation operating cash flows future currently agreement place trustees uk defined benefit plan obligates us fund approximately £130 million per year approximately 202 million towards obligation next 13 years funding arrangement based upon current underfunded status could change future discount rates local laws regulations factors change postretirement benefits retiree health care life insurance provide certain postretirement health care life insurance benefits certain employees principally united states brazil participation plans generally limited older employees existing retirees see note 8 consolidated financial statements information regarding costs assumptions postretirement benefits nature estimates required measurement obligations costs liabilities associated postretirement benefits retiree health care life insurance requires make use estimates present value projected future payments participants taking consideration likelihood potential future events health care cost increases demographic experience may effect amount timing future payments assumptions approach used assumptions used developing required estimates include following key factors • health care cost trends • inflation • discount rates • medical coverage elections • retirement rates • mortality rates health care cost trend assumptions developed based historical cost data nearterm outlook efficiencies costmitigating actions including employee cost sharing administrative improvements efficiencies assessment likely longterm trends years ended december 31 2011 2010 previously discussed used discount rate setting methodology countries largest benefit obligations exist take advantage globally consistent methodology united states constructed hypothetical bond portfolio high quality corporate bonds applied cash flows benefit plans bond yields derive discount rate united states bond portfolio large enough result taking “settlement approach” derive discount rate high quality corporate bonds assumed purchased resulting coupon payments maturities used satisfy largest us pension plan’s projected benefit payments bond portfolio selected single discount rate determined market value bonds purchased equals discounted value plan’s benefit payments brazilian plan based discount rate government bond indices within country indices used chosen match expected plan obligations related expected cash flows inflation assumptions based evaluation external market indicators retirement termination rates based primarily actual plan experience actuarial standards practice mortality rates us plans updated 2010 reflect expected movements life expectancy plan participants effects actual results differing assumptions accumulated amortized future periods therefore generally affect recognized expense future periods us postretirement health care life insurance plans represent approximately 96 consolidated projected benefit obligation discount rate used determine 2011 projected benefit obligation us postretirement benefit plans decreased 25 basis points projected benefit obligation would increased approximately 08 million december 31 2011 2012 postretirement benefit expense would increase nominal amount discount rate used determine 2011 projected benefit obligation us postretirement benefit plans increased 25 basis points projected benefit obligation would decreased approximately 08 million 2012 pension expense would decrease nominal amount unrecognized actuarial losses related us postretirement benefit plans 94 million december 31 2011 compared 67 million december 31 2010 increase losses primarily reflects decrease discount rate 2011 unrecognized actuarial losses impacted future periods discount rate changes actual demographic experience actual health care inflation certain factors losses amortized straightline basis average remaining service period active employees expected receive benefits average remaining lives inactive participants covered postretirement benefit plans december 31 2011 average amortization period 15 years us postretirement benefit plans estimated net actuarial loss postretirement health care benefits expected amortized accumulated comprehensive loss year ended december 31 2012 approximately 04 million compared approximately 03 million year ended december 31 2011 december 31 2011 approximately 318 million unfunded obligations related us brazilian postretirement health life insurance benefit plans 2011 made benefit payments approximately 16 million towards obligations expect make benefit payments approximately 19 million towards obligations 2012 measuring expected us postretirement benefit obligation december 31 2011 assumed 80 health care cost trend rate 2012 decreasing 50 2018 measuring expected us postretirement benefit obligation december 31 2010 assumed 85 health care cost trend rate 2011 decreasing 50 2018 measuring brazilian postretirement benefit plan obligation december 31 2011 2010 assumed 100 health care cost trend rate 2012 2011 respectively decreasing 55 2021 2020 respectively changing assumed health care cost trend rates one percentage point year holding assumptions constant would following effect service interest cost 2012 accumulated postretirement benefit obligation december 31 2011 millions litigation party various claims lawsuits arising normal course business closely monitor claims lawsuits frequently consult legal counsel determine whether may resolved material adverse effect financial position results operations accrue andor disclose loss contingencies appropriate goodwill indefinitelived assets test goodwill indefinitelived intangible assets impairment annual basis interim basis event occurs circumstances change would reduce fair value reporting unit carrying value initial annual qualitative quantitative assessments involve determining estimate fair value reporting units order evaluate whether impairment current carrying amount goodwill indefinitelived intangible assets exists qualitative assessment evaluates whether likely reporting unit’s fair value less carrying amount applying twostep quantitative goodwill impairment test first step quantitative goodwill impairment test used identify potential impairment compares fair value reporting unit carrying amount including goodwill fair value reporting unit exceeds carrying amount goodwill reporting unit considered impaired thus second step quantitative impairment test unnecessary carrying amount reporting unit exceeds fair value second step quantitative goodwill impairment test performed measure amount impairment loss fair values derived based evaluation past expected future performance reporting units reporting unit operating segment one level operating segment example component operating segment reporting unit component constitutes business discrete financial information available executive management team regularly reviews operating results component addition combine aggregate two components operating segment single reporting unit components similar economic characteristics reportable segments reporting units second step quantitative goodwill impairment test used measure amount impairment loss compares implied fair value reporting unit goodwill carrying amount goodwill carrying amount reporting unit goodwill exceeds implied fair value goodwill impairment loss recognized amount equal excess loss recognized cannot exceed carrying amount goodwill implied fair value goodwill determined manner amount goodwill recognized business combination allocate fair value reporting unit assets liabilities unit including unrecognized intangible assets reporting unit acquired business combination fair value reporting unit price paid acquire reporting unit excess fair value reporting unit amounts assigned assets liabilities implied fair value goodwill utilized combination valuation techniques including discounted cash flow approach market multiple approach making annual interim quantitative assessments stated goodwill tested qualitatively quantitatively impairment annual basis often indications impairment exist results analyses conducted october 1 2011 2010 2009 indicated reduction carrying amount goodwill required make various assumptions including assumptions regarding future cash flows market multiples growth rates discount rates assumptions future cash flows growth rates based current longterm business plans reporting unit discount rate assumptions based assessment risk inherent future cash flows reporting unit assumptions require significant judgments part conclusions reach could vary significantly based upon judgments december 31 2011 approximately 11945 million goodwill annual impairment testing 2011 supported carrying amount goodwill may required reevaluate carrying amount future periods thus utilizing different assumptions reflect current market conditions expectations therefore could conclude impairment occurred item 7aitem 7 management’s discussion analysis financial condition results operations leading manufacturer distributor agricultural equipment related replacement parts throughout world sell full range agricultural equipment including tractors combines selfpropelled sprayers hay tools forage equipment tillage implements grain storage protein production systems products widely recognized agricultural equipment industry marketed number wellknown brand names including challenger® fendt® massey ferguson® valtra® gsi® distribute products combination approximately 3150 dealers distributors associates licensees addition provide retail financing retail finance joint ventures rabobank results operations sell equipment replacement parts independent dealers distributors customers large majority sales independent dealers distributors sell products end user extent practicable attempt sell products dealers distributors level basis throughout year reduce effect seasonal demands manufacturing operations minimize investment inventories however retail sales dealers farmers highly seasonal linked planting harvesting seasons certain markets particularly north america often time lag varies based timing level retail demand sale equipment dealer’s sale retail customer following table sets forth periods indicated percentage relationship net sales certain items included consolidated statements operations 1 rounding may impact summation amounts 2012 compared 2011 net income attributable agco corporation subsidiaries 2012 5221 million 530 per diluted share compared net income 2011 5833 million 595 per diluted share net sales 2012 approximately 99622 million 136 higher 2011 primarily due sales increases geographical segments well favorable impact acquisitions partially offset unfavorable impact currency translation income operations 6932 million 2012 compared 6103 million 2011 increase income operations 2012 result benefits acquisitions increase net sales improved gross margins resulting price increases higher production levels better sales mix material cost control initiatives partially offset higher engineering selling general administrative expenses “sga expenses” noncash goodwill intangible asset impairment charge related chinese harvesting business europeafricamiddle east “eame” region income operations decreased approximately 120 million 2012 compared 2011 primarily due weaker mix products negative impact currency translation impact lower production startup costs associated new fendt assembly facility germany second half year income operations south american region increased approximately 185 million 2012 compared 2011 primarily due higher sales improved margins cost control efforts north america region income operations increased approximately 1690 million 2012 compared 2011 primarily due positive impact acquisitions higher net sales margin improvement initiatives income operations asiapacific region decreased approximately 137 million 2012 compared 2011 primarily due increased market development costs china partially offset acquisition benefits improved gross margins retail sales worldwide industry equipment demand farm equipment relatively stable 2012 major markets compared 2011 global commodity prices remained higher levels due weatherrelated production difficulties across many developed markets industry conditions key western european markets germany france remained stable adverse weather negatively impacted market conditions southern europe scandinavia finland south america industry demand improved second half 2012 lower levels first half year result better weather conditions improved crop yields attractive government financing subsidies brazil favorable commodity prices also helped strengthen industry demand north america industry demand strong 2012 compared 2011 despite extensive drought united states higher crop prices extensive crop insurance resulted near record farm income levels region united states canada industry unit retail sales tractors increased approximately 10 2012 compared 2011 industry unit retail sales combines relatively flat 2012 compared 2011 continued favorable farm economics resulted strength retail sales particularly larger high horsepower equipment western europe industry unit retail sales tractors decreased approximately 3 industry unit retail sales combines increased approximately 5 2012 compared 2011 growth key markets france germany offset declines southern europe due dry weather weak economic conditions well declines scandinavia finland due wet weather conditions late harvest south america industry unit retail sales tractors 2012 increased approximately 3 compared 2011 industry unit retail sales tractors major market brazil increased approximately 7 relatively flat argentina 2012 compared 2011 industry unit retail sales brazil remained high levels due attractive farm economics supportive government subsidized financing programs industry unit retail sales combines south america 2012 relatively flat compared 2011 net sales asiapacific segment 2012 approximately 58 higher 2011 primarily due increases australia new zealand china results operations net sales 2012 99622 million compared 87732 million 2011 primarily due positive impacts market growth acquisitions partially offset unfavorable impact foreign currency translation acquisitions positively impacted net sales approximately 7743 million 88 2012 compared 2011 foreign currency translation negatively impacted net sales 2012 compared 2011 approximately 6727 million 77 primarily due weakening euro brazilian real following table sets forth year ended december 31 2012 impact net sales currency translation acquisitions geographical segment millions except percentages regionally net sales north america increased 2012 compared 2011 primarily result acquisition gsi holding corp “gsi” improved industry demand significant increases sales excluding acquisitions high horsepower tractors hay equipment sprayers eame region net sales increased 2012 compared 2011 largest net sales increases france germany russia partially offset lower net sales southern europe finland excluding negative impact foreign currency translation net sales higher brazil partially offset declines argentina asiapacific net sales increased 2012 compared 2011 primarily due net sales increases australia new zealand china estimate worldwide average price increases approximately 3 2012 2011 consolidated net sales tractors combines consisted approximately 65 net sales 2012 increased approximately 2 2012 compared 2011 unit sales tractors combines also increased approximately 2 2012 compared 2011 unit sales increase net sales differ due foreign currency translation pricing sales mix changes following table sets forth years ended december 31 2012 2011 percentage relationship net sales certain items included consolidated statements operations millions except percentages gross profit percentage net sales increased 2012 compared 2011 favorable pricing higher production volumes throughout 2012 cost control initiatives helped produce higher margins gross margins negatively impacted slow ramp production related startup costs experienced fourth quarter 2012 associated new german tractor assembly facility unit production tractors combines 2012 approximately 3 higher 2011 recorded approximately 24 million 16 million stock compensation expense within cost goods sold 2012 2011 respectively fully explained note 1 consolidated financial statements sga expenses percentage net sales increased 2012 compared 2011 primarily due increased market development new system upgrade costs recorded approximately 346 million 230 million stock compensation expense within sga expenses 2012 2011 respectively fully explained note 1 consolidated financial statements engineering expenses increased 2012 compared 2011 primarily due higher spending development new products costs meet new engine emission standards united states europe fourth quarter 2012 recorded noncash impairment charge approximately 224 million related goodwill certain identifiable assets associated chinese harvesting business accordance provisions accounting standard codification “asc” 350 “intangiblesgoodwill other”“asc 350” operating results chinese harvesting business date acquisition november 2011 combined recently completed forecasts resulted conclusion likely fair value chinese harvesting reporting unit less carrying amount see note 1 consolidated financial statements discussion interest expense net 576 million 2012 compared 302 million 2011 increase 2012 due increased debt levels 2012 associated funding recent acquisitions fully explained “liquidity capital resources” expense net 348 million 2012 compared 191 million 2011 losses sales receivables primarily accounts receivable sales agreements approximately 218 million 220 million 2012 2011 respectively expense net increased primarily due foreign exchange losses 2012 compared foreign exchange gains 2011 recorded income tax provision 1379 million 2012 compared 246 million 2011 tax provision impacted differing tax rates various tax jurisdictions operate permanent differences items treated differently financial accounting income tax purposes losses jurisdictions income tax benefit recorded 2012 income tax rate provision reconciled note 6 consolidated financial statements includes usage approximately 547 million valuation allowance resulting income generated united states 2012 income tax provision also includes reversal approximately 138 million remaining valuation allowance previously established us deferred tax assets recognition certain us research development tax credits approximately 131 million assessed likelihood remaining us deferred tax assets would recovered estimable future taxable income determined reversal appropriate fourth quarter 2012 result improved profitability 2012 core equipment business inclusion gsi business acquired end 2011 recently completed forecasts projecting future profitability combined businesses valuation allowance established likely portion company’s deferred tax assets realized assessed likelihood deferred tax assets would recovered estimated future taxable income available income tax planning strategies december 31 2012 2011 gross deferred tax assets 4780 million 4982 million respectively including 949 million 1816 million respectively related net operating loss carryforwards december 31 2012 total valuation allowances offset gross deferred tax assets 745 million primarily related net operating loss carryforwards brazil switzerland china russia december 31 2011 total valuation allowances offset gross deferred tax assets approximately 1458 million primarily related net operating loss carryforwards brazil switzerland china russia united states realization remaining deferred tax assets december 31 2012 depend generating sufficient taxable income future periods net reversing deferred tax liabilities believe likely remaining net deferred tax assets realized december 31 2012 2011 approximately 945 million 711 million respectively unrecognized tax benefits would impact effective tax rate recognized december 31 2012 2011 approximately 235 million 230 million respectively current accrued taxes related uncertain income tax positions connected ongoing tax audits various jurisdictions expect settle pay next 12 months recognize interest penalties related uncertain income tax positions income tax expense december 31 2012 2011 accrued interest penalties related unrecognized tax benefits approximately 119 million 76 million respectively see note 6 consolidated financial statements discussion uncertain income tax positions equity net earnings affiliates primarily comprised income retail finance joint ventures 535 million 2012 compared 489 million 2011 refer “retail finance joint ventures” information regarding retail finance joint ventures results operations 2011 compared 2010 net income attributable agco corporation subsidiaries 2011 5833 million 595 per diluted share compared net income 2010 2205 million 229 per diluted share net sales 2011 approximately 87732 million 272 higher 2010 primarily due sales increases geographical segments acquisitions favorable impact currency translation income operations 6103 million 2011 compared 3242 million 2010 increase income operations operating margins 2011 primarily due higher net sales favorable pricing impacts increased production volumes europe north america partially offset higher material costs increased engineering marketing expenses eame region income operations increased approximately 2912 million 2011 compared 2010 primarily due higher net sales production volumes favorable pricing improved product mix income operations south american region decreased approximately 186 million 2011 compared 2010 primarily due less favorable geographic sales mix material labor cost inflation higher engineering product introduction expenses north america region income operations increased approximately 414 million 2011 compared 2010 primarily due increased net sales higher production volumes cost control initiatives income operations asiapacific region decreased approximately 18 million 2011 compared 2010 retail sales worldwide industry equipment demand farm equipment relatively high levels 2011 major markets industry conditions western europe strong compared weaker industry conditions 2010 primarily due improved dairy meat grain prices overall market recovery resulted improved farm income across western europe south america despite modest decline industry conditions industry demand remained higher level due positive farm economics continued availability favorable government financing programs north american industry demand robust 2011 stable market demand larger equipment united states canada industry unit retail sales tractors increased approximately 2 2011 compared 2010 resulting growth industry unit retail sales high horsepower midrange utility tractors industry unit retail sales combines decreased approximately 4 2011 compared 2010 remained higher levels record farm income 2011 supported strong industry retail sales tractors combines sprayers hay equipment western europe industry unit retail sales tractors combines increased approximately 12 35 2011 respectively compared 2010 due higher retail volumes major western european markets demand strongest germany france scandinavia finland higher commodity prices improvement demand dairy livestock sectors contributed increase 2011 south america industry unit retail sales tractors 2011 decreased approximately 3 compared 2010 industry unit retail sales tractors major markets brazil argentina decreased approximately 7 37 respectively 2011 compared 2010 declines two largest south american markets mostly offset strong growth south american markets compared 2010 despite modest decline industry unit retail sales brazil remained high levels due attractive farm economics supportive government financing rates extended end 2012 industry unit retail sales combines south america 2011 approximately 20 higher 2010 industry unit retail sales combines brazil argentina increased approximately 18 11 respectively 2011 compared 2010 net sales asiapacific segment 2011 approximately 228 higher 2010 primarily due improved market conditions australia new zealand results operations net sales 2011 87732 million compared 68966 million 2010 primarily due positive impacts market growth foreign currency translation acquisitions foreign currency translation positively impacted net sales approximately 3438 million 50 primarily due strengthening euro brazilian real 2011 compared 2010 following table sets forth year ended december 31 2011 impact net sales currency translation geographical segment millions except percentages regionally net sales north america increased 2011 compared 2010 primarily due increased net sales high horsepower tractors combines sprayers europeafricamiddle east region net sales increased significantly 2011 compared 2010 primarily due stronger market conditions western europe experienced largest net sales increases germany france russia eastern europe united kingdom scandinavia south america net sales increased 2011 compared 2010 net sales increased smaller south american countries benefited higher commodity prices healthy crop production sales brazil flat compared strong levels 2010 asiapacific region net sales increased 2011 compared 2010 primarily due net sales increases australia new zealand estimate worldwide average price increases 2011 2010 approximately 3 2 respectively consolidated net sales tractors combines consisted approximately 73 net sales 2011 increased approximately 26 2011 compared 2010 unit sales tractors combines increased approximately 8 2011 compared 2010 difference unit sales increase net sales primarily result foreign currency translation pricing sales mix changes following table sets forth years ended december 31 2011 2010 percentage relationship net sales certain items included consolidated statements operations millions except percentages gross profit percentage net sales increased 2011 compared 2010 pricing higher production volumes material cost control initiatives helped produce higher gross margins unit production tractors combines 2011 approximately 9 higher 2010 recorded approximately 16 million 07 million stock compensation expense within cost goods sold 2011 2010 respectively fully explained note 1 consolidated financial statements sga expenses percentage net sales decreased slightly 2011 compared 2010 recorded approximately 230 million 129 million stock compensation expense within sga expenses 2011 2010 respectively fully explained note 1 consolidated financial statements engineering expenses increased 2011 compared 2010 primarily due higher spending development new products costs meet new engine emission standards united states europe recorded restructuring infrequent income expense approximately 07 million 44 million 2011 2010 respectively restructuring infrequent income recorded 2011 primarily related reversal approximately 09 million previously accrued severance payments associated rationalization french operations restructuring infrequent expenses recorded 2010 primarily related severance related costs associated rationalization operations denmark spain finland france interest expense net 302 million 2011 compared 333 million 2010 2011 redeemed €2000 million 6 78 senior subordinated notes due april 15 2014 connection redemption recorded loss approximately 31 million associated premium paid holders notes writeoff approximately 12 million unamortized deferred debt issuance costs addition 2011 holders former 1¾ convertible senior subordinated notes converted approximately 1610 million principal amount notes expense net 191 million 2011 compared 160 million 2010 losses sales receivables primarily accounts receivable sales agreements approximately 197 million 137 million 2011 2010 respectively increase 2011 due higher amount receivables sold europe accounts receivable sales agreement agco finance entities europe recorded income tax provision 246 million 2011 compared 1044 million 2010 tax provision impacted differing tax rates various tax jurisdictions operate permanent differences items treated differently financial accounting income tax purposes losses jurisdictions income tax benefit recorded 2011 income tax rate reconciliation provision reconciled note 6 consolidated financial statements includes reversal approximately 1493 million valuation allowance previously established deferred tax assets united states reversal required offset deferred tax liabilities established part acquisition accounting gsi primarily related acquired intangible assets valuation allowance established likely portion company’s deferred tax assets realized assessed likelihood deferred tax assets would recovered estimated future taxable income available income tax planning strategies december 31 2011 2010 gross deferred tax assets 4982 million 4664 million respectively including 1816 million 2107 million respectively related net operating loss carryforwards december 31 2011 2010 recorded total valuation allowances offset gross deferred tax assets 1458 million 2625 million respectively primarily related net operating loss carryforwards brazil denmark switzerland netherlands china russia united states december 31 2011 2010 approximately 711 million 482 million respectively unrecognized tax benefits would impact effective tax rate recognized december 31 2011 2010 approximately 230 million 142 million respectively current accrued taxes related uncertain income tax positions connected ongoing tax audits various jurisdictions expect settle pay next 12 months recognize interest penalties related uncertain income tax positions income tax expense december 31 2011 2010 accrued interest penalties related unrecognized tax benefits approximately 76 million 52 million respectively see note 6 consolidated financial statements discussion uncertain income tax positions equity net earnings affiliates primarily comprised income retail finance joint ventures 489 million 2011 compared 497 million 2010 refer “retail finance joint ventures” information regarding retail finance joint ventures results operations quarterly results following table presents unaudited interim operating results believe following information includes adjustments consisting normal recurring adjustments necessary present fairly results operations periods presented retail finance joint ventures agco finance retail finance joint ventures provide retail financing wholesale financing dealers united states canada brazil germany france united kingdom austria ireland netherlands denmark italy sweden australia joint ventures owned 49 agco 51 wholly owned subsidiary rabobank financial institution based netherlands majority assets retail finance joint ventures represents finance receivables majority liabilities represents notes payable accrued interest various joint venture agreements rabobank affiliates provide financing joint ventures primarily lines credit guarantee debt obligations joint ventures december 31 2012 capital investment retail finance joint ventures included “investment affiliates” consolidated balance sheets approximately 3544 million compared 3222 million december 31 2011 total finance portfolio retail finance joint ventures approximately 83 billion 74 billion december 31 2012 2011 respectively total finance portfolio december 31 2012 included approximately 70 billion retail receivables 13 billion wholesale receivables agco dealers total finance portfolio december 31 2011 included approximately 64 billion retail receivables 10 billion wholesale receivables agco dealers wholesale receivables either sold directly agco finance without recourse operating companies agco finance provided financing directly dealers 2012 2011 2010 made total approximately 71 million 83 million 254 million respectively investments retail finance joint ventures germany netherlands brazil primarily related additional capital required result increased retail finance portfolios 2012 2011 2010 2012 share earnings retail finance joint ventures included “equity net earnings affiliates” within consolidated statements operations 486 million compared 436 million 2011 retail finance portfolio retail finance joint venture brazil 20 billion december 31 2012 2011 respectively result weak market conditions brazil 2005 2006 substantial portion portfolio included payment deferral program directed brazilian government relating retail contracts entered 2004 scheduled payments rescheduled several times 2005 2008 impact deferral program resulted higher delinquencies lower collateral coverage portfolio joint venture currently considers reserves loan losses adequate continually monitors reserves considering borrower payment history value underlying equipment financed payment deferral programs implemented brazilian government date retail finance joint ventures markets outside brazil experienced significant changes credit quality finance portfolios however assurance portfolio credit quality deteriorate given size portfolio relative joint ventures’ level equity significant adverse change joint ventures’ performance would material impact joint ventures operating results outlook operations subject cyclical nature agricultural industry sales equipment expected continue affected changes net cash farm income farm land values weather conditions demand agricultural commodities farm industry related legislation availability financing general economic conditions worldwide industry demand expected relatively stable 2013 compared 2012 levels elevated soft commodities prices 2013 expected support healthy farm income sustain stable equipment demand net sales 2013 expected increase modestly compared 2012 primarily due expected favorable pricing market share improvements relatively neutral currency translation impacts expect gross margin improvement cost control initiatives partially offset increased expenditures new product development engineering expenditures meet emissions requirements expenses related new market expansion recent acquisitions january 2012 acquired 61 santal equipamentos sa comércio e indústria “santal” approximately r367 million net approximately r119 million cash acquired approximately 201 million net santal headquartered ribeirão preto brazil manufactures distributes sugar cane planting harvesting handling transportation equipment well replacement parts across brazil acquisition santal provide customers brazil wider range agricultural products services acquisition funded available cash hand recorded approximately 280 million goodwill approximately 26 million trade name trademark patent identifiable intangible assets associated acquisition results operations acquisition santal included consolidated financial statements acquisition date allocated purchase price santal assets acquired liabilities assumed based fair values date acquisition november 30 2011 acquired gsi 9322 million net approximately 279 million cash acquired gsi headquartered assumption illinois leading manufacturer grain storage protein production systems gsi sells products globally independent dealers acquisition financed issuance 3000 million 578 senior notes credit facility result acquisition recorded tax benefit approximately 1493 million within “income tax benefit provision” consolidated statement operations year ended december 31 2011 resulting reversal portion previously established deferred tax valuation allowance reversal required offset deferred tax liabilities established part acquisition accounting gsi relating acquired amortizable intangible assets november 30 2011 acquired 98 shandong dafeng machinery co ltd dafeng approximately 1717 million yuan approximately 269 million acquired approximately 171 million cash assumed approximately 411 million indebtedness associated transaction dafeng located yanzhou china manufactures complete range corn grain rice soybean harvesting machines chinese domestic markets acquisition funded available cash hand march 3 2011 acquired remaining 50 interest laverda spa “laverda” approximately €638 million net approximately €12 million cash acquired approximately 883 million net laverda previously operating joint venture agco italian argo group located breganze italy manufactures harvesting equipment addition producing laverdabranded combines breganze factory manufactures midrange combine harvesters massey ferguson fendt challenger brands distribution europe africa middle east 100 ownership laverda includes ownership fellawerke gmbh german manufacturer grass hay machinery acquisition funded available cash hand january 3 2011 acquired 50 agcoamity jv approximately 250 million net approximately 50 million cash acquired thereby creating joint venture us amity technology llc joint venture approximately 62 million indebtedness date acquisition agcoamity jv located north dakota manufactures airseeding tillage equipment investment funded available cash hand controlling voting interest direct activities significantly impact joint venture consolidated joint venture’s operations consolidated financial statements commencing date formation joint venture results operations acquisitions gsi dafeng laverda agcoamity jv included consolidated financial statements dates respective acquisitions allocated purchase price acquisition assets acquired liabilities assumed based fair values respective acquisition dates recorded approximately 6047 million goodwill approximately 5190 million identifiable intangible assets associated 2011 acquisitions see note 2 consolidated financial statements information liquidity capital resources financing requirements subject variations due seasonal changes inventory receivable levels internally generated funds supplemented necessary external sources primarily credit facility accounts receivable sales agreement facilities believe facilities together available cash internally generated funds sufficient support working capital expenditures debt service requirements foreseeable future • 3000 million 578 senior notes mature 2021 see discussion • revolving credit term loan facility consisting 6000 million multicurrency revolving credit facility 3800 million term loan facility expires december 2016 december 31 2012 850 million outstanding multicurrency revolving credit facility 3800 million outstanding term loan facility see discussion • €2000 million approximately 2642 million december 31 2012 412 senior term loan matures 2016 see discussion • 2013 million 114 convertible senior subordinated notes mature 2036 may required holders repurchased december 15 2013 could converted earlier based closing sales price common stock see discussion • accounts receivable sales agreements retail finance joint ventures united states canada europe december 31 2012 approximately 11 billion cash received agreements see discussion addition although complete compliance financial covenants contained facilities currently expect continue maintain compliance ever encounter difficulties historical relationship lenders strong anticipate continued longterm support business current facilities 3000 million 578 senior notes due december 1 2021 constitute senior unsecured unsubordinated indebtedness interest payable notes semiannually arrears june 1 december 1 year time prior september 1 2021 may redeem notes whole part time option redemption price equal greater 100 principal amount plus accrued unpaid interest including additional interest excluding redemption date ii sum present values remaining scheduled payments principal interest exclusive interest accrued date redemption discounted redemption date treasury rate plus 05 plus accrued unpaid interest including additional interest beginning september 1 2021 may redeem notes whole part time option redemption price equal 100 principal amount plus accrued unpaid interest including additional interest revolving credit term loan facility consists 6000 million multicurrency revolving credit facility 3800 million term loan facility maturity date credit facility december 1 2016 required make quarterly payments towards term loan 50 million commencing march 2012 increasing 100 million commencing march 2015 interest accrues amounts outstanding credit facility option either 1 libor plus margin ranging 10 20 based leverage ratio 2 base rate equal higher administrative agent’s base lending rate applicable currency ii federal funds rate plus 05 iii onemonth libor loans denominated us dollars plus 10 plus margin ranging 00 05 based leverage ratio credit facility contains covenants restricting among things incurrence indebtedness making certain payments including dividends subject acceleration event default also must fulfill financial covenants respect total debt ebitda ratio interest coverage ratio december 31 2012 4650 million outstanding borrowings credit facility availability borrow approximately 5150 million december 31 2011 6650 million outstanding borrowings credit facility availability borrow approximately 3350 million former €2000 million 678 senior subordinated notes due april 15 2014 issued april 2004 redeemed price 101146 principal amount may 2 2011 funded redemption notes €2000 million term loan rabobank term loan due may 2 2016 ability prepay term loan maturity date interest payable term loan 412 per annum payable quarterly arrears march 31 june 30 september 30 december 31 year term loan contains covenants restricting among things incurrence indebtedness making certain payments including dividends subject acceleration event default also must fulfill financial covenants respect total debt ebitda ratio interest coverage ratio 2013 million 114 convertible senior subordinated notes due december 15 2036 issued december 2006 provide settlement upon conversion cash principal amount notes excess conversion value settled shares common stock ii conversion rate increased certain circumstances notes converted connection certain change control transactions occurring prior december 15 2013 interest payable notes 114 per annum payable semiannually arrears cash june 15 december 15 year notes convertible shares common stock effective price 4073 per share subject adjustment reflects initial conversion rate notes 245525 shares common stock per 1000 principal amount notes beginning december 19 2013 may redeem notes redemption price 100 principal amount plus accrued interest well settle excess conversion value shares common stock holders notes may require us repurchase notes repurchase price 100 principal amount plus accrued interest december 15 2013 2016 2021 2026 2031 well settle excess conversion value shares common stock see note 7 consolidated financial statements full description notes holders 1¼ convertible senior subordinated notes may require us repurchase notes repurchase price 100 principal amount plus interest december 15 2013 therefore classified notes current liability also classified approximately 92 million equity component 1¼ convertible senior subordinated notes “temporary equity” amount classified “temporary equity” measured excess amount cash would required paid upon conversion ii current carrying amount liabilityclassified component due redemption feature notes unless converted prior date notes required classified current liability least december 15 2013 future classification notes current liabilities longterm debt beyond december 15 2013 dependent closing sales price common stock future quarters fourth quarter 2015 unless choose redeem notes beginning december 19 2013 holders notes may convert notes earlier december 15 2013 dependent closing sales price common stock future quarters 2013 previously discussed december 31 2011 closing sales price common stock exceeded 120 conversion price 1¼ convertible senior subordinated notes least 20 trading days 30 consecutive trading days ending december 31 2011 therefore classified notes longterm debt 114 convertible senior subordinated notes impact diluted weighted average shares outstanding future periods depending stock price excess conversion value using treasury stock method refer notes 1 7 consolidated financial statements discussion accounts receivable sales agreements north america europe permit sale ongoing basis majority wholesale receivables 49 owned us canadian european retail finance joint ventures sales receivables without recourse us service receivables sale occurs maintain direct retained interest receivables agreements accounted offbalance sheet transactions effect reducing accounts receivable shortterm liabilities amount december 31 2012 2011 cash received receivables sold us canadian european accounts receivable agreements approximately 11 billion 8275 million respectively agco finance retail joint ventures brazil australia also provide wholesale financing dealers receivables associated arrangements also without recourse us december 31 2012 2011 retail finance joint ventures approximately 1006 million 620 million respectively outstanding accounts receivable associated arrangements accounted offbalance sheet transactions addition sell certain trade receivables factoring arrangements financial institutions around world arrangements also accounted offbalance sheet transactions former facilities 2011 holders former 1¾ convertible senior subordinated notes converted approximately 1610 million principal amount notes issued 3926574 shares common stock associated 1959 million excess conversion value notes reflected repayment principal notes totaling 1610 million within “repurchase conversion convertible senior subordinated notes” within consolidated statement cash flows year ended december 31 2011 2010 repurchased approximately 375 million principal amount 1¾ convertible senior subordinated notes plus accrued interest approximately 581 million repurchase included approximately 211 million associated excess conversion value notes addition 2010 holders 134 convertible senior subordinated notes converted 27 million principal amount notes issued 60986 shares common stock associated 27 million excess conversion value notes reflected transactions totaling 608 million within “repurchase conversion convertible senior subordinated notes” within consolidated statement cash flows year ended december 31 2010 see note 7 consolidated financial statements full description notes cash flows cash flows provided operating activities 6664 million 2012 compared 7259 million 2011 decrease cash flows provided operating activities 2012 primarily due increase inventories operating cash flow 2011 benefited approximately 1267 million increase accounts receivables sold retail finance joint ventures europe working capital requirements seasonal investments working capital typically building first half year reducing second half year 14899 million working capital december 31 2012 compared 14573 million december 31 2011 working capital december 31 2012 includes reclassification 1¼ convertible senior subordinated notes current liability fourth quarter 2012 previously discussed accounts receivable inventories combined december 31 2012 976 million higher december 31 2011 increase accounts receivable inventories december 31 2012 compared december 31 2011 result net sales growth debt capitalization ratio total indebtedness divided sum total indebtedness stockholders’ equity 269 december 31 2012 compared 327 december 31 2011 decrease ratio due debt repayments 2012 contractual obligations future payments required significant contractual obligations excluding foreign currency option forward contracts december 31 2012 follows millions 1 estimated interest payments calculated assuming current interest rates minimum maturity periods specified debt agreements debt may repaid sooner later minimum maturity periods indebtedness amounts reflect principal amount convertible senior subordinated notes senior term loan senior notes credit facility 2 shortterm longterm obligations include estimates future minimum contribution requirements us nonus defined benefit pension postretirement plans estimates based current legislation countries operate within subject change shortterm longterm obligations also include income tax liabilities related uncertain income tax positions connected ongoing income tax audits various jurisdictions commitments offbalance sheet arrangements guarantees maintain remarketing agreement retail finance joint venture united states whereby obligated repurchase repossessed inventory market values agreement retail finance joint venture united states limits purchase obligations arrangement 60 million aggregate per calendar year believe losses might incurred resale equipment materially impact financial position results operations due fact repurchase obligation would equivalent fair value underlying equipment december 31 2012 guaranteed indebtedness owed third parties approximately 1779 million primarily related dealer enduser financing equipment guarantees generally obligate us repay outstanding finance obligations owed financial institutions dealers end users default loans 2017 believe credit risk associated guarantees material financial position results operations losses guarantees historically insignificant addition generally would expect able recover significant portion amounts paid guarantees sale underlying financed farm equipment fair value equipment expected offset substantial portion amounts paid december 31 2012 outstanding designated nondesignated foreign exchange contracts gross notional amount approximately 15773 million outstanding contracts december 31 2012 range maturity december 2013 gains losses contracts historically substantially offset losses gains exposures hedged see “foreign currency risk management” additional information discussed “liquidity capital resources” sell majority wholesale accounts receivable north america europe us canadian european retail finance joint ventures also sell certain accounts receivable factoring arrangements financial institutions around world determined facilities accounted offbalance sheet transactions contingencies result brazilian tax legislation impacting value added taxes “vat” recorded reserve approximately 596 million 546 million outstanding balance brazilian vat taxes receivable december 31 2012 2011 respectively due uncertainty ability collect amounts outstanding june 2008 republic iraq filed civil action three foreign subsidiaries participated united nations oil food program february 6 2013 federal court dismissed complaint prejudice plaintiff filed notice appeal respect decision french government also investigating french subsidiary connection participation program part routine audits brazilian taxing authorities disallowed deductions relating amortization certain goodwill recognized connection reorganization brazilian operations related transfer certain assets brazilian subsidiaries see note 12 consolidated financial statements discussion matters related parties rabobank 51 owner retail finance joint ventures located united states canada brazil germany france united kingdom austria ireland netherlands denmark italy sweden australia rabobank also principal agent participant credit facility majority assets retail finance joint ventures represent finance receivables majority liabilities represent notes payable accrued interest various joint venture agreements rabobank affiliates provide financing joint venture companies primarily lines credit guarantee debt obligations retail finance joint ventures 2012 2011 2010 made total approximately 71 million 83 million 254 million respectively investments retail finance joint ventures germany netherlands brazil primarily related additional capital required result increased retail finance portfolios 2012 2011 2010 retail finance joint ventures provide retail wholesale financing dealers terms financing arrangements offered dealers similar arrangements retail finance joint ventures provide unaffiliated third parties addition transfer ongoing basis majority wholesale receivables north america europe north american european retail finance joint ventures see note 4 consolidated financial statements discussion agreements maintain remarketing agreement us retail finance joint venture agco finance llc discussed “commitments offbalance sheet arrangements” addition part sales incentives provided end users may time subsidize interest rates retail financing provided retail finance joint ventures cost programs recognized time sale dealers tractors farm equipment limited “tafe” hold 235 interest manufactures massey ferguson branded equipment primarily india also supplies tractors components us sale markets mallika srinivasan chairman chief executive officer tafe currently member board directors 2012 2011 2010 purchased approximately 1045 million 804 million 726 million respectively tractors components tafe 2012 2011 2010 paid approximately 38 million 40 million 36 million respectively ppg industries inc painting materials used manufacturing processes chairman president chief executive officer currently member board directors ppg industries inc foreign currency risk management significant manufacturing operations united states france germany finland brazil purchase portion tractors combines components thirdparty foreign suppliers primarily various european countries japan also sell products 140 countries throughout world majority net sales outside united states denominated currency customer location exception sales middle east africa asia parts south america net sales primarily denominated british pounds euros united states dollars see note 14 consolidated financial statements net sales customer location significant transactional foreign currency exposures euro brazilian real canadian dollar relation united states dollar euro relation british pound fluctuations value foreign currencies create exposures adversely affect results operations attempt manage transactional foreign currency exposure hedging foreign currency cash flow forecasts commitments arising anticipated settlement receivables payables future purchases sales naturally offsetting currency positions occur hedge certain exposures use foreign currency contracts translation exposure resulting translating financial statements foreign subsidiaries united states dollars hedged significant translation exposures euro british pound brazilian real relation united states dollar practical translation impact reduced financing local operations local borrowings hedging policy prohibits use foreign currency contracts speculative trading purposes derivatives recognized consolidated balance sheets fair value date derivative contract entered designate derivative either 1 fair value hedge recognized liability 2 cash flow hedge forecasted transaction 3 hedge net investment foreign operation 4 nondesignated derivative instrument currently engage derivatives cash flow hedges forecasted transactions well nondesignated derivative instruments changes fair value nondesignated derivative contracts reported current earnings 2012 2011 2010 designated certain foreign currency contracts cash flow hedges forecasted sales purchases effective portion fair value gains losses cash flow hedges recorded comprehensive income loss subsequently reclassified cost goods sold period sales purchases recognized amounts offset effect changes foreign currency rates related sale purchase transactions amount loss gain recorded comprehensive loss income reclassified cost goods sold years ended december 31 2012 2011 2010 approximately 81 million 52 million 31 million respectively aftertax basis amount gain loss recorded comprehensive loss income related outstanding cash flow hedges december 31 2012 2011 2010 approximately 07 million 43 million 12 million respectively aftertax basis outstanding contracts december 31 2012 range maturity december 2013 assuming 10 change relative currency hedge contract fair value foreign currency instruments could negatively impacted approximately 479 million december 31 2012 due fact instruments primarily entered hedging purposes gains losses contracts would largely offset losses gains underlying firm commitment forecasted transaction interest rates manage interest rate risk use fixed rate debt may future utilize interest rate swap contracts fixed rate debt convertible senior subordinated notes senior notes senior term loan floating rate exposure related credit facility accounts receivable sales facilities tied changes united states european libor rates assuming 10 increase interest rates interest expense net year ended december 31 2012 would increased approximately 35 million interest rate swap contracts outstanding years ended december 31 2012 2011 2010 recent accounting pronouncements see note 1 consolidated financial statements information regarding recent accounting pronouncements impact consolidated results operations financial position critical accounting estimates prepare consolidated financial statements conformity us generally accepted accounting principles preparation financial statements make judgments estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period significant accounting policies followed preparation financial statements detailed note 1 consolidated financial statements believe application policies discussed involves significant levels judgment estimates complexity due level judgment complexity period time many items resolved actual results could differ estimated time preparation financial statements adjustments estimates would impact financial position future results operations allowance doubtful accounts determine allowance doubtful accounts actively monitoring financial condition customers determine potential nonpayment trade receivables determining allowance doubtful accounts also consider economic factors aging trends believe process specific review customers combined overall analytical review provides effective evaluation ultimate collectability trade receivables loss writeoff experience approximately 01 net sales 2012 discount sales incentive allowances provide various volume bonus sales incentive programs respect products sales incentive programs include reductions invoice prices reductions retail financing rates dealer commissions dealer incentive allowances cases incentive programs established communicated dealers quarterly basis incentives paid either time invoice reduction invoice price time settlement receivable time retail financing time warranty registration subsequent time based dealer purchases incentive programs product line specific generally vary dealer cost sales incentives associated dealer commissions dealer incentive allowances estimated based upon terms programs historical experience based percentage sales price recorded later date related revenue recognized b date sales incentive offered related provisions accruals made product productline basis monitored adequacy revised least quarterly event subsequent modifications programs volume discounts estimated recognized based historical experience related reserves monitored adjusted based actual dealer purchases dealers’ progress towards achieving specified cumulative target levels record cost interest subsidy payments reduction retail financing rates later date related revenue recognized b date sales incentive offered estimates incentives based terms programs historical experience incentive programs recorded presented reduction revenue due fact receive identifiable benefit exchange consideration provided reserves incentive programs paid either reduction future invoices credit memos recorded “accounts receivable allowances” within consolidated balance sheets reserves incentive programs paid cash case volume discount programs well sales incentives associated accounts receivable sold us canadian retail finance joint ventures recorded within “accrued expenses” within consolidated balance sheets december 31 2012 recorded allowance discounts sales incentives approximately 1652 million primarily related allowances north america geographical segment paid either reduction future invoices credit memos dealers reductions retail financing rates allow additional 1 sales incentives discounts time retail sale sales subject discount programs reserve would increase approximately 70 million december 31 2012 conversely decrease sales incentives discounts 1 time retail sale reserve would decrease approximately 70 million december 31 2012 inventory reserves inventories valued lower cost market using firstin firstout method market current replacement cost purchase reproduction dependent type inventory cases market exceeds net realizable value ie estimated selling price less reasonably predictable costs completion disposal inventories stated net realizable value market considered less net realizable value reduced allowance approximately normal profit margin determination cost includes estimates surplus obsolete inventory based estimates future sales production changes demand product design impact estimates periodically evaluate update assumptions assessing adequacy inventory adjustments deferred income taxes uncertain income tax positions recorded income tax provision 1379 million 2012 compared 246 million 2011 tax provision impacted differing tax rates various tax jurisdictions operate permanent differences items treated differently financial accounting income tax purposes losses jurisdictions income tax benefit recorded 2012 income tax rate provision reconciled note 6 consolidated financial statements includes usage approximately 547 million valuation allowance resulting income generated united states 2012 income tax provision also includes reversal approximately 138 million remaining valuation allowance previously established us deferred tax assets recognition certain us research development tax credits approximately 131 million assessed likelihood remaining us deferred tax assets would recovered estimable future taxable income determined reversal appropriate fourth quarter 2012 result improved profitability 2012 core equipment business inclusion gsi business acquired end 2011 recently completed forecasts projecting future profitability combined businesses valuation allowance established likely portion company’s deferred tax assets realized assessed likelihood deferred tax assets would recovered estimated future taxable income available income tax planning strategies december 31 2012 2011 gross deferred tax assets 4780 million 4982 million respectively including 949 million 1816 million respectively related net operating loss carryforwards december 31 2012 total valuation allowances offset gross deferred tax assets 745 million primarily related net operating loss carryforwards brazil switzerland china russia december 31 2011 total valuation allowances offset gross deferred tax assets approximately 1458 million primarily related net operating loss carryforwards brazil switzerland china russia united states realization remaining deferred tax assets december 31 2012 depend generating sufficient taxable income future periods net reversing deferred tax liabilities believe likely remaining net deferred tax assets realized december 31 2012 2011 approximately 945 million 711 million respectively unrecognized tax benefits would impact effective tax rate recognized december 31 2012 2011 approximately 235 million 230 million respectively current accrued taxes related uncertain income tax positions connected ongoing tax audits various jurisdictions expect settle pay next 12 months recognize interest penalties related uncertain income tax positions income tax expense december 31 2012 2011 accrued interest penalties related unrecognized tax benefits approximately 119 million 76 million respectively see note 6 consolidated financial statements discussion uncertain income tax positions warranty additional service actions make provisions estimated expenses related product warranties time products sold base estimates historical experience nature frequency average cost warranty claims addition take consideration number magnitude additional service actions expected approved policies related additional service actions due uncertainty potential volatility estimated factors changes assumptions could materially affect net income estimate warranty obligations reevaluated quarterly basis experience shown initial data product series line volatile therefore process relies upon longterm historical averages sufficient data available actual experience becomes available used modify historical averages ensure forecast within range likely outcomes resulting balances compared present spending rates ensure accruals adequate meet expected future obligations see note 1 consolidated financial statements information regarding costs assumptions warranties insurance reserves insurance programs coverage obtained significant liability limits well risks required law contract policy selfinsure portion certain expected losses related primarily workers’ compensation comprehensive general product liability vehicle liability provide insurance reserves estimates losses due claims items selfinsured base estimates expected ultimate settlement amount claims often long periods resolution closely monitor claims maintain adequate reserves pensions sponsor defined benefit pension plans covering certain employees principally united states united kingdom germany finland norway france switzerland australia argentina primary plans cover certain employees united states united kingdom united states sponsor funded qualified pension plan salaried employees well separate funded qualified pension plan hourly employees plans frozen fund least minimum contributions required employee retirement income security act 1974 internal revenue code plans addition sponsor unfunded nonqualified pension plan executives united kingdom sponsor funded pension plan provides annuity benefit based participants’ final average earnings service participation plan limited certain older longer service employees existing retirees future employees participate plan see note 8 consolidated financial statements information regarding costs assumptions employee retirement benefits nature estimates required measurement date benefit plans december 31 measurement pension obligations costs liabilities dependent variety assumptions provided management used actuaries assumptions include estimates present value projected future pension payments plan participants taking consideration likelihood potential future events salary increases demographic experience assumptions may effect amount timing future contributions assumptions approach used assumptions used developing required estimates include following key factors • discount rates • inflation • salary growth • expected return plan assets • retirement rates • mortality rates years ended december 31 2012 2011 2010 used globally consistent methodology set discount rate countries largest benefit obligations exist united states united kingdom euro zone constructed hypothetical bond portfolio highquality corporate bonds applied cash flows benefit plans bond yields derive discount rate bond portfolio planspecific cash flows vary country methodology portfolio constructed consistent united states bond portfolio large enough result taking “settlement approach” derive discount rate highquality corporate bonds assumed purchased resulting coupon payments maturities used satisfy largest us pension plan’s projected benefit payments united kingdom euro zone discount rate derived using “yield curve approach” individual spot rate zero coupon bond yield future annual period developed discount future benefit payment thereby determine present value future payments settlement yield curve approaches discount rate set equal single discount rate produces present value future payments key assumptions set follows • inflation assumption based evaluation external market indicators • salary growth assumptions reflect longterm actual experience nearterm outlook assumed inflation • expected return plan asset assumptions reflects asset allocations investment strategy historical experience views investment managers • retirement termination rates primarily based actual plan experience actuarial standards practice • mortality rates us uk plans updated 2012 reflect expected improvements life expectancy plan participants effects actual results differing assumptions accumulated amortized future periods therefore generally affect recognized expense periods us uk pension plans comprised approximately 86 consolidated projected benefit obligation december 31 2012 discount rate used determine 2012 projected benefit obligation us pension plans decreased 25 basis points projected benefit obligation would increased 26 million december 31 2012 2013 pension expense would increase 01 million discount rate used determine 2012 projected benefit obligation us pension plans increased 25 basis points projected benefit obligation would decreased approximately 25 million december 31 2012 2013 pension expense would decrease approximately 01 million discount rate used determine projected benefit obligation uk pension plan decreased 25 basis points projected benefit obligation would increased approximately 249 million december 31 2012 2013 pension expense would increase approximately 06 million discount rate used determine projected benefit obligation uk pension plan increased 25 basis points projected benefit obligation would decreased approximately 237 million december 31 2012 2013 pension expense would decrease approximately 06 million unrecognized actuarial losses related qualified pension plans 3215 million december 31 2012 compared 2993 million december 31 2011 increase unrecognized losses years primarily resulted decrease discount rates unrecognized actuarial losses impacted future periods actual asset returns discount rate changes currency exchange rate fluctuations actual demographic experience certain factors qualified defined benefit pension plans losses amortized straightline basis average remaining service period active employees expected receive benefits us salaried us hourly uk pension plans population covered predominantly inactive participants losses related plans amortized average remaining lives participants covered respective plan december 31 2012 average amortization period 19 years us qualified pension plans 20 years nonus pension plans estimated net actuarial loss qualified defined benefit pension plans expected amortized accumulated comprehensive loss year ended december 31 2013 approximately 113 million compared approximately 95 million year ended december 31 2012 investment strategy concentration risk weighted average asset allocation us pension benefit plans december 31 2012 2011 follows weighted average asset allocation nonus pension benefit plans december 31 2012 2011 follows taxqualified pension fund investments united states held agco corporation master pension trust global pension fund strategy diversify investments across broad categories equity fixed income securities appropriate use alternative investment categories minimize risk volatility primary investment objective pension plans secure participant retirement benefits key objective pension plans’ financial management promote stability extent appropriate growth funded status investment strategy plans’ portfolio assets balances requirement generate returns need control risk asset mix recognized primary mechanism influence reward risk structure pension fund investments effort accomplish plans’ funding objectives overall investment strategy usbased pension plans achieve mix approximately 20 assets nearterm benefit payments 80 longerterm growth overall us pension funds invest broad diversification asset types us target allocation retirement fund investments 45 large smallcap domestic equity securities 15 international equity securities 20 broad fixed income securities 20 alternative investments noted long investment horizons mix investments would achieve average return excess 71 arriving choice expected return assumption 70 usbased plans year ended december 31 2013 tempered historical indicator lower expectations returns equity investment future well administrative costs plans overall investment strategy nonus based pension plans achieve mix approximately 35 assets nearterm benefit payments 65 longerterm growth overall nonus pension funds invest broad diversification asset types nonus target allocation retirement fund investments 40 equity securities 30 broad fixed income investments 30 alternative investments majority nonus pension fund investments related pension plan united kingdom noted long periods mix investments would achieve average return excess 74 arriving choice expected return assumption 70 ukbased plans year ended december 31 2013 tempered historical indicator lower expectations returns equity investment future well administrative costs plans equity securities primarily include investments largecap smallcap companies located across globe fixed income securities include corporate bonds companies diversified industries mortgagebacked securities agency mortgages assetbacked securities government securities alternative assets include investments hedge fund funds follow diversified investment strategies date invested pension funds stock intention future within asset class careful consideration given balancing portfolio among industry sectors geographies interest rate sensitivity dependence economic growth currency factors affecting investment returns assets managed professional investment firms bound precise mandates measured specific benchmarks among asset managers consideration given among others balancing security concentration issuer concentration investment style reliance particular active investment strategies december 31 2012 unfunded underfunded obligations related qualified pension plans approximately 2656 million primarily due pension plan united kingdom 2012 contributed approximately 361 million towards obligations expect fund approximately 401 million 2013 future funding dependent upon compliance local laws regulations changes laws regulations future well generation operating cash flows future currently agreement place trustees uk defined benefit plan obligates us fund approximately £154 million per year approximately 250 million towards obligation next 11 years funding arrangement based upon current underfunded status could change future discount rates local laws regulations factors change postretirement benefits retiree health care life insurance provide certain postretirement health care life insurance benefits certain employees principally united states brazil participation plans generally limited older employees existing retirees see note 8 consolidated financial statements information regarding costs assumptions postretirement benefits nature estimates required measurement obligations costs liabilities associated postretirement benefits retiree health care life insurance requires make use estimates present value projected future payments participants taking consideration likelihood potential future events health care cost increases demographic experience may effect amount timing future payments assumptions approach used assumptions used developing required estimates include following key factors • health care cost trends • inflation • discount rates • medical coverage elections • retirement rates • mortality rates health care cost trend assumptions developed based historical cost data nearterm outlook efficiencies costmitigating actions including employee cost sharing administrative improvements efficiencies assessment likely longterm trends years ended december 31 2012 2011 2010 previously discussed used globally consistent methodology set discount rate countries largest benefit obligations exist united states constructed hypothetical bond portfolio highquality corporate bonds applied cash flows benefit plans bond yields derive discount rate united states bond portfolio large enough result taking “settlement approach” derive discount rate highquality corporate bonds assumed purchased resulting coupon payments maturities used satisfy largest us pension plan’s projected benefit payments bond portfolio selected single discount rate determined market value bonds purchased equals discounted value plan’s benefit payments brazilian plan based discount rate government bond indices within country indices used chosen match expected plan obligations related expected cash flows inflation assumptions based evaluation external market indicators retirement termination rates based primarily actual plan experience actuarial standards practice mortality rates us plans updated 2012 reflect expected improvements life expectancy plan participants effects actual results differing assumptions accumulated amortized future periods therefore generally affect recognized expense future periods us postretirement health care life insurance plans represent approximately 85 consolidated projected benefit obligation discount rate used determine 2012 projected benefit obligation us postretirement benefit plans decreased 25 basis points projected benefit obligation would increased approximately 08 million december 31 2012 2013 postretirement benefit expense would increase nominal amount discount rate used determine 2012 projected benefit obligation us postretirement benefit plans increased 25 basis points projected benefit obligation would decreased approximately 08 million 2013 pension expense would decrease nominal amount unrecognized actuarial losses related us brazilian postretirement benefit plans 108 million december 31 2012 compared 94 million december 31 2011 100 million 91 million respectively related us postretirement benefit plans increase losses primarily reflects decrease discount rate 2012 unrecognized actuarial losses impacted future periods discount rate changes actual demographic experience actual health care inflation certain factors losses amortized straightline basis average remaining service period active employees expected receive benefits average remaining lives inactive participants covered postretirement benefit plans december 31 2012 average amortization period 14 years us postretirement benefit plans estimated net actuarial loss postretirement health care benefits expected amortized accumulated comprehensive loss year ended december 31 2013 approximately 05 million compared approximately 04 million year ended december 31 2012 december 31 2012 approximately 370 million unfunded obligations related us brazilian postretirement health life insurance benefit plans 2012 made benefit payments approximately 18 million towards obligations expect make benefit payments approximately 18 million towards obligations 2013 measuring expected us postretirement benefit obligation december 31 2012 2011 assumed 80 health care cost trend rate 2013 2012 respectively decreasing 50 2019 2018 respectively measuring brazilian postretirement benefit plan obligation december 31 2012 assumed 107 health care cost trend rate 2013 decreasing 62 2022 measuring brazilian postretirement benefit plan obligation december 31 2011 assumed 100 health care cost trend rate 2012 decreasing 55 2021 changing assumed health care cost trend rates one percentage point year holding assumptions constant would following effect service interest cost 2013 accumulated postretirement benefit obligation december 31 2012 millions litigation party various claims lawsuits arising normal course business closely monitor claims lawsuits frequently consult legal counsel determine whether may resolved material adverse effect financial position results operations accrue andor disclose loss contingencies appropriate goodwill intangible assets longlived assets test goodwill indefinitelived intangible assets impairment annual basis interim basis event occurs circumstances change would reduce fair value reporting unit carrying value annual qualitative quantitative assessments involve determining estimate fair value reporting units order evaluate whether impairment current carrying amount goodwill indefinitelived intangible assets exists qualitative assessment evaluates whether likely reporting unit’s fair value less carrying amount applying twostep quantitative goodwill impairment test first step quantitative goodwill impairment test used identify potential impairment compares fair value reporting unit carrying amount including goodwill fair value reporting unit exceeds carrying amount goodwill reporting unit considered impaired thus second step quantitative impairment test unnecessary carrying amount reporting unit exceeds fair value second step quantitative goodwill impairment test performed measure amount impairment loss fair values derived based evaluation past expected future performance reporting units reporting unit operating segment one level operating segment example component operating segment reporting unit component constitutes business discrete financial information available executive management team regularly reviews operating results component addition combine aggregate two components operating segment single reporting unit components similar economic characteristics reportable segments reporting units second step quantitative goodwill impairment test used measure amount impairment loss compares implied fair value reporting unit goodwill carrying amount goodwill carrying amount reporting unit goodwill exceeds implied fair value goodwill impairment loss recognized amount equal excess loss recognized cannot exceed carrying amount goodwill implied fair value goodwill determined manner amount goodwill recognized business combination allocate fair value reporting unit assets liabilities unit including unrecognized intangible assets reporting unit acquired business combination fair value reporting unit price paid acquire reporting unit excess fair value reporting unit amounts assigned assets liabilities implied fair value goodwill utilize combination valuation techniques including discounted cash flow approach market multiple approach making quantitative goodwill assessments stated goodwill tested qualitatively quantitatively impairment annual basis often indications impairment exist review longlived assets include intangible assets subject amortization impairment whenever events changes circumstances indicate carrying amount asset may recoverable impairment loss recognized undiscounted future cash flows estimated generated asset held used sufficient recover unamortized balance asset impairment loss would recognized based difference carrying values estimated fair value estimated fair value determined based either discounted future cash flows appropriate fair value methods amount deficiency charged income current year asset tested recoverability acquired business combination intangible assets resulting acquisition related asset included assessment estimates future cash flows based many factors including current operating results expected market trends competitive influences also evaluate amortization periods assigned intangible assets determine whether events changes circumstances warrant revised estimates useful lives assets disposed sale reported lower carrying amount fair value less estimated costs sell make various assumptions including assumptions regarding future cash flows market multiples growth rates discount rates assessments goodwill indefinitelived intangible assets longlived assets impairment assumptions future cash flows growth rates based current longterm business plans reporting unit related longlived assets discount rate assumptions based assessment risk inherent future cash flows reporting unit longlived assets assumptions require significant judgments part conclusions reach could vary significantly based upon judgments fourth quarter 2012 recorded noncash impairment charge approximately 224 million related goodwill certain identifiable assets associated chinese harvesting business accordance asc 350 operating results chinese harvesting business date acquisition november 2011 combined recently completed forecasts resulted conclusion likely fair value chinese harvesting reporting unit less carrying amount see note 1 consolidated financial statements discussion results goodwill impairment analysis conducted october 1 2012 indicated reduction carrying amount goodwill required results goodwill impairment analyses conducted october 1 2011 2010 indicated reduction carrying amount goodwill required december 31 2012 approximately 11924 million goodwill annual impairment testing 2012 supported carrying amount goodwill may required reevaluate carrying amount future periods thus utilizing different assumptions reflect current market conditions expectations therefore could conclude impairment occurred item 7aitem 7 management’s discussion analysis financial condition results operations leading manufacturer distributor agricultural equipment related replacement parts throughout world sell full range agricultural equipment including tractors combines selfpropelled sprayers hay tools forage equipment tillage implements grain storage protein production systems products widely recognized agricultural equipment industry marketed number wellknown brand names including challenger® fendt® gsi® massey ferguson® valtra® distribute products combination approximately 3100 dealers distributors associates licensees addition provide retail financing retail finance joint ventures rabobank results operations sell equipment replacement parts independent dealers distributors customers large majority sales independent dealers distributors sell products end users extent practicable attempt sell products dealers distributors level basis throughout year reduce effect seasonal demands manufacturing operations minimize investment inventories however retail sales dealers farmers highly seasonal linked planting harvesting seasons certain markets particularly north america often time lag varies based timing level retail demand sale equipment dealer’s sale retail customer following table sets forth periods indicated percentage relationship net sales certain items included consolidated statements operations 1 rounding may impact summation amounts 2013 compared 2012 net income attributable agco corporation subsidiaries 2013 5972 million 601 per diluted share compared net income 2012 5221 million 530 per diluted share net sales 2013 approximately 107869 million 83 higher 2012 primarily due sales increases geographical segments partially offset unfavorable impact currency translation income operations 9007 million 2013 compared 6932 million 2012 increase income operations 2013 result increase net sales well improved gross margins resulting factory efficiency cost control initiatives favorable pricing relatively low levels material cost inflation higher engineering expenses associated new product development engine emission requirements partially offset gross margin improvements north america region income operations increased approximately 660 million 2013 compared 2012 primarily due higher net sales favorable sales mix margin improvement initiatives income operations south american region increased approximately 511 million 2013 compared 2012 primarily due higher sales volumes benefit costreduction initiatives europeafricamiddle east “eame” region income operations increased approximately 833 million 2013 compared 2012 primarily due higher net sales improved factory efficiencies partially offset higher engineering expenses income operations asiapacific region decreased approximately 97 million 2013 compared 2012 result increased manufacturing startup costs market development expenses china offset benefit increased sales region retail sales worldwide industry equipment demand farm equipment relatively stable 2013 major markets compared 2012 crop production improved normal levels farm income remained relatively high across developed farm markets 2013 improved yields north america high levels farm income supported industry sales favorable exchange financing rates improved weather conditions attractive commodity prices generated strong demand south america western europe favorable farm economics france germany supported industry demand market conditions remained soft weatherimpacted regions united kingdom parts northern europe united states canada industry unit retail sales tractors combines increased approximately 9 8 respectively 2013 compared 2012 continued favorable farm economics resulted strength retail sales particularly larger high horsepower equipment south america industry unit retail sales tractors 2013 increased approximately 17 compared 2012 industry unit retail sales tractors increased approximately 17 59 brazil argentina respectively 2013 compared 2012 industry unit retail sales combines south america increased approximately 35 2013 compared 2012 south america supportive government financing programs brazil well favorable commodity prices improved harvests contributed market growth brazil argentina western europe industry unit retail sales tractors combines decreased approximately 1 10 respectively 2013 compared 2012 growth france offset declines united kingdom finland due poor weather conditions german market remained relatively flat net sales asiapacific segment 2013 approximately 13 higher 2012 primarily due increases china east asia australia results operations net sales 2013 107869 million compared 99622 million 2012 primarily due positive impacts market growth partially offset unfavorable impact foreign currency translation foreign currency translation negatively impacted net sales 2013 compared 2012 approximately 1215 million 12 primarily due weakening brazilian real partially offset strengthening euro following table sets forth year ended december 31 2013 impact net sales currency translation geographical segment millions except percentages regionally net sales north america increased 2013 compared 2012 primarily result improved industry demand significant increases sales high horsepower tractors sprayers implements grain storage equipment excluding negative impact foreign currency translation net sales higher brazil argentina growth mainly high horsepower tractors sprayers grain storage equipment eame region net sales increased 2013 compared 2012 largest net sales increases france germany partially offset lower net sales central eastern europe asiapacific net sales increased 2013 compared 2012 primarily due net sales increases china east asia australia estimate worldwide average price increases approximately 2 3 2013 2012 respectively consolidated net sales tractors combines consisted approximately 66 net sales 2013 increased approximately 10 2013 compared 2012 unit sales tractors combines increased approximately 5 2013 compared 2012 unit sales increase net sales differ due foreign currency translation pricing sales mix changes following table sets forth years ended december 31 2013 2012 percentage relationship net sales certain items included consolidated statements operations millions except percentages gross profit percentage net sales increased 2013 compared 2012 primarily due favorable pricing higher sales volume low material cost inflation purchasing factory efficiency initiatives unit production tractors combines 2013 approximately 5 higher 2012 recorded approximately 23 million 24 million stock compensation expense within cost goods sold 2013 2012 respectively fully explained note 1 consolidated financial statements selling general administrative expenses “sga expenses” percentage net sales decreased slightly 2013 compared 2012 primarily due increase net sales partially offset new market expansion expenses recorded approximately 326 million 346 million stock compensation expense within sga expenses 2013 2012 respectively fully explained note 1 consolidated financial statements engineering expenses increased 2013 compared 2012 primarily due increased investment levels new product development costs meet new engine emission standards united states europe interest expense net 580 million 2013 compared 576 million 2012 fully explained “liquidity capital resources” expense net 401 million 2013 compared 348 million 2012 expenses net increased 2013 compared 2012 primarily due increased losses sales receivables losses sales receivables primarily accounts receivable sales agreements approximately 256 million 218 million 2013 2012 respectively recorded income tax provision 2585 million 2013 compared 1379 million 2012 tax provision impacted differing tax rates various tax jurisdictions operate permanent differences items treated differently financial accounting income tax purposes losses jurisdictions income tax benefit recorded 2012 income tax rate provision reconciled note 5 consolidated financial statements included usage approximately 547 million valuation allowance resulting income generated united states 2012 income tax provision also included reversal approximately 138 million remaining valuation allowance previously established us deferred tax assets recognition certain us research development tax credits approximately 131 million valuation allowance established likely portion company’s deferred tax assets realized assessed likelihood deferred tax assets would recovered estimated future taxable income available income tax planning strategies december 31 2013 2012 gross deferred tax assets 4232 million 4780 million respectively including 697 million 949 million respectively related net operating loss carryforwards december 31 2013 total valuation allowances offset gross deferred tax assets 772 million primarily related net operating loss carryforwards brazil china russia december 31 2012 total valuation allowances offset gross deferred tax assets approximately 745 million primarily related net operating loss carryforwards brazil switzerland china russia realization remaining deferred tax assets december 31 2013 depend generating sufficient taxable income future periods net reversing deferred tax liabilities believe likely remaining net deferred tax assets realized december 31 2013 2012 approximately 1222 million 945 million respectively unrecognized tax benefits would impact effective tax rate recognized december 31 2013 2012 approximately 619 million 235 million respectively current accrued taxes related uncertain income tax positions connected ongoing tax audits various jurisdictions expect settle pay next 12 months recognize interest penalties related uncertain income tax positions within income tax provision december 31 2013 2012 accrued interest penalties related unrecognized tax benefits approximately 144 million 119 million respectively see note 5 consolidated financial statements discussion uncertain income tax positions equity net earnings affiliates primarily comprised income retail finance joint ventures 482 million 2013 compared 535 million 2012 reduction income primarily result lower income manufacturing joint ventures refer “retail finance joint ventures” information regarding retail finance joint ventures results operations 2012 compared 2011 net income attributable agco corporation subsidiaries 2012 5221 million 530 per diluted share compared net income 2011 5833 million 595 per diluted share net sales 2012 approximately 99622 million 136 higher 2011 primarily due sales increases geographical segments well favorable impact acquisitions partially offset unfavorable impact currency translation income operations 6932 million 2012 compared 6103 million 2011 increase income operations 2012 result benefits acquisitions increase net sales improved gross margins resulting price increases higher production levels better sales mix material cost control initiatives partially offset higher engineering sga expenses noncash goodwill intangible asset impairment charge related chinese harvesting business north america region income operations increased approximately 1690 million 2012 compared 2011 primarily due positive impact acquisitions higher net sales margin improvement initiatives income operations south american region increased approximately 185 million 2012 compared 2011 primarily due higher sales improved margins cost control efforts eame region income operations decreased approximately 120 million 2012 compared 2011 primarily due weaker mix products negative impact currency translation impact lower production startup costs associated new fendt assembly facility germany second half year income operations asiapacific region decreased approximately 137 million 2012 compared 2011 primarily due increased market development costs china partially offset acquisition benefits improved gross margins retail sales worldwide industry equipment demand farm equipment relatively stable 2012 major markets compared 2011 global commodity prices remained higher levels due weatherrelated production difficulties across many developed markets north america industry demand strong 2012 compared 2011 despite extensive drought united states higher crop prices extensive crop insurance resulted near record farm income levels region south america industry demand improved second half 2012 lower levels first half year result better weather conditions improved crop yields attractive government financing subsidies brazil favorable commodity prices also helped strengthen industry demand industry conditions key western european markets germany france remained stable adverse weather negatively impacted market conditions southern europe scandinavia finland united states canada industry unit retail sales tractors increased approximately 10 2012 compared 2011 industry unit retail sales combines relatively flat 2012 compared 2011 continued favorable farm economics resulted strength retail sales particularly larger high horsepower equipment south america industry unit retail sales tractors 2012 increased approximately 3 compared 2011 industry unit retail sales tractors major market brazil increased approximately 7 relatively flat argentina 2012 compared 2011 industry unit retail sales brazil remained high levels due attractive farm economics supportive government subsidized financing programs industry unit retail sales combines south america 2012 relatively flat compared 2011 western europe industry unit retail sales tractors decreased approximately 3 industry unit retail sales combines increased approximately 5 2012 compared 2011 growth key markets france germany offset declines southern europe due dry weather weak economic conditions well declines scandinavia finland due wet weather conditions late harvest net sales asiapacific segment 2012 approximately 58 higher 2011 primarily due increases australia new zealand china results operations net sales 2012 99622 million compared 87732 million 2011 primarily due positive impacts market growth acquisitions partially offset unfavorable impact foreign currency translation acquisitions positively impacted net sales approximately 7743 million 88 2012 compared 2011 foreign currency translation negatively impacted net sales 2012 compared 2011 approximately 6727 million 77 primarily due weakening euro brazilian real following table sets forth year ended december 31 2012 impact net sales currency translation acquisitions geographical segment millions except percentages regionally net sales north america increased 2012 compared 2011 primarily result acquisition gsi holding corp “gsi” improved industry demand significant increases sales excluding acquisitions high horsepower tractors hay equipment sprayers excluding negative impact foreign currency translation net sales higher brazil partially offset declines argentina eame region net sales increased 2012 compared 2011 largest net sales increases france germany russia partially offset lower net sales southern europe finland asiapacific net sales increased 2012 compared 2011 primarily due net sales increases australia new zealand china estimate worldwide average price increases approximately 3 2012 2011 consolidated net sales tractors combines consisted approximately 65 net sales 2012 increased approximately 2 2012 compared 2011 unit sales tractors combines also increased approximately 2 2012 compared 2011 unit sales increase net sales differ due foreign currency translation pricing sales mix changes following table sets forth years ended december 31 2012 2011 percentage relationship net sales certain items included consolidated statements operations millions except percentages gross profit percentage net sales increased 2012 compared 2011 favorable pricing higher production volumes throughout 2012 cost control initiatives helped produce higher margins gross margins negatively impacted slow ramp production related startup costs experienced fourth quarter 2012 associated new german tractor assembly facility unit production tractors combines 2012 approximately 3 higher 2011 recorded approximately 24 million 16 million stock compensation expense within cost goods sold 2012 2011 respectively fully explained note 1 consolidated financial statements sga expenses percentage net sales increased 2012 compared 2011 primarily due increased market development new system upgrade costs recorded approximately 346 million 230 million stock compensation expense within sga expenses 2012 2011 respectively fully explained note 1 consolidated financial statements engineering expenses increased 2012 compared 2011 primarily due higher spending development new products costs meet new engine emission standards united states europe fourth quarter 2012 recorded noncash impairment charge approximately 224 million related goodwill certain identifiable assets associated chinese harvesting business accordance provisions accounting standard codification 350 “intangiblesgoodwill other” “asc 350” operating results chinese harvesting business date acquisition november 2011 combined recently completed forecasts resulted conclusion likely fair value chinese harvesting reporting unit less carrying amount see note 1 consolidated financial statements discussion interest expense net 576 million 2012 compared 302 million 2011 increase 2012 due increased debt levels 2012 associated funding recent acquisitions fully explained “liquidity capital resources” expense net 348 million 2012 compared 191 million 2011 losses sales receivables primarily accounts receivable sales agreements approximately 218 million 220 million 2012 2011 respectively expense net increased primarily due foreign exchange losses 2012 compared foreign exchange gains 2011 recorded income tax provision 1379 million 2012 compared 246 million 2011 tax provision impacted differing tax rates various tax jurisdictions operate permanent differences items treated differently financial accounting income tax purposes losses jurisdictions income tax benefit recorded 2012 income tax rate provision reconciled note 5 consolidated financial statements included usage approximately 547 million valuation allowance resulting income generated united states 2012 income tax provision also included reversal approximately 138 million remaining valuation allowance previously established us deferred tax assets recognition certain us research development tax credits approximately 131 million assessed likelihood remaining us deferred tax assets would recovered estimable future taxable income determined reversal appropriate fourth quarter 2012 result improved profitability 2012 core equipment business inclusion gsi business acquired end 2011 valuation allowance established likely portion company’s deferred tax assets realized assessed likelihood deferred tax assets would recovered estimated future taxable income available income tax planning strategies december 31 2012 2011 gross deferred tax assets 4780 million 4982 million respectively including 949 million 1816 million respectively related net operating loss carryforwards december 31 2012 total valuation allowances offset gross deferred tax assets 745 million primarily related net operating loss carryforwards brazil switzerland china russia december 31 2011 total valuation allowances offset gross deferred tax assets approximately 1458 million primarily related net operating loss carryforwards brazil switzerland china russia united states december 31 2012 2011 approximately 945 million 711 million respectively unrecognized tax benefits would impact effective tax rate recognized december 31 2012 2011 approximately 235 million 230 million respectively current accrued taxes related uncertain income tax positions connected ongoing tax audits various jurisdictions expect settle pay next 12 months recognize interest penalties related uncertain income tax positions within income tax provision december 31 2012 2011 accrued interest penalties related unrecognized tax benefits approximately 119 million 76 million respectively see note 5 consolidated financial statements discussion uncertain income tax positions equity net earnings affiliates primarily comprised income retail finance joint ventures 535 million 2012 compared 489 million 2011 refer “retail finance joint ventures” information regarding retail finance joint ventures results operations quarterly results following table presents unaudited interim operating results believe following information includes adjustments consisting normal recurring adjustments necessary present fairly results operations periods presented retail finance joint ventures agco finance retail finance joint ventures provide retail financing wholesale financing dealers united states canada europe brazil argentina australia joint ventures owned 49 agco 51 wholly owned subsidiary rabobank financial institution based netherlands majority assets retail finance joint ventures represents finance receivables majority liabilities represents notes payable accrued interest various joint venture agreements rabobank affiliates provide financing joint ventures primarily lines credit guarantee debt obligations joint ventures december 31 2013 capital investment retail finance joint ventures included “investment affiliates” consolidated balance sheets approximately 3902 million compared 3544 million december 31 2012 total finance portfolio retail finance joint ventures approximately 94 billion 83 billion december 31 2013 2012 respectively total finance portfolio december 31 2013 included approximately 78 billion retail receivables 16 billion wholesale receivables agco dealers total finance portfolio december 31 2012 included approximately 70 billion retail receivables 13 billion wholesale receivables agco dealers wholesale receivables either sold directly agco finance without recourse operating companies agco finance provided financing directly dealers 2013 2012 2011 made total approximately 155 million 71 million 83 million respectively investments retail finance joint ventures germany netherlands primarily related additional capital required result increased retail finance portfolios 2013 2012 2011 2013 share earnings retail finance joint ventures included “equity net earnings affiliates” within consolidated statements operations 488 million compared 486 million 2012 total finance portfolio retail finance joint venture brazil 18 billion 20 billion december 31 2013 2012 respectively result weak market conditions brazil 2005 2006 substantial portion portfolio included payment deferral program directed brazilian government relating retail contracts entered 2004 scheduled payments rescheduled several times 2005 2008 impact deferral program resulted higher delinquencies lower collateral coverage portfolio joint venture currently considers reserves loan losses adequate continually monitors reserves considering borrower payment history value underlying equipment financed payment deferral programs implemented brazilian government date retail finance joint ventures markets outside brazil experienced significant changes credit quality finance portfolios however assurance portfolio credit quality deteriorate given size portfolio relative joint ventures’ level equity significant adverse change joint ventures’ performance would material impact joint ventures operating results outlook operations subject cyclical nature agricultural industry sales equipment expected continue affected changes net cash farm income farm land values weather conditions demand agricultural commodities farm industry related legislation availability financing general economic conditions worldwide industry demand expected decline 2014 compared 2013 levels based current levels lower commodity prices 2014 expected result reduced farm income weaker industry demand across developed agricultural equipment markets net sales 2014 expected relatively flat compared 2013 primarily due forecasted pricing increases market share improvements offsetting impact projected industry decline expect gross margin improvement offset increased engineering expenditures expenses related new market expansion development recent acquisitions january 2012 acquired 61 santal equipamentos sa comércio e indústria “santal” approximately r367 million net approximately r119 million cash acquired approximately 201 million net santal headquartered ribeirão preto brazil manufactures distributes sugar cane planting harvesting handling transportation equipment well replacement parts across brazil acquisition santal provides customers brazil wider range agricultural products services acquisition funded available cash hand recorded approximately 280 million goodwill approximately 26 million trade name trademark patent identifiable intangible assets associated acquisition november 30 2011 acquired gsi 9322 million net approximately 279 million cash acquired gsi headquartered assumption illinois leading manufacturer grain storage protein production systems gsi sells products globally independent dealers acquisition financed issuance 3000 million 578 senior notes credit facility result acquisition recorded tax benefit approximately 1493 million within “income tax benefit provision” consolidated statements operations year ended december 31 2011 resulting reversal portion previously established deferred tax valuation allowance reversal required offset deferred tax liabilities established part acquisition accounting gsi relating acquired amortizable intangible assets november 30 2011 acquired 98 shandong dafeng machinery co ltd “dafeng” approximately 1717 million yuan approximately 269 million acquired approximately 171 million cash assumed approximately 411 million indebtedness associated transaction dafeng located yanzhou china manufactures complete range corn grain rice soybean harvesting machines chinese domestic markets acquisition funded available cash hand results operations acquisitions santal gsi dafeng included consolidated financial statements dates respective acquisitions allocated purchase price acquisition assets acquired liabilities assumed based fair values respective acquisition dates see note 2 consolidated financial statements information liquidity capital resources financing requirements subject variations due seasonal changes inventory receivable levels internally generated funds supplemented necessary external sources primarily credit facility accounts receivable sales agreement facilities believe facilities together available cash internally generated funds sufficient support working capital expenditures debt service requirements foreseeable future • 3000 million 578 senior notes mature 2021 see discussion • revolving credit term loan facility consisting 6000 million multicurrency revolving credit facility 3600 million term loan facility expires december 2016 december 31 2013 amount outstanding multicurrency revolving credit facility 3600 million outstanding term loan facility availability borrow 6000 million multicurrency revolving credit facility see discussion • €2000 million approximately 2750 million december 31 2013 412 senior term loan matures 2016 see discussion • 2012 million 114 convertible senior subordinated notes mature 2036 may converted earlier based closing sales price common stock see discussion • accounts receivable sales agreements retail finance joint ventures united states canada europe december 31 2013 approximately 13 billion cash received agreements see discussion addition although complete compliance financial covenants contained facilities currently expect continue maintain compliance ever encounter difficulties historical relationship lenders strong anticipate continued longterm support business current facilities 3000 million 578 senior notes due december 1 2021 constitute senior unsecured unsubordinated indebtedness interest payable notes semiannually arrears june 1 december 1 year time prior september 1 2021 may redeem notes whole part time option redemption price equal greater 100 principal amount plus accrued unpaid interest including additional interest excluding redemption date ii sum present values remaining scheduled payments principal interest exclusive interest accrued date redemption discounted redemption date treasury rate plus 05 plus accrued unpaid interest including additional interest beginning september 1 2021 may redeem notes whole part time option redemption price equal 100 principal amount plus accrued unpaid interest revolving credit term loan facility consists 6000 million multicurrency revolving credit facility 3600 million term loan facility maturity date credit facility december 1 2016 required make quarterly payments towards term loan 50 million increase 100 million commencing march 2015 interest accrues amounts outstanding credit facility option either 1 libor plus margin ranging 10 20 based leverage ratio 2 base rate equal higher administrative agent’s base lending rate applicable currency ii federal funds rate plus 05 iii onemonth libor loans denominated us dollars plus 10 plus margin ranging 00 05 based leverage ratio credit facility contains covenants restricting among things incurrence indebtedness making certain payments including dividends subject acceleration event default also must fulfill financial covenants respect total debt ebitda ratio interest coverage ratio december 31 2013 3600 million outstanding borrowings credit facility availability borrow approximately 6000 million december 31 2012 4650 million outstanding borrowings credit facility availability borrow approximately 5150 million €2000 million term loan rabobank due may 2 2016 ability prepay term loan maturity date interest payable term loan 412 per annum payable quarterly arrears march 31 june 30 september 30 december 31 year term loan contains covenants restricting among things incurrence indebtedness making certain payments including dividends subject acceleration event default also must fulfill financial covenants respect total debt ebitda ratio interest coverage ratio 2012 million 114 convertible senior subordinated notes due december 15 2036 issued december 2006 provided settlement upon conversion cash principal amount notes excess conversion value settled shares common stock interest payable notes 114 per annum payable semiannually arrears cash june 15 december 15 year notes convertible shares common stock effective price 4044 per share subject adjustment including reflect impact conversion rate upon payment dividends companys stockholders current effective price reflects conversion rate notes 247268 shares common stock per 1000 principal amount notes beginning december 19 2013 could redeem notes redemption price 100 principal amount plus accrued interest well settle excess conversion value shares common stock holders notes may require us repurchase notes repurchase price 100 principal amount plus accrued interest december 15 2016 2021 2026 2031 holders 114 convertible senior subordinated notes right require us repurchase notes repurchase price 100 principal amount plus interest december 15 2013 notes tendered repurchase see note 6 consolidated financial statements full description notes addition holders may convert notes fiscal quarter closing sales price common stock exceeds 120 conversion price 4044 per share least 20 trading days 30 consecutive trading days ending last trading day preceding fiscal quarter december 31 2013 closing sales price common stock exceeded 120 conversion price 114 convertible senior subordinated notes least 20 trading days 30 consecutive trading days ending december 31 2013 therefore holders notes may convert notes three months ending march 31 2014 due ability holders notes convert notes three months ending march 31 2014 classified notes current liability december 31 2013 december 31 2012 classified notes current liability due redemption feature notes also classified approximately 92 million equity component 114 convertible senior subordinated notes “temporary equity” december 31 2012 amount classified “temporary equity” measured excess amount cash would required paid upon conversion ii current carrying amount liabilityclassified component december 31 2013 amount principal cash required repaid upon conversion 114 convertible senior subordinated notes equivalent carrying amount liabilityclassified component future classification notes current liabilities longterm debt beyond dependent closing sales price common stock future quarters fourth quarter 2015 2013 holders 114 convertible senior subordinated notes converted less 01 million principal amount notes issued 286 shares common stock associated less 01 million excess conversion value notes reflected repayment principal notes totaling less 01 million within “conversion convertible senior subordinated notes” within consolidated statements cash flows year ended december 31 2013 subsequent december 31 2013 holders 114 convertible senior subordinated notes converted approximately 496 million principal amount notes issued 377957 shares common stock associated 219 million excess conversion value notes 114 convertible senior subordinated notes impact diluted weighted average shares outstanding future periods depending stock price excess conversion value using treasury stock method refer notes 1 6 consolidated financial statements discussion accounts receivable sales agreements north america europe permit sale ongoing basis majority wholesale receivables 49 owned us canadian european retail finance joint ventures sales receivables without recourse us service receivables sale occurs maintain direct retained interest receivables agreements accounted offbalance sheet transactions effect reducing accounts receivable shortterm liabilities amount december 31 2013 2012 cash received receivables sold us canadian european accounts receivable agreements approximately 13 billion 11 billion respectively agco finance retail joint ventures brazil australia also provide wholesale financing dealers receivables associated arrangements also without recourse us december 31 2013 2012 retail finance joint ventures approximately 682 million 1006 million respectively outstanding accounts receivable associated arrangements accounted offbalance sheet transactions addition sell certain trade receivables factoring arrangements financial institutions around world arrangements also accounted offbalance sheet transactions former facilities 2011 holders former 134 convertible senior subordinated notes converted approximately 1610 million principal amount notes issued 3926574 shares common stock associated 1959 million excess conversion value notes reflected repayment principal notes totaling 1610 million within “conversion convertible senior subordinated notes” within consolidated statements cash flows year ended december 31 2011 cash flows cash flows provided operating activities 7970 million 2013 compared 6664 million 2012 increase cash flows provided operating activities 2013 primarily due increase net income working capital requirements seasonal investments working capital typically building first half year reducing second half year 17051 million working capital december 31 2013 compared 14899 million december 31 2012 accounts receivable inventories combined december 31 2013 3290 million higher december 31 2012 increase accounts receivable inventories december 31 2013 compared december 31 2012 result net sales growth increase inventory levels part support transition production tier 4 emission compliant products 2014 debt capitalization ratio total indebtedness divided sum total indebtedness stockholders’ equity 236 december 31 2013 compared 269 december 31 2012 december 2013 executed cash repatriation approximately 8448 million certain foreign subsidiaries us holding company insignificant us tax impacts repatriated cash expected used fund 5500 million share repurchase programs well general corporate purposes fully described note 8 consolidated financial statements contractual obligations future payments required significant contractual obligations excluding foreign currency option forward contracts december 31 2013 follows millions 1 estimated interest payments calculated assuming current interest rates minimum maturity periods specified debt agreements debt may repaid sooner later minimum maturity periods indebtedness amounts reflect principal amount convertible senior subordinated notes senior term loan senior notes credit facility 2 shortterm longterm obligations include estimates future minimum contribution requirements us nonus defined benefit pension postretirement plans estimates based current legislation countries operate within subject change shortterm longterm obligations also include income tax liabilities related uncertain income tax positions connected ongoing income tax audits various jurisdictions commitments offbalance sheet arrangements guarantees maintain remarketing agreement retail finance joint venture united states whereby obligated repurchase repossessed inventory market values agreement retail finance joint venture united states limits purchase obligations arrangement 60 million aggregate per calendar year believe losses might incurred resale equipment materially impact financial position results operations due fact repurchase obligation would equivalent fair value underlying equipment december 31 2013 guaranteed indebtedness owed third parties approximately 1716 million primarily related dealer enduser financing equipment guarantees generally obligate us repay outstanding finance obligations owed financial institutions dealers end users default loans 2018 believe credit risk associated guarantees material financial position results operations losses guarantees historically insignificant addition generally would expect able recover significant portion amounts paid guarantees sale underlying financed farm equipment fair value equipment expected offset substantial portion amounts paid december 31 2013 outstanding designated nondesignated foreign exchange contracts gross notional amount approximately 13387 million outstanding contracts december 31 2013 range maturity december 2014 gains losses contracts historically substantially offset losses gains exposures hedged see “foreign currency risk management” additional information discussed “liquidity capital resources” sell majority wholesale accounts receivable north america europe us canadian european retail finance joint ventures also sell certain accounts receivable factoring arrangements financial institutions around world determined facilities accounted offbalance sheet transactions contingencies result brazilian tax legislation impacting value added taxes “vat” recorded reserve approximately 628 million 596 million outstanding balance brazilian vat taxes receivable december 31 2013 2012 respectively due uncertainty ability collect amounts outstanding june 2008 republic iraq filed civil action three foreign subsidiaries participated united nations oil food program february 6 2013 federal court dismissed complaint prejudice plaintiff filed notice appeal respect decision october 30 2012 thirdparty complaint filed federal court southern district texas naming defendants three foreign subsidiaries complaint asserts claims defendants certain also thirdparty plaintiffs seeking unspecified damages arising participation program february 12 2014 federal court dismissed thirdparty complaint prejudice appeals period expired part routine audits brazilian taxing authorities disallowed deductions relating amortization certain goodwill recognized connection reorganization brazilian operations related transfer certain assets brazilian subsidiaries see note 11 consolidated financial statements discussion matters related parties rabobank 51 owner retail finance joint ventures located united states canada europe brazil argentina australia rabobank also principal agent participant credit facility majority assets retail finance joint ventures represents finance receivables majority liabilities represents notes payable accrued interest various joint venture agreements rabobank affiliates provide financing joint venture companies primarily lines credit guarantee debt obligations retail finance joint ventures 2013 2012 2011 made total approximately 155 million 71 million 83 million respectively investments retail finance joint ventures germany netherlands primarily related additional capital required result increased retail finance portfolios 2013 2012 2011 retail finance joint ventures provide retail wholesale financing dealers terms financing arrangements offered dealers similar arrangements retail finance joint ventures provide unaffiliated third parties addition transfer ongoing basis majority wholesale receivables north america europe us canadian european retail finance joint ventures see note 3 consolidated financial statements discussion agreements maintain remarketing agreement us retail finance joint venture agco finance llc discussed “commitments offbalance sheet arrangements” addition part sales incentives provided end users may time subsidize interest rates retail financing provided retail finance joint ventures cost programs recognized time sale dealers tafe hold 2375 interest manufactures massey fergusonbranded equipment primarily india also supplies tractors components us sale markets mallika srinivasan chairman chief executive officer tafe currently member board directors 2013 2012 2011 purchased approximately 907 million 1045 million 804 million respectively tractors components tafe 2013 2012 2011 paid approximately 33 million 38 million 40 million respectively ppg industries inc painting materials used manufacturing processes chairman president chief executive officer currently member board directors ppg industries inc 2013 paid approximately 23 million ryerson inc steel used manufacturing processes michael arnold president chief executive officer ryerson inc currently member board directors foreign currency risk management significant manufacturing operations united states france germany finland brazil purchase portion tractors combines components thirdparty foreign suppliers primarily various european countries japan also sell products 140 countries throughout world majority net sales outside united states denominated currency customer location exception sales middle east africa asia parts south america net sales primarily denominated british pounds euros united states dollars see note 13 consolidated financial statements net sales customer location significant transactional foreign currency exposures euro brazilian real canadian dollar relation united states dollar euro relation british pound fluctuations value foreign currencies create exposures adversely affect results operations attempt manage transactional foreign currency exposure hedging foreign currency cash flow forecasts commitments arising anticipated settlement receivables payables future purchases sales naturally offsetting currency positions occur hedge certain exposures use foreign currency contracts translation exposure resulting translating financial statements foreign subsidiaries united states dollars hedged significant translation exposures euro british pound brazilian real relation united states dollar practical translation impact reduced financing local operations local borrowings hedging policy prohibits use foreign currency contracts speculative trading purposes derivatives recognized consolidated balance sheets fair value date derivative contract entered designate derivative either 1 fair value hedge recognized liability 2 cash flow hedge forecasted transaction 3 hedge net investment foreign operation 4 nondesignated derivative instrument currently engage derivatives cash flow hedges forecasted transactions well nondesignated derivative instruments changes fair value nondesignated derivative contracts reported current earnings 2013 2012 2011 designated certain foreign currency contracts cash flow hedges forecasted sales purchases effective portion fair value gains losses cash flow hedges recorded comprehensive loss subsequently reclassified cost goods sold period sales purchases recognized amounts offset effect changes foreign currency rates related sale purchase transactions amount net loss gain recorded comprehensive loss reclassified cost goods sold years ended december 31 2013 2012 2011 approximately 05 million 81 million 52 million respectively aftertax basis amount unrealized loss gain recorded comprehensive loss related outstanding cash flow hedges december 31 2013 2012 2011 approximately 02 million 07 million 43 million respectively aftertax basis outstanding contracts december 31 2013 range maturity december 2014 assuming 10 change relative currency hedge contract fair value foreign currency instruments could negatively impacted approximately 616 million december 31 2013 due fact instruments primarily entered hedging purposes gains losses contracts would largely offset losses gains underlying firm commitment forecasted transaction interest rates manage interest rate risk use fixed rate debt may future utilize interest rate swap contracts fixed rate debt convertible senior subordinated notes senior notes senior term loan floating rate exposure related credit facility accounts receivable sales facilities tied changes united states european libor rates assuming 10 increase interest rates interest expense net year ended december 31 2013 would increased approximately 38 million interest rate swap contracts outstanding years ended december 31 2013 2012 2011 recent accounting pronouncements see note 1 consolidated financial statements information regarding recent accounting pronouncements impact consolidated results operations financial position critical accounting estimates prepare consolidated financial statements conformity us generally accepted accounting principles preparation financial statements make judgments estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period significant accounting policies followed preparation financial statements detailed note 1 consolidated financial statements believe application policies discussed involves significant levels judgment estimates complexity due level judgment complexity period time many items resolved actual results could differ estimated time preparation financial statements adjustments estimates would impact financial position future results operations allowance doubtful accounts determine allowance doubtful accounts actively monitoring financial condition customers determine potential nonpayment trade receivables determining allowance doubtful accounts also consider economic factors aging trends believe process specific review customers combined overall analytical review provides effective evaluation ultimate collectability trade receivables loss writeoff experience approximately 01 net sales 2013 discount sales incentive allowances provide various volume bonus sales incentive programs respect products sales incentive programs include reductions invoice prices reductions retail financing rates dealer commissions dealer incentive allowances cases incentive programs established communicated dealers quarterly basis incentives paid either time invoice reduction invoice price time settlement receivable time retail financing time warranty registration subsequent time based dealer purchases incentive programs product line specific generally vary dealer cost sales incentives associated dealer commissions dealer incentive allowances estimated based upon terms programs historical experience based percentage sales price recorded later date related revenue recognized b date sales incentive offered related provisions accruals made product productline basis monitored adequacy revised least quarterly event subsequent modifications programs volume discounts estimated recognized based historical experience related reserves monitored adjusted based actual dealer purchases dealers’ progress towards achieving specified cumulative target levels record cost interest subsidy payments reduction retail financing rates later date related revenue recognized b date sales incentive offered estimates incentives based terms programs historical experience incentive programs recorded presented reduction revenue due fact receive identifiable benefit exchange consideration provided reserves incentive programs paid either reduction future invoices credit memos recorded “accounts receivable allowances” within consolidated balance sheets reserves incentive programs paid cash case volume discount programs well sales incentives associated accounts receivable sold us canadian retail finance joint ventures recorded within “accrued expenses” within consolidated balance sheets december 31 2013 recorded allowance discounts sales incentives approximately 2366 million primarily related allowances north america geographical segment paid either reduction future invoices credit memos dealers reductions retail financing rates allow additional 1 sales incentives discounts time retail sale sales subject discount programs reserve would increase approximately 85 million december 31 2013 conversely decrease sales incentives discounts 1 time retail sale reserve would decrease approximately 85 million december 31 2013 inventory reserves inventories valued lower cost market using firstin firstout method market current replacement cost purchase reproduction dependent type inventory cases market exceeds net realizable value ie estimated selling price less reasonably predictable costs completion disposal inventories stated net realizable value market considered less net realizable value reduced allowance approximately normal profit margin determination cost includes estimates surplus obsolete inventory based estimates future sales production changes demand product design impact estimates periodically evaluate update assumptions assessing adequacy inventory adjustments deferred income taxes uncertain income tax positions recorded income tax provision 2585 million 2013 compared 1379 million 2012 tax provision impacted differing tax rates various tax jurisdictions operate permanent differences items treated differently financial accounting income tax purposes losses jurisdictions income tax benefit recorded valuation allowance established likely portion company’s deferred tax assets realized assessed likelihood deferred tax assets would recovered estimated future taxable income available income tax planning strategies december 31 2013 2012 gross deferred tax assets 4232 million 4780 million respectively including 697 million 949 million respectively related net operating loss carryforwards december 31 2013 total valuation allowances offset gross deferred tax assets 772 million primarily related net operating loss carryforwards brazil china russia december 31 2012 total valuation allowances offset gross deferred tax assets approximately 745 million primarily related net operating loss carryforwards brazil switzerland china russia realization remaining deferred tax assets december 31 2013 depend generating sufficient taxable income future periods net reversing deferred tax liabilities believe likely remaining net deferred tax assets realized december 31 2013 2012 approximately 1222 million 945 million respectively unrecognized tax benefits would impact effective tax rate recognized december 31 2013 2012 approximately 619 million 235 million respectively current accrued taxes related uncertain income tax positions connected ongoing tax audits various jurisdictions expect settle pay next 12 months recognize interest penalties related uncertain income tax positions income tax expense december 31 2013 2012 accrued interest penalties related unrecognized tax benefits approximately 144 million 119 million respectively see note 5 consolidated financial statements discussion uncertain income tax positions warranty additional service actions make provisions estimated expenses related product warranties time products sold base estimates historical experience nature frequency average cost warranty claims addition take consideration number magnitude additional service actions expected approved policies related additional service actions due uncertainty potential volatility estimated factors changes assumptions could materially affect net income estimate warranty obligations reevaluated quarterly basis experience shown initial data product series line volatile therefore process relies upon longterm historical averages sufficient data available actual experience becomes available used modify historical averages ensure forecast within range likely outcomes resulting balances compared present spending rates ensure accruals adequate meet expected future obligations see note 1 consolidated financial statements information regarding costs assumptions warranties insurance reserves insurance programs coverage obtained significant liability limits well risks required law contract policy selfinsure portion certain expected losses related primarily workers’ compensation comprehensive general product liability vehicle liability provide insurance reserves estimates losses due claims items selfinsured base estimates expected ultimate settlement amount claims often long periods resolution closely monitor claims maintain adequate reserves pensions sponsor defined benefit pension plans covering certain employees principally united states united kingdom germany finland norway france switzerland australia argentina primary plans cover certain employees united states united kingdom united states sponsor funded qualified pension plan salaried employees well separate funded qualified pension plan hourly employees plans frozen fund least minimum contributions required employee retirement income security act 1974 internal revenue code plans addition sponsor unfunded nonqualified pension plan certain executives united kingdom sponsor funded pension plan provides annuity benefit based participants’ final average earnings service participation plan limited certain older longer service employees existing retirees plan closed new participants see note 7 consolidated financial statements information regarding costs assumptions employee retirement benefits nature estimates required measurement date benefit plans december 31 measurement pension obligations costs liabilities dependent variety assumptions provided management used actuaries assumptions include estimates present value projected future pension payments plan participants taking consideration likelihood potential future events salary increases demographic experience assumptions may effect amount timing future contributions assumptions approach used assumptions used developing required estimates include following key factors • discount rates • inflation • salary growth • expected return plan assets • retirement rates • mortality rates years ended december 31 2013 2012 2011 used globally consistent methodology set discount rate countries largest benefit obligations exist united states united kingdom euro zone constructed hypothetical bond portfolio highquality corporate bonds applied cash flows benefit plans bond yields derive discount rate bond portfolio planspecific cash flows vary country methodology portfolio constructed consistent united states bond portfolio large enough result taking “settlement approach” derive discount rate highquality corporate bonds assumed purchased resulting coupon payments maturities used satisfy largest us pension plan’s projected benefit payments united kingdom euro zone discount rate derived using “yield curve approach” individual spot rate zero coupon bond yield future annual period developed discount future benefit payment thereby determine present value future payments settlement yield curve approaches discount rate set equal single discount rate produces present value future payments key assumptions methods set follows • inflation assumption based evaluation external market indicators • salary growth assumptions reflect longterm actual experience nearterm outlook assumed inflation • expected return plan asset assumptions reflects asset allocations investment strategy historical experience views investment managers reflect projection expected arithmetic returns 10 years • retirement termination rates primarily based actual plan experience actuarial standards practice • mortality rates us plans updated 2013 reflect expected improvements life expectancy plan participants • fair value assets used determine expected return assets reflect delayed recognition assets gains losses effects actual results differing assumptions accumulated amortized future periods therefore generally affect recognized expense periods us uk pension plans including us nonqualified pension plan comprised approximately 86 consolidated projected benefit obligation december 31 2013 discount rate used determine 2013 projected benefit obligation us pension plans decreased 25 basis points projected benefit obligation would increased approximately 22 million december 31 2013 2014 pension expense would increase approximately 01 million discount rate used determine 2013 projected benefit obligation us pension plans increased 25 basis points projected benefit obligation would decreased approximately 21 million december 31 2013 2014 pension expense would decrease approximately 01 million discount rate used determine projected benefit obligation uk pension plan decreased 25 basis points projected benefit obligation would increased approximately 258 million december 31 2013 2014 pension expense would increase approximately 07 million discount rate used determine projected benefit obligation uk pension plan increased 25 basis points projected benefit obligation would decreased approximately 246 million december 31 2013 2014 pension expense would decrease approximately 07 million addition expected longterm rate return plan assets related uk pension plan increased decreased 25 basis points 2014 pension expense would decrease increase approximately 15 million respectively impact us pension plan 25 basis point change expected longterm rate return would insignificant impact 2014 pension expense unrecognized actuarial losses related qualified pension plans 2603 million december 31 2013 compared 3215 million december 31 2012 unrecognized actuarial losses related us nonqualified pension plan 52 million december 31 2013 compared 119 million december 31 2012 decrease unrecognized losses years primarily resulted increase discount rates 2013 favorable investment performance unrecognized actuarial losses impacted future periods actual asset returns discount rate changes currency exchange rate fluctuations actual demographic experience certain factors qualified defined benefit pension plans losses extent exceed 10 greater plan’s liabilities fair value assets “the gainloss corridor” amortized straightline basis average remaining service period active employees expected receive benefits us salaried us hourly uk pension plans population covered predominantly inactive participants losses related plans extent exceed gainloss corridor amortized average remaining lives participants covered respective plan december 31 2013 average amortization period 18 years us qualified pension plans 22 years nonus pension plans estimated net actuarial loss qualified defined benefit pension plans expected amortized accumulated comprehensive loss year ended december 31 2014 approximately 86 million compared approximately 133 million year ended december 31 2013 us nonqualified pension plan population predominantly active participants losses related plan amortized average future working lifetime active participants december 31 2013 average amortization period 115 years us nonqualified pension plan estimated net actuarial losses us nonqualified pension plan expected amortized accumulated comprehensive loss year ended december 31 2014 approximately 01 million compared approximately 07 million year ended december 31 2013 investment strategy concentration risk weighted average asset allocation us pension benefit plans december 31 2013 2012 follows weighted average asset allocation nonus pension benefit plans december 31 2013 2012 follows taxqualified pension fund investments united states held agco corporation master pension trust global pension fund strategy diversify investments across broad categories equity fixed income securities appropriate use alternative investment categories minimize risk volatility primary investment objective pension plans secure participant retirement benefits key objective pension plans’ financial management promote stability extent appropriate growth funded status investment strategy plans’ portfolio assets balances requirement generate returns need control risk asset mix recognized primary mechanism influence reward risk structure pension fund investments effort accomplish plans’ funding objectives overall investment strategy usbased pension plans achieve mix approximately 15 assets nearterm benefit payments 85 longerterm growth overall us pension funds invest broad diversification asset types us target allocation retirement fund investments 45 large smallcap domestic equity securities 15 international equity securities 20 broad fixed income securities 20 alternative investments noted long investment horizons mix investments would achieve average return approximately 70 overall investment strategy nonus based pension plans achieve mix approximately 30 assets nearterm benefit payments 70 longerterm growth overall nonus pension funds invest broad diversification asset types nonus target allocation retirement fund investments 45 equity securities 30 broad fixed income investments 25 alternative investments majority nonus pension fund investments related pension plan united kingdom noted long periods mix investments would achieve average return excess 78 arriving choice expected return assumption 70 ukbased plans year ended december 31 2014 tempered historical indicator lower expectations returns equity investment future well administrative costs plans equity securities primarily include investments largecap smallcap companies located across globe fixed income securities include corporate bonds companies diversified industries mortgagebacked securities agency mortgages assetbacked securities government securities alternative assets include investments hedge fund funds follow diversified investment strategies date invested pension funds stock intention future within asset class careful consideration given balancing portfolio among industry sectors geographies interest rate sensitivity dependence economic growth currency factors affecting investment returns assets managed professional investment firms bound precise mandates measured specific benchmarks among asset managers consideration given among others balancing security concentration issuer concentration investment style reliance particular active investment strategies december 31 2013 unfunded underfunded obligations related qualified pension plans approximately 1905 million primarily due pension plan united kingdom 2013 contributed approximately 410 million towards obligations expect fund approximately 426 million 2014 future funding dependent upon compliance local laws regulations changes laws regulations future well generation operating cash flows future currently agreement place trustees uk defined benefit plan obligates us fund approximately £154 million per year approximately 256 million towards obligation next ten years funding arrangement based upon current underfunded status could change future discount rates local laws regulations factors change postretirement benefits retiree health care life insurance provide certain postretirement health care life insurance benefits certain employees principally united states brazil participation plans generally limited older employees existing retirees see note 7 consolidated financial statements information regarding costs assumptions postretirement benefits nature estimates required measurement obligations costs liabilities associated postretirement benefits retiree health care life insurance requires make use estimates present value projected future payments participants taking consideration likelihood potential future events health care cost increases demographic experience may effect amount timing future payments assumptions approach used assumptions used developing required estimates include following key factors • health care cost trends • inflation • discount rates • medical coverage elections • retirement rates • mortality rates health care cost trend assumptions developed based historical cost data nearterm outlook efficiencies costmitigating actions including employee cost sharing administrative improvements efficiencies assessment likely longterm trends years ended december 31 2013 2012 2011 previously discussed used globally consistent methodology set discount rate countries largest benefit obligations exist united states constructed hypothetical bond portfolio highquality corporate bonds applied cash flows benefit plans bond yields derive discount rate united states bond portfolio large enough result taking “settlement approach” derive discount rate highquality corporate bonds assumed purchased resulting coupon payments maturities used satisfy largest us pension plan’s projected benefit payments bond portfolio selected single discount rate determined market value bonds purchased equals discounted value plan’s benefit payments brazilian plan based discount rate government bond indices within country indices used chosen match expected plan obligations related expected cash flows inflation assumptions based evaluation external market indicators retirement termination rates based primarily actual plan experience actuarial standards practice mortality rates us plans updated 2013 reflect expected improvements life expectancy plan participants effects actual results differing assumptions accumulated amortized future periods therefore generally affect recognized expense future periods us postretirement health care life insurance plans represent approximately 92 consolidated projected benefit obligation discount rate used determine 2013 projected benefit obligation us postretirement benefit plans decreased 25 basis points projected benefit obligation would increased approximately 07 million december 31 2013 2014 postretirement benefit expense would increase nominal amount discount rate used determine 2013 projected benefit obligation us postretirement benefit plans increased 25 basis points projected benefit obligation would decreased approximately 07 million 2014 pension expense would decrease nominal amount unrecognized actuarial losses related us brazilian postretirement benefit plans 41 million december 31 2013 compared 108 million december 31 2012 65 million 100 million respectively related us postretirement benefit plans decrease losses primarily reflects increase discount rate 2013 unrecognized actuarial losses impacted future periods discount rate changes actual demographic experience actual health care inflation certain factors losses extent exceed gainloss corridor amortized straightline basis average remaining service period active employees expected receive benefits average remaining lives inactive participants covered postretirement benefit plans december 31 2013 average amortization period 13 years us postretirement benefit plans estimated net actuarial loss postretirement health care benefits expected amortized accumulated comprehensive loss year ended december 31 2014 approximately 01 million compared approximately 05 million year ended december 31 2013 december 31 2013 approximately 303 million unfunded obligations related us brazilian postretirement health life insurance benefit plans 2013 made benefit payments approximately 18 million towards obligations expect make benefit payments approximately 18 million towards obligations 2014 measuring expected us postretirement benefit obligation december 31 2013 2012 assumed 75 80 health care cost trend rate 2014 2013 respectively decreasing 50 2019 measuring brazilian postretirement benefit plan obligation december 31 2013 assumed 1225 health care cost trend rate 2014 decreasing 645 2024 measuring brazilian postretirement benefit plan obligation december 31 2012 assumed 107 health care cost trend rate 2013 decreasing 62 2022 changing assumed health care cost trend rates one percentage point year holding assumptions constant would following effect service interest cost 2013 accumulated postretirement benefit obligation december 31 2013 millions litigation party various claims lawsuits arising normal course business closely monitor claims lawsuits frequently consult legal counsel determine whether may resolved material adverse effect financial position results operations accrue andor disclose loss contingencies appropriate goodwill intangible assets longlived assets test goodwill indefinitelived intangible assets impairment annual basis interim basis event occurs circumstances change would reduce fair value reporting unit carrying value annual qualitative quantitative assessments involve determining estimate fair value reporting units order evaluate whether impairment current carrying amount goodwill indefinitelived intangible assets exists qualitative assessment evaluates whether likely reporting unit’s fair value less carrying amount applying twostep quantitative goodwill impairment test first step quantitative goodwill impairment test used identify potential impairment compares fair value reporting unit carrying amount including goodwill fair value reporting unit exceeds carrying amount goodwill reporting unit considered impaired thus second step quantitative impairment test unnecessary carrying amount reporting unit exceeds fair value second step quantitative goodwill impairment test performed measure amount impairment loss fair values derived based evaluation past expected future performance reporting units reporting unit operating segment one level operating segment example component operating segment reporting unit component constitutes business discrete financial information available executive management team regularly reviews operating results component addition combine aggregate two components operating segment single reporting unit components similar economic characteristics reportable segments reporting units second step quantitative goodwill impairment test used measure amount impairment loss compares implied fair value reporting unit goodwill carrying amount goodwill carrying amount reporting unit goodwill exceeds implied fair value goodwill impairment loss recognized amount equal excess loss recognized cannot exceed carrying amount goodwill implied fair value goodwill determined manner amount goodwill recognized business combination allocate fair value reporting unit assets liabilities unit including unrecognized intangible assets reporting unit acquired business combination fair value reporting unit price paid acquire reporting unit excess fair value reporting unit amounts assigned assets liabilities implied fair value goodwill utilize combination valuation techniques including discounted cash flow approach market multiple approach making quantitative goodwill assessments stated goodwill tested qualitatively quantitatively impairment annual basis often indications impairment exist review longlived assets include intangible assets subject amortization impairment whenever events changes circumstances indicate carrying amount asset may recoverable impairment loss recognized undiscounted future cash flows estimated generated asset held used sufficient recover unamortized balance asset impairment loss would recognized based difference carrying values estimated fair value estimated fair value determined based either discounted future cash flows appropriate fair value methods amount deficiency charged income current year asset tested recoverability acquired business combination intangible assets resulting acquisition related asset included assessment estimates future cash flows based many factors including current operating results expected market trends competitive influences also evaluate amortization periods assigned intangible assets determine whether events changes circumstances warrant revised estimates useful lives assets disposed sale reported lower carrying amount fair value less estimated costs sell make various assumptions including assumptions regarding future cash flows market multiples growth rates discount rates assessments goodwill indefinitelived intangible assets longlived assets impairment assumptions future cash flows growth rates based current longterm business plans reporting unit related longlived assets discount rate assumptions based assessment risk inherent future cash flows reporting unit longlived assets assumptions require significant judgments part conclusions reach could vary significantly based upon judgments fourth quarter 2012 recorded noncash impairment charge approximately 224 million related goodwill certain identifiable intangible assets associated chinese harvesting business accordance asc 350 see note 1 consolidated financial statements discussion results goodwill longlived assets impairment analyses conducted october 1 2013 2011 indicated reduction carrying amount goodwill longlived assets required results goodwill impairment analysis conducted october 1 2012 indicated reduction carrying amount goodwill longlived assets required december 31 2013 approximately 11787 million goodwill annual impairment testing 2013 supported carrying amount goodwill may required reevaluate carrying amount future periods thus utilizing different assumptions reflect current market conditions expectations therefore could conclude impairment occurred item 7aitem 7 management’s discussion analysis financial condition results operations leading manufacturer distributor agricultural equipment related replacement parts throughout world sell full range agricultural equipment including tractors combines selfpropelled sprayers hay tools forage equipment tillage implements grain storage protein production systems products widely recognized agricultural equipment industry marketed number wellknown brand names including challenger® fendt® gsi® massey ferguson® valtra® distribute products combination approximately 3100 dealers distributors well associates licensees addition provide retail financing finance joint ventures rabobank results operations sell equipment replacement parts independent dealers distributors customers large majority sales independent dealers distributors sell products end users extent practicable attempt sell products dealers distributors level basis throughout year reduce effect seasonal demands manufacturing operations minimize investment inventories however retail sales dealers farmers highly seasonal linked planting harvesting seasons certain markets particularly north america often time lag varies based timing level retail demand sale equipment dealer’s sale retail customer following table sets forth periods indicated percentage relationship net sales certain items included consolidated statements operations 1 rounding may impact summation amounts 2014 compared 2013 net income attributable agco corporation subsidiaries 2014 4104 million 436 per diluted share compared net income 2013 5972 million 601 per diluted share net sales 2014 approximately 97237 million 99 lower 2013 primarily due softer global market conditions unfavorable impact currency translation income operations 6465 million 2014 compared 9007 million 2013 decrease income operations 2014 result lower net sales geographical segments decreased production volumes weaker sales mix regionally income operations europeafricamiddle east “eame” south american north american regions decreased approximately 580 million 787 million 1067 million respectively 2014 compared 2013 result lower net sales production levels weaker sales mix income operations asiapacific region decreased approximately 120 million 2014 compared 2013 primarily due lower net sales increased expenses associated new factory china industry market conditions favorable growing conditions strong yields 2014 resulted record crop production led lower prices major commodities lower farm income impacting farmer sentiment industry demand softened major agricultural equipment markets 2014 compared 2013 north america industry demand significantly lower higher horsepower tractors well combines sprayers primarily used row crop applications improved conditions dairy livestock sectors north america supported growth industry demand lower horsepower tractor categories weaker demand brazilian sugarcane sector funding delays brazilian government financing program negatively impacted industry demand south america western europe industry results country remained mixed significant decline markets france scandinavia well lower demand germany united states canada industry unit retail sales tractors combines decreased approximately 2 25 respectively 2014 compared 2013 significant declines experienced row crop sector impacting demand high horsepower tractors combines declines partially offset higher industry sales lower horsepower tractors south america industry unit retail sales tractors 2014 decreased approximately 15 compared 2013 industry unit retail sales combines south america decreased approximately 24 2014 compared 2013 western europe industry unit retail sales tractors combines decreased approximately 9 11 respectively 2014 compared 2013 significant decline markets france scandinavia germany experienced moderate decline industry demand remained stable united kingdom parts southern europe results operations net sales 2014 97237 million compared 107869 million 2013 primarily due softer global market conditions unfavorable impact foreign currency translation foreign currency translation negatively impacted net sales 2014 compared 2013 approximately 2587 million 24 primarily due weakening euro brazilian real following table sets forth year ended december 31 2014 impact net sales currency translation geographical segment millions except percentages regionally net sales north america decreased 2014 compared 2013 significant decreases net sales high horsepower tractors sprayers implements partially offset growth net sales low horsepower tractors grain storage equipment hay tools net sales lower south america tractors offset increased net sales grain storage equipment eame region net sales decreased 2014 compared 2013 largest net sales decreases france germany partially offset growth africa turkey asiapacific region net sales decreased 2014 compared 2013 primarily due net sales declines asia estimate worldwide average price increases approximately 15 2 2014 2013 respectively consolidated net sales tractors combines consisted approximately 63 net sales 2014 decreased approximately 14 2014 compared 2013 unit sales tractors combines decreased approximately 10 2014 compared 2013 unit sales decrease net sales differ due foreign currency translation pricing sales mix changes following table sets forth years ended december 31 2014 2013 percentage relationship net sales certain items included consolidated statements operations millions except percentages 1 rounding may impact summation amounts gross profit percentage net sales decreased 2014 compared 2013 primarily due lower net sales production levels well weaker product mix pricing cost reduction initiatives helped partially offset negative impacts unit production tractors combines 2014 approximately 15 lower 2013 recorded stock compensation credit expense approximately 09 million 23 million within cost goods sold 2014 2013 respectively fully explained note 1 consolidated financial statements selling general administrative expenses “sga expenses” percentage net sales increased slightly 2014 compared 2013 primarily due decline net sales recorded stock compensation credit expense approximately 97 million 326 million within sga expenses 2014 2013 respectively fully explained note 1 consolidated financial statements credit recorded 2014 included approximately 169 million reversal previously recorded longterm stock compensation expense engineering expenses percentage net sales also increased slightly 2014 compared 2013 primarily due lower net sales recorded restructuring infrequent expenses approximately 464 million 2014 restructuring infrequent expenses recorded 2014 primarily related severance related costs associated rationalization employee headcount various manufacturing facilities located europe china brazil argentina united states well various administrative offices located europe brazil china united states interest expense net 584 million 2014 compared 580 million 2013 fully explained “liquidity capital resources” expense net 491 million 2014 compared 401 million 2013 expense net increased 2014 compared 2013 primarily due foreign exchange losses partially offset decline losses sales receivables losses sales receivables associated accounts receivable sales agreements approximately 248 million 256 million 2014 2013 respectively recorded income tax provision 1877 million 2014 compared 2585 million 2013 tax provision effective tax rate impacted differing tax rates various tax jurisdictions operate permanent differences items treated differently financial accounting income tax purposes losses jurisdictions income tax benefit recorded valuation allowance established likely portion company’s deferred tax assets realized assessed likelihood deferred tax assets would recovered estimated future taxable income available income tax planning strategies december 31 2014 2013 gross deferred tax assets 4300 million 4232 million respectively including 757 million 697 million respectively related net operating loss carryforwards december 31 2014 total valuation allowances offset gross deferred tax assets 933 million primarily related net operating loss carryforwards brazil china russia netherlands december 31 2013 total valuation allowances offset gross deferred tax assets approximately 772 million primarily related net operating loss carryforwards brazil china russia realization remaining deferred tax assets december 31 2014 depend generating sufficient taxable income future periods net reversing deferred tax liabilities believe likely remaining net deferred tax assets realized equity net earnings affiliates comprised income finance joint ventures 529 million 2014 compared 482 million 2013 increase net earnings affiliates primarily result higher income manufacturing joint ventures 2014 compared 2013 refer “finance joint ventures” information regarding finance joint ventures results operations note 5 consolidated financial statements 2013 compared 2012 net income attributable agco corporation subsidiaries 2013 5972 million 601 per diluted share compared net income 2012 5221 million 530 per diluted share net sales 2013 approximately 107869 million 83 higher 2012 primarily due sales increases geographical segments partially offset unfavorable impact currency translation income operations 9007 million 2013 compared 6932 million 2012 increase income operations 2013 result increase net sales well improved gross margins resulting factory efficiency cost control initiatives favorable pricing relatively low levels material cost inflation higher engineering expenses associated new product development engine emission requirements partially offset gross margin improvements north american region income operations increased approximately 660 million 2013 compared 2012 primarily due higher net sales favorable sales mix margin improvement initiatives income operations south american region increased approximately 511 million 2013 compared 2012 primarily due higher sales volumes benefit costreduction initiatives eame region income operations increased approximately 833 million 2013 compared 2012 primarily due higher net sales improved factory efficiencies partially offset higher engineering expenses income operations asiapacific region decreased approximately 97 million 2013 compared 2012 result increased manufacturing startup costs market development expenses china offset benefit increased sales region industry market conditions worldwide industry equipment demand farm equipment relatively stable 2013 major markets compared 2012 crop production improved normal levels farm income remained relatively high across developed farm markets 2013 improved yields north america high levels farm income supported industry sales favorable exchange financing rates improved weather conditions attractive commodity prices generated strong demand south america western europe favorable farm economics france germany supported industry demand market conditions remained soft weatherimpacted regions united kingdom parts northern europe united states canada industry unit retail sales tractors combines increased approximately 9 8 respectively 2013 compared 2012 continued favorable farm economics resulted strength retail sales particularly larger high horsepower equipment south america industry unit retail sales tractors 2013 increased approximately 17 compared 2012 industry unit retail sales tractors increased approximately 17 59 brazil argentina respectively 2013 compared 2012 industry unit retail sales combines south america increased approximately 35 2013 compared 2012 south america supportive government financing programs brazil well favorable commodity prices improved harvests contributed market growth brazil argentina western europe industry unit retail sales tractors combines decreased approximately 1 10 respectively 2013 compared 2012 growth france offset declines united kingdom finland due poor weather conditions german market remained relatively flat net sales asiapacific segment 2013 approximately 13 higher 2012 primarily due increases china east asia australia results operations net sales 2013 107869 million compared 99622 million 2012 primarily due positive impacts market growth partially offset unfavorable impact foreign currency translation foreign currency translation negatively impacted net sales 2013 compared 2012 approximately 1215 million 12 primarily due weakening brazilian real partially offset strengthening euro following table sets forth year ended december 31 2013 impact net sales currency translation geographical segment millions except percentages regionally net sales north america increased 2013 compared 2012 primarily result improved industry demand significant increases sales high horsepower tractors sprayers implements grain storage equipment excluding negative impact foreign currency translation net sales higher brazil argentina growth mainly high horsepower tractors sprayers grain storage equipment eame region net sales increased 2013 compared 2012 largest net sales increases france germany partially offset lower net sales central eastern europe asiapacific region net sales increased 2013 compared 2012 primarily due net sales increases china east asia australia estimate worldwide average price increases approximately 2 3 2013 2012 respectively consolidated net sales tractors combines consisted approximately 66 net sales 2013 increased approximately 10 2013 compared 2012 unit sales tractors combines increased approximately 5 2013 compared 2012 unit sales increase net sales differ due foreign currency translation pricing sales mix changes following table sets forth years ended december 31 2013 2012 percentage relationship net sales certain items included consolidated statements operations millions except percentages gross profit percentage net sales increased 2013 compared 2012 primarily due favorable pricing higher sales volume low material cost inflation purchasing factory efficiency initiatives unit production tractors combines 2013 approximately 5 higher 2012 recorded approximately 23 million 24 million stock compensation expense within cost goods sold 2013 2012 respectively fully explained note 1 consolidated financial statements sga expenses percentage net sales decreased slightly 2013 compared 2012 primarily due increase net sales partially offset new market expansion expenses recorded approximately 326 million 346 million stock compensation expense within sga expenses 2013 2012 respectively fully explained note 1 consolidated financial statements engineering expenses increased 2013 compared 2012 primarily due increased investment levels new product development costs meet new engine emission standards united states europe interest expense net 580 million 2013 compared 576 million 2012 fully explained “liquidity capital resources” expense net 401 million 2013 compared 348 million 2012 expense net increased 2013 compared 2012 primarily due increased losses sales receivables losses sales receivables primarily accounts receivable sales agreements approximately 256 million 218 million 2013 2012 respectively recorded income tax provision 2585 million 2013 compared 1379 million 2012 tax provision impacted differing tax rates various tax jurisdictions operate permanent differences items treated differently financial accounting income tax purposes losses jurisdictions income tax benefit recorded 2012 income tax rate provision reconciled note 6 consolidated financial statements included usage approximately 547 million valuation allowance resulting income generated united states 2012 income tax provision also included reversal approximately 138 million remaining valuation allowance previously established us deferred tax assets recognition certain us research development tax credits approximately 131 million valuation allowance established likely portion company’s deferred tax assets realized assessed likelihood deferred tax assets would recovered estimated future taxable income available income tax planning strategies december 31 2013 2012 gross deferred tax assets 4232 million 4780 million respectively including 697 million 949 million respectively related net operating loss carryforwards december 31 2013 total valuation allowances offset gross deferred tax assets 772 million primarily related net operating loss carryforwards brazil china russia december 31 2012 total valuation allowances offset gross deferred tax assets approximately 745 million primarily related net operating loss carryforwards brazil switzerland china russia equity net earnings affiliates primarily comprised income finance joint ventures 482 million 2013 compared 535 million 2012 reduction net earnings affiliates primarily result lower income manufacturing joint ventures refer “finance joint ventures” information regarding finance joint ventures results operations quarterly results following table presents unaudited interim operating results believe following information includes adjustments consisting normal recurring adjustments necessary present fairly results operations periods presented finance joint ventures agco finance joint ventures provide retail financing wholesale financing dealers united states canada europe brazil argentina australia joint ventures owned 49 agco 51 wholly owned subsidiary rabobank financial institution based netherlands majority assets finance joint ventures represents finance receivables majority liabilities represents notes payable accrued interest various joint venture agreements rabobank affiliates provide financing joint ventures primarily lines credit guarantee debt obligations joint ventures december 31 2014 capital investment finance joint ventures included “investment affiliates” consolidated balance sheets approximately 3890 million compared 3902 million december 31 2013 total finance portfolio finance joint ventures approximately 89 billion 94 billion december 31 2014 2013 respectively total finance portfolio december 31 2014 included approximately 74 billion retail receivables 15 billion wholesale receivables agco dealers total finance portfolio december 31 2013 included approximately 78 billion retail receivables 16 billion wholesale receivables agco dealers wholesale receivables either sold directly agco finance without recourse operating companies agco finance provided financing directly dealers 2014 make additional investments finance joint ventures 2013 2012 made total approximately 155 million 71 million respectively additional investments finance joint ventures germany netherlands primarily related additional capital required result increased finance portfolios 2013 2012 share earnings finance joint ventures included “equity net earnings affiliates” within consolidated statements operations 488 million years ended december 31 2014 2013 total finance portfolio finance joint venture brazil 15 billion 18 billion december 31 2014 2013 respectively result weak market conditions brazil 2005 2006 substantial portion portfolio included payment deferral program directed brazilian government relating retail contracts entered 2004 scheduled payments rescheduled several times 2005 2008 impact deferral program resulted higher delinquencies lower collateral coverage portfolio joint venture currently considers reserves loan losses adequate continually monitors reserves considering borrower payment history value underlying equipment financed payment deferral programs implemented brazilian government date finance joint ventures markets outside brazil experienced significant changes credit quality finance portfolios however assurance portfolio credit quality deteriorate given size portfolio relative joint ventures’ level equity significant adverse change joint ventures’ performance would material impact joint ventures operating results outlook operations subject cyclical nature agricultural industry sales equipment expected continue affected changes net cash farm income farm land values weather conditions demand agricultural commodities farm industry related legislation availability financing general economic conditions worldwide industry demand expected decline 2015 compared 2014 levels based current levels lower commodity prices 2015 expected result reduced farm income weaker industry demand across developed agricultural equipment markets net sales 2015 also expected decrease compared 2014 primarily due projected industry decline unfavorable currency translation expect gross operating margins lower 2014 levels result reduction net sales production volumes well weaker product mix benefits productivity purchasing initiatives restructuring actions expected partially offset volumerelated impacts recent acquisitions september 11 2014 acquired remaining 39 interest santal equipamentos sa comércio e indústria “santal” approximately r90 million approximately 37 million santal headquartered ribeirão preto brazil manufactures distributes sugar cane planting harvesting handling transportation equipment well replacement parts across brazil due fact seller call option put option respectively varying dates respect remaining 39 interest santal fair value redeemable noncontrolling interest previously recorded within “temporary equity” consolidated balance sheets acquisition remaining interest funded available cash hand redemption related amounts settled reflected “additional paidin capital” consolidated balance sheets august 1 2014 acquired intersystems holdings inc “intersystems” approximately 1344 million net cash acquired approximately 41 million approximately 1303 million net intersystems headquartered omaha nebraska designs manufactures commercial material handling solutions primarily agricultural biofuels food feed processing industries acquisition financed available cash hand credit facility refer note 7 consolidated financial statements information allocated purchase price assets acquired liabilities assumed based preliminary estimates fair values acquisition date acquired net assets primarily consisted accounts receivable inventories accounts payable accrued expenses property plant equipment customer relationship technology trademark identifiable intangible assets recorded approximately 463 million customer relationship technology trademark identifiable intangible assets approximately 896 million goodwill associated acquisition goodwill recorded reported within north american geographical reportable segment results operations intersystems included consolidated financial statements date acquisition liquidity capital resources financing requirements subject variations due seasonal changes inventory receivable levels internally generated funds supplemented necessary external sources primarily credit facility accounts receivable sales agreement facilities believe facilities together available cash internally generated funds sufficient support working capital expenditures debt service requirements foreseeable future • €2000 million approximately 2420 million december 31 2014 412 senior term loan matures 2016 see discussion • 3000 million 578 senior notes mature 2021 see discussion • revolving credit term loan facility consisting 8000 million multicurrency revolving credit facility 3550 million term loan facility expires june 2019 december 31 2014 494 million outstanding multicurrency revolving credit facility 3550 million outstanding term loan facility see discussion • accounts receivable sales agreements finance joint ventures united states canada europe december 31 2014 approximately 12 billion cash received agreements see discussion • term loan european investment bank “eib” provides us ability borrow €2000 million see discussion term loan funded eib january 2015 addition although complete compliance financial covenants contained facilities currently expect continue maintain compliance ever encounter difficulties historical relationship lenders strong anticipate continued longterm support business current facilities €2000 million 412 senior term loan rabobank due may 2 2016 ability prepay term loan maturity date interest payable term loan 412 per annum payable quarterly arrears march 31 june 30 september 30 december 31 year term loan contains covenants restricting among things incurrence indebtedness making certain payments including dividends subject acceleration event default also must fulfill financial covenants respect total debt ebitda ratio interest coverage ratio 3000 million 578 senior notes due december 1 2021 constitute senior unsecured unsubordinated indebtedness interest payable notes semiannually arrears june 1 december 1 year time prior september 1 2021 may redeem notes whole part time option redemption price equal greater 100 principal amount plus accrued unpaid interest including additional interest excluding redemption date ii sum present values remaining scheduled payments principal interest exclusive interest accrued date redemption discounted redemption date treasury rate plus 05 plus accrued unpaid interest including additional interest beginning september 1 2021 may redeem notes whole part time option redemption price equal 100 principal amount plus accrued unpaid interest including additional interest june 30 2014 amended restated credit facility agreement increasing multicurrency revolving credit facility 6000 million 8000 million maintaining 3550 million term loan facility maturity date credit facility also extended june 28 2019 required make quarterly payments towards term loan previously required make quarterly payments towards term loan 50 million increase 100 million commencing march 2015 interest accrues amounts outstanding credit facility option either 1 libor plus margin ranging 10 20 based leverage ratio 2 base rate equal higher administrative agent’s base lending rate applicable currency ii federal funds rate plus 05 iii onemonth libor loans denominated us dollars plus 10 plus margin ranging 00 05 based leverage ratio credit facility contains covenants restricting among things incurrence indebtedness making certain payments including dividends subject acceleration event default also must fulfill financial covenants respect total debt ebitda ratio interest coverage ratio december 31 2014 4044 million outstanding borrowings credit facility availability borrow approximately 7506 million december 31 2013 3600 million outstanding borrowings credit facility availability borrow approximately 6000 million december 2014 entered term loan eib provided us ability borrow €2000 million €2000 million approximately 2324 million funding received january 15 2015 maturity date january 15 2020 ability prepay term loan maturity date interest payable term loan 1056 per annum payable quarterly arrears january 15 april 15 july 15 october 15 year term loan contains covenants restricting among things use funds certain research development projects incurrence indebtedness making certain payments subject acceleration event default also fulfill financial covenants respect net leverage ratio interest coverage ratio see note 7 consolidated financial statements full description facilities accounts receivable sales agreements north america europe permit sale ongoing basis majority receivables 49 owned us canadian european finance joint ventures sales receivables without recourse us service receivables sale occurs maintain direct retained interest receivables agreements accounted offbalance sheet transactions effect reducing accounts receivable shortterm liabilities amount december 31 2014 2013 cash received receivables sold us canadian european accounts receivable sales agreements approximately 12 billion 13 billion respectively agco finance joint ventures brazil australia also provide wholesale financing dealers receivables associated arrangements also without recourse us december 31 2014 2013 finance joint ventures approximately 433 million 682 million respectively outstanding accounts receivable associated arrangements accounted offbalance sheet transactions addition sell certain trade receivables factoring arrangements financial institutions around world arrangements also accounted offbalance sheet transactions former facilities former 1¼ convertible senior subordinated notes due december 15 2036 issued december 2006 provided settlement upon conversion cash principal amount notes excess conversion value settled shares common stock ii conversion rate increased certain circumstances notes converted connection certain change control transactions occurring prior december 15 2013 notes unsecured obligations convertible cash shares common stock upon satisfaction certain conditions interest payable notes 1¼ per annum payable semiannually arrears cash june 15 december 15 year holders former 1¼ convertible senior subordinated notes ability convert notes fiscal quarter closing sales price common stock exceeded 120 conversion price least 20 trading days 30 consecutive trading days ending last trading day preceding fiscal quarter notes would convertible shares common stock effective price 4027 per share june 30 2014 subject adjustment including reflect impact conversion rate upon payment dividends stockholders effective price reflected conversion rate notes 248295 shares common stock per 1000 principal amount notes first six months 2014 holders former 1¼ convertible senior subordinated notes converted repurchased approximately 497 million aggregate principal amount notes may 2014 announced election redeem remaining 1515 million balance notes redemption date june 20 2014 substantially holders notes elected convert remaining notes prior redemption date redemptions settled july 2014 year ended december 31 2014 issued total 1437465 shares common stock associated 810 million excess conversion value notes converted reflected repayment principal notes totaling 2012 million within “repurchase conversion convertible senior subordinated notes” within consolidated statements cash flows year ended december 31 2014 year ended december 31 2013 holders former 114 convertible senior subordinated notes converted less 01 million principal amount notes issued 286 shares common stock associated less 01 million excess conversion value notes reflected repayment principal notes totaling less 01 million within “repurchase conversion convertible senior subordinated notes” within consolidated statements cash flows year ended december 31 2013 former 1¼ convertible senior subordinated notes impacted diluted weighted average shares outstanding dependent stock price excess conversion value using treasury stock method refer notes 1 7 consolidated financial statements discussion cash flows cash flows provided operating activities 4384 million 2014 compared 7970 million 2013 decrease cash flows provided operating activities 2014 primarily due decrease net income well reduction accounts payable working capital requirements seasonal investments working capital typically building first half year reducing second half year 13110 million working capital december 31 2014 compared 17051 million december 31 2013 accounts receivable inventories combined december 31 2014 2422 million lower december 31 2013 decrease inventories december 31 2014 compared december 31 2013 primarily due production cuts initiated 2014 impact foreign currency translation debt capitalization ratio total indebtedness divided sum total indebtedness stockholders’ equity 238 december 31 2014 compared 236 december 31 2013 contractual obligations future payments required significant contractual obligations excluding foreign currency option forward contracts december 31 2014 follows millions 1 indebtedness amounts reflect principal amount senior term loan senior notes credit facility 2 estimated interest payments calculated assuming current interest rates minimum maturity periods specified debt agreements debt may repaid sooner later minimum maturity periods unaudited 3 shortterm longterm obligations include estimates future minimum contribution requirements us nonus defined benefit pension postretirement plans estimates based current legislation countries operate within subject change shortterm longterm obligations also include income tax liabilities related uncertain income tax positions connected ongoing income tax audits various jurisdictions commitments offbalance sheet arrangements guarantees maintain remarketing agreement finance joint venture united states whereby obligated repurchase repossessed inventory market values agreement finance joint venture united states limits purchase obligations arrangement 60 million aggregate per calendar year believe losses might incurred resale equipment materially impact financial position results operations due fact repurchase obligation would equivalent fair value underlying equipment december 31 2014 guaranteed indebtedness owed third parties approximately 1297 million primarily related dealer enduser financing equipment guarantees generally obligate us repay outstanding finance obligations owed financial institutions dealers end users default loans 2019 believe credit risk associated guarantees material financial position results operations losses guarantees historically insignificant addition generally would expect able recover significant portion amounts paid guarantees sale underlying financed farm equipment fair value equipment expected offset substantial portion amounts paid december 31 2014 outstanding designated nondesignated foreign exchange contracts gross notional amount approximately 18343 million outstanding contracts december 31 2014 range maturity december 2015 gains losses contracts historically substantially offset losses gains exposures hedged see “foreign currency risk management” additional information discussed “liquidity capital resources” sell majority wholesale accounts receivable north america europe us canadian european finance joint ventures also sell certain accounts receivable factoring arrangements financial institutions around world determined facilities accounted offbalance sheet transactions contingencies party various claims lawsuits arising normal course business closely monitor claims lawsuits frequently consult legal counsel determine whether may resolved material adverse effect financial position results operations accrue andor disclose loss contingencies appropriate see note 12 consolidated financial statements item 3 legal proceedings related parties rabobank 51 owner finance joint ventures located united states canada europe brazil argentina australia rabobank also principal agent participant credit facility majority assets finance joint ventures represents finance receivables majority liabilities represents notes payable accrued interest various joint venture agreements rabobank affiliates provide financing joint venture companies primarily lines credit guarantee debt obligations finance joint ventures 2014 make additional investments finance joint ventures 2013 2012 made total approximately 155 million 71 million respectively additional investments finance joint ventures germany netherlands primarily related additional capital required result increased retail finance portfolios 2013 2012 finance joint ventures provide retail wholesale financing dealers terms financing arrangements offered dealers similar arrangements finance joint ventures provide unaffiliated third parties addition transfer ongoing basis majority wholesale receivables north america europe us canadian european finance joint ventures see note 4 consolidated financial statements discussion agreements maintain remarketing agreement us finance joint venture agco finance llc discussed “commitments offbalance sheet arrangements” addition part sales incentives provided end users may time subsidize interest rates retail financing provided finance joint ventures cost programs recognized time sale dealers tractors farm equipment limited “tafe” hold 2375 interest manufactures massey fergusonbranded equipment primarily india also supplies tractors components us sale markets mallika srinivasan chairman chief executive officer tafe currently member board directors december 31 2014 tafe owned 11196271 shares common stock tafe parties agreement pursuant among things tafe agreed purchase excess 12170290 shares common stock subject certain adjustments agreed annually nominate tafe representative board directors 2014 2013 2012 purchased approximately 1490 million 907 million 1045 million respectively tractors components tafe 2014 2013 2012 sold approximately 21 million 08 million 03 million respectively parts tafe received dividends tafe approximately 18 million 16 million 13 million 2014 2013 2012 respectively 2014 2013 2012 paid approximately 34 million 33 million 38 million respectively ppg industries inc painting materials used manufacturing processes chairman president chief executive officer currently member board directors ppg industries inc 2014 2013 paid approximately 22 million 23 million respectively ryerson inc steel used manufacturing processes michael arnold president chief executive officer ryerson inc currently member board directors foreign currency risk management significant manufacturing operations united states france germany finland brazil purchase portion tractors combines components thirdparty foreign suppliers primarily various european countries japan also sell products 140 countries throughout world majority net sales outside united states denominated currency customer location exception sales middle east africa asia parts south america net sales primarily denominated british pounds euros united states dollars see note 15 consolidated financial statements net sales customer location significant transactional foreign currency exposures euro brazilian real canadian dollar relation united states dollar euro relation british pound fluctuations value foreign currencies create exposures adversely affect results operations attempt manage transactional foreign currency exposure hedging foreign currency cash flow forecasts commitments arising anticipated settlement receivables payables future purchases sales naturally offsetting currency positions occur hedge certain exposures use foreign currency contracts translation exposure resulting translating financial statements foreign subsidiaries united states dollars hedged significant translation exposures euro british pound brazilian real relation united states dollar practical translation impact reduced financing local operations local borrowings hedging policy prohibits use foreign currency contracts speculative trading purposes derivatives recognized consolidated balance sheets fair value date derivative contract entered designate derivative either 1 fair value hedge recognized liability 2 cash flow hedge forecasted transaction 3 hedge net investment foreign operation 4 nondesignated derivative instrument currently engage derivatives cash flow hedges forecasted transactions well nondesignated derivative instruments changes fair value nondesignated derivative contracts reported current earnings 2014 2013 2012 designated certain foreign currency contracts cash flow hedges forecasted sales purchases effective portion fair value gains losses cash flow hedges recorded comprehensive loss subsequently reclassified cost goods sold period sales purchases recognized amounts offset effect changes foreign currency rates related sale purchase transactions amount net loss recorded comprehensive loss reclassified cost goods sold years ended december 31 2014 2013 2012 approximately 15 million 05 million 81 million respectively aftertax basis amount unrealized loss gain recorded comprehensive loss related outstanding cash flow hedges december 31 2014 2013 2012 approximately 01 million 02 million 07 million respectively aftertax basis outstanding contracts december 31 2014 range maturity december 2015 assuming 10 change relative currency hedge contract fair value foreign currency instruments could negatively impacted approximately 420 million december 31 2014 due fact instruments primarily entered hedging purposes gains losses contracts would largely offset losses gains underlying firm commitment forecasted transaction interest rates manage interest rate risk use fixed rate debt may future utilize interest rate swap contracts 2014 fixed rate debt convertible senior subordinated notes senior notes senior term loan floating rate exposure related credit facility accounts receivable sales facilities tied changes us european libor rates assuming 10 increase interest rates interest expense net year ended december 31 2014 would increased approximately 49 million interest rate swap contracts outstanding years ended december 31 2014 2013 2012 recent accounting pronouncements see note 1 consolidated financial statements information regarding recent accounting pronouncements impact consolidated results operations financial position critical accounting estimates prepare consolidated financial statements conformity us generally accepted accounting principles preparation financial statements make judgments estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period significant accounting policies followed preparation financial statements detailed note 1 consolidated financial statements believe application policies discussed involves significant levels judgment estimates complexity due level judgment complexity period time many items resolved actual results could differ estimated time preparation financial statements adjustments estimates would impact financial position future results operations discount sales incentive allowances provide various volume bonus sales incentive programs respect products sales incentive programs include reductions invoice prices reductions retail financing rates dealer commissions dealer incentive allowances cases incentive programs established communicated dealers quarterly basis incentives paid either time invoice reduction invoice price time settlement receivable time retail financing time warranty registration subsequent time based dealer purchases incentive programs product line specific generally vary dealer cost sales incentives associated dealer commissions dealer incentive allowances estimated based upon terms programs historical experience based percentage sales price recorded later date related revenue recognized b date sales incentive offered related provisions accruals made product productline basis monitored adequacy revised least quarterly event subsequent modifications programs volume discounts estimated recognized based historical experience related reserves monitored adjusted based actual dealer purchases dealers’ progress towards achieving specified cumulative target levels record cost interest subsidy payments reduction retail financing rates later date related revenue recognized b date sales incentive offered estimates incentives based terms programs historical experience incentive programs recorded presented reduction revenue due fact receive identifiable benefit exchange consideration provided reserves incentive programs paid either reduction future invoices credit memos recorded “accounts receivable allowances” within consolidated balance sheets reserves incentive programs paid cash case volume discount programs well sales incentives associated accounts receivable sold us canadian finance joint ventures recorded within “accrued expenses” within consolidated balance sheets december 31 2014 recorded allowance discounts sales incentives approximately 2550 million primarily related allowances north america geographical segment paid either reduction future invoices credit memos dealers reductions retail financing rates allow additional 1 sales incentives discounts time retail sale sales subject discount programs reserve would increase approximately 89 million december 31 2014 conversely decrease sales incentives discounts 1 time retail sale reserve would decrease approximately 89 million december 31 2014 deferred income taxes uncertain income tax positions recorded income tax provision 1877 million 2014 compared 2585 million 2013 tax provision effective tax rate impacted differing tax rates various tax jurisdictions operate permanent differences items treated differently financial accounting income tax purposes losses jurisdictions income tax benefit recorded valuation allowance established likely portion company’s deferred tax assets realized assessed likelihood deferred tax assets would recovered estimated future taxable income available income tax planning strategies december 31 2014 2013 gross deferred tax assets 4300 million 4232 million respectively including 757 million 697 million respectively related net operating loss carryforwards december 31 2014 total valuation allowances offset gross deferred tax assets 933 million primarily related net operating loss carryforwards brazil china netherlands december 31 2013 total valuation allowances offset gross deferred tax assets approximately 772 million primarily related net operating loss carryforwards brazil china russia realization remaining deferred tax assets december 31 2014 depend generating sufficient taxable income future periods net reversing deferred tax liabilities believe likely remaining net deferred tax assets realized december 31 2014 2013 approximately 1306 million 1222 million respectively unrecognized tax benefits would impact effective tax rate recognized december 31 2014 2013 approximately 647 million 619 million respectively current accrued taxes related uncertain income tax positions connected ongoing tax audits various jurisdictions expect settle pay next 12 months recognize interest penalties related uncertain income tax positions income tax expense december 31 2014 2013 accrued interest penalties related unrecognized tax benefits approximately 153 million 144 million respectively see note 6 consolidated financial statements discussion uncertain income tax positions warranty additional service actions warranty coverage products generally covers parts labor expenses time sale make provisions estimated expenses related product warranties base estimates historical experience nature frequency average cost warranty claims separately also establish reserves known material defects based formal campaigns repair defects costs deemed probable reasonably estimated due uncertainty potential volatility estimated factors changes assumptions could materially affect net income estimate warranty obligations reevaluated quarterly basis experience shown initial data product series line volatile therefore process relies upon longterm historical averages sufficient data available actual experience becomes available used modify historical averages ensure forecast within range likely outcomes resulting balances compared present spending rates ensure accruals adequate meet expected future obligations see note 1 consolidated financial statements information regarding costs assumptions warranties insurance reserves insurance programs coverage obtained significant liability limits well risks required law contract policy selfinsure portion certain expected losses related primarily workers’ compensation comprehensive general product liability vehicle liability provide insurance reserves estimates losses due claims items selfinsured base estimates expected ultimate settlement amount claims often long periods resolution closely monitor claims maintain adequate reserves pensions sponsor defined benefit pension plans covering certain employees principally united states united kingdom germany finland norway france switzerland argentina primary plans cover certain employees united states united kingdom united states sponsor funded qualified defined benefit pension plan salaried employees well separate funded qualified defined benefit pension plan hourly employees plans frozen entrants fund least minimum contributions required employee retirement income security act 1974 internal revenue code plans addition maintain unfunded nonqualified defined benefit pension plan certain usbased senior executives executive nonqualified pension plan “enpp” united kingdom sponsor funded defined benefit pension plan provides annuity benefit based participants’ final average earnings service participation plan limited certain older longer service employees existing retirees plan closed new participants see note 8 consolidated financial statements information regarding costs assumptions employee retirement benefits nature estimates required measurement date benefit plans december 31 measurement pension obligations costs liabilities dependent variety assumptions provided management used actuaries assumptions include estimates present value projected future pension payments plan participants taking consideration likelihood potential future events salary increases demographic experience assumptions may effect amount timing future contributions assumptions approach used assumptions used developing required estimates include following key factors • discount rates • inflation • salary growth • expected return plan assets • retirement rates • mortality rates years ended december 31 2014 2013 2012 used globally consistent methodology set discount rate countries largest benefit obligations exist united states united kingdom euro zone constructed hypothetical bond portfolio highquality corporate bonds applied cash flows benefit plans bond yields derive discount rate bond portfolio planspecific cash flows vary country methodology portfolio constructed consistent united states bond portfolio large enough result taking “settlement approach” derive discount rate highquality corporate bonds assumed purchased resulting coupon payments maturities used satisfy us pension plans’ projected benefit payments united kingdom euro zone discount rate derived using “yield curve approach” individual spot rate zero coupon bond yield future annual period developed discount future benefit payment thereby determine present value future payments settlement yield curve approaches discount rate set equal single discount rate produces present value future payments key assumptions methods set follows • inflation assumption based evaluation external market indicators • salary growth assumptions reflect longterm actual experience nearterm outlook assumed inflation • expected return plan asset assumptions reflects asset allocations investment strategy historical experience views investment managers reflects projection expected arithmetic returns 10 years • retirement termination rates primarily based actual plan experience actuarial standards practice • mortality rates us defined benefit pension plans updated 2014 reflect expected improvements life expectancy plan participants mortality rates uk defined benefit pension plan updated 2012 reflect expected improvements life expectancy plan participants • fair value assets used determine expected return assets reflect delayed recognition asset gains losses effects actual results differing assumptions accumulated amortized future periods therefore generally affect recognized expense periods us uk defined benefit pension plans including enpp comprised approximately 87 consolidated projected benefit obligation december 31 2014 discount rate used determine 2014 projected benefit obligation us qualified defined benefit pension plans decreased 25 basis points projected benefit obligation would increased approximately 12 million december 31 2014 2015 pension expense would decrease nominal amount discount rate used determine 2014 projected benefit obligation us qualified defined benefit pension plans increased 25 basis points projected benefit obligation would decreased approximately 12 million december 31 2014 2015 pension expense would increase nominal amount discount rate used determine projected benefit obligation uk defined benefit pension plan decreased 25 basis points projected benefit obligation would increased approximately 284 million december 31 2014 2015 pension expense would increase approximately 06 million discount rate used determine projected benefit obligation uk defined benefit pension plan increased 25 basis points projected benefit obligation would decreased approximately 273 million december 31 2014 2015 pension expense would decrease approximately 07 million addition expected longterm rate return plan assets related uk defined benefit pension plan increased decreased 25 basis points 2015 pension expense would decrease increase approximately 15 million respectively impact us defined benefit pension plans 25basispoint change expected longterm rate return would insignificant impact 2015 pension expense unrecognized actuarial losses related defined benefit pension plans enpp 3297 million december 31 2014 compared 2655 million december 31 2013 increase unrecognized losses years primarily resulted decrease discount rates 2014 offset favorable investment performance unrecognized actuarial losses impacted future periods actual asset returns discount rate changes currency exchange rate fluctuations actual demographic experience certain factors defined benefit pension plans losses extent exceed 10 greater plan’s liabilities fair value assets “the gainloss corridor” amortized straightline basis average remaining service period active employees expected receive benefits us salaried us hourly uk defined benefit pension plans population covered predominantly inactive participants losses related plans extent exceed gainloss corridor amortized average remaining lives participants covered respective plan december 31 2014 average amortization period 19 years us defined benefit pension plans 22 years nonus defined benefit pension plans enpp population predominantly active participants losses related plan amortized average future working lifetime active participants december 31 2014 average amortization period 11 years enpp estimated net actuarial loss defined benefit pension plans enpp expected amortized accumulated comprehensive loss year ended december 31 2015 approximately 114 million compared approximately 95 million year ended december 31 2014 december 31 2014 unfunded underfunded obligations related defined benefit pension plans enpp approximately 2496 million primarily due defined pension plan united kingdom 2014 contributed approximately 434 million towards obligations expect fund approximately 387 million 2015 future funding dependent upon compliance local laws regulations changes laws regulations future well generation operating cash flows future currently agreement place trustees uk defined benefit plan obligates us fund approximately £153 million per year approximately 238 million towards obligation next nine years funding arrangement based upon current underfunded status could change future discount rates local laws regulations factors change see note 8 consolidated financial statements information regarding investment strategy concentration risk postretirement benefits retiree health care life insurance provide certain postretirement health care life insurance benefits certain employees principally united states brazil participation plans generally limited older employees existing retirees see note 8 consolidated financial statements information regarding costs assumptions postretirement benefits nature estimates required measurement obligations costs liabilities associated postretirement benefits retiree health care life insurance requires make use estimates present value projected future payments participants taking consideration likelihood potential future events health care cost increases demographic experience may effect amount timing future payments assumptions approach used assumptions used developing required estimates include following key factors • health care cost trends • inflation • discount rates • medical coverage elections • retirement rates • mortality rates health care cost trend assumptions developed based historical cost data nearterm outlook efficiencies costmitigating actions including employee cost sharing administrative improvements efficiencies assessment likely longterm trends years ended december 31 2014 2013 2012 previously discussed used globally consistent methodology set discount rate countries largest benefit obligations exist united states constructed hypothetical bond portfolio highquality corporate bonds applied cash flows benefit plans bond yields derive discount rate united states bond portfolio large enough result taking “settlement approach” derive discount rate highquality corporate bonds assumed purchased resulting coupon payments maturities used satisfy largest us pension plan’s projected benefit payments bond portfolio selected single discount rate determined market value bonds purchased equals discounted value plan’s benefit payments brazilian plan based discount rate government bond indices within country indices used chosen match expected plan obligations related expected cash flows inflation assumptions based evaluation external market indicators retirement termination rates based primarily actual plan experience actuarial standards practice mortality rates us plans updated 2014 reflect expected improvements life expectancy plan participants effects actual results differing assumptions accumulated amortized future periods therefore generally affect recognized expense future periods us postretirement health care life insurance plans represent approximately 94 consolidated projected benefit obligation discount rate used determine 2014 projected benefit obligation us postretirement benefit plans decreased 25 basis points projected benefit obligation would increased approximately 08 million december 31 2014 2015 postretirement benefit expense would increase nominal amount discount rate used determine 2014 projected benefit obligation us postretirement benefit plans increased 25 basis points projected benefit obligation would decreased approximately 08 million 2015 pension expense would decrease nominal amount unrecognized actuarial losses related us brazilian postretirement benefit plans 33 million december 31 2014 compared 41 million december 31 2013 64 million 65 million respectively related us postretirement benefit plans unrecognized actuarial losses impacted future periods discount rate changes actual demographic experience actual health care inflation certain factors losses extent exceed gainloss corridor amortized straightline basis average remaining service period active employees expected receive benefits average remaining lives inactive participants covered postretirement benefit plans december 31 2014 average amortization period 15 years us postretirement benefit plans estimated net actuarial loss postretirement health care benefits expected amortized accumulated comprehensive loss year ended december 31 2015 approximately 01 million compared approximately 01 million year ended december 31 2014 december 31 2014 approximately 296 million unfunded obligations related us brazilian postretirement health life insurance benefit plans 2014 made benefit payments approximately 16 million towards obligations expect make benefit payments approximately 15 million towards obligations 2015 measuring expected us postretirement benefit obligation december 31 2014 2013 assumed 70 75 health care cost trend rate 2015 2014 respectively decreasing 50 2019 measuring brazilian postretirement benefit plan obligation december 31 2014 assumed 1225 health care cost trend rate 2015 decreasing 645 2025 measuring brazilian postretirement benefit plan obligation december 31 2013 assumed 1225 health care cost trend rate 2014 decreasing 645 2024 changing assumed health care cost trend rates one percentage point year holding assumptions constant would following effect service interest cost 2014 accumulated postretirement benefit obligation december 31 2014 millions litigation party various claims lawsuits arising normal course business closely monitor claims lawsuits frequently consult legal counsel determine whether may resolved material adverse effect financial position results operations accrue andor disclose loss contingencies appropriate goodwill intangible assets longlived assets test goodwill impairment reporting unit level annually events circumstances indicate fair value reporting unit may carrying value reporting unit operating segment one level operating segment example component combine aggregate two components operating segment single reporting unit components similar economic characteristics reportable segments reporting units goodwill evaluated annually october 1 impairment using qualitative assessment quantitative twostep assessment elect perform qualitative assessment determine fair value reporting units likely exceeds carrying value evaluation necessary reporting units perform twostep quantitative assessment first step requires us compare fair value reporting unit respective carrying value including goodwill fair value reporting unit exceeds carrying value goodwill considered impaired carrying value higher fair value reporting unit second step quantitative assessment required measure amount impairment second step quantitative assessment results calculation implied fair value reporting unit’s goodwill determined excess fair value reporting unit fair values assigned assets liabilities implied fair value goodwill less carrying value reporting unit’s goodwill difference recognized impairment loss utilize combination valuation techniques including discounted cash flow approach market multiple approach making quantitative goodwill assessments review longlived assets includes intangible assets subject amortization impairment whenever events changes circumstances indicate carrying amount asset may recoverable evaluation recoverability performed level independent cash flows may attributed either asset group determine carrying amount asset group recoverable based expected undiscounted future cash flows asset group impairment loss recorded equal excess carrying amounts estimated fair value longlived assets estimates future cash flows based many factors including current operating results expected market trends competitive influences also evaluate amortization periods assigned intangible assets determine whether events changes circumstances warrant revised estimates useful lives assets disposed sale reported lower carrying amount fair value less estimated costs sell make various assumptions including assumptions regarding future cash flows market multiples growth rates discount rates assessments impairment goodwill indefinitelived intangible assets longlived assets assumptions future cash flows growth rates based current longterm business plans reporting unit related longlived assets discount rate assumptions based assessment risk inherent future cash flows reporting unit longlived assets assumptions require significant judgments part conclusions reach could vary significantly based upon judgments results goodwill longlived assets impairment analyses conducted october 1 2014 2013 indicated reduction carrying amount goodwill longlived assets required fourth quarter 2012 recorded noncash impairment charge approximately 224 million related goodwill certain identifiable intangible assets associated chinese harvesting business accordance asc 350 “intangibles goodwill other” see note 1 consolidated financial statements discussion results goodwill impairment analysis conducted october 1 2012 indicated reduction carrying amount goodwill longlived assets required december 31 2014 approximately 11928 million goodwill annual impairment testing 2014 supported carrying amount goodwill may required reevaluate carrying amount future periods thus utilizing different assumptions reflect current market conditions expectations therefore could conclude impairment occurred item 7aitem 7 management’s discussion analysis financial condition results operations leading manufacturer distributor agricultural equipment related replacement parts throughout world sell full range agricultural equipment including tractors combines selfpropelled sprayers hay tools forage equipment seeding tillage equipment implements grain storage protein production systems products widely recognized agricultural equipment industry marketed number wellknown brand names including challenger® fendt® gsi® massey ferguson® valtra® distribute products combination 3000 dealers distributors well associates licensees addition provide retail financing finance joint ventures rabobank financial highlights sell equipment replacement parts independent dealers distributors customers large majority sales independent dealers distributors sell products end users extent practicable attempt sell products dealers distributors level basis throughout year reduce effect seasonal demands manufacturing operations minimize investment inventories however retail sales dealers farmers highly seasonal linked planting harvesting seasons certain markets particularly north america often time lag varies based timing level retail demand sale equipment dealer’s sale retail customer following table sets forth periods indicated percentage relationship net sales certain items included consolidated statements operations 1 rounding may impact summation amounts 2016 compared 2015 net income attributable agco corporation subsidiaries 2016 1601 million 196 per diluted share compared net income 2015 2664 million 306 per diluted share net sales 2016 approximately 74105 million 08 lower 2015 primarily due continued weakening global market conditions unfavorable impact currency translation income operations 2884 million 2016 compared 3611 million 2015 decrease income operations 2016 result decreased production levels weaker sales mix negative currency translation impacts regionally income operations north american south american regions decreased approximately 843 million 145 million respectively 2016 compared 2015 lower sales production volumes weaker product mix cost increases contributed reduction income operations north america south america lower margins due primarily material cost inflation negative impact currency translation adversely impacted income operations income operations europeafricamiddle east “eame” asiapacific region increased approximately 10 million 390 million respectively 2016 compared 2015 income operations eame benefited higher net sales negatively impacted unfavorable currency translation impacts asiapacific region operating results bolstered significant growth net sales region well increased small tractor production levels china industry market conditions record grain harvest us combined healthy crop production across europe south america resulted increased global grain inventories low soft commodity prices 2016 result deteriorating farm economics negatively impacted farmer sentiment industry equipment demand major markets north america industry demand declined 2016 particularly row crop professional hay producer sectors significantly lower industry retail sales highhorsepower tractors combines sprayers grain storage handling equipment industry demand south america stabilized throughout 2016 market conditions brazil declined full year 2016 compared 2015 stronger farm fundamentals second half year helped overcome previous weaknesses caused political uncertainty depressed economic conditions supportive government policies improved crop production argentina also resulted higher industry sales market industry retail demand also lower western europe 2016 compared 2015 levels difficult economic conditions dairy producers lower commodity prices arable farming sector negatively impacted demand across region declines pronounced france germany partially offset modest growth finland scandinavia united states canada industry unit retail sales tractors 40 horsepower decreased approximately 10 industry unit retail sales combines decreased approximately 21 2016 compared 2015 industry unit retail sales lower horsepower tractors stable unit retail sales declines high horsepower tractors sprayers combines declined significantly south america industry unit retail sales tractors decreased approximately 6 2016 compared 2015 industry retail sales combines south america increased approximately 14 2016 compared 2015 industry sales declines tractors pronounced brazil south american markets industry sales increases combines principally brazil argentina previously discussed favorable political landscape region second half 2016 positively impacted market demand western europe industry unit retail sales tractors combines decreased approximately 4 14 respectively 2016 compared 2015 significant declines france germany results operations net sales 2016 74105 million compared 74673 million 2015 primarily due softer global market conditions unfavorable impact foreign currency translation foreign currency translation negatively impacted net sales 2016 compared 2015 approximately 1960 million approximately 26 primarily due weakening euro brazilian real acquisitions positively impacted net sales 2016 compared 2015 approximately 1732 million 23 following table sets forth year ended december 31 2016 impact net sales currency translation geographical segment millions except percentages regionally net sales north america decreased 2016 compared 2015 significant decreases grain storage equipment sprayers hay tools partially offset net sales growth low midsized horsepower tractors net sales lower south america 2016 compared 2015 higher net sales argentina partially offset lower net sales brazil south american markets eame region net sales relatively flat 2016 compared 2015 growth united kingdom scandinavia mostly offset declines france germany africa asiapacific region net sales increased 2016 compared 2015 primarily due significant growth sales china estimate worldwide average price increases approximately 15 18 2016 2015 respectively consolidated net sales tractors combines consisted approximately 61 net sales 2016 decreased approximately 10 2016 compared 2015 unit sales tractors combines decreased approximately 15 2016 compared 2015 unit sales decrease net sales differ due foreign currency translation pricing sales mix changes following table sets forth years ended december 31 2016 2015 percentage relationship net sales certain items included consolidated statements operations millions except percentages gross profit percentage net sales decreased 2016 compared 2015 primarily due lower production levels weaker product mix cost increases including higher warranty expenses benefits material cost containment productivity initiatives helped partially offset negative impacts production hours decreased approximately 5 2016 compared 2015 recorded stock compensation expense approximately 15 million 09 million 2016 2015 respectively within cost goods sold fully explained note 10 consolidated financial statements selling general administrative expenses “sga expenses” engineering expenses increased dollars percentage net sales 2016 compared 2015 increases sga engineering expenses primarily result acquisitions 2016 engineering expenses also increased 2016 support investments future new product introductions recorded stock compensation expense approximately 169 million 116 million 2016 2015 respectively within sga expenses fully explained note 10 consolidated financial statements recorded restructuring expenses approximately 119 million 223 million 2016 2015 respectively restructuring expenses recorded 2016 2015 primarily related severance related costs associated rationalization employee headcount various manufacturing facilities administrative offices located europe china south america united states interest expense net 521 million 2016 compared 454 million 2015 increase primarily due higher outstanding indebtedness see “liquidity capital resources” information expense net 314 million 2016 compared 363 million 2015 decrease primarily due lower foreign exchange losses 2016 compared 2015 losses sales receivables primarily related accounts receivable sales agreements finance joint ventures north america europe brazil approximately 195 million 188 million 2016 2015 respectively recorded income tax provision 922 million 2016 compared 725 million 2015 tax provision effective tax rate impacted differing tax rates various tax jurisdictions operate permanent differences items treated differently financial accounting income tax purposes losses jurisdictions income tax benefit recorded 2016 also recorded noncash deferred tax adjustment establish valuation allowance us net deferred income tax assets valuation allowance established likely portion company’s deferred tax assets realized assessed likelihood deferred tax assets would recovered estimated future taxable income available income tax planning strategies december 31 2016 2015 gross deferred tax assets 4474 million 3900 million respectively including 855 million 740 million respectively related net operating loss carryforwards december 31 2016 total valuation allowances offset gross deferred tax assets 1160 million included allowances net operating loss carryforwards brazil china russia netherlands well allowances net deferred taxes us previously discussed december 31 2015 total valuation allowances offset gross deferred tax assets approximately 758 million primarily related net operating loss carryforwards brazil china russia netherlands realization remaining deferred tax assets december 31 2016 depend generating sufficient taxable income future periods net reversing deferred tax liabilities believe likely remaining net deferred tax assets realized equity net earnings affiliates primarily comprised income finance joint ventures 475 million 2016 compared 571 million 2015 primarily due declining operating results consequence weaker market conditions refer “finance joint ventures” information regarding finance joint ventures results operations note 5 consolidated financial statements 2015 compared 2014 net income attributable agco corporation subsidiaries 2015 2664 million 306 per diluted share compared net income 2014 4104 million 436 per diluted share net sales 2015 approximately 74673 million 232 lower 2014 primarily due softer global market conditions unfavorable impact currency translation income operations 3611 million 2015 compared 6465 million 2014 decrease income operations 2015 result lower net sales geographical segments decreased production volumes weaker sales mix currency translation impacts regionally income operations europeafricamiddle east “eame” south american north american regions decreased approximately 835 million 996 million 958 million respectively 2015 compared 2014 result lower net sales production levels unfavorable sales mix negative impact currency translation adverse impacts partially mitigated headcount cost reduction initiatives loss operations asiapacific region increased approximately 161 million 2015 compared 2014 primarily due lower net sales increased market development costs china industry market conditions record crop production elevated commodity inventories resulted lower farm income weakened demand farm equipment major markets 2015 compared 2014 north america industry demand significantly lower high horsepower tractors combines sprayers primarily used row crop applications industry demand south america deteriorated significantly throughout 2015 brazil demand extremely low due weakness general economy funding interruptions government financing program softness sugarcane sector western europe industry demand declines 2014 levels less pronounced poor economics dairy producers lower commodity prices arable farming sector pressured demand united states canada industry unit retail sales tractors combines decreased approximately 3 28 respectively 2015 compared 2014 significant declines experienced row crop sector impacting demand high horsepower tractors combines sprayers declines partially offset stable industry sales lower horsepower tractors south america industry unit retail sales tractors combines decreased approximately 28 39 respectively 2015 compared 2014 declines pronounced brazil south american markets western europe industry unit retail sales tractors combines decreased approximately 4 10 respectively 2015 compared 2014 significant declines united kingdom finland germany results operations net sales 2015 74673 million compared 97237 million 2014 primarily due softer global market conditions unfavorable impact foreign currency translation foreign currency translation negatively impacted net sales 2015 compared 2014 approximately 12650 million approximately 130 primarily due weakening euro brazilian real following table sets forth year ended december 31 2015 impact net sales currency translation geographical segment millions except percentages regionally net sales north america decreased 2015 compared 2014 significant decreases high horsepower tractors combines sprayers implements partially offset sales growth protein production equipment net sales lower south america 2015 compared 2014 due significant sales declines brazil partially offset modest growth argentina south american markets declines net sales tractors combines region partially offset growth sales protein production grain storage equipment eame region net sales decreased 2015 compared 2014 largest declines germany africa scandinavia partially offset growth france turkey asiapacific region net sales decreased 2015 compared 2014 primarily due net sales declines asia estimate worldwide average price increases approximately 18 15 2015 2014 respectively consolidated net sales tractors combines consisted approximately 61 net sales 2015 decreased approximately 26 2015 compared 2014 unit sales tractors combines decreased approximately 12 2015 compared 2014 unit sales decrease net sales differ due foreign currency translation pricing sales mix changes following table sets forth years ended december 31 2015 2014 percentage relationship net sales certain items included consolidated statements operations millions except percentages 1 rounding may impact summation amounts gross profit percentage net sales decreased 2015 compared 2014 primarily due lower net sales production levels well weaker product mix headcount cost reduction initiatives helped partially offset negative impacts production hours decreased approximately 18 2015 compared 2014 recorded stock compensation expense approximately 09 million 2015 credit approximately 09 million 2014 within cost goods sold fully explained note 1 consolidated financial statements sga expenses engineering expenses declined dollars increased percentage net sales 2015 compared 2014 declines sga engineering expenses result headcount spending reductions well impact foreign currency translation recorded stock compensation expense approximately 116 million 2015 credit 97 million 2014 within sga expenses fully explained note 1 consolidated financial statements credit recorded 2014 included approximately 169 million reversal previously recorded longterm stock compensation expense recorded restructuring expenses approximately 223 million 464 million 2015 2014 respectively restructuring expenses recorded 2015 2014 primarily related severance related costs associated rationalization employee headcount various manufacturing facilities administrative offices located europe china south america united states interest expense net 454 million 2015 compared 584 million 2014 decrease primarily due higher interest income lower interest rates outstanding indebtedness see “liquidity capital resources” information expense net 363 million 2015 compared 491 million 2014 decrease primarily due lower foreign exchange losses decreased losses sales receivables 2015 compared 2014 losses sales receivables primarily related accounts receivable sales agreements finance joint ventures north america europe brazil approximately 188 million 248 million 2015 2014 respectively recorded income tax provision 725 million 2015 compared 1877 million 2014 tax provision effective tax rate impacted differing tax rates various tax jurisdictions operate permanent differences items treated differently financial accounting income tax purposes losses jurisdictions income tax benefit recorded valuation allowance established likely portion company’s deferred tax assets realized assessed likelihood deferred tax assets would recovered estimated future taxable income available income tax planning strategies december 31 2015 2014 gross deferred tax assets 3900 million 4300 million respectively including 740 million 757 million respectively related net operating loss carryforwards december 31 2015 total valuation allowances offset gross deferred tax assets 758 million primarily related net operating loss carryforwards brazil china russia netherlands december 31 2014 total valuation allowances offset gross deferred tax assets approximately 933 million primarily related net operating loss carryforwards brazil china russia netherlands equity net earnings affiliates primarily comprised income finance joint ventures 571 million 2015 compared 529 million 2014 refer “finance joint ventures” information regarding finance joint ventures results operations note 5 consolidated financial statements quarterly results following table presents unaudited interim operating results believe following information includes adjustments consisting normal recurring adjustments necessary present fairly results operations periods presented finance joint ventures agco finance joint ventures provide retail financing wholesale financing dealers united states canada europe brazil argentina australia joint ventures owned agco wholly owned subsidiary rabobank financial institution based netherlands majority assets finance joint ventures consist finance receivables majority liabilities consist notes payable accrued interest various joint venture agreements rabobank affiliates provide financing joint ventures primarily lines credit guarantee debt obligations joint ventures december 31 2016 capital investment finance joint ventures included “investment affiliates” consolidated balance sheets approximately 3808 million compared 3594 million december 31 2015 total finance portfolio finance joint ventures approximately 80 billion december 31 2016 2015 total finance portfolio december 31 2016 2015 included approximately 67 billion retail receivables 13 billion wholesale receivables agco dealers wholesale receivables either sold directly agco finance without recourse operating companies agco finance provided financing directly dealers 2016 made total approximately 28 million additional investments retail finance joint venture netherlands primarily related additional capital required result increased finance portfolio 2016 2015 2014 make additional investments finance joint ventures share earnings finance joint ventures included “equity net earnings affiliates” within consolidated statements operations 455 million 538 million years ended december 31 2016 2015 respectively outlook operations subject cyclical nature agricultural industry sales equipment expected continue affected changes net cash farm income farm land values weather conditions demand agricultural commodities farm industry related legislation availability financing general economic conditions weak industry demand north america europe expected continue 2017 partially offset growth south american markets increased global grain inventories low soft commodity prices contributed reduced farm income continue impact developed agricultural markets net sales expected relatively flat 2017 compared 2016 primarily due projected industry declines north america europe unfavorable currency translation impacts largely offset sales growth south america impact acquisitions pricing market share improvements targeting improve gross operating margins 2016 levels result cost reduction efforts partially offset weaker sales mix recent acquisitions september 12 2016 acquired cimbria holdings limited “cimbria” dkk 22349 million approximately 3375 million net cash acquired approximately dkk 834 million approximately 126 million cimbria headquartered thisted denmark leading manufacturer products solutions processing handling storage seed grain acquisition financed credit facility see note 7 consolidated financial statements information allocated purchase price assets acquired liabilities assumed based preliminary estimates fair values acquisition date acquired assets primarily consisted accounts receivable inventories accounts payable accrued expenses customer advances property plant equipment customer relationship technology trademark identifiable intangible assets recorded approximately 1289 million customer relationship technology trademark identifiable intangible assets approximately 2379 million goodwill associated acquisition february 2 2016 acquired tecno poultry equipment spa “tecno” approximately €587 million approximately 638 million acquired cash approximately €176 million approximately 191 million associated acquisition tecno headquartered ronchi di villafranca italy manufactures supplies poultry housing related products including egg collection equipment trolley feeding systems acquisition financed credit facility refer note 7 consolidated financial statements information allocated purchase price assets acquired liabilities assumed based fair values acquisition date acquired net assets primarily consisted accounts receivable inventories accounts payable accrued expenses deferred revenue property plant equipment customer relationship technology trademark identifiable intangible assets recorded approximately 275 million customer relationship technology trademark identifiable intangible assets approximately 204 million goodwill associated acquisition april 17 2015 acquired farmer automatic gmbh co kg “farmer automatic” approximately 179 million net cash acquired approximately 01 million farmer automatic headquartered laer germany manufactures supplies poultry housing related products including egg production cages broiler production equipment acquisition financed available cash hand allocated purchase price assets acquired liabilities assumed based fair values acquisition date acquired net assets primarily consisted accounts receivable inventories accounts payable accrued expenses property plant equipment customer relationship technology trademark identifiable intangible assets recorded approximately 96 million customer relationship technology trademark identifiable intangible assets approximately 100 million goodwill associated acquisition august 1 2014 acquired intersystems holdings inc “intersystems” approximately 1303 million net cash acquired approximately 41 million intersystems headquartered omaha nebraska designs manufactures commercial material handling solutions primarily agricultural biofuels food feed processing industries acquisition financed available cash hand credit facility refer note 7 consolidated financial statements information allocated purchase price assets acquired liabilities assumed based fair values acquisition date acquired net assets primarily consisted accounts receivable inventories accounts payable accrued expenses property plant equipment customer relationship technology trademark identifiable intangible assets recorded approximately 463 million customer relationship technology trademark identifiable intangible assets approximately 896 million goodwill associated acquisition liquidity capital resources financing requirements subject variations due seasonal changes inventory receivable levels internally generated funds supplemented necessary external sources primarily credit facility accounts receivable sales agreement facilities believe following facilities together available cash internally generated funds sufficient support working capital expenditures debt service requirements foreseeable future millions addition compliance financial covenants contained facilities currently expect continue maintain compliance ever encounter difficulties historical relationship lenders strong anticipate continued longterm support business refer note 7 consolidated financial statements information regarding current facilities accounts receivable sales agreements north america europe brazil permit sale ongoing basis majority receivables north america europe brazil us canadian european brazilian finance joint ventures sale receivables without recourse us service receivables sale occurs maintain direct retained interest receivables agreements accounted offbalance sheet transactions effect reducing accounts receivable shortterm liabilities amount december 31 2016 2015 cash received receivables sold us canadian european brazilian accounts receivable sales agreements approximately 11 billion finance joint ventures europe brazil australia also provide wholesale financing directly dealers receivables associated arrangements also without recourse us december 31 2016 2015 finance joint ventures approximately 415 million 383 million respectively outstanding accounts receivable associated arrangements accounted offbalance sheet transactions addition sell certain trade receivables factoring arrangements financial institutions around world arrangements also accounted offbalance sheet transactions cash flows cash flows provided operating activities 3695 million 2016 compared 5242 million 2015 4384 million 2014 decrease cash flows provided operating activities 2016 primarily due decrease net income well increase inventories increase cash flows provided operating activities 2015 primarily due reduction accounts receivable inventories well increase accounts payable working capital requirements seasonal investments working capital typically building first half year reducing second half year 10208 million working capital december 31 2016 compared 7129 million december 31 2015 accounts receivable inventories combined december 31 2016 1450 million higher december 31 2015 increase accounts receivable inventories december 31 2016 compared december 31 2015 primarily result acquisitions debt capitalization ratio total indebtedness divided sum total indebtedness stockholders’ equity 375 december 31 2016 compared 300 december 31 2015 increase primarily due additional indebtedness related financing cimbria acquisition well impact share repurchase discussed share repurchase program 2016 2015 2014 repurchased 4413250 5541930 10066322 shares common stock respectively approximately 2125 million 2875 million 4997 million respectively either asr agreements financial institutions open market transactions shares received asr agreements retired upon receipt excess purchase price par value per share recorded “additional paidin capital” within consolidated balance sheets contractual obligations future payments required significant contractual obligations excluding foreign currency option forward contracts december 31 2016 follows millions 1 indebtedness amounts reflect principal amount senior term loan senior notes credit facility 2 estimated interest payments calculated assuming current interest rates minimum maturity periods specified debt agreements debt may repaid sooner later minimum maturity periods 3 shortterm longterm obligations include estimates future minimum contribution requirements us nonus defined benefit pension postretirement plans estimates based current legislation countries operate within subject change shortterm longterm obligations also include income tax liabilities related uncertain income tax positions connected ongoing income tax audits various jurisdictions commitments offbalance sheet arrangements guarantees maintain remarketing agreement finance joint venture united states whereby obligated repurchase repossessed inventory market value agreement finance joint venture united states limits purchase obligations arrangement 60 million aggregate per calendar year believe losses might incurred resale equipment materially impact financial position results operations due fact repurchase obligation would equivalent fair value underlying equipment december 31 2016 guaranteed indebtedness owed third parties approximately 638 million primarily related dealer enduser financing equipment guarantees generally obligate us repay outstanding finance obligations owed financial institutions dealers end users default loans 2021 believe credit risk associated guarantees material financial position results operations losses guarantees historically insignificant addition generally would expect able recover significant portion amounts paid guarantees sale underlying financed farm equipment fair value equipment expected offset substantial portion amounts paid december 31 2016 outstanding designated nondesignated foreign exchange contracts gross notional amount approximately 16614 million outstanding contracts december 31 2016 range maturity december 2017 discussed “liquidity capital resources” sell majority wholesale accounts receivable north america europe us canadian european finance joint ventures 2016 started sell portion wholesale receivables brazil brazilian finance joint venture also sell certain accounts receivable factoring arrangements financial institutions around world determined facilities accounted offbalance sheet transactions contingencies party various claims lawsuits arising normal course business closely monitor claims lawsuits frequently consult legal counsel determine whether may resolved material adverse effect financial position results operations accrue andor disclose loss contingencies appropriate see note 12 consolidated financial statements item 3 “legal proceedings” related parties rabobank 51 owner finance joint ventures see “finance joint ventures” rabobank also principal agent participant credit facility finance joint ventures provide retail wholesale financing dealers addition transfer ongoing basis majority wholesale receivables north america europe brazil us canadian european brazilian finance joint ventures see note 4 consolidated financial statements discussion agreements maintain remarketing agreement us finance joint venture agco finance llc discussed “commitments offbalance sheet arrangements” addition part sales incentives provided end users may time subsidize interest rates retail financing provided finance joint ventures cost programs recognized time sale dealers tractors farm equipment limited hold 2375 interest manufactures massey fergusonbranded equipment primarily india also supplies tractors components us sale markets mallika srinivasan chairman chief executive officer tafe currently member board directors december 31 2016 tafe owned 12150152 shares common stock tafe parties agreement pursuant among things tafe agreed purchase excess 12170290 shares common stock subject certain adjustments agreed annually nominate tafe representative board directors 2016 2015 2014 purchased approximately 1285 million 1292 million 1490 million respectively tractors components tafe 2016 2015 2014 sold approximately 11 million 22 million 21 million respectively parts tafe received dividends tafe approximately 16 million 17 million 18 million 2016 2015 2014 respectively 2016 2015 2014 paid approximately 31 million 35 million 38 million respectively ppg industries inc painting materials used manufacturing processes chairman president chief executive officer currently member board directors ppg industries inc 2016 2015 paid approximately 20 million 06 million respectively praxair inc propane gas welding laser consumables used manufacturing processes october 2015 chairman president chief executive officer became member board directors praxair inc foreign currency risk management significant manufacturing operations united states france germany finland brazil purchase portion tractors combines components thirdparty foreign suppliers primarily various european countries japan also sell products 150 countries throughout world majority net sales outside united states denominated currency customer location exception sales middle east africa asia parts south america net sales primarily denominated british pounds euros united states dollars see note 15 consolidated financial statements net sales customer location significant transactional foreign currency exposures euro brazilian real canadian dollar relation united states dollar euro relation british pound fluctuations value foreign currencies create exposures adversely affect results operations attempt manage transactional foreign currency exposure hedging foreign currency cash flow forecasts commitments arising anticipated settlement receivables payables future purchases sales naturally offsetting currency positions occur hedge certain exposures use foreign currency contracts translation exposure resulting translating financial statements foreign subsidiaries united states dollars hedged significant translation exposures euro british pound brazilian real relation united states dollar practical translation impact reduced financing local operations local borrowings hedging policy prohibits use foreign currency contracts speculative trading purposes derivatives recognized consolidated balance sheets fair value date derivative contract entered designate derivative either 1 cash flow hedge forecasted transaction 2 fair value hedge recognized liability 3 hedge net investment foreign operation 4 nondesignated derivative instrument currently engage derivatives cash flow hedges forecasted transactions well nondesignated derivative instruments total notional value foreign currency instruments 16614 million 15339 million december 31 2016 2015 inclusive instruments designated qualified hedge accounting nondesignated derivative instruments also enter nonderivative instruments hedge portion net investment foreign operations adverse movements exchange rates refer note 11 consolidated financial statements additional information hedging transactions derivative financial instruments assuming 10 change relative currency hedge contracts fair value foreign currency instruments could negatively impacted approximately 590 million december 31 2016 due fact instruments primarily entered hedging purposes gains losses contracts would largely offset losses gains underlying firm commitment forecasted transaction interest rate risk interest expense part sensitive general level interest rates manage exposure interest rate risk mix floating rate fixed rate debt time enter interest rate swap agreements manage exposure interest rate fluctuations refer notes 7 11 consolidated financial statements additional information interest rate swap agreements based floating rate debt accounts receivable sales facilities outstanding december 31 2016 10 increase interest rates would increased collectively “interest expense net” “other expense net” year ended december 31 2016 approximately 47 million recent accounting pronouncements see note 1 consolidated financial statements information regarding recent accounting pronouncements impact consolidated results operations financial position critical accounting estimates prepare consolidated financial statements conformity us generally accepted accounting principles preparation financial statements make judgments estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period significant accounting policies followed preparation financial statements detailed note 1 consolidated financial statements believe application policies discussed involves significant levels judgment estimates complexity due levels judgment complexity period time many items resolved actual results could differ estimated time preparation financial statements adjustments estimates would impact financial position future results operations discount sales incentive allowances provide various volume bonus sales incentive programs respect products sales incentive programs include reductions invoice prices reductions retail financing rates dealer commissions dealer incentive allowances cases incentive programs established communicated dealers quarterly basis incentives paid either time invoice reduction invoice price time settlement receivable time retail financing time warranty registration subsequent time based dealer purchases incentive programs product line specific generally vary dealer cost sales incentives associated dealer commissions dealer incentive allowances estimated based upon terms programs historical experience based percentage sales price recorded later date related revenue recognized b date sales incentive offered related provisions accruals made product productline basis monitored adequacy revised least quarterly event subsequent modifications programs volume discounts estimated recognized based historical experience related reserves monitored adjusted based actual dealer purchases dealers’ progress towards achieving specified cumulative target levels record cost interest subsidy payments reduction retail financing rates later date related revenue recognized b date sales incentive offered estimates incentives based terms programs historical experience incentive programs recorded presented reduction revenue due fact receive identifiable benefit exchange consideration provided reserves incentive programs paid either reduction future invoices credit memos recorded “accounts receivable allowances” within consolidated balance sheets reserves incentive programs paid cash case volume discount programs well sales incentives associated accounts receivable sold us canadian finance joint ventures recorded within “accrued expenses” within consolidated balance sheets december 31 2016 recorded allowance discounts sales incentives approximately 2370 million primarily related allowances north america geographical segment paid either reduction future invoices credit memos dealers reductions retail financing rates allow additional 1 sales incentives discounts time retail sale sales subject discount programs north america reserve would increase approximately 78 million december 31 2016 conversely decrease sales incentives discounts 1 time retail sale reserve would decrease approximately 78 million december 31 2016 deferred income taxes uncertain income tax positions recorded income tax provision 922 million 2016 compared 725 million 2015 1877 million 2014 tax provision effective tax rate impacted differing tax rates various tax jurisdictions operate permanent differences items treated differently financial accounting income tax purposes losses jurisdictions income tax benefit recorded second quarter 2016 company established valuation allowance fully reserve net deferred tax assets united states valuation allowance established likely portion deferred tax assets realized company assessed likelihood deferred tax assets would recovered estimated future taxable income available tax planning strategies determined adjustment valuation allowance appropriate making assessment available evidence considered including current economic climate well reasonable tax planning strategies company believes likely company realize remaining net deferred tax assets net valuation allowance future years december 31 2016 2015 gross deferred tax assets 4474 million 3900 million respectively including 855 million 740 million respectively related net operating loss carryforwards december 31 2016 2015 total valuation allowances offset gross deferred tax assets 1160 million 758 million respectively included allowances net operating loss carryforwards brazil china russia netherlands well allowances net deferred taxes us previously discussed realization remaining deferred tax assets december 31 2016 depend generating sufficient taxable income future periods net reversing deferred tax liabilities believe likely remaining net deferred tax assets realized december 31 2016 2015 approximately 1399 million 1330 million respectively unrecognized tax benefits would impact effective tax rate recognized december 31 2016 2015 approximately 470 million 612 million respectively current accrued taxes related uncertain income tax positions connected ongoing tax audits various jurisdictions expect settle pay next 12 months recognize interest penalties related uncertain income tax positions income tax expense december 31 2016 2015 accrued interest penalties related unrecognized tax benefits approximately 164 million 183 million respectively see note 6 consolidated financial statements discussion uncertain income tax positions warranty additional service actions warranty coverage products generally covers parts labor expenses time sale make provisions estimated expenses related product warranties base estimates historical experience nature frequency average cost warranty claims separately also establish reserves known material defects based formal campaigns repair defects costs deemed probable reasonably estimated due uncertainty potential volatility estimated factors changes assumptions could materially affect net income estimate warranty obligations reevaluated quarterly basis experience shown initial data product series line volatile therefore process relies upon longterm historical averages sufficient data available actual experience becomes available used modify historical averages ensure forecast within range likely outcomes resulting balances compared present spending rates ensure accruals adequate meet expected future obligations see note 1 consolidated financial statements information regarding costs assumptions warranties insurance reserves insurance programs coverage obtained significant liability limits well risks required law contract policy selfinsure portion certain expected losses primarily related workers’ compensation comprehensive general liability product liability vehicle liability provide insurance reserves estimates losses due claims items selfinsured base estimates expected ultimate settlement amount claims often long periods resolution closely monitor claims maintain adequate reserves pensions sponsor defined benefit pension plans covering certain employees principally united kingdom united states germany switzerland finland france norway argentina primary plans cover certain employees united states united kingdom united states sponsor funded qualified defined benefit pension plan salaried employees well separate funded qualified defined benefit pension plan hourly employees plans closed new entrants frozen fund least minimum contributions required employee retirement income security act 1974 internal revenue code plans addition maintain unfunded nonqualified defined benefit pension plan certain usbased senior executives executive nonqualified pension plan “enpp” enpp also closed new entrants united kingdom sponsor funded defined benefit pension plan provides annuity benefit based participants’ final average earnings service participation plan limited certain older longer service employees existing retirees plan closed new participants see note 8 consolidated financial statements information regarding costs assumptions employee retirement benefits nature estimates required measurement date benefit plans december 31 measurement pension obligations costs liabilities dependent variety assumptions provided management used actuaries assumptions include estimates present value projected future pension payments plan participants taking consideration likelihood potential future events salary increases demographic experience assumptions may effect amount timing future contributions assumptions approach used assumptions used developing required estimates include following key factors • discount rates • inflation • salary growth • expected return plan assets • retirement rates • mortality rates years ended december 31 2016 2015 2014 used globally consistent methodology set discount rate countries largest benefit obligations exist united states united kingdom euro zone constructed hypothetical bond portfolio highquality corporate bonds applied cash flows benefit plans bond yields derive discount rate bond portfolio planspecific cash flows vary country methodology portfolio constructed consistent united states bond portfolio large enough result taking “settlement approach” derive discount rate highquality corporate bonds assumed purchased resulting coupon payments maturities used satisfy us pension plans’ projected benefit payments united kingdom euro zone discount rate derived using “yield curve approach” individual spot rate zero coupon bond yield future annual period developed discount future benefit payment thereby determine present value future payments settlement yield curve approaches discount rate set equal single discount rate produces present value future payments effective january 1 2016 adopted spot yield curve determine discount rate united kingdom measure plan’s service cost interest cost year ended december 31 2016 previously utilized single weightedaverage discount rate derived “yield curve approach” measure plan’s benefit obligation service cost interest cost going forward elected utilize approach discounts individual expected service cost interest cost cash flows using applicable spot rates derived yield curve projected cash flow period key assumptions methods set follows • inflation assumption based evaluation external market indicators • salary growth assumptions reflect longterm actual experience nearterm outlook assumed inflation • expected return plan asset assumptions reflects asset allocations investment strategy historical experience views investment managers reflects projection expected arithmetic returns ten years • retirement termination rates primarily based actual plan experience actuarial standards practice • mortality rates uk defined benefit pension plan updated 2015 reflect expected improvements life expectancy plan participants mortality rates us defined benefit pension plans updated 2016 reflect society actuaries’ recent findings topic mortality • fair value assets used determine expected return assets reflect delayed recognition asset gains losses effects actual results differing assumptions accumulated amortized future periods therefore generally affect recognized expense periods us uk defined benefit pension plans including enpp comprised approximately 88 consolidated projected benefit obligation december 31 2016 discount rate used determine 2016 projected benefit obligation us qualified defined benefit pension plans enpp decreased 25 basis points projected benefit obligation would increased approximately 36 million december 31 2016 2017 pension expense would increase approximately 03 million discount rate used determine 2016 projected benefit obligation us qualified defined benefit pension plans enpp increased 25 basis points projected benefit obligation would decreased approximately 34 million december 31 2016 2017 pension expense would decrease approximately 03 million discount rate used determine projected benefit obligation uk defined benefit pension plan decreased 25 basis points projected benefit obligation would increased approximately 257 million december 31 2016 2017 pension expense would increase approximately 03 million discount rate used determine projected benefit obligation uk defined benefit pension plan increased 25 basis points projected benefit obligation would decreased approximately 247 million december 31 2016 2017 pension expense would decrease approximately 03 million addition expected longterm rate return plan assets related uk defined benefit pension plan increased decreased 25 basis points 2017 pension expense would decrease increase approximately 13 million respectively impact us defined benefit pension plans 25basispoint change expected longterm rate return would decrease increase 2017 pension expense approximately 01 million respectively unrecognized actuarial net losses related defined benefit pension plans enpp 3847 million december 31 2016 compared 3190 million december 31 2015 increase unrecognized losses years primarily resulted decrease yearend discount rates 2016 compared 2015 unrecognized actuarial losses impacted future periods actual asset returns discount rate changes currency exchange rate fluctuations actual demographic experience certain factors defined benefit pension plans losses extent exceed 10 greater plan’s liabilities fair value assets “the gainloss corridor” amortized straightline basis average remaining service period active employees expected receive benefits us salaried us hourly uk defined benefit pension plans population covered predominantly inactive participants losses related plans extent exceed gainloss corridor amortized average remaining lives participants covered respective plan december 31 2016 average amortization period 18 years us defined benefit pension plans 21 years nonus defined benefit pension plans enpp population predominantly active participants losses related plan amortized average future working lifetime active participants december 31 2016 average amortization period 10 years enpp estimated net actuarial loss defined benefit pension plans enpp expected amortized accumulated comprehensive loss year ended december 31 2017 approximately 120 million compared approximately 100 million year ended december 31 2016 december 31 2016 unfunded underfunded obligations related defined benefit pension plans enpp approximately 2481 million primarily related defined benefit pension plans united kingdom united states 2016 contributed approximately 313 million towards obligations expect fund approximately 288 million 2017 future funding dependent upon compliance local laws regulations changes laws regulations future well generation operating cash flows future currently agreement place trustees uk defined benefit plan obligates us fund approximately £153 million per year approximately 190 million towards obligation september 2022 funding arrangement based upon current underfunded status could change future discount rates local laws regulations factors change see note 8 consolidated financial statements information regarding investment strategy concentration risk postretirement benefits retiree health care life insurance provide certain postretirement health care life insurance benefits certain employees principally united states brazil participation plans generally limited older employees existing retirees see note 8 consolidated financial statements information regarding costs assumptions postretirement benefits nature estimates required measurement obligations costs liabilities associated postretirement benefits retiree health care life insurance requires make use estimates present value projected future payments participants taking consideration likelihood potential future events health care cost increases demographic experience may effect amount timing future payments assumptions approach used assumptions used developing required estimates include following key factors • health care cost trends • inflation • discount rates • medical coverage elections • retirement rates • mortality rates health care cost trend assumptions developed based historical cost data nearterm outlook efficiencies costmitigating actions including employee cost sharing administrative improvements efficiencies well assessment likely longterm trends years ended december 31 2016 2015 2014 used globally consistent methodology previously discussed set discount rate countries largest benefit obligations exist united states constructed hypothetical bond portfolio highquality corporate bonds applied cash flows benefit plans bond yields derive discount rate united states bond portfolio large enough result taking “settlement approach” derive discount rate highquality corporate bonds assumed purchased resulting coupon payments maturities used satisfy largest us pension plan’s projected benefit payments bond portfolio selected single discount rate determined market value bonds purchased equals discounted value plan’s benefit payments brazilian plan based discount rate government bond indices within country indices used chosen match expected plan obligations related expected cash flows inflation assumptions based evaluation external market indicators retirement termination rates based primarily actual plan experience actuarial standards practice mortality rates us plans updated 2016 reflect society actuaries’ recent findings topic mortality effects actual results differing assumptions accumulated amortized future periods therefore generally affect recognized expense future periods us postretirement health care life insurance plans represent approximately 85 consolidated projected benefit obligation discount rate used determine 2016 projected benefit obligation us postretirement benefit plans decreased 25 basis points projected benefit obligation would increased approximately 06 million december 31 2016 2017 postretirement benefit expense would increase nominal amount discount rate used determine 2016 projected benefit obligation us postretirement benefit plans increased 25 basis points projected benefit obligation would decreased approximately 06 million december 31 2016 2017 pension expense would decrease nominal amount unrecognized actuarial losses related us brazilian postretirement benefit plans 20 million december 31 2016 compared 14 million december 31 2015 25 million 40 million respectively related us postretirement benefit plans unrecognized actuarial losses impacted future periods discount rate changes actual demographic experience actual health care inflation certain factors losses extent exceed gainloss corridor amortized straightline basis average remaining service period active employees expected receive benefits average remaining lives inactive participants covered postretirement benefit plans december 31 2016 average amortization period 14 years us postretirement benefit plans estimated net actuarial loss postretirement health care benefits expected amortized accumulated comprehensive loss year ended december 31 2017 less 01 million compared less 01 million year ended december 31 2016 december 31 2016 approximately 286 million unfunded obligations related us brazilian postretirement health life insurance benefit plans 2016 made benefit payments approximately 12 million towards obligations expect make benefit payments approximately 16 million towards obligations 2017 measuring expected us postretirement benefit obligation december 31 2016 assumed 70 health care cost trend rate 2017 decreasing 50 2025 measuring expected us postretirement benefit obligation december 31 2015 assumed 725 health care cost trend rate 2016 decreasing 50 2025 measuring brazilian postretirement benefit plan obligation december 31 2016 assumed 118 health care cost trend rate 2017 decreasing 605 2028 measuring brazilian postretirement benefit plan obligation december 31 2015 assumed 126 health care cost trend rate 2016 decreasing 675 2026 changing assumed health care cost trend rates one percentage point year holding assumptions constant would following effect service interest cost 2016 accumulated postretirement benefit obligation december 31 2016 millions litigation party various claims lawsuits arising normal course business closely monitor claims lawsuits frequently consult legal counsel determine whether may resolved material adverse effect financial position results operations accrue andor disclose loss contingencies appropriate goodwill intangible assets longlived assets test goodwill impairment reporting unit level annually events circumstances indicate fair value reporting unit may carrying value reporting unit operating segment one level operating segment example component combine aggregate two components operating segment single reporting unit components similar economic characteristics reportable segments reporting units goodwill evaluated annually october 1 impairment using qualitative assessment quantitative twostep assessment elect perform qualitative assessment determine fair value reporting units likely exceeds carrying value evaluation necessary reporting units perform twostep quantitative assessment first step requires us compare fair value reporting unit respective carrying value including goodwill fair value reporting unit exceeds carrying value goodwill considered impaired carrying value higher fair value reporting unit second step quantitative assessment required measure amount impairment second step quantitative assessment results calculation implied fair value reporting unit’s goodwill determined excess fair value reporting unit fair values assigned assets liabilities implied fair value goodwill less carrying value reporting unit’s goodwill difference recognized impairment loss utilize combination valuation techniques including discounted cash flow approach market multiple approach making quantitative goodwill assessments review longlived assets include intangible assets subject amortization impairment whenever events changes circumstances indicate carrying amount asset may recoverable evaluation recoverability performed level independent cash flows may attributed either asset group determine carrying amount asset group recoverable based expected undiscounted future cash flows asset group impairment loss recorded equal excess carrying amounts estimated fair value longlived assets estimates future cash flows based many factors including current operating results expected market trends competitive influences also evaluate amortization periods assigned intangible assets determine whether events changes circumstances warrant revised estimates useful lives assets disposed sale reported lower carrying amount fair value less estimated costs sell make various assumptions including assumptions regarding future cash flows market multiples growth rates discount rates assessments impairment goodwill indefinitelived intangible assets longlived assets assumptions future cash flows growth rates based current longterm business plans reporting unit related longlived assets discount rate assumptions based assessment risk inherent future cash flows reporting unit longlived assets assumptions require significant judgments part conclusions reach could vary significantly based upon judgments results goodwill longlived assets impairment analyses conducted october 1 2016 2015 2014 indicated reduction carrying amount goodwill longlived assets required goodwill impairment analysis conducted october 1 2016 indicated fair value excess carrying value related gsi eame reporting unit approximately 10 percentage fair value excess carrying value increased slightly compared 2015 annual analysis recent analyses 2016 operations gsi reporting unit include manufacturing distribution grain storage protein production equipment amount goodwill allocated gsi eame october 1 2016 approximately 2787 million numerous facts circumstances considered evaluating carrying amount goodwill fair value reporting unit impacted reporting unit’s expected financial performance dependent upon agricultural industry factors could adversely affect agricultural industry including limited declines general economy increases farm input costs weather conditions lower commodity prices changes availability credit estimated fair value individual reporting units assessed reasonableness reviewing variety indicators evaluated reasonable period time december 31 2016 approximately 13764 million goodwill annual impairment testing 2016 supported carrying amount goodwill may required reevaluate carrying amount future periods thus utilizing different assumptions reflect current market conditions expectations therefore could conclude impairment occurred item 7aitem 7 management’s discussion analysis financial condition results operations leading manufacturer distributor agricultural equipment related replacement parts throughout world sell full range agricultural equipment including tractors combines selfpropelled sprayers hay tools forage equipment seeding tillage equipment implements grain storage protein production systems products widely recognized agricultural equipment industry marketed number wellknown brand names including challenger® fendt® gsi® massey ferguson® valtra® distribute products combination approximately 4200 dealers distributors well associates licensees addition provide retail financing finance joint ventures rabobank financial highlights sell equipment replacement parts independent dealers distributors customers large majority sales independent dealers distributors sell products end users extent practicable attempt sell products dealers distributors level basis throughout year reduce effect seasonal demands manufacturing operations minimize investment inventories however retail sales dealers farmers highly seasonal linked planting harvesting seasons certain markets particularly north america often time lag varies based timing level retail demand sale equipment dealer’s sale retail customer following table sets forth periods indicated percentage relationship net sales certain items included consolidated statements operations 1 rounding may impact summation amounts 2017 compared 2016 net income attributable agco corporation subsidiaries 2017 1864 million 232 per diluted share compared 1601 million 196 per diluted share 2016 net sales 2017 approximately 83065 million 121 higher 2016 primarily due sales growth regions positive impact acquisitions benefit currency translation impacts income operations 4033 million 2017 compared 2884 million 2016 increase income operations 2017 primarily result higher net sales improved margins resulting higher production levels cost reduction initiatives regionally income operations europemiddle east “eme” region increased approximately 906 million 2017 compared 2016 driven primarily higher net sales improved margins resulting increased production levels north american region income operations improved approximately 256 million higher net sales improved factory productivity expense reduction efforts resulted improvement operating margins south america income operations decreased approximately 54 million 2017 compared 2016 decline due lower margins resulting decreased production levels material cost inflation costs associated transitioning higher horsepower products new tier 3 emission technology income operations asiapacificafrica “apa” region increased approximately 291 million 2017 compared 2016 primarily due growth net sales improved margins industry market conditions record harvests crop production past four years outpaced demand thereby keeping commodity prices farm income relatively low levels global industry demand farm equipment started recover three years declines united states canada farm equipment fleets begun age causing industry demand remain mixed throughout 2017 tractor combine demand improved 2016 levels demand row crop segments remains weak specifically industry unit retail sales higher horsepower tractors relatively flat industry unit retail sales combines increased approximately 10 2017 compared 2016 addition industry unit retail sales lowerhorsepower tractors grew modestly unit retail sales hay forage equipment deteriorated industry retail sales western europe improved 2017 strongest growth germany italy united kingdom recovery dairy sector helped support retail sales improve overall confidence region lower commodity prices however pressuring market demand arable farming segment industry unit retail sales tractors increased approximately 4 2017 compared 2016 region combine industry unit retail sales decreased approximately 6 period industry retail sales south america rose full year 2017 demand brazil grew strongly depressed first half levels experienced 2016 brazilian sales slowed second half 2017 ongoing political economic uncertainty continued damper farmer confidence argentine market remained robust supportive government policies continued stimulate growth industry unit retail sales tractors combines increased region approximately 13 2017 compared 2016 results operations net sales 2017 83065 million compared 74105 million 2016 primarily due stable growth regions acquisitions favorable impact foreign currency translation following table sets forth year ended december 31 2017 impact net sales currency translation geographical segment millions except percentages regionally net sales north america increased 2017 compared 2016 driven positive acquisition impacts mixed industry demand dealer inventory reduction efforts pressured sales volumes region tractor sales growth due new product introductions mostly offset sales declines hay tools sprayers grain storage equipment net sales grew south america 2017 compared 2016 increase driven robust demand argentina well modest growth brazil eme region net sales increased 2017 compared 2016 growth strongest key markets united kingdom germany italy apa region net sales increased 2017 compared 2016 primarily due growth sales china australia estimate worldwide average price increases approximately 11 15 2017 2016 respectively consolidated net sales tractors combines comprised approximately 62 net sales 2017 increased approximately 13 2017 compared 2016 unit sales tractors combines increased approximately 36 2017 compared 2016 unit sales increase net sales differ due foreign currency translation pricing sales mix changes following table sets forth years ended december 31 2017 2016 percentage relationship net sales certain items included consolidated statements operations millions except percentages gross profit percentage net sales increased 2017 compared 2016 primarily due higher sales production volumes reduced warranty costs benefits material cost containment productivity initiatives production hours increased approximately 3 2017 compared 2016 recorded stock compensation expense approximately 28 million 15 million 2017 2016 respectively within cost goods sold fully explained note 10 consolidated financial statements selling general administrative expenses “sga expenses” engineering expenses increased dollars relatively flat percentage net sales 2017 compared 2016 increases sga engineering expenses primarily result labor cost increases impact acquisitions well negative foreign currency translation impacts 2017 engineering expenses also increased 2016 support investments future new product introductions recorded stock compensation expense approximately 356 million 169 million 2017 2016 respectively within sga expenses fully explained note 10 consolidated financial statements recorded restructuring expenses approximately 112 million 119 million 2017 2016 respectively restructuring expenses recorded 2017 2016 primarily related severance related costs associated rationalization employee headcount various manufacturing facilities administrative offices located europe china south america united states interest expense net 451 million 2017 compared 521 million 2016 see “liquidity capital resources” information expense net 744 million 2017 compared 314 million 2016 losses sales receivables primarily related accounts receivable sales agreements finance joint ventures north america europe brazil approximately 392 million 195 million 2017 2016 respectively due increase volume receivables sold 2017 compared 2016 addition higher hedging costs foreign exchange losses 2017 compared 2016 contributed increase expense net recorded income tax provision 1336 million 2017 compared 922 million 2016 tax provision effective tax rate impacted differing tax rates various tax jurisdictions operate permanent differences items treated differently financial accounting income tax purposes losses jurisdictions income tax benefit recorded 2017 recorded tax provision approximately 420 million resulting enactment us tax reform legislation december 22 2017 final impact tax reform legislation may differ materially due factors refinement calculations changes interpretations assumptions advisors made additional guidance may issued future us government actions may take result legislation 2016 recorded noncash deferred tax adjustment establish valuation allowance us net deferred income tax assets valuation allowance established likely portion company’s deferred tax assets realized assessed likelihood deferred tax assets would recovered estimated future taxable income available income tax planning strategies time concluded valuation allowance established december 31 2017 2016 gross deferred tax assets 3549 million 4474 million respectively including 834 million 855 million respectively related net operating loss carryforwards december 31 2017 total valuation allowances offset gross deferred tax assets approximately 819 million included allowances net operating loss carryforwards brazil china russia netherlands well allowances net deferred taxes us previously discussed december 31 2016 total valuation allowances offset gross deferred tax assets approximately 1160 million primarily related net operating loss carryforwards brazil china russia netherlands well allowances net deferred taxes us realization remaining deferred tax assets december 31 2017 depend generating sufficient taxable income future periods net reversing deferred tax liabilities believe likely remaining net deferred tax assets realized refer note 6 consolidated financial statements information equity net earnings affiliates primarily comprised income finance joint ventures 391 million 2017 compared 475 million 2016 primarily due lower net earnings certain finance joint ventures affiliates refer “finance joint ventures” information regarding finance joint ventures results operations note 5 consolidated financial statements 2016 compared 2015 net income attributable agco corporation subsidiaries 2016 1601 million 196 per diluted share compared net income 2015 2664 million 306 per diluted share net sales 2016 approximately 74105 million 08 lower 2015 primarily due continued weakening global market conditions unfavorable impact currency translation income operations 2884 million 2016 compared 3611 million 2015 decrease income operations 2016 result decreased production levels weaker sales mix negative currency translation impacts regionally income operations north american south american regions decreased approximately 843 million 145 million respectively 2016 compared 2015 lower sales production volumes weaker product mix cost increases contributed reduction income operations north america south america lower margins due primarily material cost inflation negative impact currency translation adversely impacted income operations income operations eme apa regions increased approximately 81 million 319 million respectively 2016 compared 2015 income operations eme benefited higher net sales negatively impacted unfavorable currency translation impacts apa region operating results bolstered significant growth net sales region well increased small tractor production levels china industry market conditions record grain harvest us combined healthy crop production across europe south america resulted increased global grain inventories low soft commodity prices 2016 result deteriorating farm economics negatively impacted farmer sentiment industry equipment demand major markets united states canada industry demand declined 2016 particularly row crop professional hay producer sectors significantly lower industry retail sales highhorsepower tractors combines sprayers grain storage handling equipment specifically industry unit retail sales higher horsepower tractors decreased approximately 10 industry unit retail sales combines decreased approximately 21 2016 compared 2015 industry retail demand also lower western europe 2016 compared 2015 levels difficult economic conditions dairy producers lower commodity prices arable farming sector negatively impacted demand across region declines pronounced france germany partially offset modest growth finland scandinavia industry unit retail sales tractors combines decreased approximately 4 14 respectively 2016 compared 2015 region industry demand south america stabilized throughout 2016 market conditions brazil declined full year 2016 compared 2015 stronger farm fundamentals second half year helped overcome previous weaknesses caused political uncertainty depressed economic conditions supportive government policies improved crop production argentina also resulted higher industry sales market industry unit retail sales tractors decreased approximately 6 2016 compared 2015 region industry retail sales combines south america increased approximately 14 2016 compared 2015 industry sales declines tractors pronounced brazil south american markets industry sales increases combines principally brazil argentina results operations net sales 2016 74105 million compared 74673 million 2015 primarily due softer global market conditions unfavorable impact foreign currency translation following table sets forth year ended december 31 2016 impact net sales currency translation geographical segment millions except percentages regionally net sales north america decreased 2016 compared 2015 significant decreases grain storage equipment sprayers hay tools partially offset net sales growth low midsized horsepower tractors net sales lower south america 2016 compared 2015 higher net sales argentina partially offset lower net sales brazil south american markets eme region net sales relatively flat 2016 compared 2015 growth united kingdom scandinavia mostly offset declines france germany apa region net sales increased 2016 compared 2015 primarily due significant growth sales china offset declines africa estimate worldwide average price increases approximately 15 18 2016 2015 respectively consolidated net sales tractors combines consisted approximately 61 net sales 2016 decreased approximately 10 2016 compared 2015 unit sales tractors combines decreased approximately 15 2016 compared 2015 unit sales decrease net sales differ due foreign currency translation pricing sales mix changes following table sets forth years ended december 31 2016 2015 percentage relationship net sales certain items included consolidated statements operations millions except percentages gross profit percentage net sales decreased 2016 compared 2015 primarily due lower production levels weaker product mix cost increases including higher warranty expenses benefits material cost containment productivity initiatives helped partially offset negative impacts production hours decreased approximately 5 2016 compared 2015 recorded stock compensation expense approximately 15 million 09 million 2016 2015 respectively within cost goods sold fully explained note 10 consolidated financial statements sga expenses engineering expenses increased dollars percentage net sales 2016 compared 2015 increases sga engineering expenses primarily result acquisitions 2016 engineering expenses also increased 2016 support investments future new product introductions recorded stock compensation expense approximately 169 million 116 million 2016 2015 respectively within sga expenses fully explained note 10 consolidated financial statements recorded restructuring expenses approximately 119 million 223 million 2016 2015 respectively restructuring expenses recorded 2016 2015 primarily related severance related costs associated rationalization employee headcount various manufacturing facilities administrative offices located europe china south america united states interest expense net 521 million 2016 compared 454 million 2015 increase primarily due higher outstanding indebtedness see “liquidity capital resources” information expense net 314 million 2016 compared 363 million 2015 decrease primarily due lower foreign exchange losses 2016 compared 2015 losses sales receivables primarily related accounts receivable sales agreements finance joint ventures north america europe brazil approximately 195 million 188 million 2016 2015 respectively recorded income tax provision 922 million 2016 compared 725 million 2015 tax provision effective tax rate impacted differing tax rates various tax jurisdictions operate permanent differences items treated differently financial accounting income tax purposes losses jurisdictions income tax benefit recorded 2016 also recorded noncash deferred tax adjustment establish valuation allowance us net deferred income tax assets valuation allowance established likely portion company’s deferred tax assets realized assessed likelihood deferred tax assets would recovered estimated future taxable income available income tax planning strategies concluded valuation allowance established december 31 2016 2015 gross deferred tax assets 4474 million 3900 million respectively including 855 million 740 million respectively related net operating loss carryforwards december 31 2016 total valuation allowances offset gross deferred tax assets 1160 million included allowances net operating loss carryforwards brazil china russia netherlands well allowances net deferred taxes us previously discussed december 31 2015 total valuation allowances offset gross deferred tax assets approximately 758 million primarily related net operating loss carryforwards brazil china russia netherlands equity net earnings affiliates primarily comprised income finance joint ventures 475 million 2016 compared 571 million 2015 primarily due declining operating results consequence weaker market conditions refer “finance joint ventures” information regarding finance joint ventures results operations note 5 consolidated financial statements quarterly results following table presents unaudited interim operating results believe following information includes adjustments consisting normal recurring adjustments necessary present fairly results operations periods presented finance joint ventures agco finance joint ventures provide retail financing wholesale financing dealers united states canada europe brazil argentina australia joint ventures owned agco whollyowned subsidiary rabobank financial institution based netherlands majority assets finance joint ventures consist finance receivables majority liabilities consist notes payable accrued interest various joint venture agreements rabobank affiliates provide financing finance joint ventures primarily lines credit guarantee debt obligations joint ventures december 31 2017 capital investment finance joint ventures included “investment affiliates” consolidated balance sheets approximately 3737 million compared 3808 million december 31 2016 total finance portfolio finance joint ventures approximately 88 billion 80 billion december 31 2017 2016 respectively total finance portfolio december 31 2017 2016 included approximately 73 billion 67 billion respectively retail receivables 15 billion 13 billion respectively wholesale receivables agco dealers wholesale receivables either sold directly agco finance without recourse operating companies agco finance provided financing directly dealers 2017 make additional investments finance joint ventures 2016 made total approximately 28 million additional investments finance joint venture netherlands 2017 2016 received dividends approximately 785 million 445 million respectively certain finance joint ventures share earnings finance joint ventures included “equity net earnings affiliates” within consolidated statements operations 399 million 455 million years ended december 31 2017 2016 respectively decrease earnings primarily due lower income us french german finance joint ventures 2017 compared 2016 outlook operations subject cyclical nature agricultural industry sales equipment expected continue affected changes net cash farm income farm land values weather conditions demand agricultural commodities farm industry related legislation availability financing general economic conditions relatively stable industry demand anticipated across major geographical regions 2018 net sales expected increase 2018 compared 2017 primarily due improved sales volumes positive pricing impacts well benefit acquisitions foreign currency translation gross operating margins expected improve 2017 levels reflecting positive impact pricing cost reduction efforts partially offset higher engineering expenses targeted new product offerings recent acquisitions october 2 2017 acquired forage division lely group “lely” approximately €805 million approximately 950 million net cash acquired approximately €60 million approximately 71 million lely acquisition manufacturing locations northern germany allowed company expand product offering hay forage equipment including balers loader wagons harvesting tools acquisition financed credit facility see note 7 consolidated financial statements information allocated purchase price assets acquired liabilities assumed based preliminary estimates fair values acquisition date acquired net assets primarily consisted accounts receivable inventories accounts payable accrued expenses property plant equipment customer relationship technology trademark indentifiable intangible assets recorded approximately 76 million customer relationship technology trademark identifiable intangible assets approximately 174 million goodwill associated acquisition september 1 2017 acquired precision planting llc “precision planting” approximately 1981 million net cash acquired approximately 16 million precision planting headquartered tremont illinois leading manufacturer hightech planting equipment acquisition precision planting provided us opportunity expand precision farming technology offerings global basis acquisition financed credit facility see note 7 consolidated financial statements information allocated purchase price assets acquired liabilities assumed based preliminary estimates fair values acquisition date acquired assets primarily consisted accounts receivable inventories accounts payable accrued expenses property plant equipment customer relationship technology trademark identifiable intangible assets recorded approximately 644 million customer relationship technology trademark identifiable intangible assets approximately 672 million goodwill associated acquisition september 12 2016 acquired cimbria holdings limited “cimbria” dkk 22349 million approximately 3375 million net cash acquired approximately dkk 834 million approximately 126 million cimbria headquartered thisted denmark leading manufacturer products solutions processing handling storage seed grain acquisition financed credit facility see note 7 consolidated financial statements information allocated purchase price assets acquired liabilities assumed based fair values acquisition date acquired assets primarily consisted accounts receivable inventories accounts payable accrued expenses customer advances property plant equipment customer relationship technology trademark identifiable intangible assets recorded approximately 1289 million customer relationship technology trademark identifiable intangible assets approximately 2379 million goodwill associated acquisition february 2 2016 acquired tecno poultry equipment spa “tecno” approximately €587 million approximately 638 million acquired cash approximately €176 million approximately 191 million associated acquisition tecno headquartered ronchi di villafranca italy manufactures supplies poultry housing related products including egg collection equipment trolley feeding systems acquisition financed credit facility refer note 7 consolidated financial statements information allocated purchase price assets acquired liabilities assumed based fair values acquisition date acquired net assets primarily consisted accounts receivable inventories accounts payable accrued expenses deferred revenue property plant equipment customer relationship technology trademark identifiable intangible assets recorded approximately 275 million customer relationship technology trademark identifiable intangible assets approximately 204 million goodwill associated acquisition april 17 2015 acquired farmer automatic gmbh co kg “farmer automatic” approximately 179 million net cash acquired approximately 01 million farmer automatic headquartered laer germany manufactures supplies poultry housing related products including egg production cages broiler production equipment acquisition financed available cash hand allocated purchase price assets acquired liabilities assumed based fair values acquisition date acquired net assets primarily consisted accounts receivable inventories accounts payable accrued expenses property plant equipment customer relationship technology trademark identifiable intangible assets recorded approximately 96 million customer relationship technology trademark identifiable intangible assets approximately 100 million goodwill associated acquisition liquidity capital resources financing requirements subject variations due seasonal changes inventory receivable levels internally generated funds supplemented necessary external sources primarily credit facility accounts receivable sales agreement facilities believe following facilities together available cash internally generated funds sufficient support working capital expenditures debt service requirements foreseeable future millions compliance financial covenants contained facilities currently expect continue maintain compliance ever encounter difficulties historical relationship lenders strong anticipate continued longterm support business refer note 7 consolidated financial statements information regarding current facilities accounts receivable sales agreements north america europe brazil permit sale ongoing basis majority receivables north america europe brazil us canadian european brazilian finance joint ventures sale receivables without recourse us service receivables sale occurs maintain direct retained interest receivables agreements accounted offbalance sheet transactions effect reducing accounts receivable shortterm liabilities amount december 31 2017 2016 cash received receivables sold us canadian european brazilian accounts receivable sales agreements approximately 13 billion 11 billion respectively finance joint ventures europe brazil australia also provide wholesale financing directly dealers receivables associated arrangements also without recourse us december 31 2017 2016 finance joint ventures approximately 416 million 415 million respectively outstanding accounts receivable associated arrangements accounted offbalance sheet transactions addition sell certain trade receivables factoring arrangements financial institutions around world arrangements also accounted offbalance sheet transactions cash flows cash flows provided operating activities 5776 million 2017 compared 3695 million 2016 5242 million 2015 increase 2017 primarily due increase net income well increase accounts payable accrued expenses offset increase inventories addition previously discussed received increased amount dividends finance joint ventures 2017 compared 2016 decrease cash flows provided operating activities 2016 compared 2015 primarily due decrease net income well increase inventories working capital requirements seasonal investments working capital typically building first half year reducing second half year 9771 million working capital december 31 2017 compared 10208 million december 31 2016 accounts receivable inventories combined december 31 2017 4871 million higher december 31 2016 increase accounts receivable inventories december 31 2017 compared december 31 2016 primarily result foreign currency translation acquisitions higher sales levels well impact new product introductions debt capitalization ratio total indebtedness divided sum total indebtedness stockholders’ equity 357 december 31 2017 compared 375 december 31 2016 share repurchase program 2016 2015 repurchased 4413250 5541930 shares common stock respectively approximately 2125 million 2875 million respectively either accelerated share repurchase “asr” agreements financial institutions open market transactions 2017 received approximately 70464 shares associated remaining balance shares delivered asr agreement completed november 2016 shares received asr agreements retired upon receipt excess purchase price par value per share recorded “additional paidin capital” within consolidated balance sheets contractual obligations future payments required significant contractual obligations excluding foreign currency option forward contracts december 31 2017 follows millions 1 indebtedness amounts reflect principal amount senior term loan senior notes credit facility 2 estimated interest payments calculated assuming current interest rates minimum maturity periods specified debt agreements debt may repaid sooner later minimum maturity periods 3 shortterm longterm obligations include estimates future minimum contribution requirements us nonus defined benefit pension postretirement plans estimates based current legislation countries operate within subject change shortterm longterm obligations also include income tax liabilities related uncertain income tax positions connected ongoing income tax audits various jurisdictions commitments offbalance sheet arrangements guarantees maintain remarketing agreement finance joint venture united states whereby obligated repurchase repossessed inventory market value agreement finance joint venture united states limits purchase obligations arrangement 60 million aggregate per calendar year believe losses might incurred resale equipment materially impact financial position results operations due fact repurchase obligation would equivalent fair value underlying equipment december 31 2017 guaranteed indebtedness owed third parties approximately 1151 million primarily related dealer enduser financing equipment guarantees generally obligate us repay outstanding finance obligations owed financial institutions dealers end users default loans 2022 believe credit risk associated guarantees material financial position results operations losses guarantees historically insignificant addition generally would expect able recover significant portion amounts paid guarantees sale underlying financed farm equipment fair value equipment expected offset substantial portion amounts paid december 31 2017 outstanding designated nondesignated foreign exchange contracts gross notional amount approximately 17982 million outstanding contracts december 31 2017 range maturity december 2018 discussed “liquidity capital resources” sell majority wholesale accounts receivable north america europe brazil us canadian european brazilian finance joint ventures also sell certain accounts receivable factoring arrangements financial institutions around world determined facilities accounted offbalance sheet transactions contingencies party various claims lawsuits arising normal course business closely monitor claims lawsuits frequently consult legal counsel determine whether may resolved material adverse effect financial position results operations accrue andor disclose loss contingencies appropriate see note 12 consolidated financial statements item 3 “legal proceedings” related parties rabobank 51 owner finance joint ventures see “finance joint ventures” rabobank also principal agent participant credit facility finance joint ventures provide retail wholesale financing dealers addition transfer ongoing basis majority wholesale receivables north america europe brazil us canadian european brazilian finance joint ventures see note 4 consolidated financial statements discussion agreements maintain remarketing agreement us finance joint venture agco finance llc discussed “commitments offbalance sheet arrangements” addition part sales incentives provided end users may time subsidize interest rates retail financing provided finance joint ventures cost programs recognized time sale dealers tractors farm equipment limited “tafe” hold 2375 interest manufactures sells massey fergusonbranded equipment primarily india also supplies tractors components us sale markets mallika srinivasan chairman chief executive officer tafe currently member board directors december 31 2017 tafe owned 12150152 shares common stock tafe parties agreement pursuant among things tafe agreed purchase excess 12170290 shares common stock subject certain adjustments agreed annually nominate tafe representative board directors 2017 2016 2015 purchased approximately 1020 million 1285 million 1292 million respectively tractors components tafe 2017 2016 2015 sold approximately 12 million 11 million 22 million respectively parts tafe received dividends tafe approximately 18 million 16 million 17 million 2017 2016 2015 respectively 2017 2016 2015 paid approximately 72 million 31 million 35 million respectively ppg industries inc painting materials used manufacturing processes chairman president chief executive officer currently member board directors ppg industries inc 2017 2016 2015 paid approximately 15 million 20 million 06 million respectively praxair inc propane gas welding laser consumables used manufacturing processes chairman president chief executive officer currently member board directors praxair inc foreign currency risk management significant manufacturing operations united states france germany finland brazil purchase portion tractors combines components thirdparty foreign suppliers primarily various european countries japan also sell products approximately 150 countries throughout world majority net sales outside united states denominated currency customer location exception sales middle east africa asia parts south america net sales primarily denominated british pounds euros united states dollars see note 15 consolidated financial statements net sales customer location significant transactional foreign currency exposures euro brazilian real canadian dollar relation united states dollar euro relation british pound fluctuations value foreign currencies create exposures adversely affect results operations attempt manage transactional foreign currency exposure hedging foreign currency cash flow forecasts commitments arising anticipated settlement receivables payables future purchases sales naturally offsetting currency positions occur hedge certain exposures use foreign currency contracts translation exposure resulting translating financial statements foreign subsidiaries united states dollars hedged significant translation exposures euro british pound brazilian real relation united states dollar practical translation impact reduced financing local operations local borrowings hedging policy prohibits use foreign currency contracts speculative trading purposes derivatives recognized consolidated balance sheets fair value date derivative contract entered designate derivative either 1 cash flow hedge forecasted transaction 2 fair value hedge recognized liability 3 hedge net investment foreign operation 4 nondesignated derivative instrument currently engage derivatives cash flow hedges forecasted transactions well nondesignated derivative instruments total notional value foreign currency instruments 17982 million 16614 million december 31 2017 2016 inclusive instruments designated qualified hedge accounting nondesignated derivative instruments also enter nonderivative instruments hedge portion net investment foreign operations adverse movements exchange rates refer note 11 consolidated financial statements additional information hedging transactions derivative financial instruments assuming 10 change relative currency hedge contracts fair value foreign currency instruments could negatively impacted approximately 567 million december 31 2017 due fact instruments primarily entered hedging purposes gains losses contracts would largely offset losses gains underlying firm commitment forecasted transaction interest rate risk interest expense part sensitive general level interest rates manage exposure interest rate risk mix floating rate fixed rate debt time enter interest rate swap agreements manage exposure interest rate fluctuations refer notes 7 11 consolidated financial statements additional information interest rate swap agreements based floating rate debt accounts receivable sales facilities outstanding december 31 2017 10 increase interest rates would increased collectively “interest expense net” “other expense net” year ended december 31 2017 approximately 55 million recent accounting pronouncements see note 1 consolidated financial statements information regarding recent accounting pronouncements impact consolidated results operations financial position critical accounting estimates prepare consolidated financial statements conformity us generally accepted accounting principles preparation financial statements make judgments estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period significant accounting policies followed preparation financial statements detailed note 1 consolidated financial statements believe application policies discussed involves significant levels judgment estimates complexity due levels judgment complexity period time many items resolved actual results could differ estimated time preparation financial statements adjustments estimates would impact financial position future results operations discount sales incentive allowances provide various volume bonus sales incentive programs respect products sales incentive programs include reductions invoice prices reductions retail financing rates dealer commissions dealer incentive allowances cases incentive programs established communicated dealers quarterly basis incentives paid either time cash settlement receivable generally time retail sale time retail financing time warranty registration subsequent time based dealer purchase volumes incentive programs product line specific generally vary dealer cost sales incentives associated dealer commissions dealer incentive allowances estimated based upon terms programs historical experience based percentage sales price recorded later date related revenue recognized b date sales incentive offered related provisions accruals made product productline basis monitored adequacy revised least quarterly event subsequent modifications programs volume discounts estimated recognized based historical experience related reserves monitored adjusted based actual dealer purchase volumes dealers’ progress towards achieving specified cumulative target levels record cost interest subsidy payments reduction retail financing rates later date related revenue recognized b date sales incentive offered estimates incentives based terms programs historical experience incentive programs recorded presented reduction revenue due fact receive identifiable benefit exchange consideration provided united states canada reserves incentive programs related accounts receivable sold us canadian finance joint ventures recorded “accounts receivable allowances” within consolidated balance sheets due fact incentives paid reduction future cash settlement receivable globally reserves incentive programs paid cash credit memos case volume discount programs well sales incentives associated accounts receivable sold finance joint ventures recorded within “accrued expenses” within consolidated balance sheets december 31 2017 recorded allowance discounts sales incentives approximately 2509 million related allowances north america geographical segment paid either reduction future cash settlements receivables credit memos dealers reductions retail financing rates paid finance joint ventures allow additional 1 sales incentives discounts time retail sale sales subject discount programs united states canada reserve would increase approximately 78 million december 31 2017 conversely decrease sales incentives discounts 1 time retail sale reserve would decrease approximately 78 million december 31 2017 deferred income taxes uncertain income tax positions recorded income tax provision 1336 million 2017 compared 922 million 2016 725 million 2015 tax provision effective tax rate impacted differing tax rates various tax jurisdictions operate permanent differences items treated differently financial accounting income tax purposes losses jurisdictions income tax benefit recorded december 22 2017 tax cuts jobs act “the 2017 tax act” enacted united states 2017 tax act includes number changes existing us tax laws impact us including reduction us corporate income tax rate 35 percent 21 percent tax years beginning december 31 2017 tax act also provides onetime transition tax certain foreign earnings acceleration depreciation certain assets placed service september 27 2017 well prospective changes beginning 2018 including repeal domestic manufacturing deduction capitalization research development expenditures additional limitations executive compensation limitations deductibility interest three months ended december 31 2017 recorded provision approximately 420 million accordance staff accounting bulletin 118 provides sec staff guidance application accounting standards codification “asc” 740 “income taxes” reporting period 2017 tax act enacted consolidated financial statements reflect income tax effects 2017 tax act accounting asc 740 complete well provisional amounts specific income tax effects 2017 tax act accounting asc 740 incomplete reasonable estimate could determined identify items income tax effects 2017 tax act completed reasonable estimate could determined december 31 2017 420 million provision included provisional income tax charge approximately 143 million related onetime transition tax associated mandatory deemed repatriation approximately 34 billion unremitted foreign earnings provision also included provisional income tax charge approximately 104 million income tax consequences associated expected future repatriation certain underlying foreign earnings historically considered indefinitely reinvested remaining balance provision primarily related remeasurement certain net deferred tax assets using lower enacted us corporate tax rate well miscellaneous related impacts final impact tax reform legislation may differ materially due factors refinement calculations changes interpretations assumptions advisors made additional guidance may issued future us government actions may take result tax reform legislation additional information analysis needed factors whether nonus entities subject withholding taxes reserve requirements projected working capital needs country earnings generated would result decision indefinitely reinvest portion earnings guidance interpretations released specifically respect transition tax future repatriation foreign earnings us complete accounting revise provisional estimates required second quarter 2016 established valuation allowance fully reserve net deferred tax assets united states valuation allowance established likely portion deferred tax assets realized assessed likelihood deferred tax assets would recovered estimated future taxable income available tax planning strategies determined adjustment valuation allowance appropriate making assessment available evidence considered including current economic climate well reasonable tax planning strategies believe likely realize remaining net deferred tax assets net valuation allowance future years december 31 2017 2016 gross deferred tax assets 3549 million 4474 million respectively including 834 million 855 million respectively related net operating loss carryforwards december 31 2017 2016 total valuation allowances offset gross deferred tax assets 819 million 1160 million respectively included allowances net operating loss carryforwards brazil china russia netherlands well allowances net deferred taxes us previously discussed realization remaining deferred tax assets december 31 2017 depend generating sufficient taxable income future periods net reversing deferred tax liabilities believe likely remaining net deferred tax assets realized december 31 2017 2016 approximately 1634 million 1399 million respectively unrecognized tax benefits would impact effective tax rate recognized december 31 2017 2016 approximately 618 million 470 million respectively current accrued taxes related uncertain income tax positions connected ongoing tax audits various jurisdictions expect settle pay next 12 months recognize interest penalties related uncertain income tax positions income tax expense december 31 2017 2016 accrued interest penalties related unrecognized tax benefits approximately 230 million 164 million respectively see note 6 consolidated financial statements discussion uncertain income tax positions pensions sponsor defined benefit pension plans covering certain employees principally united kingdom united states germany switzerland finland france norway argentina primary plans cover certain employees united states united kingdom united states sponsor funded qualified defined benefit pension plan salaried employees well separate funded qualified defined benefit pension plan hourly employees plans closed new entrants frozen fund least minimum contributions required employee retirement income security act 1974 internal revenue code plans addition maintain unfunded nonqualified defined benefit pension plan certain usbased senior executives executive nonqualified pension plan “enpp” enpp also closed new entrants united kingdom sponsor funded defined benefit pension plan provides annuity benefit based participants’ final average earnings service participation plan limited certain older longer service employees existing retirees plan closed new participants see note 8 consolidated financial statements information regarding costs assumptions employee retirement benefits nature estimates required measurement date benefit plans december 31 measurement pension obligations costs liabilities dependent variety assumptions provided management used actuaries assumptions include estimates present value projected future pension payments plan participants taking consideration likelihood potential future events salary increases demographic experience assumptions may effect amount timing future contributions assumptions approach used assumptions used developing required estimates include limited following key factors • discount rates • inflation • salary growth • expected return plan assets • retirement rates ages • mortality rates years ended december 31 2017 2016 2015 used globally consistent methodology set discount rate countries largest benefit obligations exist united states united kingdom euro zone constructed hypothetical bond portfolio highquality corporate bonds applied cash flows benefit plans bond yields derive discount rate bond portfolio planspecific cash flows vary country methodology portfolio constructed consistent united states bond portfolio large enough result taking “settlement approach” derive discount rate highquality corporate bonds assumed purchased resulting coupon payments maturities used satisfy us pension plans’ projected benefit payments united kingdom euro zone discount rate derived using “yield curve approach” individual spot rate zero coupon bond yield future annual period developed discount future benefit payment thereby determine present value future payments settlement yield curve approaches discount rate set equal single discount rate produces present value future payments effective january 1 2016 adopted spot yield curve determine discount rate united kingdom measure plan’s service cost interest cost year ended december 31 2016 previously utilized single weightedaverage discount rate derived “yield curve approach” measure plan’s benefit obligation service cost interest cost since 2016 elected utilize approach discounts individual expected cash flows underlying benefit obligation service cost using applicable spot rates derived yield curve projected cash flow period key assumptions methods set follows • inflation assumption based evaluation external market indicators • salary growth assumptions reflect longterm actual experience nearterm outlook assumed inflation • expected return plan asset assumptions reflects asset allocations investment strategy historical experience views investment managers reflects projection expected arithmetic returns ten years • determination retirement rates ages well termination rates based actual plan experience actuarial standards practice manner defined benefit plans administered • mortality rates uk defined benefit pension plan updated 2016 reflect expected improvements life expectancy plan participants mortality rates us defined benefit pension plans updated 2017 reflect society actuaries’ recent findings topic mortality • fair value assets used determine expected return assets reflect delayed recognition asset gains losses effects actual results differing assumptions accumulated amortized future periods therefore generally affect recognized expense periods us uk defined benefit pension plans including enpp comprised approximately 87 consolidated projected benefit obligation december 31 2017 discount rate used determine 2017 projected benefit obligation us qualified defined benefit pension plans enpp decreased 25 basis points projected benefit obligation would increased approximately 40 million december 31 2017 2018 pension expense would increase approximately 04 million discount rate used determine 2017 projected benefit obligation us qualified defined benefit pension plans enpp increased 25 basis points projected benefit obligation would decreased approximately 38 million december 31 2017 2018 pension expense would decrease approximately 03 million discount rate used determine projected benefit obligation uk defined benefit pension plan decreased 25 basis points projected benefit obligation would increased approximately 275 million december 31 2017 2018 pension expense would increase approximately 02 million discount rate used determine projected benefit obligation uk defined benefit pension plan increased 25 basis points projected benefit obligation would decreased approximately 262 million december 31 2017 2018 pension expense would decrease approximately 03 million addition expected longterm rate return plan assets related uk defined benefit pension plan increased decreased 25 basis points 2018 pension expense would decrease increase approximately 16 million respectively impact us defined benefit pension plans 25basispoint change expected longterm rate return would decrease increase 2018 pension expense approximately 01 million respectively unrecognized actuarial net losses related defined benefit pension plans enpp 3601 million december 31 2017 compared 3847 million december 31 2016 decrease unrecognized losses years primarily resulted higher expected actual asset returns 2017 unrecognized actuarial losses impacted future periods actual asset returns discount rate changes currency exchange rate fluctuations actual demographic experience certain factors defined benefit pension plans losses extent exceed 10 greater plan’s liabilities fair value assets “the gainloss corridor” amortized straightline basis average remaining service period active employees expected receive benefits us salaried us hourly uk defined benefit pension plans population covered predominantly inactive participants losses related plans extent exceed gainloss corridor amortized average remaining lives participants covered respective plan december 31 2017 average amortization period 17 years us defined benefit pension plans 21 years uk defined benefit pension plan enpp population predominantly active participants losses related plan amortized average future working lifetime active participants december 31 2017 average amortization period nine years enpp estimated net actuarial loss defined benefit pension plans enpp expected amortized accumulated comprehensive loss year ended december 31 2018 approximately 122 million compared approximately 134 million year ended december 31 2017 december 31 2017 unfunded underfunded obligations related defined benefit pension plans enpp approximately 2249 million primarily related defined benefit pension plans united kingdom united states 2017 contributed approximately 303 million towards obligations expect fund approximately 329 million 2018 future funding dependent upon compliance local laws regulations changes laws regulations future well generation operating cash flows future currently agreement place trustees uk defined benefit plan obligates us fund approximately £153 million per year approximately 206 million towards obligation september 2022 funding arrangement based upon current underfunded status could change future discount rates local laws regulations factors change see note 8 consolidated financial statements information regarding investment strategy concentration risk postretirement benefits retiree health care life insurance provide certain postretirement health care life insurance benefits certain employees principally united states brazil participation plans generally limited older employees existing retirees see note 8 consolidated financial statements information regarding costs assumptions postretirement benefits nature estimates required measurement obligations costs liabilities associated postretirement benefits retiree health care life insurance requires make use estimates present value projected future payments participants taking consideration likelihood potential future events health care cost increases demographic experience may effect amount timing future payments assumptions approach used assumptions used developing required estimates include following key factors • health care cost trends • inflation • discount rates • medical coverage elections • retirement rates • mortality rates health care cost trend assumptions developed based historical cost data nearterm outlook efficiencies costmitigating actions including employee cost sharing administrative improvements efficiencies well assessment likely longterm trends years ended december 31 2017 2016 2015 used globally consistent methodology previously discussed set discount rate countries largest benefit obligations exist united states constructed hypothetical bond portfolio highquality corporate bonds applied cash flows benefit plans bond yields derive discount rate united states bond portfolio large enough result taking “settlement approach” derive discount rate highquality corporate bonds assumed purchased resulting coupon payments maturities used satisfy us plan’s projected benefit payments bond portfolio selected single discount rate determined market value bonds purchased equals discounted value plan’s benefit payments brazilian plan based discount rate government bond indices within country indices used chosen match expected plan obligations related expected cash flows inflation assumptions based evaluation external market indicators retirement termination rates based primarily actual plan experience actuarial standards practice mortality rates us plans updated 2017 reflect society actuaries’ recent findings topic mortality effects actual results differing assumptions accumulated amortized future periods therefore generally affect recognized expense future periods us postretirement health care life insurance plans represent approximately 81 consolidated accumulated postretirement benefit obligation discount rate used determine 2017 accumulated postretirement benefit obligation us postretirement benefit plans decreased 25 basis points accumulated postretirement benefit obligation would increased approximately 06 million december 31 2017 2018 postretirement benefit expense would increase nominal amount discount rate used determine 2017 accumulated postretirement benefit obligation us postretirement benefit plans increased 25 basis points accumulated postretirement benefit obligation would decreased approximately 06 million december 31 2017 2018 postretirement benefit expense would decrease nominal amount unrecognized actuarial losses related us brazilian postretirement benefit plans 38 million december 31 2017 compared 20 million december 31 2016 34 million 25 million respectively related us postretirement benefit plans unrecognized actuarial losses impacted future periods discount rate changes actual demographic experience actual health care inflation certain factors losses extent exceed gainloss corridor amortized straightline basis average remaining service period active employees expected receive benefits average remaining lives inactive participants covered postretirement benefit plans december 31 2017 average amortization period 13 years us postretirement benefit plans estimated net actuarial loss postretirement health care benefits expected amortized accumulated comprehensive loss year ended december 31 2018 01 million compared 01 million year ended december 31 2017 december 31 2017 approximately 302 million unfunded obligations related us brazilian postretirement health life insurance benefit plans 2017 made benefit payments approximately 16 million towards obligations expect make benefit payments approximately 16 million towards obligations 2018 measuring expected us postretirement benefit obligation december 31 2017 assumed 675 health care cost trend rate 2018 decreasing 50 2025 measuring expected us postretirement benefit obligation december 31 2016 assumed 70 health care cost trend rate 2017 decreasing 50 2025 measuring brazilian postretirement benefit plan obligation december 31 2017 assumed 110 health care cost trend rate 2018 decreasing 53 2029 measuring brazilian postretirement benefit plan obligation december 31 2016 assumed 118 health care cost trend rate 2017 decreasing 61 2028 changing assumed health care cost trend rates one percentage point year holding assumptions constant would following effect service interest cost 2017 accumulated postretirement benefit obligation december 31 2017 millions goodwill intangible assets longlived assets test goodwill impairment reporting unit level annually events circumstances indicate fair value reporting unit may carrying value reporting unit operating segment one level operating segment example component combine aggregate two components operating segment single reporting unit components similar economic characteristics reportable segments reporting units goodwill evaluated annually october 1 impairment using qualitative assessment quantitative twostep assessment elect perform qualitative assessment determine fair value reporting units likely exceeds carrying value evaluation necessary reporting units perform twostep quantitative assessment first step requires us compare fair value reporting unit respective carrying value including goodwill fair value reporting unit exceeds carrying value goodwill considered impaired carrying value higher fair value reporting unit second step quantitative assessment required measure amount impairment second step quantitative assessment results calculation implied fair value reporting unit’s goodwill determined excess fair value reporting unit fair values assigned assets liabilities implied fair value goodwill less carrying value reporting unit’s goodwill difference recognized impairment loss utilize combination valuation techniques including discounted cash flow approach market multiple approach making quantitative goodwill assessments review longlived assets include intangible assets subject amortization impairment whenever events changes circumstances indicate carrying amount asset may recoverable evaluation recoverability performed level independent cash flows may attributed either asset group determine carrying amount asset group recoverable based expected undiscounted future cash flows asset group impairment loss recorded equal excess carrying amounts estimated fair value longlived assets estimates future cash flows based many factors including current operating results expected market trends competitive influences also evaluate amortization periods assigned intangible assets determine whether events changes circumstances warrant revised estimates useful lives assets disposed sale reported lower carrying amount fair value less estimated costs sell make various assumptions including assumptions regarding future cash flows market multiples growth rates discount rates assessments impairment goodwill indefinitelived intangible assets longlived assets assumptions future cash flows growth rates based current longterm business plans reporting unit related longlived assets discount rate assumptions based assessment risk inherent future cash flows reporting unit longlived assets assumptions require significant judgments part conclusions reach could vary significantly based upon judgments results goodwill longlived assets impairment analyses conducted october 1 2017 2016 2015 indicated reduction carrying amount goodwill longlived assets required goodwill impairment analysis conducted october 1 2017 indicated fair value excess carrying value related gsi eme reporting unit approximately 12 percentage fair value excess carrying value increased slightly compared 2016 annual analysis recent analyses 2017 operations gsi reporting unit include manufacturing distribution grain storage protein production equipment amount goodwill allocated gsi eme october 1 2017 approximately 2481 million numerous facts circumstances considered evaluating carrying amount goodwill fair value reporting unit impacted reporting unit’s expected financial performance dependent upon agricultural industry factors could adversely affect agricultural industry including limited declines general economy increases farm input costs weather conditions lower commodity prices changes availability credit estimated fair value individual reporting units assessed reasonableness reviewing variety indicators evaluated reasonable period time december 31 2017 approximately 15414 million goodwill annual impairment testing 2017 supported carrying amount goodwill may required reevaluate carrying amount future periods thus utilizing different assumptions reflect current market conditions expectations therefore could conclude impairment occurred item 7aitem 7 management’s discussion analysis financial condition results operations leading manufacturer distributor agricultural equipment related replacement parts throughout world sell full range agricultural equipment including tractors combines selfpropelled sprayers hay tools forage equipment seeding tillage equipment implements grain storage protein production systems products widely recognized agricultural equipment industry marketed number wellknown brand names including challenger® fendt® gsi® massey ferguson® valtra® supported fuse® precision agriculture solutions distribute products combination approximately 3250 dealers distributors well associates licensees addition provide retail wholesale financing finance joint ventures rabobank covid19 pandemic created significant volatility global economy led substantially reduced economic activity employment disruptions supply chain constraints delays areas business deemed essential thereby allowing us maintain operations however production first half 2020 severely impacted component availability particularly late march throughout april therefore net sales levels 2020 directly impacted affected plants primarily europe south america resumed production late april third quarter 2020 able ramp production recover supply chain disruptions experienced second quarter production facilities currently operational ability maintain fulltime production remains uncertain foreseeable future due government restrictions potential supply chain constraints workforce limitations safety equipment availability enacted cost saving measures working closely suppliers maintain stable component availability continuing manage cash flows capital deployment respond ongoing volatile environment financial highlights sell equipment replacement parts independent dealers distributors customers large majority sales independent dealers distributors sell products end users extent practicable attempt sell products dealers distributors level basis throughout year reduce effect seasonal demands manufacturing operations minimize investment inventories however retail sales dealers farmers highly seasonal function timing planting harvesting seasons certain markets particularly north america often time lag varies based timing level retail demand sale equipment dealer’s sale retail customer following table sets forth periods indicated percentage relationship net sales certain items included consolidated statements operations 1 rounding may impact summation amounts 2020 compared 2019 net income attributable agco corporation subsidiaries 2020 4271 million 565 per diluted share compared 1252 million 163 per diluted share 2019 net sales 2020 approximately 91497 million 12 higher 2019 primarily due increased sales volumes south american region partially offset negative impact currency translation net sales impacted reduced production volumes caused component availability impacts covid19 pandemic first half 2020 recovered second half year resulting normalized production levels improved industry demand income operations 5997 million 2020 compared 3481 million 2019 increase income operations 2020 primarily result improved margins benefited positive pricing impacts favorable sales mix cost control initiatives compared prior year addition 2019 income operations included approximately 1766 million noncash goodwill intangible asset impairment charges recorded fourth quarter 2019 related grain storage protein production systems operations europemiddle east “eme” region regionally income operations eme decreased approximately 529 million 2020 compared 2019 driven primarily lower net sales excluding positive currency translation impacts well decreased production volumes higher warranty costs sales volumes increased substantially second half 2020 eme region partially offsetting declines experienced second quarter due production disruptions european operations north american region despite flat net sales levels income operations improved approximately 721 million compared prior year favorable sales mix expense control measures contributed improvement region south america income operations increased approximately 687 million 2020 compared 2019 increase reflects increased net sales production volumes richer margin product mix cost containment efforts partially offset negative currency translation impacts income operations asiapacificafrican “apa” region increased approximately 187 million 2020 compared 2019 primarily due higher net sales favorable sales mix expense control efforts industry market conditions 2020 covid19 pandemic minimal impact global crop production however consumption grain food fuel livestock feed negatively impacted economic constraints caused pandemic first half year second half 2020 grain consumption started recover consistent improving economic activities increased grain exports china thus reducing forecasts ending grain inventories raising soft commodity prices consequently global industry demand farm equipment mixed 2020 improved second half year across major markets future demand agricultural equipment influenced farm income function commodity protein prices crop yields government support north america industry unit retail sales utility high horsepower tractors increased approximately 10 2020 compared 2019 industry unit retail sales combines 2020 flat compared 2019 retail sales growth strongest low horsepower tractors 2020 compared 2019 retail sales high horsepower tractors improved towards end 2020 rise commodity prices along us covid19 aid package us farmers livestock producers well extended fleet age contributed improved demand western europe industry unit retail sales tractors 2020 declined modestly compared 2019 industry unit retail sales combines 2020 increased approximately 1 compared 2019 2020 industry sales weakest markets united kingdom scandinavia partially offset industry sales growth germany compared 2019 industry sales declined due largely production constraints first half 2020 caused covid19 pandemic addition impact dry weather certain grain markets mostly offset stronger grain export demand supportive wheat prices european dairy livestock fundamentals stabilized weakening earlier 2020 south america industry unit retail sales tractors 2020 increased approximately 12 compared 2019 industry unit retail sales combines 2020 increased approximately 20 compared 2019 industry retail sales increased brazil argentina compared prior year partially offset weaker demand south american markets robust crop production brazil argentina well favorable exchange rates supported positive economics farmers results operations net sales 2020 91497 million compared 90414 million 2019 primarily result improved market conditions second half 2020 offset reduced production volumes caused component availability impacts covid19 pandemic first half 2020 addition following table sets forth year ended december 31 2020 impact net sales currency translation geographical segment millions except percentages regionally net sales north america flat 2020 compared 2019 growth sales high horsepower tractors replacement parts precision planting equipment offset reduction sales grain protein equipment well sprayers eme region net sales flat 2020 compared 2019 primarily due increased sales second half 2020 helped offset lost production supply chain constraints caused impacts covid19 pandemic experienced first half 2020 declines net sales france scandinavia central europe mostly offset growth germany eastern europe net sales increased south america 2020 compared 2019 primarily due sales increases brazil argentina partially offset decreased net sales south american markets apa region net sales increased 2020 compared 2019 primarily due net sales increases australia china partially offset net sales declines africa smaller asian markets estimate worldwide average price increases approximately 16 19 2020 2019 respectively consolidated net sales tractors combines comprised approximately 606 net sales 2020 increased approximately 13 2020 compared 2019 unit sales tractors combines decreased approximately 11 2020 compared 2019 difference unit sales change net sales primarily result foreign currency translation pricing sales mix changes following table sets forth years ended december 31 2020 2019 percentage relationship net sales certain items included consolidated statements operations millions except percentages 1 rounding may impact summation amounts gross profit percentage net sales increased 2020 compared 2019 primarily due benefits improved pricing net material costs favorable sales mix partially offset impact lower production volumes production hours decreased across regions 2020 overall global production hours decreased approximately 5 global basis 2020 compared 2019 primarily due suspension production european south american production sites late march throughout april due component supply disruptions governmentmandated closures facilities caused covid19 pandemic production hours recovered third quarter 2020 second quarter disruptions fourth quarter levels flat compared 2019 order facilitate dealer company inventory reductions impacts covid19 pandemic continue unpredictable range factors could impact future sales including additional production workforce constraints government mandates changing industry conditions impacted commodity protein prices farmer sentiment factors discuss “risk factors” recorded stock compensation expense approximately 11 million 17 million 2020 2019 respectively within cost goods sold fully explained note 1 consolidated financial statements contained item 8 “financial statements supplementary data” selling general administrative expenses “sga expenses” engineering expenses percentage net sales lower 2020 compared 2019 reduction sga expenses percentage net sales 2020 achieved actions suspended merit compensation increases reduced field sales marketing activities lower travel expenses recorded stock compensation expense approximately 368 million 400 million 2020 2019 respectively within sga expenses fully explained note 1 consolidated financial statements contained item 8 “financial statements supplementary data” 2020 recorded noncash goodwill impairment charge approximately 200 million related tillage seeding equipment joint venture 50 interest impairment charge recorded “impairment charges” within consolidated statements operations offsetting benefit approximately 100 million included within “net loss attributable noncontrolling interests” 2019 recorded noncash goodwill impairment charge approximately 1736 million associated grain storage protein production systems operations europemiddle east well impairment longlived intangible assets approximately 30 million associated brand product rationalization within grain storage protein production systems operations north america impairment charges fully described “critical accounting estimates goodwill intangible assets longlived assets” note 1 consolidated financial statements contained item 8 “financial statements supplementary data” recorded restructuring expenses approximately 197 million 90 million 2020 2019 respectively restructuring expenses primarily related severance related costs associated rationalization employee headcount various manufacturing facilities administrative offices located united states europe south america 2020 well rationalization grain storage protein production systems operations addition 2019 recorded loss approximately 21 million within “restructuring expenses” associated sale 50 interest usc llc joint venture see note 2 consolidated financial statements contained item 8 “financial statements supplementary data” additional information interest expense net 150 million 2020 compared 199 million 2019 see “liquidity capital resources” information available funding expense net 227 million 2020 compared 671 million 2019 minority equity interest tractors farm equipment limited “tafe” 2020 tafe repurchased portion common stock us resulting gain approximately 325 million recorded within “other expense net” see note 13 consolidated financial statements contained item 8 “financial statements supplementary data” additional information addition losses sales receivables primarily related accounts receivable sales agreements finance joint ventures north america europe brazil approximately 241 million 424 million 2020 2019 respectively decrease losses primarily result lower accounts receivable balances reduced interest rates 2020 compared 2019 recorded income tax provision 1877 million 2020 compared 1808 million 2019 tax provision effective tax rate impacted differing tax rates various tax jurisdictions operate permanent differences items treated differently financial accounting income tax purposes losses jurisdictions income tax benefit recorded december 31 2020 2019 gross deferred tax assets 3609 million 3960 million respectively including 629 million 720 million respectively related net operating loss carryforwards 2019 recognized onetime income tax gain approximately 218 million associated changing swiss federal cantonal tax rates well recognition deferred tax asset associated estimated value tax basis stepup swiss subsidiary’s assets 2019 also recorded noncash adjustment establish valuation allowance brazilian net deferred income tax assets approximately 537 million december 31 2020 total valuation allowances offset gross deferred tax assets approximately 1810 million valuation allowance included allowances primarily net operating loss carryforwards brazil china hungary united kingdom well allowances net deferred taxes primarily us brazil december 31 2019 total valuation allowances offset gross deferred tax assets approximately 1691 million primarily related net operating loss carryforwards brazil china hungary united kingdom netherlands well allowances net deferred taxes us brazil realization net deferred tax assets december 31 2020 depend generating sufficient taxable income future periods net reversing deferred tax liabilities believe likely remaining net deferred tax assets realized refer note 5 consolidated financial statements contained item 8 “financial statements supplementary data” information equity net earnings affiliates primarily comprised income agco finance joint ventures 455 million 2020 compared 425 million 2019 primarily due higher net earnings agco finance joint ventures see “finance joint ventures” information regarding finance joint ventures results operations note 4 consolidated financial statements contained item 8 “financial statements supplementary data” information 2019 compared 2018 comparison results operations 2019 versus 2018 included annual report form 10k year ended december 31 2019 agco finance joint ventures agco finance joint ventures provide retail financing wholesale financing dealers united states canada europe brazil argentina australia joint ventures owned agco whollyowned subsidiary rabobank majority assets finance joint ventures consist finance receivables majority liabilities consist notes payable accrued interest various joint venture agreements rabobank affiliates provide financing finance joint ventures primarily lines credit guarantee debt obligations joint ventures united states canada guarantee certain minimum residual values joint ventures upon expiration certain eligible leases finance joint ventures end users see “commitments offbalance sheet arrangements” note 11 consolidated financial statements contained item 8 “financial statements supplementary data” additional information december 31 2020 capital investment finance joint ventures included “investment affiliates” consolidated balance sheets approximately 3953 million compared 3390 million december 31 2019 total finance portfolio finance joint ventures approximately 107 billion 96 billion december 31 2020 2019 respectively total finance portfolio december 31 2020 2019 included approximately 88 billion 77 billion respectively retail receivables 19 billion wholesale receivables agco dealers december 31 2020 2019 wholesale receivables either sold directly agco finance without recourse operating companies agco finance provided financing directly dealers 2020 made approximately 19 million additional investments finance joint ventures dividends paid finance joint ventures finance joint ventures restricted paying dividends us 2020 result covid19 pandemic banking regulations 2019 make additional investments finance joint ventures received dividends approximately 405 million certain finance joint ventures share earnings finance joint ventures included “equity net earnings affiliates” within consolidated statements operations 450 million 415 million years ended december 31 2020 2019 respectively increase earnings primarily due higher income us canadian finance joint ventures 2020 compared 2019 partially offset lower income certain european finance joint ventures outlook operations subject cyclical nature agricultural industry sales equipment affected among things changes net cash farm income farm land values weather conditions demand agricultural commodities commodity protein prices general economic conditions net sales expected increase 2021 compared 2020 resulting improved forecasted industry demand well positive pricing foreign currency impacts gross operating margins expected improve 2020 levels reflecting increased net sales production volumes engineering expenses technology investments expected increase 2021 compared 2020 support product development plans well precision agriculture digital initiatives although contemplated outlook covid19 pandemic may continue negatively impact operations additional factory closures production constraints result government mandates supply chain disruptions factors could significantly negatively impact net sales earnings addition considerable amount uncertainty exists 2021 relating industry demand macroeconomic impacts covid19 pandemic refer “risk factors” discussion covid19 pandemic liquidity capital resources financing requirements subject variations due seasonal changes inventory receivable levels internally generated funds supplemented necessary external sources primarily credit facility accounts receivable sales agreement facilities believe following facilities together available cash internally generated funds sufficient support working capital expenditures debt service requirements foreseeable future millions 1 amounts gross debt issuance costs aggregate amount approximately 25 million april 9 2020 entered amendment 8000 million multicurrency revolving credit facility include incremental term loans “2020 term loans” allow us borrow aggregate principal amount €2350 million 2675 million respectively aggregate approximately 5558 million december 31 2020 amounts drawn incrementally time prior maturity must drawn proportionately amounts drawn must minimum principal amount 1000 million integral multiples 500 million excess thereof amounts repaid amounts permitted redrawn maturity date 2020 term loans april 8 2022 interest accrues amounts outstanding 2020 term loans option either 1 libor plus margin based credit rating ranging 1125 2125 april 8 2021 ranging 1375 2375 thereafter 2 base rate equal higher administrative agent’s base lending rate applicable currency ii federal funds rate plus 05 iii onemonth libor loans denominated us dollars plus 10 plus margin based credit rating ranging 0125 1375 april 8 2021 ranging 0375 1375 thereafter april 15 2020 borrowed €1175 million 1338 million aggregate approximately 2779 million december 31 2020 term loans simultaneously repaid €1000 million approximately 1087 million revolving credit facility borrowings received borrowings 2020 term loans subsequent initial borrowings april 2020 december 31 2020 ability borrow approximately 2779 million 2020 term loans refer note 6 consolidated financial statements contained item 8 “financial statements supplementary data” information regarding current facilities october 2018 entered multicurrency revolving credit facility 8000 million maturity date credit facility october 17 2023 interest accrues amounts outstanding credit facility option either 1 libor plus margin ranging 0875 1875 based credit rating 2 base rate equal higher administrative agent’s base lending rate applicable currency ii federal funds rate plus 05 iii onemonth libor loans denominated us dollars plus 10 plus margin ranging 00 0875 based credit rating december 31 2020 outstanding borrowings revolving credit facility ability borrow approximately 8000 million revolving credit facility december 2018 entered term loan agreement european investment bank “eib” provided us ability borrow €2500 million €2500 million approximately 3067 million december 31 2020 funding received january 25 2019 maturity date january 24 2025 permitted prepay term loan maturity date interest payable term loan 1002 per annum payable semiannually arrears additional term loan eib amount €2000 million entered december 2014 maturity date january 15 2020 repaid €2000 million approximately 2200 million term loan december 2019 october 2018 entered term loan agreement rabobank amount €1500 million approximately 1840 million december 31 2020 permitted prepay term loan maturity date october 28 2022 interest payable term loan quarterly arrears annual rate equal euribor plus margin ranging 0875 1875 based credit rating october 2016 borrowed aggregate amount €3750 million group seven related term loan agreements maturities ranging october 2019 october 2026 october 2019 repaid aggregate amount €560 million approximately 611 million two term loans august 2018 borrowed additional aggregate amount indebtedness €3380 million group another seven related term loan agreements proceeds borrowings used repay borrowings former revolving credit facility provisions term loan agreements identical nature exception interest rate terms maturities aggregate december 31 2020 indebtedness approximately €6570 million approximately 8060 million december 31 2020 total group 12 term loan agreements remaining maturities ranging august 2021 august 2028 four term loan agreements aggregate €2640 million approximately 3238 million gross debt issuance costs december 31 2020 mature august october 2021 december 31 2020 2019 shortterm borrowings due within one year approximately 338 million 1505 million respectively interest us dollar borrowings credit facility 2020 term loans calculated based upon libor event libor longer published interest calculated upon either base rate secured overnight financing rate depending cost credit facility 2020 term loans also provide expedited amendment process replacement libor established compliance financial covenants contained facilities expect continue maintain compliance ever encounter difficulties historical relationship lenders strong anticipate continued longterm support business refer note 6 consolidated financial statements contained item 8 “financial statements supplementary data” additional information regarding current facilities including financial covenants contained debt instrument accounts receivable sales agreements north america europe brazil permit sale ongoing basis majority receivables us canadian european brazilian finance joint ventures sales receivables without recourse us service receivables sales occur maintain direct retained interest receivables agreements accounted offbalance sheet transactions effect reducing accounts receivable shortterm liabilities amount december 31 2020 2019 cash received receivables sold us canadian european brazilian accounts receivable sales agreements approximately 15 billion 16 billion respectively finance joint ventures europe brazil australia also provide wholesale financing directly dealers receivables associated arrangements also without recourse us december 31 2020 2019 finance joint ventures approximately 852 million 1043 million respectively outstanding accounts receivable associated arrangements accounted offbalance sheet transactions addition sell certain trade receivables factoring arrangements financial institutions around world arrangements also accounted offbalance sheet transactions order efficiently manage liquidity generally pay vendors accordance negotiated terms enable vendors obtain payment advance payment due dates established programs certain markets financial institutions vendors option paid financial institutions earlier payment due dates vendors receive early payments receive discounted amounts pay financial institutions face amounts invoices payment due dates reimburse vendors costs incur participation programs amounts owed financial institutions presented “accounts payable” consolidated balance sheets able negotiate extended payment terms vendors financial institutions longer willing participate early payment programs us would expect sufficient liquidity timely pay vendors without material impact us financial position debt capitalization ratio total indebtedness divided sum total indebtedness stockholders’ equity 348 december 31 2020 compared 304 december 31 2019 cash flows cash flows provided operating activities approximately 8965 million 2020 compared approximately 6959 million 2019 increase 2020 primarily due increased source cash derived operating assets liabilities 2020 compared 2019 reduction inventory levels 2020 resulted source cash flow approximately 1197 million 2020 working capital requirements seasonal investments working capital typically building first half year reducing second half year 10056 million working capital december 31 2020 compared 8446 million december 31 2019 accounts receivable inventories combined december 31 2020 approximately 488 million lower december 31 2019 primarily due inventory reduction efforts course 2020 share repurchase program three months ended march 31 2020 2019 repurchased 970141 1794256 shares common stock respectively approximately 550 million 1300 million respectively either accelerated share repurchase agreements financial institutions open market transactions shares received retired upon receipt excess purchase price par value per share recorded combination “additional paidin capital” “retained earnings” within consolidated balance sheets suspended share repurchases subsequent march 31 2020 light covid19 pandemic repurchased shares since period contractual obligations future payments required significant contractual obligations excluding foreign currency option forward contracts december 31 2020 follows millions 1 indebtedness amounts reflect principal amount senior term loan senior notes credit facility certain shortterm borrowings gross debt issuance costs 2 estimated interest payments calculated assuming current interest rates minimum maturity periods specified debt agreements indebtedness may repaid sooner later minimum maturity periods 3 shortterm longterm obligations include estimates future minimum contribution requirements us nonus defined benefit pension postretirement plans estimates based current legislation countries operate within subject change shortterm longterm obligations also include income tax liabilities related uncertain income tax positions connected ongoing income tax audits various jurisdictions based years statutory expiration uncertain tax positions included gross certain indirect favorable effects relate tax jurisdictions commitments offbalance sheet arrangements guarantees maintain remarketing agreement finance joint venture united states whereby obligated repurchase 60 million repossessed equipment calendar year believe losses might incurred resale equipment materially impact financial position results operations due fact repurchase obligation would equivalent fair value underlying equipment december 31 2020 guaranteed indebtedness owed third parties approximately 179 million primarily related dealer enduser financing equipment guarantees generally obligate us repay outstanding finance obligations owed financial institutions dealers end users default loans 2026 losses guarantees historically insignificant addition generally would expect able recover significant portion amounts paid guarantees sale underlying financed farm equipment fair value equipment expected offset substantial portion amounts paid also obligations guarantee indebtedness owed certain finance joint ventures dealers end users default loans losses guarantees historically insignificant guarantees material believe credit risk associated guarantees material financial position results operations addition december 31 2020 accrued approximately 253 million outstanding guarantees residual values may owed finance joint ventures united states canada due upon expiration certain eligible operating leases finance joint ventures end users maximum potential amount future payments guarantee approximately 854 million december 31 2020 outstanding designated nondesignated foreign exchange contracts gross notional amount approximately 37224 million outstanding contracts december 31 2020 range maturity december 2021 also outstanding designated steel commodity contracts gross notional amount approximately 147 million range maturity may 2021 see note 10 consolidated financial statements contained item 8 “financial statements supplementary data” additional information discussed “liquidity capital resources” sell majority wholesale accounts receivable north america europe brazil us canadian european brazilian finance joint ventures also sell certain accounts receivable factoring arrangements financial institutions around world determined facilities accounted offbalance sheet transactions contingencies party various claims lawsuits arising normal course business closely monitor claims lawsuits frequently consult legal counsel determine whether may resolved material adverse effect financial position results operations accrue andor disclose loss contingencies appropriate see note 11 consolidated financial statements contained item 8 “financial statements supplementary data” item 3 “legal proceedings” information related parties ordinary course business engage transactions related parties see note 13 consolidated financial statements contained item 8 “financial statements supplementary data” information regarding related party transactions impact consolidated results operations financial position foreign currency risk management significant manufacturing locations united states france germany finland italy china brazil purchase portion tractors combines components thirdparty foreign suppliers primarily various european countries japan also sell products approximately 140 countries throughout world majority net sales outside united states denominated currency customer location exception sales middle east africa asia parts south america net sales primarily denominated british pounds euros united states dollar manage transactional foreign currency exposure hedging foreign currency cash flow forecasts commitments arising anticipated settlement receivables payables future purchases sales naturally offsetting currency positions occur hedge certain exposures use foreign currency contracts translation exposure resulting translating financial statements foreign subsidiaries united states dollars may partially hedged time practical translation impact reduced financing local operations local borrowings hedging policy prohibits use foreign currency contracts speculative trading purposes total notional value foreign currency instruments 37224 million 31330 million december 31 2020 2019 respectively inclusive instruments designated qualified hedge accounting nondesignated derivative instruments enter cash flow hedges minimize variability cash flows assets liabilities forecasted transactions caused fluctuations foreign currency exchange rates enter foreign currency contracts economically hedge receivables payables balance sheets denominated foreign currencies functional currency addition use derivative nonderivative instruments hedge portion net investment foreign operations adverse movements exchange rates see note 10 consolidated financial statements contained item 8 “financial statements supplementary data” information hedging transactions derivative instruments assuming 10 change relative currency hedge contracts fair value foreign currency instruments could negatively impacted approximately 532 million december 31 2020 due fact instruments primarily entered hedging purposes gains losses contracts would largely offset losses gains underlying firm commitment forecasted transaction interest rate risk interest expense part sensitive general level interest rates manage exposure interest rate risk mix floating rate fixed rate debt time enter interest rate swap agreements manage exposure interest rate fluctuations see notes 6 10 consolidated financial statements contained item 8 “financial statements supplementary data” additional information interest rate swap agreements based floating rate debt accounts receivable sales facilities outstanding december 31 2020 10 increase interest rates would increased collectively “interest expense net” “other expense net” year ended december 31 2020 approximately 34 million recent accounting pronouncements see note 1 consolidated financial statements contained item 8 “financial statements supplementary data” information regarding recent accounting pronouncements impact consolidated results operations financial position critical accounting estimates prepare consolidated financial statements conformity us generally accepted accounting principles preparation financial statements make judgments estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period significant accounting policies followed preparation financial statements detailed note 1 consolidated financial statements contained item 8 “financial statements supplementary data” believe application policies discussed involves significant levels judgment estimates complexity due levels judgment complexity period time many items resolved actual results could differ estimated time preparation financial statements adjustments estimates would impact financial position future results operations discount sales incentive allowances provide various volume bonus sales incentive programs respect products sales incentive programs include reductions invoice prices reductions retail financing rates dealer commissions dealer incentive allowances cases incentive programs established communicated dealers quarterly basis incentives paid either time cash settlement receivable generally time retail sale time retail financing time warranty registration subsequent time based dealer purchase volumes incentive programs product line specific generally vary dealer cost sales incentives associated dealer commissions dealer incentive allowances estimated based upon terms programs historical experience based percentage sales price estimates sales incentives made recorded time sale expected incentive programs using expected value method estimates reassessed reporting period revised event subsequent modifications incentive programs communicated dealers related provisions accruals made product productline basis monitored adequacy revised least quarterly event subsequent modifications programs interest rate subsidy payments reduction retail financing rates recorded manner dealer commissions dealer incentive allowances volume discounts estimated recognized based historical experience related reserves monitored adjusted based actual dealer purchase volumes dealers’ progress towards achieving specified cumulative target levels estimates incentives based terms programs historical experience incentive programs recorded presented reduction revenue due fact receive distinct good service exchange consideration provided united states canada reserves incentive programs related accounts receivable sold us canadian finance joint ventures recorded “accounts receivable allowances” within consolidated balance sheets due fact incentives paid reduction future cash settlement receivable globally reserves incentive programs paid cash credit memos case volume discount programs well sales incentives associated accounts receivable sold finance joint ventures recorded within “accrued expenses” within consolidated balance sheets december 31 2020 recorded allowance discounts sales incentives approximately 5958 million paid either reduction future cash settlements receivables credit memos dealers reductions retail financing rates paid finance joint ventures allow additional 1 sales incentives discounts time retail sale sales subject discount programs reserve would increase approximately 257 million december 31 2020 conversely decrease sales incentives discounts 1 time retail sale reserve would decrease approximately 257 million december 31 2020 deferred income taxes uncertain income tax positions recorded income tax provision 1877 million 2020 compared 1808 million 2019 1109 million 2018 tax provision effective tax rate impacted differing tax rates various tax jurisdictions operate permanent differences items treated differently financial accounting income tax purposes losses jurisdictions income tax benefit recorded three months ended september 30 2019 recorded noncash adjustment establish valuation allowance brazilian net deferred income tax assets approximately 537 million addition maintain valuation allowance fully reserve net deferred tax assets united states certain foreign jurisdictions valuation allowance established likely portion deferred tax assets realized assessed likelihood deferred tax assets would recovered estimated future taxable income available tax planning strategies determined adjustment valuation allowance appropriate making assessment available evidence considered including current economic climate well reasonable tax planning strategies believe likely realize remaining net deferred tax assets net valuation allowance future years swiss tax reform enacted 2019 eliminated certain preferential tax items well implemented new tax rates federal cantonal levels three months ended december 31 2019 recognized onetime income tax gain approximately 218 million associated changing swiss federal cantonal tax rates well recognition deferred tax asset associated estimated value tax basis stepup swiss subsidiary’s assets december 22 2017 tax cuts jobs act “the 2017 tax act” enacted united states primary provisions 2017 tax act affecting us 2018 reduction corporate tax rate 35 21 transition worldwide corporate tax system primarily territorial tax system beginning 2018 also subject additional provisions 2017 tax act main provisions include tax global intangible lowtaxed income “gilti” limitation deductibility certain executive compensation combined effect provisions material effect provision income taxes 2020 2019 three months ended december 31 2018 finalized calculations related 2017 tax act’s onetime transition tax associated mandatory deemed repatriation unremitted foreign earnings recorded income tax benefit approximately 84 million december 31 2020 2019 gross deferred tax assets 3609 million 3960 million respectively including 629 million 720 million respectively related net operating loss carryforwards december 31 2020 2019 total valuation allowances offset gross deferred tax assets 1810 million 1691 million respectively included allowances primarily net operating loss carryforwards brazil china hungary united kingdom netherlands well allowances net deferred taxes primarily us brazil previously discussed realization remaining deferred tax assets december 31 2020 depend generating sufficient taxable income future periods net reversing deferred tax liabilities believe likely remaining net deferred tax assets realized recognize income tax benefits uncertain tax positions 50 likelihood tax positions sustained upon examination taxing authorities based technical merits positions december 31 2020 2019 approximately 2279 million 2107 million respectively gross unrecognized tax benefits would impact effective tax rate recognized december 31 2020 2019 approximately 571 million 510 million respectively current accrued taxes related uncertain income tax positions connected ongoing tax audits various jurisdictions expect settle pay next 12 months recognize interest penalties related uncertain income tax positions income tax expense december 31 2020 2019 accrued interest penalties related unrecognized tax benefits approximately 394 million 284 million respectively see note 5 consolidated financial statements discussion uncertain income tax positions pensions sponsor defined benefit pension plans covering certain employees principally united kingdom united states germany switzerland finland france norway argentina primary plans cover certain employees united states united kingdom united states sponsor funded qualified defined benefit pension plan salaried employees well separate funded qualified defined benefit pension plan hourly employees plans closed new entrants frozen fund least minimum contributions required employee retirement income security act 1974 internal revenue code plans addition maintain unfunded nonqualified defined benefit pension plan certain senior executives executive nonqualified pension plan “enpp” enpp also closed new entrants united kingdom sponsor funded defined benefit pension plan provides annuity benefit based participants’ final average earnings service participation plan limited certain older longer service employees existing retirees plan closed new participants see note 7 consolidated financial statements contained item 8 “financial statements supplementary data” additional information regarding costs assumptions employee retirement benefits nature estimates required measurement date benefit plans december 31 measurement pension obligations costs liabilities dependent variety assumptions provided management used actuaries assumptions include estimates present value projected future pension payments plan participants taking consideration likelihood potential future events salary increases demographic experience assumptions may effect amount timing future contributions assumptions approach used assumptions used developing required estimates include limited following key factors • discount rates• inflation • salary growth• expected return plan assets • retirement rates ages• mortality rates years ended december 31 2020 2019 2018 used globally consistent methodology set discount rate countries largest benefit obligations exist united states united kingdom euro zone constructed hypothetical bond portfolio highquality corporate bonds applied cash flows benefit plans bond yields derive discount rate bond portfolio planspecific cash flows vary country methodology portfolio constructed consistent united states bond portfolio large enough result taking “settlement approach” derive discount rate highquality corporate bonds assumed purchased resulting coupon payments maturities used satisfy us pension plans’ projected benefit payments united kingdom euro zone discount rate derived using “yield curve approach” individual spot rate zero coupon bond yield future annual period developed discount future benefit payment thereby determine present value future payments use spot yield curve determine discount rate applicable united kingdom measure uk pension plan’s service cost interest cost settlement yield curve approaches discount rate set equal single discount rate produces present value future payments key assumptions methods set follows •our inflation assumption based evaluation external market indicators •the salary growth assumptions reflect longterm actual experience nearterm outlook assumed inflation •the expected return plan asset assumptions reflects asset allocations investment strategy historical experience views investment managers reflects projection expected arithmetic returns ten years •determination retirement rates ages well termination rates based actual plan experience actuarial standards practice manner defined benefit plans administered •the mortality rates uk defined benefit pension plan updated 2020 reflect latest expected improvements life expectancy plan participants mortality rates us defined benefit pension plans updated 2020 reflect society actuaries’ recent findings topic mortality •the fair value assets used determine expected return assets reflect delayed recognition asset gains losses effects actual results differing assumptions accumulated amortized future periods therefore generally affect recognized expense periods us uk defined benefit pension plans including enpp comprised approximately 86 consolidated projected benefit obligation december 31 2020 discount rate used determine 2020 projected benefit obligation us qualified defined benefit pension plans enpp decreased 25 basis points projected benefit obligation would increased approximately 56 million december 31 2020 2021 pension expense would increase approximately 06 million discount rate used determine 2020 projected benefit obligation us qualified defined benefit pension plans enpp increased 25 basis points projected benefit obligation would decreased approximately 53 million december 31 2020 2021 pension expense would decrease approximately 05 million discount rate used determine projected benefit obligation uk defined benefit pension plan decreased 25 basis points projected benefit obligation would increased approximately 293 million december 31 2020 2021 pension expense would increase approximately 01 million discount rate used determine projected benefit obligation uk defined benefit pension plan increased 25 basis points projected benefit obligation would decreased approximately 278 million december 31 2020 2021 pension expense would decrease approximately 02 million addition expected longterm rate return plan assets related uk defined benefit pension plan increased decreased 25 basis points 2021 pension expense would decrease increase approximately 18 million respectively impact us defined benefit pension plans 25basispoint change expected longterm rate return would decrease increase 2021 pension expense approximately 01 million respectively unrecognized actuarial net losses related defined benefit pension plans enpp 3851 million december 31 2020 compared 3622 million december 31 2019 increase unrecognized net actuarial losses years primarily resulted lower discount rates december 31 2020 compared december 31 2019 unrecognized net actuarial losses impacted future periods actual asset returns discount rate changes currency exchange rate fluctuations actual demographic experience certain factors defined benefit pension plans losses extent exceed 10 greater plan’s liabilities fair value assets “the gainloss corridor” amortized straightline basis periods discussed follows us salaried us hourly uk defined benefit pension plans population covered predominantly inactive participants losses related plans extent exceed gainloss corridor amortized average remaining lives participants covered respective plan enpp population predominantly active participants losses related plan amortized average future working lifetime active participants expected receive benefits december 31 2020 average amortization periods follows unrecognized prior service cost related defined benefit pension plans 201 million december 31 2020 compared 225 million december 31 2019 decrease unrecognized prior service cost years due primarily amortization unrecognized prior service cost related prior plan amendments amortization unrecognized prior service cost 2020 also included initial amortization impacts amendment enpp 2019 december 31 2020 unfunded underfunded obligations related defined benefit pension plans enpp approximately 2251 million primarily related defined benefit pension plans europe united states 2020 contributed approximately 324 million towards obligations expect fund approximately 357 million 2021 future funding dependent upon compliance local laws regulations changes laws regulations future well generation operating cash flows future currently agreement place trustees uk defined benefit plan obligates us fund approximately £153 million per year approximately 209 million towards obligation december 2021 funding arrangement based upon current funded status could change future discount rates local laws regulations factors change see note 7 consolidated financial statements contained item 8 “financial statements supplementary data” information regarding investment strategy concentration risk goodwill intangible assets longlived assets test goodwill impairment reporting unit level annually events circumstances indicate fair value reporting unit may carrying value reporting unit operating segment one level operating segment example component combine aggregate two components operating segment single reporting unit components similar economic characteristics reportable segments reporting units goodwill evaluated impairment annually october 1 using qualitative assessment quantitative onestep assessment elect perform qualitative assessment determine fair value reporting units likely exceeds carrying value net assets evaluation necessary reporting units perform onestep quantitative assessment compare fair value reporting unit respective carrying value net assets including goodwill fair value reporting unit exceeds carrying value net assets goodwill considered impaired carrying value net assets higher fair value reporting unit impairment charge recorded amount carrying value exceeds reporting unit’s fair value utilize combination valuation techniques including income approach whereby present value future expected operating net cash flows calculated using discount rate guideline public company method whereby ebitda revenue multiples derived market prices stocks companies engaged similar lines business actively traded free open market assumptions included approaches positively negatively impact results assessments interest rates sales margin growth rates tax rates cost structures market share pricing capital expenditures working capital levels use control premiums review longlived assets include intangible assets subject amortization impairment whenever events changes circumstances indicate carrying amount asset may recoverable evaluation recoverability performed level independent cash flows may attributed either asset group determine carrying amount asset group recoverable based expected undiscounted future cash flows asset group impairment loss recorded equal excess carrying amounts estimated fair value longlived assets estimates future cash flows based many factors including current operating results expected market trends competitive influences also evaluate amortization periods assigned intangible assets determine whether events changes circumstances warrant revised estimates useful lives assets disposed sale reported lower carrying amount fair value less estimated costs sell make various assumptions including assumptions regarding future cash flows market multiples growth rates discount rates assessments impairment goodwill indefinitelived intangible assets longlived assets assumptions future cash flows growth rates based current longterm business plans reporting unit related longlived assets discount rate assumptions based assessment risk inherent future cash flows reporting unit longlived assets assumptions require significant judgments part conclusions reach could vary significantly based upon judgments covid19 pandemic adversely impacted global economy whole based current macroeconomic conditions assessed goodwill intangible assets indications impairment march 31 2020 june 30 2020 september 30 2020 june 30 2020 concluded indicators impairment three months ended june 30 2020 related one smaller reporting units 50owned tillage seeding equipment joint venture consolidate reporting unit determined primary beneficiary joint venture deteriorating market conditions products joint venture sells negatively impacted covid19 pandemic second quarter greater initially expected result updated strategic reviews revised forecasts indicated impairment entire goodwill balance reporting unit necessary june 30 2020 three months ended june 30 2020 impairment charge approximately 200 million recorded “goodwill impairment charge” within consolidated statements operations offsetting benefit approximately 100 million included within “net loss attributable noncontrolling interests” results goodwill longlived assets impairment analyses conducted october 1 2020 indicated indicators impairment existed reduction carrying amount goodwill longlived assets required related reporting units goodwill impairment analysis conducted october 1 2020 also indicated fair value excess carrying value grain protein production systems europemiddle east north america reporting units approximately 15 approximately 19 respectively response weakening market conditions resulting operating results new management put place global grain protein systems productions systems business 2019 time full strategic reviews operating decisions business conducted launched including several restructuring initiatives aimed lowering operating costs improving product portfolios enhancing customer support management believes result improved longterm operating results market conditions overall results improve may incur impairment charge related reporting units future onestep process described goodwill associated reporting units december 31 2020 approximately 640 million 5230 million respectively goodwill impairment analysis conducted october 1 2019 indicated carrying value net assets grain storage protein production systems business europemiddle east excess fair value reporting unit therefore recorded noncash impairment charge approximately 1736 million within “impairment charges” consolidated statements operations impairment charge substantial portion reporting unit’s goodwill balance three months ended december 31 2019 also recorded noncash impairment charge approximately 30 million within “impairment charges” consolidated statements operations impairment charge related certain longlived intangible assets associated grain storage protein production systems operations within north america due discontinuation certain brand name related products customers results goodwill longlived assets impairment analyses conducted october 1 2018 indicated reduction carrying amount goodwill longlived assets required numerous facts circumstances considered evaluating carrying amount goodwill fair value reporting unit impacted reporting unit’s expected financial performance dependent upon agricultural industry factors could adversely affect agricultural industry including limited declines general economy increases farm input costs weather conditions lower commodity protein prices changes availability credit estimated fair value individual reporting units assessed reasonableness reviewing variety indicators evaluated reasonable period time december 31 2020 approximately 13065 million goodwill annual impairment testing 2020 supported carrying amount goodwill may required reevaluate carrying amount future periods thus utilizing different assumptions reflect current market conditions expectations therefore could conclude impairment occurred recoverable indirect taxes brazilian operations incur value added taxes “vat” certain purchases raw materials components services taxes accumulated tax credits create assets reduced vat collected sales brazilian market regularly assesses recoverability tax credits establishes reserves necessary analyses include amongst others history realization transfer tax credits third parties authorized government anticipated changes supply chain future expectation tax debits ongoing operations believe tax credits net established reserves realizable assessment realization tax assets involves significant judgments part conclusions reach could vary significantly based upon judgments recorded approximately 912 million 1423 million respectively vat tax credits net reserves december 31 2020 2019 item 7aitem 7 managements discussion analysis financial condition results operations information heading managements discussion analysis financial condition results operations pages 20 27 annual report stockholders year ended december 31 1996 incorporated herein reference item 8item 7 management’s discussion analysis financial condition results operations leading manufacturer distributor agricultural equipment related replacement parts throughout world sell full range agricultural equipment including tractors combines selfpropelled sprayers hay tools forage equipment seeding tillage equipment implements grain storage protein production systems products widely recognized agricultural equipment industry marketed number wellknown brand names including challenger® fendt® gsi® massey ferguson® valtra® distribute products combination approximately 4050 dealers distributors well associates licensees addition provide retail financing finance joint ventures rabobank financial highlights sell equipment replacement parts independent dealers distributors customers large majority sales independent dealers distributors sell products end users extent practicable attempt sell products dealers distributors level basis throughout year reduce effect seasonal demands manufacturing operations minimize investment inventories however retail sales dealers farmers highly seasonal linked planting harvesting seasons certain markets particularly north america often time lag varies based timing level retail demand sale equipment dealer’s sale retail customer following table sets forth periods indicated percentage relationship net sales certain items included consolidated statements operations 1 rounding may impact summation amounts 2018 compared 2017 net income attributable agco corporation subsidiaries 2018 2855 million 358 per diluted share compared 1864 million 232 per diluted share 2017 net sales 2018 approximately 93520 million 126 higher 2017 primarily due sales growth regions positive impact acquisitions income operations 4890 million 2018 compared 4044 million 2017 increase income operations 2018 primarily result higher net sales improved operating margins regionally income operations europemiddle east “eme” region increased approximately 1078 million 2018 compared 2017 driven primarily higher net sales improved margins north american region income operations improved approximately 362 million higher net sales levels well benefit precision planting acquisition completed september 2017 contributed improvement region south america income operations decreased approximately 255 million 2018 compared 2017 decline due lower margins resulting material cost inflation higher costs associated localizing newer product technology brazilian factories income operations asiapacificafrica “apa” region increased approximately 08 million 2018 compared 2017 primarily due growth net sales industry market conditions robust global crop production kept commodity prices relatively low levels pressured farm income 2018 global industry demand farm equipment mixed across key markets 2018 future demand dependent factors commodity price development well government trade farm support policies north america retail sales increased 2018 row crop segment farmers replaced equipment years weaker demand addition industry unit retail sales lowerhorsepower tractors remained strong 2018 industry unit retail sales tractors increased approximately 2 industry unit retail sales combines increased approximately 10 2018 compared 2017 industry retail sales tractors western europe decreased slightly 2018 demand lower across european markets offset growth united kingdom farm income impacted weak wheat harvest due dry hot summer pressuring arable farming segment demand industry unit retail sales combines western europe increased approximately 13 2018 prior year industry retail sales south america mixed full year 2018 equipment demand brazil improved second half 2018 positive terms government’s financing programs announced market growth brazil offset weak demand argentina due poor first harvest weak general economic conditions industry unit retail sales tractors south america flat industry unit retail sales combines increased approximately 9 2018 compared 2017 results operations net sales 2018 93520 million compared 83065 million 2017 growth achieved regions constant currency basis net sales growth also result positive impacts acquisitions foreign currency translation following table sets forth year ended december 31 2018 impact net sales currency translation acquisitions geographical segment millions except percentages regionally net sales north america increased 2018 compared 2017 sales growth driven positive impacts precision planting acquisition well increased sales tractors sprayers hay tools grain storage equipment net sales grew south america 2018 compared 2017 excluding negative impact currency translation sales growth brazil primarily second half 2018 partially offset sales declines argentina eme region net sales increased 2018 compared 2017 growth strongest key markets united kingdom germany france apa region net sales increased 2018 compared 2017 primarily due growth sales china australia estimate worldwide average price increases approximately 14 11 2018 2017 respectively consolidated net sales tractors combines comprised approximately 61 net sales 2018 increased approximately 11 2018 compared 2017 unit sales tractors combines increased approximately 76 2018 compared 2017 unit sales increase net sales differ due foreign currency translation pricing sales mix changes following table sets forth years ended december 31 2018 2017 percentage relationship net sales certain items included consolidated statements operations millions except percentages 1 rounding may impact summation amounts gross profit percentage net sales increased 2018 compared 2017 primarily due higher sales production volumes well pricing cost containment initiatives partially offset increased material costs including steel negative currency impacts production hours increased approximately 7 2018 compared 2017 recorded stock compensation expense approximately 23 million 28 million 2018 2017 respectively within cost goods sold fully explained note 10 consolidated financial statements selling general administrative expenses “sga expenses” engineering expenses increased dollars lower percentage net sales 2018 compared 2017 increases sga engineering expenses primarily result labor cost increases impact acquisitions negative foreign currency translation impacts 2018 engineering expenses also increased 2018 support investments future new product introductions recorded stock compensation expense approximately 443 million 356 million 2018 2017 respectively within sga expenses fully explained note 10 consolidated financial statements recorded restructuring expenses approximately 120 million 112 million 2018 2017 respectively restructuring expenses primarily related severance related costs associated rationalization employee headcount various manufacturing facilities administrative offices located europe china south america united states interest expense net 538 million 2018 compared 451 million 2017 2018 repurchased approximately 3000 million outstanding 5⅞ senior notes repurchase resulted loss extinguishment debt approximately 245 million including associated fees offset approximately 47 million accelerated amortization deferred gain related terminated interest rate swap instrument associated senior notes addition repaid outstanding term loan former revolving credit term loan facility recorded approximately 07 million associated writeoff deferred debt issuance costs loss approximately 39 million terminated interest rate swap instrument related term loan see “liquidity capital resources” information expense net 749 million 2018 compared 755 million 2017 losses sales receivables primarily related accounts receivable sales agreements finance joint ventures north america europe brazil approximately 360 million 392 million 2018 2017 respectively “other expense net” also includes hedging costs foreign exchange losses included losses associated devaluation argentine peso incurred 2018 whollyowned subsidiary argentina manufactures distributes agricultural equipment replacement parts within argentina june 30 2018 basis currently available data related inflation indices result devaluation argentine peso relative united states dollar argentinian economy determined highly inflationary highly inflationary economy one cumulative inflation rate three years preceding beginning reporting period including interim reporting periods excess 100 percent result designation based guidance asc 830 “foreign currency matters” changed functional currency whollyowned subsidiary argentinian peso us dollar effective july 1 2018 six months ended december 31 2018 whollyowned subsidiary argentina net sales approximately 922 million total assets approximately 1045 million december 31 2018 monetary assets liabilities remeasured based current published exchange rates recorded income tax provision 1109 million 2018 compared 1336 million 2017 tax provision effective tax rate impacted differing tax rates various tax jurisdictions operate permanent differences items treated differently financial accounting income tax purposes losses jurisdictions income tax benefit recorded 2017 recorded tax provision approximately 420 million resulting estimate impact us tax reform legislation enacted december 22 2017 2018 finalized calculations related us tax reform legislation recorded tax benefit approximately 85 million december 31 2018 2017 gross deferred tax assets 3502 million 3549 million respectively including 745 million 834 million respectively related net operating loss carryforwards december 31 2018 total valuation allowances offset gross deferred tax assets approximately 839 million included allowances net operating loss carryforwards brazil china united kingdom netherlands well allowances net deferred taxes us december 31 2017 total valuation allowances offset gross deferred tax assets approximately 819 million primarily related net operating loss carryforwards brazil china united kingdom netherlands well allowances net deferred taxes us realization remaining deferred tax assets december 31 2018 depend generating sufficient taxable income future periods net reversing deferred tax liabilities believe likely remaining net deferred tax assets realized refer note 6 consolidated financial statements information equity net earnings affiliates primarily comprised income finance joint ventures 343 million 2018 compared 391 million 2017 primarily due lower net earnings certain finance joint ventures affiliates refer “finance joint ventures” information regarding finance joint ventures results operations note 5 consolidated financial statements 2017 compared 2016 net income attributable agco corporation subsidiaries 2017 1864 million 232 per diluted share compared net income 2016 1601 million 196 per diluted share 2016 net sales 2017 approximately 83065 million 121 higher 2016 primarily due sales growth regions positive impact acquisitions benefit currency translations impacts income operations 4044 million 2017 compared 2870 million 2016 increase income operations 2017 primarily result higher net sales improved margins resulting higher production levels cost reduction initiatives regionally income operations eme region increased approximately 931 million 2017 compared 2016 driven primarily higher net sales improved margins resulting increased production levels north american region income operations improved approximately 253 million higher net sales improved factory productivity expense reduction efforts resulted improvement operating margins south america income operations decreased approximately 50 million 2017 compared 2016 decline due lower margins resulting decreased production levels material cost inflation costs associated transitioning higher horsepower products new tier 3 emission technology income operations apa region increased approximately 291 million 2017 compared 2016 primarily due growth net sales improved margins industry market conditions north america tractor combine demand improved 2016 levels demand row crop segments remains weak specifically industry unit retail sales higher horsepower tractors relatively flat industry unit retail sales combines increased approximately 10 2017 compared 2016 addition industry unit retail sales lowerhorsepower tractors grew modestly unit retail sales hay forage equipment deteriorated industry retail sales western europe improved 2017 strongest growth germany italy united kingdom recovery dairy sector helped support retail sales improve overall confidence region lower commodity prices however pressured market demand arable farming segment industry unit retail sales tractors increased approximately 4 2017 compared 2016 region combine industry unit retail sales decreased approximately 6 period industry retail sales south america rose full year 2017 demand brazil grew strongly depressed first half levels experienced 2016 brazilian sales slowed second half 2017 ongoing political economic uncertainty dampened farmer confidence argentine market robust 2017 supportive government policies stimulated growth industry unit retail sales tractors combines increased region approximately 13 2017 compared 2016 results operations net sales 2017 83065 million compared 74105 million 2016 primarily due stable growth regions acquisitions favorable impact foreign currency translation following table sets forth year ended december 31 2017 impact net sales currency translation geographical segment millions except percentages regionally net sales north america increased 2017 compared 2016 driven positive acquisition impacts mixed industry demand dealer inventory reduction efforts pressured sales volumes region tractor sales growth due new product introductions mostly offset sales declines hay tools sprayers grain storage equipment net sales grew south america 2017 compared 2016 increase driven robust demand argentina well modest growth brazil eme region net sales increased 2017 compared 2016 growth strongest key markets united kingdom germany italy apa region net sales increased 2017 compared 2016 primarily due growth sales china australia estimate worldwide average price increases approximately 11 15 2017 2016 respectively consolidated net sales tractors combines comprised approximately 62 net sales 2017 increased approximately 13 2017 compared 2016 unit sales tractors combines increased approximately 36 2017 compared 2016 unit sales increase net sales differ due foreign currency translation pricing sales mix changes following table sets forth years ended december 31 2017 2016 percentage relationship net sales certain items included consolidated statements operations millions except percentages gross profit percentage net sales increased 2017 compared 2016 primarily due higher sales production volumes reduced warranty costs benefits material cost containment productivity initiatives production hours increased approximately 3 2017 compared 2016 recorded stock compensation expense approximately 28 million 15 million 2017 2016 respectively within cost goods sold fully explained note 10 consolidated financial statements sga expenses engineering expenses increased dollars relatively flat percentage net sales 2017 compared 2016 increases sga engineering expenses primarily result labor cost increases impact acquisitions well negative foreign currency translation impacts 2017 engineering expenses also increased 2016 support investments future new product introductions recorded stock compensation expense approximately 356 million 169 million 2017 2016 respectively within sga expenses fully explained note 10 consolidated financial statements recorded restructuring expenses approximately 112 million 119 million 2017 2016 respectively restructuring expenses recorded 2017 2016 primarily related severance related costs associated rationalization employee headcount various manufacturing facilities administrative offices located europe china south america united states interest expense net 451 million 2017 compared 521 million 2016 see “liquidity capital resources” information expense net 755 million 2017 compared 300 million 2016 losses sales receivables primarily related accounts receivable sales agreements finance joint ventures north america europe brazil approximately 392 million 195 million 2017 2016 respectively due increase volume receivables sold 2017 compared 2016 addition higher hedging costs foreign exchange losses 2017 compared 2016 contributed increase expense net recorded income tax provision 1336 million 2017 compared 922 million 2016 tax provision effective tax rate impacted differing tax rates various tax jurisdictions operate permanent differences items treated differently financial accounting income tax purposes losses jurisdictions income tax benefit recorded 2017 recorded tax provision approximately 420 million resulting estimate impact us tax reform legislation enacted december 22 2017 2016 recorded noncash deferred tax adjustment establish valuation allowance us net deferred income tax assets valuation allowance established likely portion company’s deferred tax assets realized assessed likelihood deferred tax assets would recovered estimated future taxable income available income tax planning strategies time concluded valuation allowance established december 31 2017 2016 gross deferred tax assets 3549 million 4474 million respectively including 834 million 855 million respectively related net operating loss carryforwards december 31 2017 total valuation allowances offset gross deferred tax assets approximately 819 million included allowances net operating loss carryforwards brazil china russia netherlands well allowances net deferred taxes us previously discussed december 31 2016 total valuation allowances offset gross deferred tax assets approximately 1160 million primarily related net operating loss carryforwards brazil china russia netherlands well allowances net deferred taxes us equity net earnings affiliates primarily comprised income finance joint ventures 391 million 2017 compared 475 million 2016 primarily due lower net earnings certain finance joint ventures affiliates refer “finance joint ventures” information regarding finance joint ventures results operations note 5 consolidated financial statements quarterly results following table presents unaudited interim operating results believe following information includes adjustments consisting normal recurring adjustments necessary present fairly results operations periods presented finance joint ventures agco finance joint ventures provide retail financing wholesale financing dealers united states canada europe brazil argentina australia joint ventures owned agco whollyowned subsidiary rabobank financial institution based netherlands majority assets finance joint ventures consist finance receivables majority liabilities consist notes payable accrued interest various joint venture agreements rabobank affiliates provide financing finance joint ventures primarily lines credit guarantee debt obligations joint ventures december 31 2018 capital investment finance joint ventures included “investment affiliates” consolidated balance sheets approximately 3587 million compared 3737 million december 31 2017 total finance portfolio finance joint ventures approximately 88 billion december 31 2018 2017 respectively total finance portfolio december 31 2018 2017 included approximately 72 billion 73 billion respectively retail receivables 16 billion 15 billion respectively wholesale receivables agco dealers wholesale receivables either sold directly agco finance without recourse operating companies agco finance provided financing directly dealers 2018 2017 make additional investments finance joint ventures 2018 2017 received dividends approximately 294 million 785 million respectively certain finance joint ventures share earnings finance joint ventures included “equity net earnings affiliates” within consolidated statements operations 347 million 391 million years ended december 31 2018 2017 respectively decrease earnings primarily due lower income us brazilian finance joint ventures 2018 compared 2017 outlook operations subject cyclical nature agricultural industry sales equipment expected continue affected changes net cash farm income farm land values weather conditions demand agricultural commodities farm industry related legislation policies availability financing general economic conditions global industry demand projected improve modestly 2019 net sales expected increase 2019 compared 2018 primarily due improved sales volumes positive pricing impacts offset unfavorable foreign currency translation gross operating margins expected improve 2018 levels reflecting positive impact pricing cost reduction efforts recent acquisitions october 2 2017 acquired forage division lely group “lely” approximately €802 million approximately 946 million net cash acquired approximately €101 million approximately 119 million lely acquisition manufacturing locations northern germany allowed company expand product offering hay forage equipment including balers loader wagons harvesting tools acquisition financed credit facility see note 7 consolidated financial statements information allocated purchase price assets acquired liabilities assumed based fair values acquisition date acquired net assets primarily consisted accounts receivable inventories accounts payable accrued expenses property plant equipment customer relationship technology trademark indentifiable intangible assets recorded approximately 76 million customer relationship technology trademark identifiable intangible assets approximately 258 million goodwill associated acquisition september 1 2017 acquired precision planting llc “precision planting” approximately 1981 million net cash acquired approximately 16 million precision planting headquartered tremont illinois leading manufacturer hightech planting equipment acquisition precision planting provided us opportunity expand precision farming technology offerings global basis acquisition financed credit facility see note 7 consolidated financial statements information allocated purchase price assets acquired liabilities assumed based fair values acquisition date acquired assets primarily consisted accounts receivable inventories accounts payable accrued expenses property plant equipment customer relationship technology trademark identifiable intangible assets recorded approximately 644 million customer relationship technology trademark identifiable intangible assets approximately 672 million goodwill associated acquisition september 12 2016 acquired cimbria holdings limited “cimbria” dkk 22349 million approximately 3375 million net cash acquired approximately dkk 834 million approximately 126 million cimbria headquartered thisted denmark leading manufacturer products solutions processing handling storage seed grain acquisition financed credit facility see note 7 consolidated financial statements information allocated purchase price assets acquired liabilities assumed based fair values acquisition date acquired assets primarily consisted accounts receivable inventories accounts payable accrued expenses customer advances property plant equipment customer relationship technology trademark identifiable intangible assets recorded approximately 1289 million customer relationship technology trademark identifiable intangible assets approximately 2379 million goodwill associated acquisition february 2 2016 acquired tecno poultry equipment spa “tecno” approximately €587 million approximately 638 million acquired cash approximately €176 million approximately 191 million associated acquisition tecno headquartered ronchi di villafranca italy manufactures supplies poultry housing related products including egg collection equipment trolley feeding systems acquisition financed credit facility refer note 7 consolidated financial statements information allocated purchase price assets acquired liabilities assumed based fair values acquisition date acquired net assets primarily consisted accounts receivable inventories accounts payable accrued expenses deferred revenue property plant equipment customer relationship technology trademark identifiable intangible assets recorded approximately 275 million customer relationship technology trademark identifiable intangible assets approximately 204 million goodwill associated acquisition liquidity capital resources financing requirements subject variations due seasonal changes inventory receivable levels internally generated funds supplemented necessary external sources primarily credit facility accounts receivable sales agreement facilities believe following facilities together available cash internally generated funds sufficient support working capital expenditures debt service requirements foreseeable future millions october 2018 entered term loan agreement rabobank amount €1500 million approximately 1715 million december 31 2018 ability prepay term loan maturity date october 28 2022 interest payable term loan quarterly arrears annual rate equal euribor plus margin ranging 0875 1875 based credit rating also fulfill financial covenants respect total debt ebitda ratio interest coverage ratio connection new term loan agreement october 2018 repaid €1000 million approximately 1132 million term loan outstanding former term loan agreement rabobank entered april 2016 october 2018 entered multicurrency revolving credit facility 8000 million maturity date credit facility october 17 2023 interest accrues amounts outstanding credit facility option either 1 libor plus margin ranging 0875 1875 based credit rating 2 base rate equal higher administrative agent’s base lending rate applicable currency ii federal funds rate plus 05 iii onemonth libor loans denominated us dollars plus 10 plus margin ranging 00 0875 based credit rating credit facility contains covenants restricting among things incurrence indebtedness making certain payments including dividends also fulfill financial covenants respect total debt ebitda ratio interest coverage ratio connection closing new credit facility october 2018 repaid outstanding €3120 million approximately 3608 million term loan former revolving credit term loan facility recorded approximately 09 million associated writeoff deferred debt issuance costs associated repayment addition recorded loss approximately 39 million related termination interest rate swap instrument associated former facility’s term loan august 2018 borrowed additional aggregate amount indebtedness €3380 million approximately 3947 million group seven related term loan agreements proceeds borrowings used repay borrowings former revolving credit facility provisions term loan agreements identical nature exception interest rate terms maturities term loan agreements range august 1 2021 august 1 2028 october 2016 borrowed aggregate amount €3750 million group seven related term loan agreements maturities ranging october 2019 october 2026 term loans aggregate amount €558 million 638 million december 31 2018 maturity dates october 2019 may 2018 completed cash tender offer purchase outstanding 578 senior notes cash purchase price 107750 per 100000 senior notes result tender offer repurchased approximately 1859 million principal amount senior notes approximately 2003 million plus accrued interest repurchase resulted loss extinguishment debt approximately 157 million including associated fees october 2018 repurchased remaining principal amount senior notes approximately 1141 million approximately 1225 million plus accrued interest repurchase resulted loss extinguishment debt approximately 88 million including associated fees result repurchase 578 senior notes recorded cumulative amount approximately 47 million accelerated amortization deferred gain related terminated interest rate swap instrument associated senior notes losses extinguishment well accelerated amortization reflected “interest expense net” year ended december 31 2018 december 2018 entered term loan agreement european investment bank “eib” provided us ability borrow €2500 million €2500 million approximately 2846 million funding received january 25 2019 maturity date january 24 2025 ability prepay term loan maturity date interest payable term loan 1002 per annum payable semiannually arrears another term loan eib amount €2000 million approximately 2287 million december 31 2018 entered december 2014 maturity date january 15 2020 compliance financial covenants contained facilities currently expect continue maintain compliance ever encounter difficulties historical relationship lenders strong anticipate continued longterm support business refer note 7 consolidated financial statements information regarding current facilities accounts receivable sales agreements north america europe brazil permit sale ongoing basis majority receivables north america europe brazil us canadian european brazilian finance joint ventures sale receivables without recourse us service receivables sale occurs maintain direct retained interest receivables agreements accounted offbalance sheet transactions effect reducing accounts receivable shortterm liabilities amount december 31 2018 2017 cash received receivables sold us canadian european brazilian accounts receivable sales agreements approximately 14 billion 13 billion respectively finance joint ventures europe brazil australia also provide wholesale financing directly dealers receivables associated arrangements also without recourse us december 31 2018 2017 finance joint ventures approximately 825 million 416 million respectively outstanding accounts receivable associated arrangements accounted offbalance sheet transactions addition sell certain trade receivables factoring arrangements financial institutions around world arrangements also accounted offbalance sheet transactions debt capitalization ratio total indebtedness divided sum total indebtedness stockholders’ equity 328 december 31 2018 compared 357 december 31 2017 cash flows cash flows provided operating activities 5959 million 2018 compared 5776 million 2017 3695 million 2016 increase 2018 primarily due increase net income well increase accrued expenses offset increase inventories addition received decreased amount dividends finance joint ventures 2018 compared 2017 increase cash flows provided operating activities 2017 compared 2016 primarily due increase net income well increase accounts payable accrued expenses offset increase inventories working capital requirements seasonal investments working capital typically building first half year reducing second half year 7707 million working capital december 31 2018 compared 9771 million december 31 2017 accounts receivable inventories combined december 31 2018 1033 million lower december 31 2017 excluding negative impact currency translation inventories increased december 31 2018 compared december 31 2017 result acquisition impacts higher production increased inventory required transition production products meeting new emissions standards europe brazil share repurchase program 2018 2016 repurchased 3120184 4413250 shares common stock respectively approximately 1843 million 2125 million respectively either accelerated share repurchase “asr” agreements financial institutions open market transactions 2017 received approximately 70464 shares associated remaining balance shares delivered asr agreement completed november 2016 shares received asr agreements retired upon receipt excess purchase price par value per share recorded “additional paidin capital” within consolidated balance sheets 2019 entered asr agreement financial institution repurchase aggregate 300 million shares common stock received approximately 379927 shares date transaction specific number shares ultimately repurchase determined completion term asr based daily volumeweighted average share price common stock less agreedupon discount upon settlement asr may entitled receive additional shares common stock certain circumstances required remit settlement amount expect additional shares received us upon final settlement current asr agreement expires second quarter 2019 shares received asr agreement discussed retired upon receipt excess purchase price par value per share recorded “additional paidin capital” within consolidated balance sheets contractual obligations future payments required significant contractual obligations excluding foreign currency option forward contracts december 31 2018 follows millions 1 indebtedness amounts reflect principal amount senior term loan senior notes credit facility 2 estimated interest payments calculated assuming current interest rates minimum maturity periods specified debt agreements debt may repaid sooner later minimum maturity periods 3 shortterm longterm obligations include estimates future minimum contribution requirements us nonus defined benefit pension postretirement plans estimates based current legislation countries operate within subject change shortterm longterm obligations also include income tax liabilities related uncertain income tax positions connected ongoing income tax audits various jurisdictions commitments offbalance sheet arrangements guarantees maintain remarketing agreement finance joint venture united states whereby obligated repurchase 60 million repossessed equipment calendar year believe losses might incurred resale equipment materially impact financial position results operations due fact repurchase obligation would equivalent fair value underlying equipment december 31 2018 guaranteed indebtedness owed third parties approximately 406 million primarily related dealer enduser financing equipment guarantees generally obligate us repay outstanding finance obligations owed financial institutions dealers end users default loans 2023 losses guarantees historically insignificant addition generally would expect able recover significant portion amounts paid guarantees sale underlying financed farm equipment fair value equipment expected offset substantial portion amounts paid believe credit risk associated guarantees material financial position results operations addition december 31 2018 accrued approximately 136 million outstanding guarantees minimum residual values may owed finance joint ventures united states canada due upon expiration certain eligible operating leases finance joint ventures end users december 31 2018 outstanding designated nondesignated foreign exchange contracts gross notional amount approximately 14628 million outstanding contracts december 31 2018 range maturity december 2018 discussed “liquidity capital resources” sell majority wholesale accounts receivable north america europe brazil us canadian european brazilian finance joint ventures also sell certain accounts receivable factoring arrangements financial institutions around world determined facilities accounted offbalance sheet transactions contingencies party various claims lawsuits arising normal course business closely monitor claims lawsuits frequently consult legal counsel determine whether may resolved material adverse effect financial position results operations accrue andor disclose loss contingencies appropriate see note 12 consolidated financial statements item 3 “legal proceedings” related parties rabobank 51 owner finance joint ventures see “finance joint ventures” rabobank also principal agent participant credit facility finance joint ventures provide retail wholesale financing dealers addition transfer ongoing basis majority wholesale receivables north america europe brazil us canadian european brazilian finance joint ventures see note 4 consolidated financial statements discussion agreements maintain remarketing agreement us finance joint venture agco finance llc discussed “commitments offbalance sheet arrangements” addition part sales incentives provided end users may time subsidize interest rates retail financing provided finance joint ventures cost programs recognized time sale dealers tafe hold 2375 interest manufactures sells massey fergusonbranded equipment primarily india also supplies tractors components us sale markets mallika srinivasan chairman chief executive officer tafe currently member board directors december 31 2018 tafe owned 12150152 shares common stock tafe parties agreement pursuant among things tafe agreed purchase excess 12170290 shares common stock subject certain adjustments agreed annually nominate tafe representative board directors 2018 2017 2016 purchased approximately 1096 million 1020 million 1285 million respectively tractors components tafe 2018 2017 2016 sold approximately 18 million 12 million 11 million respectively parts tafe received dividends tafe approximately 18 million 2018 2017 16 million 2016 2018 2017 2016 paid approximately 35 million 72 million 31 million respectively ppg industries inc painting materials used manufacturing processes chairman president chief executive officer currently member board directors ppg industries inc 2018 2017 2016 paid approximately 16 million 15 million 20 million respectively praxair inc propane gas welding laser consumables used manufacturing processes chairman president chief executive officer currently member board directors praxair inc foreign currency risk management significant manufacturing operations united states france germany finland brazil purchase portion tractors combines components thirdparty foreign suppliers primarily various european countries japan also sell products approximately 140 countries throughout world majority net sales outside united states denominated currency customer location exception sales middle east africa asia parts south america net sales primarily denominated british pounds euros united states dollars see note 16 consolidated financial statements net sales customer location significant transactional foreign currency exposures euro brazilian real canadian dollar relation united states dollar euro relation british pound fluctuations value foreign currencies create exposures adversely affect results operations attempt manage transactional foreign currency exposure hedging foreign currency cash flow forecasts commitments arising anticipated settlement receivables payables future purchases sales naturally offsetting currency positions occur hedge certain exposures use foreign currency contracts translation exposure resulting translating financial statements foreign subsidiaries united states dollars hedged significant translation exposures euro british pound brazilian real relation united states dollar practical translation impact reduced financing local operations local borrowings hedging policy prohibits use foreign currency contracts speculative trading purposes derivatives recognized consolidated balance sheets fair value date derivative contract entered designate derivative either 1 cash flow hedge forecasted transaction 2 fair value hedge recognized liability 3 hedge net investment foreign operation 4 nondesignated derivative instrument currently engage derivatives cash flow hedges forecasted transactions well nondesignated derivative instruments total notional value foreign currency instruments 14628 million 17982 million december 31 2018 2017 inclusive instruments designated qualified hedge accounting nondesignated derivative instruments also enter derivative nonderivative instruments hedge portion net investment foreign operations adverse movements exchange rates refer note 11 consolidated financial statements additional information hedging transactions derivative financial instruments assuming 10 change relative currency hedge contracts fair value foreign currency instruments could negatively impacted approximately 271 million december 31 2018 due fact instruments primarily entered hedging purposes gains losses contracts would largely offset losses gains underlying firm commitment forecasted transaction interest rate risk interest expense part sensitive general level interest rates manage exposure interest rate risk mix floating rate fixed rate debt time enter interest rate swap agreements manage exposure interest rate fluctuations refer notes 7 11 consolidated financial statements additional information interest rate swap agreements based floating rate debt accounts receivable sales facilities outstanding december 31 2018 10 increase interest rates would increased collectively “interest expense net” “other expense net” year ended december 31 2018 approximately 51 million recent accounting pronouncements see note 1 consolidated financial statements information regarding recent accounting pronouncements impact consolidated results operations financial position critical accounting estimates prepare consolidated financial statements conformity us generally accepted accounting principles preparation financial statements make judgments estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period significant accounting policies followed preparation financial statements detailed note 1 consolidated financial statements believe application policies discussed involves significant levels judgment estimates complexity due levels judgment complexity period time many items resolved actual results could differ estimated time preparation financial statements adjustments estimates would impact financial position future results operations discount sales incentive allowances provide various volume bonus sales incentive programs respect products sales incentive programs include reductions invoice prices reductions retail financing rates dealer commissions dealer incentive allowances cases incentive programs established communicated dealers quarterly basis incentives paid either time cash settlement receivable generally time retail sale time retail financing time warranty registration subsequent time based dealer purchase volumes incentive programs product line specific generally vary dealer cost sales incentives associated dealer commissions dealer incentive allowances estimated based upon terms programs historical experience based percentage sales price estimates sales incentives made recorded time sale existing incentive programs using expected value method estimates reassessed reporting period revised event subsequent modifications incentive programs communicated dealers related provisions accruals made product productline basis monitored adequacy revised least quarterly event subsequent modifications programs interest rate subsidy payments reduction retail financing rates recorded manner dealer commissions dealer incentive allowances volume discounts estimated recognized based historical experience related reserves monitored adjusted based actual dealer purchase volumes dealers’ progress towards achieving specified cumulative target levels estimates incentives based terms programs historical experience incentive programs recorded presented reduction revenue due fact receive distinct good service exchange consideration provided united states canada reserves incentive programs related accounts receivable sold us canadian finance joint ventures recorded “accounts receivable allowances” within consolidated balance sheets due fact incentives paid reduction future cash settlement receivable globally reserves incentive programs paid cash credit memos case volume discount programs well sales incentives associated accounts receivable sold finance joint ventures recorded within “accrued expenses” within consolidated balance sheets december 31 2018 recorded allowance discounts sales incentives approximately 5619 million paid either reduction future cash settlements receivables credit memos dealers reductions retail financing rates paid finance joint ventures allow additional 1 sales incentives discounts time retail sale sales subject discount programs reserve would increase approximately 197 million december 31 2018 conversely decrease sales incentives discounts 1 time retail sale reserve would decrease approximately 197 million december 31 2018 deferred income taxes uncertain income tax positions recorded income tax provision 1109 million 2018 compared 1336 million 2017 922 million 2016 tax provision effective tax rate impacted differing tax rates various tax jurisdictions operate permanent differences items treated differently financial accounting income tax purposes losses jurisdictions income tax benefit recorded december 22 2017 tax cuts jobs act “the 2017 tax act” enacted united states three months ended december 31 2017 recorded tax provision approximately 420 million accordance staff accounting bulletin 118 provided sec staff guidance application accounting standards codification “asc” 740 “income taxes” reporting period 2017 tax act enacted 420 million tax provision included provisional income tax charge related onetime transition tax associated mandatory deemed repatriation unremitted foreign earnings tax provision also included provisional income tax charge associated income tax consequences related expected future repatriation certain underlying foreign earnings historically considered permanently reinvested remaining balance tax provision primarily related remeasurement certain net deferred tax assets using lower enacted us corporate tax rate 35 percent 21 percent well miscellaneous related impacts three months ended december 31 2018 finalized calculations related 2017 tax act recorded income tax benefit approximately 85 million second quarter 2016 established valuation allowance fully reserve net deferred tax assets united states valuation allowance established likely portion deferred tax assets realized assessed likelihood deferred tax assets would recovered estimated future taxable income available tax planning strategies determined adjustment valuation allowance appropriate making assessment available evidence considered including current economic climate well reasonable tax planning strategies believe likely realize remaining net deferred tax assets net valuation allowance future years december 31 2018 2017 gross deferred tax assets 3502 million 3549 million respectively including 745 million 834 million respectively related net operating loss carryforwards december 31 2018 2017 total valuation allowances offset gross deferred tax assets 839 million 819 million respectively included allowances net operating loss carryforwards china brazil united kingdom netherlands well allowances net deferred taxes us previously discussed realization remaining deferred tax assets december 31 2018 depend generating sufficient taxable income future periods net reversing deferred tax liabilities believe likely remaining net deferred tax assets realized december 31 2018 2017 approximately 1661 million 1634 million respectively unrecognized tax benefits would impact effective tax rate recognized december 31 2018 2017 approximately 585 million 618 million respectively current accrued taxes related uncertain income tax positions connected ongoing tax audits various jurisdictions expect settle pay next 12 months recognize interest penalties related uncertain income tax positions income tax expense december 31 2018 2017 accrued interest penalties related unrecognized tax benefits approximately 272 million 230 million respectively see note 6 consolidated financial statements discussion uncertain income tax positions pensions sponsor defined benefit pension plans covering certain employees principally united kingdom united states germany switzerland finland france norway argentina primary plans cover certain employees united states united kingdom united states sponsor funded qualified defined benefit pension plan salaried employees well separate funded qualified defined benefit pension plan hourly employees plans closed new entrants frozen fund least minimum contributions required employee retirement income security act 1974 internal revenue code plans addition maintain unfunded nonqualified defined benefit pension plan certain usbased senior executives executive nonqualified pension plan “enpp” enpp also closed new entrants united kingdom sponsor funded defined benefit pension plan provides annuity benefit based participants’ final average earnings service participation plan limited certain older longer service employees existing retirees plan closed new participants see note 8 consolidated financial statements information regarding costs assumptions employee retirement benefits nature estimates required measurement date benefit plans december 31 measurement pension obligations costs liabilities dependent variety assumptions provided management used actuaries assumptions include estimates present value projected future pension payments plan participants taking consideration likelihood potential future events salary increases demographic experience assumptions may effect amount timing future contributions assumptions approach used assumptions used developing required estimates include limited following key factors • discount rates • inflation • salary growth • expected return plan assets • retirement rates ages • mortality rates years ended december 31 2018 2017 2016 used globally consistent methodology set discount rate countries largest benefit obligations exist united states united kingdom euro zone constructed hypothetical bond portfolio highquality corporate bonds applied cash flows benefit plans bond yields derive discount rate bond portfolio planspecific cash flows vary country methodology portfolio constructed consistent united states bond portfolio large enough result taking “settlement approach” derive discount rate highquality corporate bonds assumed purchased resulting coupon payments maturities used satisfy us pension plans’ projected benefit payments united kingdom euro zone discount rate derived using “yield curve approach” individual spot rate zero coupon bond yield future annual period developed discount future benefit payment thereby determine present value future payments company uses spot yield curve determine discount rate applicable united kingdom measure uk pension plan’s service cost interest cost settlement yield curve approaches discount rate set equal single discount rate produces present value future payments key assumptions methods set follows • inflation assumption based evaluation external market indicators • salary growth assumptions reflect longterm actual experience nearterm outlook assumed inflation • expected return plan asset assumptions reflects asset allocations investment strategy historical experience views investment managers reflects projection expected arithmetic returns ten years • determination retirement rates ages well termination rates based actual plan experience actuarial standards practice manner defined benefit plans administered • mortality rates uk defined benefit pension plan updated 2018 reflect expected improvements life expectancy plan participants mortality rates us defined benefit pension plans updated 2018 reflect society actuaries’ recent findings topic mortality • fair value assets used determine expected return assets reflect delayed recognition asset gains losses effects actual results differing assumptions accumulated amortized future periods therefore generally affect recognized expense periods us uk defined benefit pension plans including enpp comprised approximately 85 consolidated projected benefit obligation december 31 2018 discount rate used determine 2018 projected benefit obligation us qualified defined benefit pension plans enpp decreased 25 basis points projected benefit obligation would increased approximately 37 million december 31 2018 2019 pension expense would increase approximately 04 million discount rate used determine 2018 projected benefit obligation us qualified defined benefit pension plans enpp increased 25 basis points projected benefit obligation would decreased approximately 35 million december 31 2018 2019 pension expense would decrease approximately 03 million discount rate used determine projected benefit obligation uk defined benefit pension plan decreased 25 basis points projected benefit obligation would increased approximately 212 million december 31 2018 2019 pension expense would increase approximately 02 million discount rate used determine projected benefit obligation uk defined benefit pension plan increased 25 basis points projected benefit obligation would decreased approximately 205 million december 31 2018 2019 pension expense would decrease approximately 02 million addition expected longterm rate return plan assets related uk defined benefit pension plan increased decreased 25 basis points 2019 pension expense would decrease increase approximately 14 million respectively impact us defined benefit pension plans 25basispoint change expected longterm rate return would decrease increase 2019 pension expense approximately 01 million respectively unrecognized actuarial net losses related defined benefit pension plans enpp 3567 million december 31 2018 compared 3601 million december 31 2017 decrease unrecognized net actuarial losses years primarily resulted higher discount rates december 31 2018 compared december 31 2017 unrecognized net actuarial losses impacted future periods actual asset returns discount rate changes currency exchange rate fluctuations actual demographic experience certain factors defined benefit pension plans losses extent exceed 10 greater plan’s liabilities fair value assets “the gainloss corridor” amortized straightline basis periods discussed follows us salaried us hourly uk defined benefit pension plans population covered predominantly inactive participants losses related plans extent exceed gainloss corridor amortized average remaining lives participants covered respective plan december 31 2018 average amortization period 16 years us defined benefit pension plans 19 years uk defined benefit pension plan enpp population predominantly active participants losses related plan amortized average future working lifetime active participants expected receive benefits december 31 2018 average amortization period eight years enpp unrecognized prior service cost related defined benefit pension plans 195 million december 31 2018 compared 122 million december 31 2017 increase unrecognized prior service cost years primarily due newly required uniformity guaranteed minimum pension benefits men women related uk defined benefit plan resulted estimation increased benefits prior participant service requirement result judgment uk high court october 2018 provided clarity need provide uniformity benefits cost estimated impact amortized straightline basis average remaining service period active employees expected receive benefits average remaining lives inactive participants covered uk defined benefit plan december 31 2018 unfunded underfunded obligations related defined benefit pension plans enpp approximately 2060 million primarily related defined benefit pension plans united kingdom united states 2018 contributed approximately 368 million towards obligations expect fund approximately 305 million 2019 future funding dependent upon compliance local laws regulations changes laws regulations future well generation operating cash flows future currently agreement place trustees uk defined benefit plan obligates us fund approximately £156 million per year approximately 199 million towards obligation december 2021 funding arrangement based upon current underfunded status could change future discount rates local laws regulations factors change see note 8 consolidated financial statements information regarding investment strategy concentration risk goodwill intangible assets longlived assets test goodwill impairment reporting unit level annually events circumstances indicate fair value reporting unit may carrying value reporting unit operating segment one level operating segment example component combine aggregate two components operating segment single reporting unit components similar economic characteristics reportable segments reporting units goodwill evaluated annually october 1 impairment using qualitative assessment quantitative twostep assessment elect perform qualitative assessment determine fair value reporting units likely exceeds carrying value evaluation necessary reporting units perform twostep quantitative assessment first step requires us compare fair value reporting unit respective carrying value including goodwill fair value reporting unit exceeds carrying value goodwill considered impaired carrying value higher fair value reporting unit second step quantitative assessment required measure amount impairment second step quantitative assessment results calculation implied fair value reporting unit’s goodwill determined excess fair value reporting unit fair values assigned assets liabilities implied fair value goodwill less carrying value reporting unit’s goodwill difference recognized impairment loss utilize combination valuation techniques including discounted cash flow approach market multiple approach making quantitative goodwill assessments review longlived assets include intangible assets subject amortization impairment whenever events changes circumstances indicate carrying amount asset may recoverable evaluation recoverability performed level independent cash flows may attributed either asset group determine carrying amount asset group recoverable based expected undiscounted future cash flows asset group impairment loss recorded equal excess carrying amounts estimated fair value longlived assets estimates future cash flows based many factors including current operating results expected market trends competitive influences also evaluate amortization periods assigned intangible assets determine whether events changes circumstances warrant revised estimates useful lives assets disposed sale reported lower carrying amount fair value less estimated costs sell make various assumptions including assumptions regarding future cash flows market multiples growth rates discount rates assessments impairment goodwill indefinitelived intangible assets longlived assets assumptions future cash flows growth rates based current longterm business plans reporting unit related longlived assets discount rate assumptions based assessment risk inherent future cash flows reporting unit longlived assets assumptions require significant judgments part conclusions reach could vary significantly based upon judgments results goodwill longlived assets impairment analyses conducted october 1 2018 2017 2016 indicated reduction carrying amount goodwill longlived assets required goodwill impairment analysis conducted october 1 2018 indicated fair value excess carrying value related gsi eme reporting unit less 10 percentage fair value excess carrying value decreased slightly compared 2017 annual analysis recent analyses 2018 operations gsi reporting unit include manufacturing distribution grain storage protein production equipment 2018 experienced weak industry conditions well operational inefficiencies related new manufacturing operations europe impacted operating margins gsi eme operations manufacturing system initiatives process address inefficiencies order reduce costs improve output manufacturing operations market conditions overall results improve may incur impairment charge related gsi eme reporting unit future determined twostep quantitative assessment described amount goodwill allocated gsi eme reporting unit october 1 2018 approximately 2439 million numerous facts circumstances considered evaluating carrying amount goodwill fair value reporting unit impacted reporting unit’s expected financial performance dependent upon agricultural industry factors could adversely affect agricultural industry including limited declines general economy increases farm input costs weather conditions lower commodity prices changes availability credit estimated fair value individual reporting units assessed reasonableness reviewing variety indicators evaluated reasonable period time december 31 2018 approximately 14955 million goodwill annual impairment testing 2018 supported carrying amount goodwill may required reevaluate carrying amount future periods thus utilizing different assumptions reflect current market conditions expectations therefore could conclude impairment occurred recoverable indirect taxes brazilian operations incur value added taxes “vat” certain purchases raw materials components services taxes accumulated tax credits create assets reduced vat collected sales brazilian market regularly assesses recoverability tax credits establishes reserves necessary analyses include amongst others history realization transfer tax credits third parties authorized government anticipated changes supply chain future expectation tax debits ongoing operations believe tax credits net established reserves realizable assessment realization tax assets involves significant judgments part conclusions reach could vary significantly based upon judgments recorded approximately 1560 million 1523 million respectively vat tax credits net reserves december 31 2018 2017 item 7aitem 7 management’s discussion analysis financial condition results operations leading manufacturer distributor agricultural equipment related replacement parts throughout world sell full range agricultural equipment including tractors combines selfpropelled sprayers hay tools forage equipment seeding tillage equipment implements grain storage protein production systems products widely recognized agricultural equipment industry marketed number wellknown brand names including challenger® fendt® gsi® massey ferguson® valtra® distribute products combination approximately 3275 dealers distributors well associates licensees addition provide retail financing finance joint ventures rabobank financial highlights sell equipment replacement parts independent dealers distributors customers large majority sales independent dealers distributors sell products end users extent practicable attempt sell products dealers distributors level basis throughout year reduce effect seasonal demands manufacturing operations minimize investment inventories however retail sales dealers farmers highly seasonal linked planting harvesting seasons certain markets particularly north america often time lag varies based timing level retail demand sale equipment dealer’s sale retail customer following table sets forth periods indicated percentage relationship net sales certain items included consolidated statements operations 1 rounding may impact summation amounts 2019 compared 2018 net income attributable agco corporation subsidiaries 2019 1252 million 163 per diluted share compared 2855 million 358 per diluted share 2018 net sales 2019 approximately 90414 million 33 lower 2018 primarily due decreased sales volumes south american asiapacificafrican “apa” regions negative impact currency translation income operations 3481 million 2019 compared 4890 million 2018 decrease income operations 2019 primarily result noncash goodwill intangible asset impairment charges recorded fourth quarter 2019 related grain storage protein production systems operations europemiddle east “eme” region excluding impact 1766 million noncash impairment charges income operations 2019 increased compared 2018 due improved gross profit margins largely offset adverse impact foreign currency translation regionally income operations eme increased approximately 371 million 2019 compared 2018 driven primarily benefit higher sales margin improvement resulting impacts pricing better factory productivity favorable sales mix north american region income operations improved approximately 185 million increased net sales levels benefit favorable pricing impacts expense control initiatives contributed improvement region south america operating losses increased approximately 293 million 2019 compared 2018 losses reflect low levels industry demand company production well unfavorable cost impacts newer product technology brazilian factories income operations apa region decreased approximately 62 million 2019 compared 2018 primarily due lower net sales production volumes industry market conditions farm economics remain challenged across major cropproducing regions low commodity prices international trade tensions continue weigh farmer sentiment resulting decreased global equipment demand 2019 north america industry unit retail sales utility high horsepower tractors 2019 decreased slightly compared 2018 industry unit retail sales combines 2019 decreased approximately 6 compared 2018 difficult growing season well uncertainty regarding outcome trade negotiations related agricultural products delayed market facilitation aid payments us contributed weak demand large farm sector 2019 western europe industry unit retail sales tractors 2019 declined approximately 2 compared 2018 industry unit retail sales combines 2019 decreased approximately 18 compared 2018 industry demand trended progressively lower throughout 2019 due impact lower wheat milk prices well higher input costs dairy producers 2019 industry sales declines experienced italy united kingdom germany partially offset industry sales growth france finland south america industry unit retail sales tractors 2019 dropped approximately 16 compared 2018 industry unit retail sales combines 2019 decreased approximately 5 compared 2018 despite improved grain production brazil argentina industry demand negatively impacted interruptions government subsidized finance program brazil weak economic conditions argentina results operations net sales 2019 90414 million compared 93520 million 2018 primarily result sales declines south american apa regions partially offset sales growth north american eme regions constant currency basis following table sets forth year ended december 31 2019 impact net sales currency translation geographical segment millions except percentages regionally net sales north america increased 2019 compared 2018 sales growth driven growth net sales low horsepower tractors combines parts largely offset reduction sales protein production equipment utility tractors eme region net sales excluding negative impact foreign currency translation increased 2019 compared 2018 primarily due net sales growth france germany italy partially offset declines united kingdom eastern europe net sales decreased south america 2019 compared 2018 primarily due weaker industry conditions resulting sales declines brazil south american markets well negative impact foreign currency translation apa region net sales decreased 2019 compared 2018 primarily due lower sales china southeast asia africa estimate worldwide average price increases approximately 19 14 2019 2018 respectively consolidated net sales tractors combines comprised approximately 61 net sales 2019 decreased approximately 37 2019 compared 2018 unit sales tractors combines decreased approximately 95 2019 compared 2018 unit sales decrease net sales differ due foreign currency translation pricing sales mix changes following table sets forth years ended december 31 2019 2018 percentage relationship net sales certain items included consolidated statements operations millions except percentages 1 rounding may impact summation amounts gross profit percentage net sales increased 2019 compared 2018 primarily due benefit pricing excess material cost increases partially offset cost impact lower production levels production hours decreased north america south america production hours increased europe 2019 overall production hours decreased approximately 2 global basis 2019 compared 2018 recorded stock compensation expense approximately 17 million 23 million 2019 2018 respectively within cost goods sold fully explained note 1 consolidated financial statements contained item 8 “financial statements supplementary data” selling general administrative expenses “sga expenses” engineering expenses percentage net sales relatively flat 2019 compared 2018 recorded stock compensation expense approximately 400 million 443 million 2019 2018 respectively within sga expenses fully explained note 1 consolidated financial statements contained item 8 “financial statements supplementary data” recorded restructuring expenses approximately 90 million 120 million 2019 2018 respectively restructuring expenses primarily related severance related costs associated rationalization employee headcount various manufacturing facilities administrative offices located europe south america china africa united states 2019 well rationalization grain storage protein production systems operations initiated fourth quarter 2019 addition recorded loss approximately 21 million within restructuring expenses associated sale 50 interest usc llc joint venture see note 3 consolidated financial statements contained item 8 “financial statements supplementary data” additional information three months ended december 31 2019 recorded noncash goodwill intangible asset impairment charges approximately 1736 million associated grain storage protein production systems operations europemiddle east well impairment longlived intangible assets approximately 30 million associated brand product rationalization within grain storage protein production systems operations north america impairment charges fully described “critical accounting estimates goodwill intangible assets longlived assets” note 1 consolidated financial statements contained item 8 “financial statements supplementary data” interest expense net 199 million 2019 compared 538 million 2018 decline primarily result debt extinguishment costs incurred 2018 associated debt refinancings completed 2018 included replacement higher interestbearing debt lower interestbearing debt 2018 repurchased approximately 3000 million outstanding 578 senior notes repurchase resulted loss extinguishment debt approximately 245 million including associated fees offset approximately 47 million accelerated amortization deferred gain related terminated interest rate swap instrument associated senior notes addition repaid outstanding term loan former revolving credit term loan facility recorded approximately 07 million associated writeoff deferred debt issuance costs loss approximately 39 million terminated interest rate swap instrument related term loan expense net 671 million 2019 compared 749 million 2018 losses sales receivables primarily related accounts receivable sales agreements finance joint ventures north america europe brazil approximately 424 million 360 million 2019 2018 respectively expense net 2018 also included higher foreign exchanges losses primarily associated significant devaluation argentine peso recorded income tax provision 1808 million 2019 compared 1109 million 2018 tax provision effective tax rate impacted differing tax rates various tax jurisdictions operate permanent differences items treated differently financial accounting income tax purposes losses jurisdictions income tax benefit recorded december 31 2019 2018 gross deferred tax assets 3960 million 3502 million respectively including 720 million 745 million respectively related net operating loss carryforwards 2019 recognized onetime income tax gain approximately 218 million associated changing swiss federal cantonal tax rates well recognition deferred tax asset associated estimated value tax basis stepup swiss subsidiarys assets 2019 also recorded noncash adjustment establish valuation allowance brazilian net deferred income tax assets approximately 537 million december 31 2019 total valuation allowances offset gross deferred tax assets approximately 1691 million valuation allowance included allowances primarily net operating loss carryforwards brazil china hungary united kingdom netherlands well allowances net deferred taxes primarily us brazil december 31 2018 total valuation allowances offset gross deferred tax assets approximately 839 million primarily related net operating loss carryforwards brazil china united kingdom netherlands well allowances net deferred taxes us realization net deferred tax assets december 31 2019 depend generating sufficient taxable income future periods net reversing deferred tax liabilities believe likely remaining net deferred tax assets realized refer note 6 consolidated financial statements contained item 8 “financial statements supplementary data” information equity net earnings affiliates primarily comprised income agco finance joint ventures 425 million 2019 compared 343 million 2018 primarily due higher net earnings agco finance joint ventures see “finance joint ventures” information regarding finance joint ventures results operations note 5 consolidated financial statements contained item 8 “financial statements supplementary data” information 2018 compared 2017 comparison results operations 2018 versus 2017 included annual report form 10k year ended december 31 2018 quarterly results following table presents unaudited interim operating results believe following information includes adjustments consisting normal recurring adjustments necessary present fairly results operations periods presented agco finance joint ventures agco finance joint ventures provide retail financing wholesale financing dealers united states canada europe brazil argentina australia joint ventures owned agco whollyowned subsidiary rabobank majority assets finance joint ventures consist finance receivables majority liabilities consist notes payable accrued interest various joint venture agreements rabobank affiliates provide financing finance joint ventures primarily lines credit guarantee debt obligations joint ventures december 31 2019 capital investment finance joint ventures included “investment affiliates” consolidated balance sheets approximately 3390 million compared 3587 million december 31 2018 total finance portfolio finance joint ventures approximately 96 billion 88 billion december 31 2019 2018 respectively total finance portfolio december 31 2019 2018 included approximately 77 billion 72 billion respectively retail receivables 19 billion 16 billion respectively wholesale receivables agco dealers wholesale receivables either sold directly agco finance without recourse operating companies agco finance provided financing directly dealers 2019 2018 make additional investments finance joint ventures 2019 2018 received dividends approximately 405 million 294 million respectively certain finance joint ventures share earnings finance joint ventures included “equity net earnings affiliates” within consolidated statements operations 415 million 347 million years ended december 31 2019 2018 respectively increase earnings primarily due higher income european brazilian us finance joint ventures 2019 compared 2018 outlook operations subject cyclical nature agricultural industry sales equipment affected among things changes net cash farm income farm land values weather conditions demand agricultural commodities commodity prices general economic conditions net sales expected increase 2020 compared 2019 resulting relatively flat net sales volumes positive pricing impacts gross operating margins expected improve 2019 levels reflecting positive impact pricing cost control initiatives assumes coronavirus outbreak significantly impact business see “risk factors” liquidity capital resources financing requirements subject variations due seasonal changes inventory receivable levels internally generated funds supplemented necessary external sources primarily credit facility accounts receivable sales agreement facilities believe following facilities together available cash internally generated funds sufficient support working capital expenditures debt service requirements foreseeable future millions 1 amounts gross debt issuance costs aggregate amount approximately 23 million interest us dollar borrowings credit facility calculated based upon libor event libor longer published interest calculated based upon base rate credit facility also provides expedited amendment process replacement libor established december 2018 entered term loan agreement european investment bank “eib” provided us ability borrow €2500 million €2500 million approximately 2802 million december 31 2019 funding received january 25 2019 maturity date january 24 2025 ability prepay term loan maturity date interest payable term loan 1002 per annum payable semiannually arrears additional term loan eib amount €2000 million entered december 2014 maturity date january 15 2020 repaid €2000 million approximately 2200 million term loan december 2019 october 2018 entered term loan agreement rabobank amount €1500 million approximately 1681 million december 31 2019 ability prepay term loan maturity date october 28 2022 interest payable term loan quarterly arrears annual rate equal euribor plus margin ranging 0875 1875 based credit rating october 2018 entered multicurrency revolving credit facility 8000 million maturity date credit facility october 17 2023 interest accrues amounts outstanding credit facility option either 1 libor plus margin ranging 0875 1875 based credit rating 2 base rate equal higher administrative agent’s base lending rate applicable currency ii federal funds rate plus 05 iii onemonth libor loans denominated us dollars plus 10 plus margin ranging 00 0875 based credit rating october 2016 borrowed aggregate amount €3750 million group seven related term loan agreements maturities ranging october 2019 october 2026 october 2019 repaid aggregate amount €560 million approximately 611 million term loans august 2018 borrowed additional aggregate amount indebtedness €3380 million group another seven related term loan agreements proceeds borrowings used repay borrowings former revolving credit facility provisions term loan agreements identical nature exception interest rate terms maturities aggregate december 31 2019 indebtedness approximately €6570 million approximately 7362 million total group twelve term loan agreements remaining maturities ranging august 2021 august 2028 compliance financial covenants contained facilities expect continue maintain compliance ever encounter difficulties historical relationship lenders strong anticipate continued longterm support business refer note 7 consolidated financial statements contained item 8 “financial statements supplementary data” additional information regarding current facilities including financial covenants contained debt instrument accounts receivable sales agreements north america europe brazil permit sale ongoing basis majority receivables us canadian european brazilian finance joint ventures sales receivables without recourse us service receivables sales occur maintain direct retained interest receivables agreements accounted offbalance sheet transactions effect reducing accounts receivable shortterm liabilities amount december 31 2019 2018 cash received receivables sold us canadian european brazilian accounts receivable sales agreements approximately 16 billion 14 billion respectively finance joint ventures europe brazil australia also provide wholesale financing directly dealers receivables associated arrangements also without recourse us december 31 2019 2018 finance joint ventures approximately 1043 million 825 million respectively outstanding accounts receivable associated arrangements accounted offbalance sheet transactions addition sell certain trade receivables factoring arrangements financial institutions around world arrangements also accounted offbalance sheet transactions debt capitalization ratio total indebtedness divided sum total indebtedness stockholders’ equity 304 december 31 2019 compared 328 december 31 2018 cash flows cash flows provided operating activities 6959 million 2019 compared 5959 million 2018 5776 million 2017 increase 2019 primarily due source cash operating assets liabilities 2019 compared use cash 2018 addition received increased amount dividends finance joint ventures 2019 compared 2018 working capital requirements seasonal investments working capital typically building first half year reducing second half year 8446 million working capital december 31 2019 compared 7707 million december 31 2018 accounts receivable inventories combined december 31 2019 902 million higher december 31 2018 inventories december 31 2019 included stock related transition production products meeting new emissions standards europe weaker market conditions many key markets contributed lower net sales resulting higher finished goods inventories compared 2018 share repurchase program 2019 2018 repurchased 1794256 3120184 shares common stock respectively approximately 1300 million 1843 million respectively either accelerated share repurchase “asr” agreements financial institutions open market transactions shares received retired upon receipt excess purchase price par value per share recorded combination “additional paidin capital” retained earnings within consolidated balance sheets february 2020 entered asr agreement financial institution repurchase aggregate 250 million shares common stock received approximately 297000 shares date transaction upon settlement asr may entitled receive additional shares common stock certain circumstances required remit settlement amount expect additional shares received us upon final settlement current asr agreement expires second quarter 2020 contractual obligations future payments required significant contractual obligations excluding foreign currency option forward contracts december 31 2019 follows millions 1 indebtedness amounts reflect principal amount senior term loan senior notes credit facility 2 estimated interest payments calculated assuming current interest rates minimum maturity periods specified debt agreements debt may repaid sooner later minimum maturity periods 3 shortterm longterm obligations include estimates future minimum contribution requirements us nonus defined benefit pension postretirement plans estimates based current legislation countries operate within subject change shortterm longterm obligations also include income tax liabilities related uncertain income tax positions connected ongoing income tax audits various jurisdictions commitments offbalance sheet arrangements guarantees maintain remarketing agreement finance joint venture united states whereby obligated repurchase 60 million repossessed equipment calendar year believe losses might incurred resale equipment materially impact financial position results operations due fact repurchase obligation would equivalent fair value underlying equipment december 31 2019 guaranteed indebtedness owed third parties approximately 476 million primarily related dealer enduser financing equipment guarantees generally obligate us repay outstanding finance obligations owed financial institutions dealers end users default loans 2025 losses guarantees historically insignificant addition generally would expect able recover significant portion amounts paid guarantees sale underlying financed farm equipment fair value equipment expected offset substantial portion amounts paid also obligations guarantee indebtedness owed certain finance joint ventures dealers end users default loans losses guarantees historically insignificant guarantees material believe credit risk associated guarantees material financial position results operations addition december 31 2019 accrued approximately 189 million outstanding guarantees minimum residual values may owed finance joint ventures united states canada due upon expiration certain eligible operating leases finance joint ventures end users maximum potential amount future payments guarantee approximately 267 million december 31 2019 outstanding designated nondesignated foreign exchange contracts gross notional amount approximately 31330 million outstanding contracts december 31 2019 range maturity december 2020 discussed “liquidity capital resources” sell majority wholesale accounts receivable north america europe brazil us canadian european brazilian finance joint ventures also sell certain accounts receivable factoring arrangements financial institutions around world determined facilities accounted offbalance sheet transactions contingencies party various claims lawsuits arising normal course business closely monitor claims lawsuits frequently consult legal counsel determine whether may resolved material adverse effect financial position results operations accrue andor disclose loss contingencies appropriate see note 12 consolidated financial statements contained item 8 “financial statements supplementary data” item 3 “legal proceedings” information related parties ordinary course business company engages transactions related parties see note 14 consolidated financial statements contained item 8 “financial statements supplementary data” information regarding related party transactions impact consolidated results operations financial position foreign currency risk management significant manufacturing locations united states france germany finland italy china brazil purchase portion tractors combines components thirdparty foreign suppliers primarily various european countries japan also sell products approximately 140 countries throughout world majority net sales outside united states denominated currency customer location exception sales middle east africa asia parts south america net sales primarily denominated british pounds euros united states dollar manage transactional foreign currency exposure hedging foreign currency cash flow forecasts commitments arising anticipated settlement receivables payables future purchases sales naturally offsetting currency positions occur hedge certain exposures use foreign currency contracts translation exposure resulting translating financial statements foreign subsidiaries united states dollars may partially hedged time practical translation impact reduced financing local operations local borrowings hedging policy prohibits use foreign currency contracts speculative trading purposes total notional value foreign currency instruments 31330 million 14628 million december 31 2019 2018 respectively inclusive instruments designated qualified hedge accounting nondesignated derivative instruments enter cash flow hedges minimize variability cash flows assets liabilities forecasted transactions caused fluctuations foreign currency exchange rates enter foreign currency contracts economically hedge receivables payables balance sheets denominated foreign currencies functional currency addition use derivative nonderivative instruments hedge portion net investment foreign operations adverse movements exchange rates see note 11 consolidated financial statements contained item 8 “financial statements supplementary data” information hedging transactions derivative instruments assuming 10 change relative currency hedge contracts fair value foreign currency instruments could negatively impacted approximately 223 million december 31 2019 due fact instruments primarily entered hedging purposes gains losses contracts would largely offset losses gains underlying firm commitment forecasted transaction interest rate risk interest expense part sensitive general level interest rates manage exposure interest rate risk mix floating rate fixed rate debt time enter interest rate swap agreements manage exposure interest rate fluctuations see notes 7 11 consolidated financial statements contained item 8 “financial statements supplementary data” additional information interest rate swap agreements based floating rate debt accounts receivable sales facilities outstanding december 31 2019 10 increase interest rates would increased collectively “interest expense net” “other expense net” year ended december 31 2019 approximately 56 million recent accounting pronouncements see note 1 consolidated financial statements contained item 8 “financial statements supplementary data” information regarding recent accounting pronouncements impact consolidated results operations financial position critical accounting estimates prepare consolidated financial statements conformity us generally accepted accounting principles preparation financial statements make judgments estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period significant accounting policies followed preparation financial statements detailed note 1 consolidated financial statements contained item 8 “financial statements supplementary data” believe application policies discussed involves significant levels judgment estimates complexity due levels judgment complexity period time many items resolved actual results could differ estimated time preparation financial statements adjustments estimates would impact financial position future results operations discount sales incentive allowances provide various volume bonus sales incentive programs respect products sales incentive programs include reductions invoice prices reductions retail financing rates dealer commissions dealer incentive allowances cases incentive programs established communicated dealers quarterly basis incentives paid either time cash settlement receivable generally time retail sale time retail financing time warranty registration subsequent time based dealer purchase volumes incentive programs product line specific generally vary dealer cost sales incentives associated dealer commissions dealer incentive allowances estimated based upon terms programs historical experience based percentage sales price estimates sales incentives made recorded time sale expected incentive programs using expected value method estimates reassessed reporting period revised event subsequent modifications incentive programs communicated dealers related provisions accruals made product productline basis monitored adequacy revised least quarterly event subsequent modifications programs interest rate subsidy payments reduction retail financing rates recorded manner dealer commissions dealer incentive allowances volume discounts estimated recognized based historical experience related reserves monitored adjusted based actual dealer purchase volumes dealers’ progress towards achieving specified cumulative target levels estimates incentives based terms programs historical experience incentive programs recorded presented reduction revenue due fact receive distinct good service exchange consideration provided united states canada reserves incentive programs related accounts receivable sold us canadian finance joint ventures recorded “accounts receivable allowances” within consolidated balance sheets due fact incentives paid reduction future cash settlement receivable globally reserves incentive programs paid cash credit memos case volume discount programs well sales incentives associated accounts receivable sold finance joint ventures recorded within “accrued expenses” within consolidated balance sheets december 31 2019 recorded allowance discounts sales incentives approximately 6061 million paid either reduction future cash settlements receivables credit memos dealers reductions retail financing rates paid finance joint ventures allow additional 1 sales incentives discounts time retail sale sales subject discount programs reserve would increase approximately 210 million december 31 2019 conversely decrease sales incentives discounts 1 time retail sale reserve would decrease approximately 210 million december 31 2019 deferred income taxes uncertain income tax positions recorded income tax provision 1808 million 2019 compared 1109 million 2018 1336 million 2017 tax provision effective tax rate impacted differing tax rates various tax jurisdictions operate permanent differences items treated differently financial accounting income tax purposes losses jurisdictions income tax benefit recorded third quarter 2019 recorded noncash adjustment establish valuation allowance brazilian net deferred income tax assets approximately 537 million addition maintain valuation allowance fully reserve net deferred tax assets united states certain foreign jurisdictions valuation allowance established likely portion deferred tax assets realized assessed likelihood deferred tax assets would recovered estimated future taxable income available tax planning strategies determined adjustment valuation allowance appropriate making assessment available evidence considered including current economic climate well reasonable tax planning strategies believe likely realize remaining net deferred tax assets net valuation allowance future years swiss tax reform enacted 2019 eliminates certain preferential tax items well implements new tax rates federal cantonal levels three months ended december 31 2019 company recognized onetime income tax gain approximately 218 million associated changing swiss federal cantonal tax rates well recognition deferred tax asset associated estimated value tax basis stepup swiss subsidiarys assets december 22 2017 tax cuts jobs act “the 2017 tax act” enacted united states three months ended december 31 2017 recorded tax provision approximately 420 million accordance staff accounting bulletin 118 provided sec staff guidance application accounting standards codification “asc” 740 “income taxes” reporting period 2017 tax act enacted 420 million tax provision included provisional income tax charge related onetime transition tax associated mandatory deemed repatriation unremitted foreign earnings tax provision also included provisional income tax charge associated income tax consequences related expected future repatriation certain underlying foreign earnings historically considered permanently reinvested remaining balance tax provision primarily related remeasurement certain net deferred tax assets using lower enacted us corporate tax rate 35 21 well miscellaneous related impacts three months ended december 31 2018 finalized calculations related 2017 tax act recorded income tax benefit approximately 84 million december 31 2019 2018 gross deferred tax assets 3960 million 3502 million respectively including 720 million 745 million respectively related net operating loss carryforwards december 31 2019 2018 total valuation allowances offset gross deferred tax assets 1691 million 839 million respectively included allowances primarily net operating loss carryforwards brazil china hungary united kingdom netherlands well allowances net deferred taxes primarily us brazil previously discussed realization remaining deferred tax assets december 31 2019 depend generating sufficient taxable income future periods net reversing deferred tax liabilities believe likely remaining net deferred tax assets realized recognize income tax benefits uncertain tax positions 50 likelihood tax positions sustained upon examination taxing authorities based technical merits positions december 31 2019 2018 approximately 2107 million 1661 million respectively gross unrecognized tax benefits would impact effective tax rate recognized december 31 2019 2018 approximately 510 million 585 million respectively current accrued taxes related uncertain income tax positions connected ongoing tax audits various jurisdictions expect settle pay next 12 months recognize interest penalties related uncertain income tax positions income tax expense december 31 2019 2018 accrued interest penalties related unrecognized tax benefits approximately 284 million 272 million respectively see note 6 consolidated financial statements discussion uncertain income tax positions pensions sponsor defined benefit pension plans covering certain employees principally united kingdom united states germany switzerland finland france norway argentina primary plans cover certain employees united states united kingdom united states sponsor funded qualified defined benefit pension plan salaried employees well separate funded qualified defined benefit pension plan hourly employees plans closed new entrants frozen fund least minimum contributions required employee retirement income security act 1974 internal revenue code plans addition maintain unfunded nonqualified defined benefit pension plan certain senior executives executive nonqualified pension plan “enpp” enpp also closed new entrants united kingdom sponsor funded defined benefit pension plan provides annuity benefit based participants’ final average earnings service participation plan limited certain older longer service employees existing retirees plan closed new participants see note 8 consolidated financial statements contained item 8 “financial statements supplementary data” additional information regarding costs assumptions employee retirement benefits nature estimates required measurement date benefit plans december 31 measurement pension obligations costs liabilities dependent variety assumptions provided management used actuaries assumptions include estimates present value projected future pension payments plan participants taking consideration likelihood potential future events salary increases demographic experience assumptions may effect amount timing future contributions assumptions approach used assumptions used developing required estimates include limited following key factors • discount rates • inflation • salary growth • expected return plan assets • retirement rates ages • mortality rates years ended december 31 2019 2018 2017 used globally consistent methodology set discount rate countries largest benefit obligations exist united states united kingdom euro zone constructed hypothetical bond portfolio highquality corporate bonds applied cash flows benefit plans bond yields derive discount rate bond portfolio planspecific cash flows vary country methodology portfolio constructed consistent united states bond portfolio large enough result taking “settlement approach” derive discount rate highquality corporate bonds assumed purchased resulting coupon payments maturities used satisfy us pension plans’ projected benefit payments united kingdom euro zone discount rate derived using “yield curve approach” individual spot rate zero coupon bond yield future annual period developed discount future benefit payment thereby determine present value future payments company uses spot yield curve determine discount rate applicable united kingdom measure uk pension plan’s service cost interest cost settlement yield curve approaches discount rate set equal single discount rate produces present value future payments key assumptions methods set follows • inflation assumption based evaluation external market indicators • salary growth assumptions reflect longterm actual experience nearterm outlook assumed inflation • expected return plan asset assumptions reflects asset allocations investment strategy historical experience views investment managers reflects projection expected arithmetic returns ten years • determination retirement rates ages well termination rates based actual plan experience actuarial standards practice manner defined benefit plans administered • mortality rates uk defined benefit pension plan updated 2019 reflect latest expected improvements life expectancy plan participants mortality rates us defined benefit pension plans updated 2019 reflect society actuaries’ recent findings topic mortality • fair value assets used determine expected return assets reflect delayed recognition asset gains losses effects actual results differing assumptions accumulated amortized future periods therefore generally affect recognized expense periods us uk defined benefit pension plans including enpp comprised approximately 86 consolidated projected benefit obligation december 31 2019 discount rate used determine 2019 projected benefit obligation us qualified defined benefit pension plans enpp decreased 25 basis points projected benefit obligation would increased approximately 48 million december 31 2019 2020 pension expense would increase approximately 05 million discount rate used determine 2019 projected benefit obligation us qualified defined benefit pension plans enpp increased 25 basis points projected benefit obligation would decreased approximately 45 million december 31 2019 2020 pension expense would decrease approximately 05 million discount rate used determine projected benefit obligation uk defined benefit pension plan decreased 25 basis points projected benefit obligation would increased approximately 253 million december 31 2019 2020 pension expense would increase approximately 02 million discount rate used determine projected benefit obligation uk defined benefit pension plan increased 25 basis points projected benefit obligation would decreased approximately 231 million december 31 2019 2020 pension expense would decrease approximately 03 million addition expected longterm rate return plan assets related uk defined benefit pension plan increased decreased 25 basis points 2020 pension expense would decrease increase approximately 16 million respectively impact us defined benefit pension plans 25basispoint change expected longterm rate return would decrease increase 2020 pension expense approximately 01 million respectively unrecognized actuarial net losses related defined benefit pension plans enpp 3622 million december 31 2019 compared 3567 million december 31 2018 increase unrecognized net actuarial losses years primarily resulted lower discount rates december 31 2019 compared december 31 2018 unrecognized net actuarial losses impacted future periods actual asset returns discount rate changes currency exchange rate fluctuations actual demographic experience certain factors defined benefit pension plans losses extent exceed 10 greater plan’s liabilities fair value assets “the gainloss corridor” amortized straightline basis periods discussed follows us salaried us hourly uk defined benefit pension plans population covered predominantly inactive participants losses related plans extent exceed gainloss corridor amortized average remaining lives participants covered respective plan enpp population predominantly active participants losses related plan amortized average future working lifetime active participants expected receive benefits december 31 2019 average amortization periods follows unrecognized prior service cost related defined benefit pension plans 225 million december 31 2019 compared 195 million december 31 2018 increase unrecognized prior service cost years due primarily plan amendment related enpp december 31 2019 unfunded underfunded obligations related defined benefit pension plans enpp approximately 2063 million primarily related defined benefit pension plans europe united states 2019 contributed approximately 306 million towards obligations expect fund approximately 336 million 2020 future funding dependent upon compliance local laws regulations changes laws regulations future well generation operating cash flows future currently agreement place trustees uk defined benefit plan obligates us fund approximately £153 million per year approximately 202 million towards obligation december 2021 funding arrangement based upon current funded status could change future discount rates local laws regulations factors change see note 8 consolidated financial statements contained item 8 “financial statements supplementary data” information regarding investment strategy concentration risk goodwill intangible assets longlived assets test goodwill impairment reporting unit level annually events circumstances indicate fair value reporting unit may carrying value reporting unit operating segment one level operating segment example component combine aggregate two components operating segment single reporting unit components similar economic characteristics reportable segments reporting units goodwill evaluated impairment annually october 1 using qualitative assessment quantitative onestep assessment elect perform qualitative assessment determine fair value reporting units likely exceeds carrying value net assets evaluation necessary reporting units perform onestep quantitative assessment compare fair value reporting unit respective carrying value net assets including goodwill fair value reporting unit exceeds carrying value net assets goodwill considered impaired carrying value net assets higher fair value reporting unit impairment charge amount carrying value exceeds reporting unit’s fair value utilize combination valuation techniques including discounted cash flow approach market multiple approach making quantitative goodwill assessments review longlived assets include intangible assets subject amortization impairment whenever events changes circumstances indicate carrying amount asset may recoverable evaluation recoverability performed level independent cash flows may attributed either asset group determine carrying amount asset group recoverable based expected undiscounted future cash flows asset group impairment loss recorded equal excess carrying amounts estimated fair value longlived assets estimates future cash flows based many factors including current operating results expected market trends competitive influences also evaluate amortization periods assigned intangible assets determine whether events changes circumstances warrant revised estimates useful lives assets disposed sale reported lower carrying amount fair value less estimated costs sell make various assumptions including assumptions regarding future cash flows market multiples growth rates discount rates assessments impairment goodwill indefinitelived intangible assets longlived assets assumptions future cash flows growth rates based current longterm business plans reporting unit related longlived assets discount rate assumptions based assessment risk inherent future cash flows reporting unit longlived assets assumptions require significant judgments part conclusions reach could vary significantly based upon judgments goodwill impairment analysis conducted october 1 2019 indicated carrying value net assets grain storage protein production systems business europemiddle east excess fair value reporting unit therefore recorded noncash impairment charge approximately 1736 million within “impairment charges” consolidated statements operations response weakening market conditions resulting operating results new management put place grain storage protein productions systems business tasked conducting full strategic review business including europemiddle east reporting unit full strategic review completed fourth quarter 2019 along revised forecasts include updated market conditions strategic operating decisions impairment charge substantial portion reporting units goodwill balance october 1 2019 three months ended december 31 2019 also recorded noncash impairment charge approximately 30 million within “impairment charges” consolidated statements operations impairment charge related certain longlived intangible assets associated grain storage protein production systems operations within north america due discontinuation certain brand name related products customers finally goodwill impairment analysis conducted october 1 2019 also indicated fair value excess carrying value one smaller reporting units less 10 due deteriorating market conditions products sells market conditions overall results improve may incur impairment charge related reporting unit future onestep process described goodwill associated reporting unit december 31 2019 approximately 200 million results goodwill longlived assets impairment analyses conducted october 1 2018 2017 indicated reduction carrying amount goodwill longlived assets required numerous facts circumstances considered evaluating carrying amount goodwill fair value reporting unit impacted reporting unit’s expected financial performance dependent upon agricultural industry factors could adversely affect agricultural industry including limited declines general economy increases farm input costs weather conditions lower commodity prices changes availability credit estimated fair value individual reporting units assessed reasonableness reviewing variety indicators evaluated reasonable period time december 31 2019 approximately 12983 million goodwill impairment charge recorded three months ended december 31 2019 annual impairment testing 2019 supported carrying amount goodwill may required reevaluate carrying amount future periods thus utilizing different assumptions reflect current market conditions expectations therefore could conclude impairment occurred recoverable indirect taxes brazilian operations incur value added taxes “vat” certain purchases raw materials components services taxes accumulated tax credits create assets reduced vat collected sales brazilian market regularly assesses recoverability tax credits establishes reserves necessary analyses include amongst others history realization transfer tax credits third parties authorized government anticipated changes supply chain future expectation tax debits ongoing operations believe tax credits net established reserves realizable assessment realization tax assets involves significant judgments part conclusions reach could vary significantly based upon judgments recorded approximately 1423 million 1560 million respectively vat tax credits net reserves december 31 2019 2018 item 7aitem 7 management’s discussion analysis financial condition results operations leading manufacturer distributor agricultural equipment related replacement parts throughout world sell full range agricultural equipment including tractors combines selfpropelled sprayers hay tools forage equipment tillage implements grain storage protein production systems products widely recognized agricultural equipment industry marketed number wellknown brand names including challenger® fendt® gsi® massey ferguson® valtra® distribute products combination approximately 3000 dealers distributors well associates licensees addition provide retail financing finance joint ventures rabobank financial highlights sell equipment replacement parts independent dealers distributors customers large majority sales independent dealers distributors sell products end users extent practicable attempt sell products dealers distributors level basis throughout year reduce effect seasonal demands manufacturing operations minimize investment inventories however retail sales dealers farmers highly seasonal linked planting harvesting seasons certain markets particularly north america often time lag varies based timing level retail demand sale equipment dealer’s sale retail customer following table sets forth periods indicated percentage relationship net sales certain items included consolidated statements operations 1 rounding may impact summation amounts 2015 compared 2014 net income attributable agco corporation subsidiaries 2015 2664 million 306 per diluted share compared net income 2014 4104 million 436 per diluted share net sales 2015 approximately 74673 million 232 lower 2014 primarily due softer global market conditions unfavorable impact currency translation income operations 3611 million 2015 compared 6465 million 2014 decrease income operations 2015 result lower net sales geographical segments decreased production volumes weaker sales mix currency translation impacts regionally income operations europeafricamiddle east “eame” south american north american regions decreased approximately 835 million 996 million 958 million respectively 2015 compared 2014 result lower net sales production levels unfavorable sales mix negative impact currency translation adverse impacts partially mitigated headcount cost reduction initiatives loss operations asiapacific region increased approximately 161 million 2015 compared 2014 primarily due lower net sales increased market development costs china industry market conditions crop production reached nearrecord levels third consecutive year contributing elevated commodity inventories putting pressure global farm economics lower farm income weakened demand farm equipment major markets 2015 compared 2014 north america industry demand significantly lower high horsepower tractors combines sprayers primarily used row crop applications industry demand south america deteriorated significantly throughout 2015 brazil demand extremely low due weakness general economy funding interruptions government financing program softness sugarcane sector western europe industry demand declines 2014 levels less pronounced poor economics dairy producers lower commodity prices arable farming sector pressured demand united states canada industry unit retail sales tractors combines decreased approximately 3 28 respectively 2015 compared 2014 significant declines experienced row crop sector impacting demand high horsepower tractors combines sprayers declines partially offset stable industry sales lower horsepower tractors south america industry unit retail sales tractors combines decreased approximately 28 39 respectively 2015 compared 2014 declines pronounced brazil south american markets western europe industry unit retail sales tractors combines decreased approximately 4 10 respectively 2015 compared 2014 significant declines united kingdom finland germany results operations net sales 2015 74673 million compared 97237 million 2014 primarily due softer global market conditions unfavorable impact foreign currency translation foreign currency translation negatively impacted net sales 2015 compared 2014 approximately 12650 million approximately 130 primarily due weakening euro brazilian real following table sets forth year ended december 31 2015 impact net sales currency translation geographical segment millions except percentages regionally net sales north america decreased 2015 compared 2014 significant decreases high horsepower tractors combines sprayers implements partially offset sales growth protein production equipment net sales lower south america 2015 compared 2014 due significant sales declines brazil partially offset modest growth argentina south american markets declines net sales tractors combines region partially offset growth sales protein production grain storage equipment eame region net sales decreased 2015 compared 2014 largest declines germany africa scandinavia partially offset growth france turkey asiapacific region net sales decreased 2015 compared 2014 primarily due net sales declines asia estimate worldwide average price increases approximately 18 15 2015 2014 respectively consolidated net sales tractors combines consisted approximately 61 net sales 2015 decreased approximately 26 2015 compared 2014 unit sales tractors combines decreased approximately 12 2015 compared 2014 unit sales decrease net sales differ due foreign currency translation pricing sales mix changes following table sets forth years ended december 31 2015 2014 percentage relationship net sales certain items included consolidated statements operations millions except percentages 1 rounding may impact summation amounts gross profit percentage net sales decreased 2015 compared 2014 primarily due lower net sales production levels well weaker product mix headcount cost reduction initiatives helped partially offset negative impacts production hours decreased approximately 18 2015 compared 2014 recorded stock compensation expense approximately 09 million 2015 credit approximately 09 million 2014 within cost goods sold fully explained note 1 consolidated financial statements selling general administrative expenses “sga expenses” engineering expenses declined dollars increased percentage net sales 2015 compared 2014 declines sga engineering expenses result headcount spending reductions well impact foreign currency translation recorded stock compensation expense approximately 116 million 2015 credit 97 million 2014 within sga expenses fully explained note 1 consolidated financial statements credit recorded 2014 included approximately 169 million reversal previously recorded longterm stock compensation expense recorded restructuring infrequent expenses approximately 223 million 464 million 2015 2014 respectively restructuring infrequent expenses recorded 2015 2014 primarily related severance related costs associated rationalization employee headcount various manufacturing facilities administrative offices located europe china south america united states interest expense net 454 million 2015 compared 584 million 2014 decrease primarily due higher interest income lower interest rates outstanding indebtedness see “liquidity capital resources” information expense net 363 million 2015 compared 491 million 2014 decrease primarily due lower foreign exchange losses decreased losses sales receivables 2015 compared 2014 losses sales receivables primarily related accounts receivable sales agreements finance joint ventures north america europe brazil approximately 188 million 248 million 2015 2014 respectively recorded income tax provision 725 million 2015 compared 1877 million 2014 tax provision effective tax rate impacted differing tax rates various tax jurisdictions operate permanent differences items treated differently financial accounting income tax purposes losses jurisdictions income tax benefit recorded valuation allowance established likely portion company’s deferred tax assets realized assessed likelihood deferred tax assets would recovered estimated future taxable income available income tax planning strategies december 31 2015 2014 gross deferred tax assets 3900 million 4300 million respectively including 740 million 757 million respectively related net operating loss carryforwards december 31 2015 total valuation allowances offset gross deferred tax assets 758 million primarily related net operating loss carryforwards brazil china russia netherlands december 31 2014 total valuation allowances offset gross deferred tax assets approximately 933 million primarily related net operating loss carryforwards brazil china russia netherlands realization remaining deferred tax assets december 31 2015 depend generating sufficient taxable income future periods net reversing deferred tax liabilities believe likely remaining net deferred tax assets realized equity net earnings affiliates primarily comprised income finance joint ventures 571 million 2015 compared 529 million 2014 refer “finance joint ventures” information regarding finance joint ventures results operations note 5 consolidated financial statements 2014 compared 2013 net income attributable agco corporation subsidiaries 2014 4104 million 436 per diluted share compared net income 2013 5972 million 601 per diluted share net sales 2014 approximately 97237 million 99 lower 2013 primarily due softer global market conditions unfavorable impact currency translation income operations 6465 million 2014 compared 9007 million 2013 decrease income operations 2014 result lower net sales geographical segments decreased production volumes weaker sales mix regionally income operations eame south american north american regions decreased approximately 580 million 787 million 1067 million respectively 2014 compared 2013 result lower net sales production levels weaker sales mix income operations asiapacific region decreased approximately 120 million 2014 compared 2013 primarily due lower net sales increased expenses associated new factory china industry market conditions favorable growing conditions strong yields 2014 resulted record crop production led lower prices major commodities lower farm income impacting farmer sentiment industry demand softened major agricultural equipment markets 2014 compared 2013 north america industry demand significantly lower higher horsepower tractors well combines sprayers primarily used row crop applications improved conditions dairy livestock sectors north america supported growth industry demand lower horsepower tractor categories weaker demand brazilian sugarcane sector funding delays brazilian government financing program negatively impacted industry demand south america western europe industry results country remained mixed significant decline markets france scandinavia well lower demand germany united states canada industry unit retail sales tractors combines decreased approximately 2 25 respectively 2014 compared 2013 significant declines experienced row crop sector impacting demand high horsepower tractors combines declines partially offset higher industry sales lower horsepower tractors south america industry unit retail sales tractors 2014 decreased approximately 15 compared 2013 industry unit retail sales combines south america decreased approximately 24 2014 compared 2013 western europe industry unit retail sales tractors combines decreased approximately 9 11 respectively 2014 compared 2013 significant decline markets france scandinavia germany experienced moderate decline industry demand remained stable united kingdom parts southern europe results operations net sales 2014 97237 million compared 107869 million 2013 primarily due softer global market conditions unfavorable impact foreign currency translation foreign currency translation negatively impacted net sales 2014 compared 2013 approximately 2587 million 24 primarily due weakening euro brazilian real following table sets forth year ended december 31 2014 impact net sales currency translation geographical segment millions except percentages regionally net sales north america decreased 2014 compared 2013 significant decreases net sales high horsepower tractors sprayers implements partially offset growth net sales low horsepower tractors grain storage equipment hay tools net sales lower south america 2014 compared 2013 tractors offset increased net sales grain storage equipment eame region net sales decreased 2014 compared 2013 largest net sales decreases france germany partially offset growth africa turkey asiapacific region net sales decreased 2014 compared 2013 primarily due net sales declines asia estimate worldwide average price increases approximately 15 20 2014 2013 respectively consolidated net sales tractors combines consisted approximately 63 net sales 2014 decreased approximately 14 2014 compared 2013 unit sales tractors combines decreased approximately 10 2014 compared 2013 unit sales decrease net sales differ due foreign currency translation pricing sales mix changes following table sets forth years ended december 31 2014 2013 percentage relationship net sales certain items included consolidated statements operations millions except percentages 1 rounding may impact summation amounts gross profit percentage net sales decreased 2014 compared 2013 primarily due lower net sales production levels well weaker product mix pricing cost reduction initiatives helped partially offset negative impacts unit production tractors combines 2014 approximately 15 lower 2013 recorded stock compensation credit approximately 09 million expense approximately 23 million within cost goods sold 2014 2013 respectively fully explained note 1 consolidated financial statements sga expenses percentage net sales increased slightly 2014 compared 2013 primarily due decline net sales recorded stock compensation credit approximately 97 million expense approximately 326 million within sga expenses 2014 2013 respectively fully explained note 1 consolidated financial statements credit recorded 2014 included approximately 169 million reversal previously recorded longterm stock compensation expense engineering expenses percentage net sales also increased slightly 2014 compared 2013 primarily due lower net sales recorded restructuring infrequent expenses approximately 464 million 2014 restructuring infrequent expenses recorded 2014 primarily related severance related costs associated rationalization employee headcount various manufacturing facilities administrative offices located europe china south america united states interest expense net 584 million 2014 compared 580 million 2013 fully explained “liquidity capital resources” expense net 491 million 2014 compared 401 million 2013 expense net increased 2014 compared 2013 primarily due foreign exchange losses partially offset decline losses sales receivables losses sales receivables primarily related accounts receivable sales agreements finance joint ventures north america europe approximately 248 million 256 million 2014 2013 respectively recorded income tax provision 1877 million 2014 compared 2585 million 2013 tax provision effective tax rate impacted differing tax rates various tax jurisdictions operate permanent differences items treated differently financial accounting income tax purposes losses jurisdictions income tax benefit recorded valuation allowance established likely portion company’s deferred tax assets realized assessed likelihood deferred tax assets would recovered estimated future taxable income available income tax planning strategies december 31 2014 2013 gross deferred tax assets 4300 million 4232 million respectively including 757 million 697 million respectively related net operating loss carryforwards december 31 2014 total valuation allowances offset gross deferred tax assets 933 million primarily related net operating loss carryforwards brazil china russia netherlands december 31 2013 total valuation allowances offset gross deferred tax assets approximately 772 million primarily related net operating loss carryforwards brazil china russia equity net earnings affiliates primarily comprised income finance joint ventures 529 million 2014 compared 482 million 2013 refer “finance joint ventures” information regarding finance joint ventures results operations note 5 consolidated financial statements quarterly results following table presents unaudited interim operating results believe following information includes adjustments consisting normal recurring adjustments necessary present fairly results operations periods presented finance joint ventures agco finance joint ventures provide retail financing wholesale financing dealers united states canada europe brazil argentina australia joint ventures owned 49 agco 51 wholly owned subsidiary rabobank financial institution based netherlands majority assets finance joint ventures represents finance receivables majority liabilities represents notes payable accrued interest various joint venture agreements rabobank affiliates provide financing joint ventures primarily lines credit guarantee debt obligations joint ventures december 31 2015 capital investment finance joint ventures included “investment affiliates” consolidated balance sheets approximately 3594 million compared 3890 million december 31 2014 total finance portfolio finance joint ventures approximately 80 billion 89 billion december 31 2015 2014 respectively total finance portfolio december 31 2015 included approximately 67 billion retail receivables 13 billion wholesale receivables agco dealers total finance portfolio december 31 2014 included approximately 74 billion retail receivables 15 billion wholesale receivables agco dealers wholesale receivables either sold directly agco finance without recourse operating companies agco finance provided financing directly dealers 2015 2014 make additional investments finance joint ventures 2013 made total approximately 155 million additional investments finance joint ventures germany netherlands primarily related additional capital required result increased finance portfolios 2013 share earnings finance joint ventures included “equity net earnings affiliates” within consolidated statements operations 538 million 488 million years ended december 31 2015 2014 respectively outlook operations subject cyclical nature agricultural industry sales equipment expected continue affected changes net cash farm income farm land values weather conditions demand agricultural commodities farm industry related legislation availability financing general economic conditions weak worldwide industry demand expected continue 2016 resulting lower commodity prices reduced farm income across developed agricultural equipment markets net sales 2016 also expected decrease compared 2015 primarily due projected industry decline unfavorable currency translation impacts expect gross operating margins lower 2015 levels result reduction net sales production volumes weaker product mix expected increase engineering expenses benefits cost reduction initiatives expected partially offset volumerelated impacts recent acquisitions february 2 2016 acquired tecno poultry equipment spa “tecno” approximately €535 million approximately 584 million tecno headquartered marsango di campo san martino italy manufactures supplies poultry housing related products including egg collection equipment trolley feeding systems acquisition financed credit facility refer note 7 consolidated financial statements information allocate purchase price assets acquired liabilities assumed based preliminary estimates fair values acquisition date acquired net assets primarily consisted accounts receivable inventories accounts payable accrued expenses property plant equipment goodwill certain identifiable intangible assets april 17 2015 acquired farmer automatic gmbh co kg “farmer automatic” approximately 179 million net cash acquired approximately 01 million farmer automatic headquartered laer germany manufactures supplies poultry housing related products including egg production cages broiler production equipment acquisition financed available cash hand allocated purchase price assets acquired liabilities assumed based preliminary estimates fair values acquisition date acquired net assets primarily consisted accounts receivable inventories accounts payable accrued expenses property plant equipment customer relationship technology trademark identifiable intangible assets recorded approximately 96 million customer relationship technology trademark identifiable intangible assets approximately 100 million goodwill associated acquisition september 11 2014 acquired remaining 39 interest santal equipamentos sa comércio e indústria “santal” approximately r90 million approximately 37 million santal headquartered ribeirão preto brazil manufactures distributes sugar cane planting harvesting handling transportation equipment well replacement parts across brazil due fact seller call option put option respectively varying dates respect remaining 39 interest santal fair value redeemable noncontrolling interest previously recorded within “temporary equity” consolidated balance sheets acquisition remaining interest funded available cash hand redemption related amounts settled reflected “additional paidin capital” consolidated balance sheets august 1 2014 acquired intersystems holdings inc “intersystems” approximately 1344 million net cash acquired approximately 41 million approximately 1303 million net intersystems headquartered omaha nebraska designs manufactures commercial material handling solutions primarily agricultural biofuels food feed processing industries acquisition financed available cash hand credit facility refer note 7 consolidated financial statements information allocated purchase price assets acquired liabilities assumed based preliminary estimates fair values acquisition date acquired net assets primarily consisted accounts receivable inventories accounts payable accrued expenses property plant equipment customer relationship technology trademark identifiable intangible assets recorded approximately 463 million customer relationship technology trademark identifiable intangible assets approximately 896 million goodwill associated acquisition liquidity capital resources financing requirements subject variations due seasonal changes inventory receivable levels internally generated funds supplemented necessary external sources primarily credit facility accounts receivable sales agreement facilities believe facilities together available cash internally generated funds sufficient support working capital expenditures debt service requirements foreseeable future • €2000 million approximately 2172 million december 31 2015 412 senior term loan matures 2016 see discussion • revolving credit term loan facility consisting 8000 million multicurrency revolving credit facility €3120 million approximately 3389 million december 31 2015 term loan facility expires june 2020 december 31 2015 outstanding amounts multicurrency revolving credit facility €3120 million approximately 3389 million outstanding term loan facility see discussion • €2000 million approximately 2172 million december 31 2015 1056 senior term loan matures 2020 see discussion • 2974 million 578 senior notes mature 2021 see discussion • accounts receivable sales agreements finance joint ventures united states canada europe brazil december 31 2015 approximately 11 billion cash received agreements see discussion addition although complete compliance financial covenants contained facilities currently expect continue maintain compliance ever encounter difficulties historical relationship lenders strong anticipate continued longterm support business current facilities €2000 million 412 senior term loan rabobank due may 2 2016 ability prepay term loan maturity date interest payable term loan 412 per annum payable quarterly arrears march 31 june 30 september 30 december 31 year term loan contains covenants restricting among things incurrence indebtedness making certain payments including dividends subject acceleration event default also must fulfill financial covenants respect total debt ebitda ratio interest coverage ratio revolving credit facility term loan facility consists 8000 million multicurrency revolving credit facility €3120 million approximately 3389 million december 31 2015 term loan facility required make quarterly payments towards term loan facility june 19 2015 amended current credit facility agreement providing us ability replace current term loan facility denominated united states dollars equivalent amount denominated euros august 2015 replaced outstanding term loan facility amount 3550 million denominated us dollars equivalent amount denominated euros also extended maturity date credit facility june 28 2019 june 26 2020 amended interest rate margin amended credit facility agreement interest accrues amounts outstanding option depending currency borrowed either 1 libor euribor plus margin ranging 10 175 based leverage ratio 2 base rate equal higher administrative agent’s base lending rate applicable currency ii federal funds rate plus 05 iii onemonth libor loans denominated us dollars plus 10 plus margin ranging 00 025 based leverage ratio previously interest accrued amounts outstanding credit facility option either 1 libor plus margin ranging 10 20 based leverage ratio 2 base rate equal higher administrative agent’s base lending rate applicable currency ii federal funds rate plus 05 iii onemonth libor loans denominated us dollars plus 10 plus margin ranging 00 05 based leverage ratio fully described note 11 consolidated financial statements entered interest rate swap august 2015 convert term loan facility’s floating interest rate fixed interest rate 033 plus applicable margin remaining life term loan facility credit facility contains covenants restricting among things incurrence indebtedness making certain payments including dividends subject acceleration event default also must fulfill financial covenants respect total debt ebitda ratio interest coverage ratio december 31 2015 amounts outstanding multicurrency revolving credit facility ability borrow approximately 8000 million facility approximately €3120 million approximately 3389 million outstanding term loan facility december 31 2015 december 31 2014 4044 million outstanding borrowings former credit facility availability borrow approximately 7506 million approximately 494 million outstanding multicurrency revolving credit facility 3550 million outstanding term loan facility december 31 2014 2015 designated €3120 million 3389 million december 31 2015 term loan facility hedge net investment foreign operations offset foreign currency translation gains losses net investment see note 11 consolidated financial statements additional information net investment hedge december 2014 entered term loan european investment bank provided us ability borrow €2000 million €2000 million approximately 2172 million december 31 2015 funding received january 15 2015 maturity date january 15 2020 ability prepay term loan maturity date interest payable term loan 1056 per annum payable quarterly arrears january 15 april 15 july 15 october 15 year term loan contains covenants regarding among things incurrence indebtedness making certain payments well commitments regarding amounts future research development expenses europe subject acceleration event default also fulfill financial covenants respect net leverage ratio interest coverage ratio 2974 million 578 senior notes due december 1 2021 constitute senior unsecured unsubordinated indebtedness interest payable notes semiannually arrears june 1 december 1 year time prior september 1 2021 may redeem notes whole part time option redemption price equal greater 100 principal amount plus accrued unpaid interest including additional interest excluding redemption date ii sum present values remaining scheduled payments principal interest exclusive interest accrued date redemption discounted redemption date treasury rate plus 05 plus accrued unpaid interest including additional interest beginning september 1 2021 may redeem notes whole part time option redemption price equal 100 principal amount plus accrued unpaid interest including additional interest fully described note 11 consolidated financial statements entered interest rate swap august 2015 convert senior notes’ fixed interest rate floating interest rate remaining life senior notes weighted average interest rate 453 applicable date inception interest rate swap december 31 2015 accounts receivable sales agreements north america europe permit sale ongoing basis majority receivables 49 owned us canadian european finance joint ventures 2015 entered accounts receivable sales agreement permits sale ongoing basis portion wholesale receivables brazil brazilian finance joint venture sales receivables without recourse us service receivables sale occurs maintain direct retained interest receivables agreements accounted offbalance sheet transactions effect reducing accounts receivable shortterm liabilities amount december 31 2015 2014 cash received receivables sold us canadian european brazilian accounts receivable sales agreements approximately 11 billion 12 billion respectively finance joint ventures brazil australia also provide wholesale financing directly dealers receivables associated arrangements also without recourse us december 31 2015 2014 finance joint ventures approximately 177 million 433 million respectively outstanding accounts receivable associated arrangements accounted offbalance sheet transactions addition sell certain trade receivables factoring arrangements financial institutions around world arrangements also accounted offbalance sheet transactions former facilities first six months 2014 holders former 1¼ convertible senior subordinated notes converted repurchased approximately 497 million aggregate principal amount notes may 2014 announced election redeem remaining 1515 million balance notes redemption date june 20 2014 substantially holders notes elected convert remaining notes prior redemption date redemptions settled july 2014 year ended december 31 2014 issued total 1437465 shares common stock associated 810 million excess conversion value notes converted reflected repayment principal notes totaling 2012 million within “repurchase conversion convertible senior subordinated notes” within consolidated statements cash flows year ended december 31 2014 year ended december 31 2013 holders former 114 convertible senior subordinated notes converted less 01 million principal amount notes issued 286 shares common stock associated less 01 million excess conversion value notes reflected repayment principal notes totaling less 01 million within “repurchase conversion convertible senior subordinated notes” within consolidated statements cash flows year ended december 31 2013 appreciation excess conversion value former 1¼ convertible senior subordinated notes impacted diluted weighted average shares outstanding using treasury stock method refer notes 1 7 consolidated financial statements discussion cash flows cash flows provided operating activities 5242 million 2015 compared 4384 million 2014 7970 million 2013 increase cash flows provided operating activities 2015 primarily due reduction accounts receivable inventories well increase accounts payable decrease cash flows provided operating activities 2014 primarily due decrease net income well reduction accounts payable working capital requirements seasonal investments working capital typically building first half year reducing second half year 7129 million working capital december 31 2015 compared 10938 million december 31 2014 accounts receivable inventories combined december 31 2015 4543 million lower december 31 2014 decrease inventories december 31 2015 compared december 31 2014 primarily due production cuts initiated second half 2014 full year 2015 well negative impact foreign currency translation debt capitalization ratio total indebtedness divided sum total indebtedness stockholders’ equity 300 december 31 2015 compared 238 december 31 2014 contractual obligations future payments required significant contractual obligations excluding foreign currency option forward contracts december 31 2015 follows millions 1 indebtedness amounts reflect principal amount senior term loan senior notes credit facility 2 estimated interest payments calculated assuming current interest rates minimum maturity periods specified debt agreements debt may repaid sooner later minimum maturity periods unaudited 3 shortterm longterm obligations include estimates future minimum contribution requirements us nonus defined benefit pension postretirement plans estimates based current legislation countries operate within subject change shortterm longterm obligations also include income tax liabilities related uncertain income tax positions connected ongoing income tax audits various jurisdictions commitments offbalance sheet arrangements guarantees maintain remarketing agreement finance joint venture united states whereby obligated repurchase repossessed inventory market values agreement finance joint venture united states limits purchase obligations arrangement 60 million aggregate per calendar year believe losses might incurred resale equipment materially impact financial position results operations due fact repurchase obligation would equivalent fair value underlying equipment december 31 2015 guaranteed indebtedness owed third parties approximately 683 million primarily related dealer enduser financing equipment guarantees generally obligate us repay outstanding finance obligations owed financial institutions dealers end users default loans 2020 believe credit risk associated guarantees material financial position results operations losses guarantees historically insignificant addition generally would expect able recover significant portion amounts paid guarantees sale underlying financed farm equipment fair value equipment expected offset substantial portion amounts paid december 31 2015 outstanding nondesignated foreign exchange contracts gross notional amount approximately 15339 million outstanding designated foreign exchange contracts gains losses contracts historically substantially offset losses gains exposures hedged see “foreign currency risk management” additional information discussed “liquidity capital resources” sell majority wholesale accounts receivable north america europe us canadian european finance joint ventures 2015 started sell portion wholesale receivables brazil brazilian finance joint venture also sell certain accounts receivable factoring arrangements financial institutions around world determined facilities accounted offbalance sheet transactions contingencies party various claims lawsuits arising normal course business closely monitor claims lawsuits frequently consult legal counsel determine whether may resolved material adverse effect financial position results operations accrue andor disclose loss contingencies appropriate see note 12 consolidated financial statements item 3 “legal proceedings” related parties rabobank 51 owner finance joint ventures located united states canada europe brazil argentina australia rabobank also principal agent participant credit facility majority assets finance joint ventures represents finance receivables majority liabilities represents notes payable accrued interest various joint venture agreements rabobank affiliates provide financing joint venture companies primarily lines credit guarantee debt obligations finance joint ventures 2015 2014 make additional investments finance joint ventures 2013 made total approximately 155 million additional investments finance joint ventures germany netherlands primarily related additional capital required result increased retail finance portfolios 2013 finance joint ventures provide retail wholesale financing dealers addition transfer ongoing basis majority wholesale receivables north america europe us canadian european finance joint ventures 2015 entered accounts receivable sales agreement permits sale ongoing basis portion wholesale receivables brazil brazilian finance joint venture see note 4 consolidated financial statements discussion agreements maintain remarketing agreement us finance joint venture agco finance llc discussed “commitments offbalance sheet arrangements” addition part sales incentives provided end users may time subsidize interest rates retail financing provided finance joint ventures cost programs recognized time sale dealers tractors farm equipment limited hold 2375 interest manufactures massey fergusonbranded equipment primarily india also supplies tractors components us sale markets mallika srinivasan chairman chief executive officer tafe currently member board directors december 31 2015 tafe owned 12150152 shares common stock tafe parties agreement pursuant among things tafe agreed purchase excess 12170290 shares common stock subject certain adjustments agreed annually nominate tafe representative board directors 2015 2014 2013 purchased approximately 1292 million 1490 million 907 million respectively tractors components tafe 2015 2014 2013 sold approximately 22 million 21 million 08 million respectively parts tafe received dividends tafe approximately 17 million 18 million 16 million 2015 2014 2013 respectively 2015 2014 2013 paid approximately 30 million 34 million 33 million respectively ppg industries inc painting materials used manufacturing processes chairman president chief executive officer currently member board directors ppg industries inc foreign currency risk management significant manufacturing operations united states france germany finland brazil purchase portion tractors combines components thirdparty foreign suppliers primarily various european countries japan also sell products 140 countries throughout world majority net sales outside united states denominated currency customer location exception sales middle east africa asia parts south america net sales primarily denominated british pounds euros united states dollars see note 15 consolidated financial statements net sales customer location significant transactional foreign currency exposures euro brazilian real canadian dollar relation united states dollar euro relation british pound fluctuations value foreign currencies create exposures adversely affect results operations attempt manage transactional foreign currency exposure hedging foreign currency cash flow forecasts commitments arising anticipated settlement receivables payables future purchases sales naturally offsetting currency positions occur hedge certain exposures use foreign currency contracts translation exposure resulting translating financial statements foreign subsidiaries united states dollars hedged significant translation exposures euro british pound brazilian real relation united states dollar practical translation impact reduced financing local operations local borrowings hedging policy prohibits use foreign currency contracts speculative trading purposes derivatives recognized consolidated balance sheets fair value date derivative contract entered designate derivative either 1 fair value hedge recognized liability 2 cash flow hedge forecasted transaction 3 hedge net investment foreign operation 4 nondesignated derivative instrument currently engage derivatives cash flow hedges forecasted transactions well nondesignated derivative instruments changes fair value nondesignated derivative contracts reported current earnings 2015 2014 2013 designated certain foreign currency contracts cash flow hedges forecasted sales purchases effective portion fair value gains losses cash flow hedges recorded comprehensive loss subsequently reclassified cost goods sold period sales purchases recognized amounts offset effect changes foreign currency rates related sale purchase transactions amount net loss recorded comprehensive loss reclassified cost goods sold years ended december 31 2015 2014 2013 approximately 24 million 15 million 05 million respectively aftertax basis amount unrealized loss recorded comprehensive loss related outstanding cash flow hedges december 31 2015 2014 2013 less 01 million approximately 01 million 02 million respectively aftertax basis december 31 2015 outstanding foreign currency cash flow hedge contracts assuming 10 change relative currency hedge contracts fair value foreign currency instruments could negatively impacted approximately 54 million december 31 2015 due fact instruments primarily entered hedging purposes gains losses contracts would largely offset losses gains underlying firm commitment forecasted transaction interest rate risk interest expense part sensitive general level interest rates manage exposure interest rate risk mix floating rate fixed rate debt time enter interest rate swap agreements manage exposure interest rate fluctuations 2015 entered interest rate swap instrument notional amount €3120 million approximately 3389 million december 31 2015 expiration date june 26 2020 swap designated accounted cash flow hedge interest rate swap agreement undertaken fix interest rate floating rate term loan facility swap agreement pay fixed interest rate 033 plus applicable margin counterparty agreement pays floating interest rate based threemonth euribor changes fair value interest rate swap recorded comprehensive loss amounts subsequently reclassified “interest expense net” rate adjustment period related interest expense floating rate term loan facility affects earnings year ended december 31 2015 effective portion unrealized change fair value net tax loss approximately 20 million recorded comprehensive loss amount net loss recorded comprehensive loss reclassified “interest expense net” year ended december 31 2015 approximately 03 million aftertax basis 2015 entered interest rate swap notional amount 3000 million expiration date december 1 2021 designated fair value hedge 578 senior notes refer note 7 consolidated financial statements interest rate swap pay floating interest rate based threemonth libor plus spread 414 weighted average interest rate 453 date inception interest rate swap december 31 2015 counterparty agreement pays fixed interest rate 578 gains losses related changes fair value interest rate swap recorded “interest expense net” offset changes fair value underlying hedged 578 senior notes year ended december 31 2015 recorded unrealized gains hedged debt approximately 26 million “interest expense net” consolidated statements operations unrealized losses approximately 26 million related interest rate swap instrument offset unrealized gains also recorded “interest expense net” consolidated statements operations based floating rate debt outstanding interest rate swap contract contains floating rate accounts receivable sales facilities outstanding december 31 2015 10 increase interest rates would increased collectively “interest expense net” “other expense net” year ended december 31 2015 approximately 37 million interest rate swap contracts outstanding years ended december 31 2014 2013 net investment hedge use nonderivative time derivative instruments hedge portion net investment foreign operations adverse movements exchange rates 2015 designated €3120 million approximately 3389 million december 31 2015 term loan facility maturity date june 26 2020 hedge net investment foreign operations offset foreign currency translation gains losses net investment refer note 11 consolidated financial statements discussion recent accounting pronouncements see note 1 consolidated financial statements information regarding recent accounting pronouncements impact consolidated results operations financial position critical accounting estimates prepare consolidated financial statements conformity us generally accepted accounting principles preparation financial statements make judgments estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period significant accounting policies followed preparation financial statements detailed note 1 consolidated financial statements believe application policies discussed involves significant levels judgment estimates complexity due level judgment complexity period time many items resolved actual results could differ estimated time preparation financial statements adjustments estimates would impact financial position future results operations discount sales incentive allowances provide various volume bonus sales incentive programs respect products sales incentive programs include reductions invoice prices reductions retail financing rates dealer commissions dealer incentive allowances cases incentive programs established communicated dealers quarterly basis incentives paid either time invoice reduction invoice price time settlement receivable time retail financing time warranty registration subsequent time based dealer purchases incentive programs product line specific generally vary dealer cost sales incentives associated dealer commissions dealer incentive allowances estimated based upon terms programs historical experience based percentage sales price recorded later date related revenue recognized b date sales incentive offered related provisions accruals made product productline basis monitored adequacy revised least quarterly event subsequent modifications programs volume discounts estimated recognized based historical experience related reserves monitored adjusted based actual dealer purchases dealers’ progress towards achieving specified cumulative target levels record cost interest subsidy payments reduction retail financing rates later date related revenue recognized b date sales incentive offered estimates incentives based terms programs historical experience incentive programs recorded presented reduction revenue due fact receive identifiable benefit exchange consideration provided reserves incentive programs paid either reduction future invoices credit memos recorded “accounts receivable allowances” within consolidated balance sheets reserves incentive programs paid cash case volume discount programs well sales incentives associated accounts receivable sold us canadian finance joint ventures recorded within “accrued expenses” within consolidated balance sheets december 31 2015 recorded allowance discounts sales incentives approximately 2540 million primarily related allowances north america geographical segment paid either reduction future invoices credit memos dealers reductions retail financing rates allow additional 1 sales incentives discounts time retail sale sales subject discount programs north america reserve would increase approximately 80 million december 31 2015 conversely decrease sales incentives discounts 1 time retail sale reserve would decrease approximately 80 million december 31 2015 deferred income taxes uncertain income tax positions recorded income tax provision 725 million 2015 compared 1877 million 2014 tax provision effective tax rate impacted differing tax rates various tax jurisdictions operate permanent differences items treated differently financial accounting income tax purposes losses jurisdictions income tax benefit recorded valuation allowance established likely portion company’s deferred tax assets realized assessed likelihood deferred tax assets would recovered estimated future taxable income available income tax planning strategies december 31 2015 2014 gross deferred tax assets 3900 million 4300 million respectively including 740 million 757 million respectively related net operating loss carryforwards december 31 2015 2014 total valuation allowances offset gross deferred tax assets 758 million 933 million respectively primarily related net operating loss carryforwards brazil china russia netherlands realization remaining deferred tax assets december 31 2015 depend generating sufficient taxable income future periods net reversing deferred tax liabilities believe likely remaining net deferred tax assets realized december 31 2015 2014 approximately 1330 million 1306 million respectively unrecognized tax benefits would impact effective tax rate recognized december 31 2015 2014 approximately 612 million 647 million respectively current accrued taxes related uncertain income tax positions connected ongoing tax audits various jurisdictions expect settle pay next 12 months recognize interest penalties related uncertain income tax positions income tax expense december 31 2015 2014 accrued interest penalties related unrecognized tax benefits approximately 183 million 153 million respectively see note 6 consolidated financial statements discussion uncertain income tax positions warranty additional service actions warranty coverage products generally covers parts labor expenses time sale make provisions estimated expenses related product warranties base estimates historical experience nature frequency average cost warranty claims separately also establish reserves known material defects based formal campaigns repair defects costs deemed probable reasonably estimated due uncertainty potential volatility estimated factors changes assumptions could materially affect net income estimate warranty obligations reevaluated quarterly basis experience shown initial data product series line volatile therefore process relies upon longterm historical averages sufficient data available actual experience becomes available used modify historical averages ensure forecast within range likely outcomes resulting balances compared present spending rates ensure accruals adequate meet expected future obligations see note 1 consolidated financial statements information regarding costs assumptions warranties insurance reserves insurance programs coverage obtained significant liability limits well risks required law contract policy selfinsure portion certain expected losses primarily related workers’ compensation comprehensive general liability product liability vehicle liability provide insurance reserves estimates losses due claims items selfinsured base estimates expected ultimate settlement amount claims often long periods resolution closely monitor claims maintain adequate reserves pensions sponsor defined benefit pension plans covering certain employees principally united states united kingdom germany finland norway france switzerland argentina primary plans cover certain employees united states united kingdom united states sponsor funded qualified defined benefit pension plan salaried employees well separate funded qualified defined benefit pension plan hourly employees plans closed new entrants frozen fund least minimum contributions required employee retirement income security act 1974 internal revenue code plans addition maintain unfunded nonqualified defined benefit pension plan certain usbased senior executives executive nonqualified pension plan “enpp” enpp also closed new entrants united kingdom sponsor funded defined benefit pension plan provides annuity benefit based participants’ final average earnings service participation plan limited certain older longer service employees existing retirees plan closed new participants see note 8 consolidated financial statements information regarding costs assumptions employee retirement benefits nature estimates required measurement date benefit plans december 31 measurement pension obligations costs liabilities dependent variety assumptions provided management used actuaries assumptions include estimates present value projected future pension payments plan participants taking consideration likelihood potential future events salary increases demographic experience assumptions may effect amount timing future contributions assumptions approach used assumptions used developing required estimates include following key factors • discount rates • inflation • salary growth • expected return plan assets • retirement rates • mortality rates years ended december 31 2015 2014 2013 used globally consistent methodology set discount rate countries largest benefit obligations exist united states united kingdom euro zone constructed hypothetical bond portfolio highquality corporate bonds applied cash flows benefit plans bond yields derive discount rate bond portfolio planspecific cash flows vary country methodology portfolio constructed consistent united states bond portfolio large enough result taking “settlement approach” derive discount rate highquality corporate bonds assumed purchased resulting coupon payments maturities used satisfy us pension plans’ projected benefit payments united kingdom euro zone discount rate derived using “yield curve approach” individual spot rate zero coupon bond yield future annual period developed discount future benefit payment thereby determine present value future payments settlement yield curve approaches discount rate set equal single discount rate produces present value future payments effective january 1 2016 adopted spot yield curve determine discount rate united kingdom measure plan’s service cost interest cost year ended december 31 2016 previously utilized single weightedaverage discount rate derived “yield curve approach” measure plan’s benefit obligation service cost interest cost going forward elected utilize approach discounts individual expected service cost interest cost cash flows using applicable spot rates derived yield curve projected cash flow period key assumptions methods set follows • inflation assumption based evaluation external market indicators • salary growth assumptions reflect longterm actual experience nearterm outlook assumed inflation • expected return plan asset assumptions reflects asset allocations investment strategy historical experience views investment managers reflects projection expected arithmetic returns ten years • retirement termination rates primarily based actual plan experience actuarial standards practice • mortality rates uk defined benefit pension plan updated 2015 reflect expected improvements life expectancy plan participants mortality table us defined benefit pension plans updated 2015 reflect society actuaries’ recent findings topic mortality • fair value assets used determine expected return assets reflect delayed recognition asset gains losses effects actual results differing assumptions accumulated amortized future periods therefore generally affect recognized expense periods us uk defined benefit pension plans including enpp comprised approximately 88 consolidated projected benefit obligation december 31 2015 discount rate used determine 2015 projected benefit obligation us qualified defined benefit pension plans enpp decreased 25 basis points projected benefit obligation would increased approximately 34 million december 31 2015 2016 pension expense would increase approximately 03 million discount rate used determine 2015 projected benefit obligation us qualified defined benefit pension plans enpp increased 25 basis points projected benefit obligation would decreased approximately 32 million december 31 2015 2016 pension expense would decrease approximately 03 million discount rate used determine projected benefit obligation uk defined benefit pension plan decreased 25 basis points projected benefit obligation would increased approximately 239 million december 31 2015 2016 pension expense would increase approximately 03 million discount rate used determine projected benefit obligation uk defined benefit pension plan increased 25 basis points projected benefit obligation would decreased approximately 230 million december 31 2015 2016 pension expense would decrease approximately 04 million addition expected longterm rate return plan assets related uk defined benefit pension plan increased decreased 25 basis points 2016 pension expense would decrease increase approximately 14 million respectively impact us defined benefit pension plans 25basispoint change expected longterm rate return would insignificant impact 2016 pension expense unrecognized actuarial net losses related defined benefit pension plans enpp 3190 million december 31 2015 compared 3297 million december 31 2014 decrease unrecognized losses years primarily resulted increase yearend discount rates 2015 compared 2014 unrecognized actuarial losses impacted future periods actual asset returns discount rate changes currency exchange rate fluctuations actual demographic experience certain factors defined benefit pension plans losses extent exceed 10 greater plan’s liabilities fair value assets “the gainloss corridor” amortized straightline basis average remaining service period active employees expected receive benefits us salaried us hourly uk defined benefit pension plans population covered predominantly inactive participants losses related plans extent exceed gainloss corridor amortized average remaining lives participants covered respective plan december 31 2015 average amortization period 18 years us defined benefit pension plans 21 years nonus defined benefit pension plans enpp population predominantly active participants losses related plan amortized average future working lifetime active participants december 31 2015 average amortization period ten years enpp estimated net actuarial loss defined benefit pension plans enpp expected amortized accumulated comprehensive loss year ended december 31 2016 approximately 107 million compared approximately 80 million year ended december 31 2015 december 31 2015 unfunded underfunded obligations related defined benefit pension plans enpp approximately 2137 million primarily related defined benefit pension plans united kingdom united states 2015 contributed approximately 340 million towards obligations expect fund approximately 326 million 2016 future funding dependent upon compliance local laws regulations changes laws regulations future well generation operating cash flows future currently agreement place trustees uk defined benefit plan obligates us fund approximately £149 million per year approximately 220 million towards obligation next five years funding arrangement based upon current underfunded status could change future discount rates local laws regulations factors change see note 8 consolidated financial statements information regarding investment strategy concentration risk postretirement benefits retiree health care life insurance provide certain postretirement health care life insurance benefits certain employees principally united states brazil participation plans generally limited older employees existing retirees see note 8 consolidated financial statements information regarding costs assumptions postretirement benefits nature estimates required measurement obligations costs liabilities associated postretirement benefits retiree health care life insurance requires make use estimates present value projected future payments participants taking consideration likelihood potential future events health care cost increases demographic experience may effect amount timing future payments assumptions approach used assumptions used developing required estimates include following key factors • health care cost trends • inflation • discount rates • medical coverage elections • retirement rates • mortality rates health care cost trend assumptions developed based historical cost data nearterm outlook efficiencies costmitigating actions including employee cost sharing administrative improvements efficiencies well assessment likely longterm trends years ended december 31 2015 2014 2013 used globally consistent methodology previously discussed set discount rate countries largest benefit obligations exist united states constructed hypothetical bond portfolio highquality corporate bonds applied cash flows benefit plans bond yields derive discount rate united states bond portfolio large enough result taking “settlement approach” derive discount rate highquality corporate bonds assumed purchased resulting coupon payments maturities used satisfy largest us pension plan’s projected benefit payments bond portfolio selected single discount rate determined market value bonds purchased equals discounted value plan’s benefit payments brazilian plan based discount rate government bond indices within country indices used chosen match expected plan obligations related expected cash flows inflation assumptions based evaluation external market indicators retirement termination rates based primarily actual plan experience actuarial standards practice mortality rates us plans updated 2015 reflect society actuaries’ recent findings topic mortality effects actual results differing assumptions accumulated amortized future periods therefore generally affect recognized expense future periods us postretirement health care life insurance plans represent approximately 94 consolidated projected benefit obligation discount rate used determine 2015 projected benefit obligation us postretirement benefit plans decreased 25 basis points projected benefit obligation would increased approximately 07 million december 31 2015 2016 postretirement benefit expense would increase nominal amount discount rate used determine 2015 projected benefit obligation us postretirement benefit plans increased 25 basis points projected benefit obligation would decreased approximately 06 million 2016 pension expense would decrease nominal amount unrecognized actuarial losses related us brazilian postretirement benefit plans 14 million december 31 2015 compared 33 million december 31 2014 40 million 64 million respectively related us postretirement benefit plans unrecognized actuarial losses impacted future periods discount rate changes actual demographic experience actual health care inflation certain factors losses extent exceed gainloss corridor amortized straightline basis average remaining service period active employees expected receive benefits average remaining lives inactive participants covered postretirement benefit plans december 31 2015 average amortization period 14 years us postretirement benefit plans estimated net actuarial loss postretirement health care benefits expected amortized accumulated comprehensive loss year ended december 31 2016 less 01 million compared approximately 01 million year ended december 31 2015 december 31 2015 approximately 273 million unfunded obligations related us brazilian postretirement health life insurance benefit plans 2015 made benefit payments approximately 12 million towards obligations expect make benefit payments approximately 15 million towards obligations 2016 measuring expected us postretirement benefit obligation december 31 2015 assumed 725 health care cost trend rate 2016 decreasing 50 2025 measuring expected us postretirement benefit obligation december 31 2014 assumed 70 health care cost trend rate 2015 decreasing 50 2019 measuring brazilian postretirement benefit plan obligation december 31 2015 assumed 126 health care cost trend rate 2016 decreasing 675 2026 measuring brazilian postretirement benefit plan obligation december 31 2014 assumed 1225 health care cost trend rate 2015 decreasing 645 2025 changing assumed health care cost trend rates one percentage point year holding assumptions constant would following effect service interest cost 2015 accumulated postretirement benefit obligation december 31 2015 millions litigation party various claims lawsuits arising normal course business closely monitor claims lawsuits frequently consult legal counsel determine whether may resolved material adverse effect financial position results operations accrue andor disclose loss contingencies appropriate goodwill intangible assets longlived assets test goodwill impairment reporting unit level annually events circumstances indicate fair value reporting unit may carrying value reporting unit operating segment one level operating segment example component combine aggregate two components operating segment single reporting unit components similar economic characteristics reportable segments reporting units goodwill evaluated annually october 1 impairment using qualitative assessment quantitative twostep assessment elect perform qualitative assessment determine fair value reporting units likely exceeds carrying value evaluation necessary reporting units perform twostep quantitative assessment first step requires us compare fair value reporting unit respective carrying value including goodwill fair value reporting unit exceeds carrying value goodwill considered impaired carrying value higher fair value reporting unit second step quantitative assessment required measure amount impairment second step quantitative assessment results calculation implied fair value reporting unit’s goodwill determined excess fair value reporting unit fair values assigned assets liabilities implied fair value goodwill less carrying value reporting unit’s goodwill difference recognized impairment loss utilize combination valuation techniques including discounted cash flow approach market multiple approach making quantitative goodwill assessments review longlived assets include intangible assets subject amortization impairment whenever events changes circumstances indicate carrying amount asset may recoverable evaluation recoverability performed level independent cash flows may attributed either asset group determine carrying amount asset group recoverable based expected undiscounted future cash flows asset group impairment loss recorded equal excess carrying amounts estimated fair value longlived assets estimates future cash flows based many factors including current operating results expected market trends competitive influences also evaluate amortization periods assigned intangible assets determine whether events changes circumstances warrant revised estimates useful lives assets disposed sale reported lower carrying amount fair value less estimated costs sell make various assumptions including assumptions regarding future cash flows market multiples growth rates discount rates assessments impairment goodwill indefinitelived intangible assets longlived assets assumptions future cash flows growth rates based current longterm business plans reporting unit related longlived assets discount rate assumptions based assessment risk inherent future cash flows reporting unit longlived assets assumptions require significant judgments part conclusions reach could vary significantly based upon judgments results goodwill longlived assets impairment analyses conducted october 1 2015 2014 2013 indicated reduction carrying amount goodwill longlived assets required goodwill impairment analysis conducted october 1 2015 indicated decrease percentage fair value excess carrying value related gsi eame gsi asiapacific reporting units compared 2014 annual analysis recent analyses 2015 operations gsi reporting units include manufacturing distribution grain storage protein production equipment october 1 2015 percentage reporting units’ fair values excess carrying values 8 5 gsi eame gsi asiapacific respectively amount goodwill allocated reporting unit october 1 2015 approximately 552 million 567 million gsi eame gsi asiapacific respectively numerous facts circumstances considered evaluating carrying amount goodwill fair value reporting unit impacted reporting unit’s expected financial performance dependent upon agricultural industry factors could adversely affect agricultural industry including limited declines general economy increases farm input costs weather conditions lower commodity prices changes availability credit estimated fair value individual reporting units assessed reasonableness reviewing variety indicators evaluated reasonable period time december 31 2015 approximately 11145 million goodwill annual impairment testing 2015 supported carrying amount goodwill may required reevaluate carrying amount future periods thus utilizing different assumptions reflect current market conditions expectations therefore could conclude impairment occurred item 7a item 7a quantitative qualitative disclosures market risk information heading foreign currency risk management managements discussion analysis results operations footnote 1 financial instruments notes consolidated financial statements pages 23 31 respectively annual report stockholders year ended december 31 1997 incorporated herein reference item 8item 7a quantitative qualitative disclosures market risk information heading foreign currency risk management interest rates managements discussion analysis results operations pages 26 27 annual report stockholders footnote 1 financial instruments notes consolidated financial statements page 34 annual report stockholders year ended december 31 1998 incorporated herein reference item 8item 7a quantitative qualitative disclosures market risk information heading foreign currency risk management interest rates managements discussion analysis results operations pages 25 26 annual report stockholders footnote 1 financial instruments notes consolidated financial statements page 35 annual report stockholders year ended december 31 1999 incorporated herein reference item 8item 7a quantitative qualitative disclosures market risk quantitative qualitative disclosures market risk information required item set forth captions managements discussion analysis financial condition results operations foreign currency risk management interest rates euro currency pages 24 25 item 7 form 10k incorporated herein reference item 8item 7a quantitative qualitative disclosures market risk quantitative qualitative disclosures market risk information required item set forth captions managements discussion analysis financial condition results operations foreign currency risk management interest rates pages 28 29 item 7 form 10k incorporated herein reference item 8item 7a quantitative qualitative disclosures market risk quantitative qualitative disclosures market risk information required item set forth captions “management’s discussion analysis financial condition results operations foreign currency risk management” “ interest rates” pages 33 34 item 7 form 10k incorporated herein reference item 8item 7a quantitative qualitative disclosures market risk quantitative qualitative disclosures market risk information required item set forth captions “management’s discussion analysis financial condition results operations foreign currency risk management” “ interest rates” pages 37 38 item 7 form 10k incorporated herein reference item 8item 7a quantitative qualitative disclosures market risk quantitative qualitative disclosures market risk information required item set forth captions “management’s discussion analysis financial condition results operations foreign currency risk management” “ interest rates” pages 36 37 item 7 form 10k incorporated herein reference item 8item 7a quantitative qualitative disclosures market risk quantitative qualitative disclosures market risk information required item set forth captions “management’s discussion analysis financial condition results operations foreign currency risk management” “ interest rates” pages 44 45 item 7 form 10k incorporated herein reference item 8item 7a quantitative qualitative disclosures market risk quantitative qualitative disclosures market risk information required item set forth captions “management’s discussion analysis financial condition results operations foreign currency risk management” “ interest rates” pages 46 48 item 7 form 10k incorporated herein reference item 8item 7a quantitative qualitative disclosures market risk quantitative qualitative disclosures market risk information required item set forth captions “management’s discussion analysis financial condition results operations foreign currency risk management” “ interest rates” pages 47 48 item 7 form 10k incorporated herein reference item 8item 7a quantitative qualitative disclosures market risk quantitative qualitative disclosures market risk information required item set forth captions “management’s discussion analysis financial condition results operationsforeign currency risk management” “interest rates” pages 46 47 item 7 form 10k incorporated herein reference item 8item 7a quantitative qualitative disclosures market risk quantitative qualitative disclosures market risk information required item set forth captions “management’s discussion analysis financial condition results operations foreign currency risk management” “ interest rates” pages 33 34 item 7 form 10k incorporated herein reference item 8item 7a quantitative qualitative disclosures market risk quantitative qualitative disclosures market risk information required item set forth captions “management’s discussion analysis financial condition results operations foreign currency risk management” “ interest rates” pages 35 36 item 7 form 10k incorporated herein reference item 8item 7a quantitative qualitative disclosures market risk quantitative qualitative disclosures market risk information required item set forth captions “management’s discussion analysis financial condition results operations foreign currency risk management” “ interest rates” pages 33 34 item 7 form 10k incorporated herein reference item 8item 7a quantitative qualitative disclosures market risk quantitative qualitative disclosures market risk information required item set forth captions “management’s discussion analysis financial condition results operations foreign currency risk management” “ interest rates” pages 33 34 item 7 form 10k incorporated herein reference item 8item 7a quantitative qualitative disclosures market risk quantitative qualitative disclosures market risk information required item set forth captions “management’s discussion analysis financial condition results operations foreign currency risk management” “ interest rates” pages 32 33 item 7 form 10k incorporated herein reference item 8item 7a quantitative qualitative disclosures market risk quantitative qualitative disclosures market risk information required item set forth captions “management’s discussion analysis financial condition results operations foreign currency risk management” “ interest rates” pages 31 32 item 7 form 10k incorporated herein reference item 8item 7a quantitative qualitative disclosures market risk quantitative qualitative disclosures market risk information required item set forth captions “management’s discussion analysis financial condition results operations foreign currency risk management” “interest rate risk” item 7 form 10k incorporated herein reference item 8item 7a quantitative qualitative disclosures market risk quantitative qualitative disclosures market risk information required item set forth captions “management’s discussion analysis financial condition results operations foreign currency risk management” “interest rate risk” item 7 form 10k incorporated herein reference item 8item 7a quantitative qualitative disclosures market risk quantitative qualitative disclosures market risk information required item set forth captions “management’s discussion analysis financial condition results operations foreign currency risk management” “interest rate risk” item 7 form 10k incorporated herein reference item 8nanitem 7a quantitative qualitative disclosures market risk quantitative qualitative disclosures market risk information required item set forth captions “management’s discussion analysis financial condition results operations foreign currency risk management” “interest rate risk” item 7 form 10k incorporated herein reference item 8item 7a quantitative qualitative disclosures market risk quantitative qualitative disclosures market risk information required item set forth captions “management’s discussion analysis financial condition results operations foreign currency risk management” “interest rate risk” item 7 form 10k incorporated herein reference item 8item 7a quantitative qualitative disclosures market risk quantitative qualitative disclosures market risk information required item set forth captions “management’s discussion analysis financial condition results operations foreign currency risk management” “ interest rate risk” pages 31 32 item 7 form 10k incorporated herein reference item 8 item 8 financial statements supplementary data following financial statements registrant subsidiaries included pages 24 41 annual report stockholders year ended december 31 1997 incorporated herein reference consolidated statements income years ended december 31 1997 1996 1995 consolidated balance sheets december 31 1997 1996 consolidated statements stockholders equity years ended december 31 1997 1996 1995 consolidated statements cash flows years ended december 31 1997 1996 1995 notes consolidated financial statements report independent public accountants information heading quarterly results pages 20 21 annual report stockholders year ended december 31 1997 incorporated herein reference item 9item 8 financial statements supplementary data following financial statements registrant subsidiaries included pages 28 45 annual report stockholders year ended december 31 1998 incorporated herein reference consolidated statements income years ended december 31 1998 1997 1996 consolidated balance sheets december 31 1998 1997 consolidated statements stockholders equity years ended december 31 1998 1997 1996 consolidated statements cash flows years ended december 31 1998 1997 1996 notes consolidated financial statements report independent public accountants information heading quarterly results page 24 annual report stockholders year ended december 31 1998 incorporated herein reference item 9item 8 financial statements supplementary data following financial statements registrant subsidiaries included pages 27 31 annual report stockholders year ended december 31 1999 incorporated herein reference report independent public accountants consolidated statements income years ended december 31 1999 1998 1997 consolidated balance sheets december 31 1999 1998 consolidated statements cash flows years ended december 31 1999 1998 1997 consolidated statements stockholders equity years ended december 31 1999 1998 1997 notes consolidated financial statements information heading quarterly results page 23 annual report stockholders year ended december 31 1999 incorporated herein reference item 9item 8 financial statements supplementary data following financial statements agco subsidiaries year ended december 31 2000 included item information heading quarterly results item 7 page 20 form 10k incorporated herein reference financial statements agco finance llc agricredit acceptance llc included exhibit 991 form 10k incorporated herein reference report independent public accountants agco corporation audited accompanying consolidated balance sheets agco corporation subsidiaries december 31 2000 1999 related consolidated statements operations stockholders equity cash flows three years period ended december 31 2000 financial statements responsibility companys management responsibility express opinion financial statements based audits conducted audits accordance auditing standards generally accepted united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion financial statements referred present fairly material respects financial position agco corporation subsidiaries december 31 2000 1999 results operations cash flows three years period ended december 31 2000 conformity accounting principles generally accepted united states arthur andersen llp atlanta georgia march 29 2001 consolidated statements operations millions except per share data see accompanying notes consolidated financial statements consolidated balance sheets millions except share amounts see accompanying notes consolidated financial statements consolidated statements stockholders equity millions except share amounts see accompanying notes consolidated financial statements consolidated statements cash flows millions see accompanying notes consolidated financial statements agco corporation notes consolidated financial statements 1 operations summary significant accounting policies business agco corporation agco company leading manufacturer distributor agricultural equipment related replacement parts throughout world company sells full range agricultural equipment including tractors combines hay tools sprayers forage equipment implements companys products widely recognized agricultural equipment industry marketed following brand names agco allis massey ferguson hesston white gleaner new idea agcostar tye farmhand glencoe fendt spracoupe willmar company distributes products combination approximately 7750 independent dealers distributors associates licensees addition company provides retail financing north america united kingdom france germany spain ireland brazil retail finance joint ventures cooperatieve centrale raiffeisenboerenleenbank ba rabobank nederland retail finance joint ventures basis presentation consolidated financial statements represent consolidation majority owned companies company records affiliate companies representing 2050 ownership using equity method accounting investments representing ownership less 20 recorded cost significant intercompany transactions eliminated arrive consolidated financial statements certain prior period amounts reclassified conform current period presentation reclassifications include reclassification shipping handling fees costs accordance emerging issues task force eitf issue 0010 accounting shipping handling fees costs revenue recognition sales equipment replacement parts recorded company shipped title risks ownership transferred independent dealer distributor customer payment terms vary market product fixed payment schedules sales company offer consignment terms products terms sale generally require purchase order accompany shipments title passes dealer distributor upon shipment risk loss damage theft destruction equipment responsibility dealer distributor dealer distributor may return equipment replacement parts contract company force replacement parts may returned promotional annual return programs provisions returns programs made time sale based terms program historical returns experience company may provide certain sales incentives dealers distributors provisions sales incentives made time sale existing incentive programs provisions revised event subsequent modification incentive program united states canada equipment sales immediately due upon retail sale equipment dealer already paid dealer united states canada installment payments required generally beginning 7 13 months shipment remaining outstanding equipment balance generally due within 12 24 months shipment interest generally charged outstanding balance 4 13 months shipment sales terms highly seasonal products provide payment due dates based specified date year regardless shipment date payment full equipment united states canada made average within twelve months shipment sales replacement parts generally payable within 30 days shipment terms larger seasonal stock orders generally payable within 6 months shipment agco corporation notes consolidated financial statements continued international markets equipment sales payable full within 30 180 days shipment payment terms highly seasonal products specific due date year regardless shipment date sales replacement parts generally payable within 30 days shipment terms larger seasonal stock orders generally payable within 6 months shipment certain markets particularly north america time lag varies based timing level retail demand date company records sale dealer sells equipment retail customer foreign currency translation financial statements companys foreign subsidiaries translated us currency accordance statement financial accounting standards sfas 52 foreign currency translation assets liabilities translated us dollars periodend exchange rates income expense items translated average rates exchange prevailing period translation adjustments included accumulated comprehensive income stockholders equity gains losses result foreign currency transactions included accompanying consolidated statements operations use estimates preparation financial statements conformity generally accepted accounting principles requires management make estimates assumptions affect reported amounts assets liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ estimates made management primarily relate receivable inventory allowances certain accrued liabilities principally relating reserves volume discounts sales incentives warranty insurance cash equivalents company considers investments original maturity three months less cash equivalents accounts notes receivable accounts notes receivable arise sale equipment replacement parts independent dealers distributors customers payments due companys terms sale contingent upon sale equipment dealer distributor retail customer normal circumstances payment terms extended equipment may returned certain regions including united states canada company obligated repurchase equipment replacement parts upon cancellation dealer distributor contract obligations required national state provincial laws require company repurchase dealer distributors unsold inventory including inventory receivable already paid sales outside united states canada company normally charge interest outstanding receivables dealers distributors united states canada approximately 28 companys net sales generated 2000 interest charged prime lending rates outstanding receivable balances interestfree periods interestfree periods vary product range 1 12 months exception certain seasonal products bear interest various periods depending timing shipment dealer distributors sales preceding year ended december 31 2000 207 52 13 08 companys net sales maximum interestfree periods ranging 1 6 months 7 12 months 13 20 months 21 months agco corporation notes consolidated financial statements continued respectively actual interestfree periods shorter equipment receivable united states canada due immediately upon sale equipment dealer distributor retail customer normal circumstances interest forgiven interestfree periods extended accounts notes receivable shown net allowances sales incentive discounts available dealers doubtful accounts notes receivable allowances december 31 2000 1999 follows millions company occasionally transfers certain accounts receivable various financial institutions company records transfers sales accounts receivable considered surrendered control receivables provisions sfas 125 accounting transfers servicing financial assets extinguishments liabilities inventories valued lower cost market using firstin firstout method market net realizable value finished goods repair replacement parts work process production parts raw materials market replacement cost inventory balances december 31 2000 1999 follows millions agco corporation notes consolidated financial statements continued property plant equipment property plant equipment recorded cost less accumulated depreciation amortization depreciation provided straightline basis estimated useful lives 10 40 years buildings improvements three 15 years machinery equipment three 10 years furniture fixtures expenditures maintenance repairs charged expense incurred property plant equipment december 31 2000 1999 consisted following millions intangible assets intangible assets december 31 2000 1999 consisted following millions excess cost net assets acquired goodwill amortized income straightline basis periods ranging 10 40 years company also assigned values certain acquired trademarks amortized income straightline basis 40 years company periodically reviews carrying values assigned goodwill intangible assets based expectations future cash flows operating income generated underlying tangible assets longlived assets company reviews longlived assets impairment whenever events changes circumstances indicate carrying amount asset may recoverable impairment loss recognized undiscounted future cash flows estimated generated asset sufficient recover unamortized balance asset impairment loss would recognized based difference carrying values estimated fair value estimated fair value determined based either discounted future cash flows appropriate fair value methods amount deficiency charged income current year asset tested recoverability acquired business combination intangible assets resulting acquisition related asset included assessment estimates future cash flows based many factors including current operating results expected market trends competitive influences company also evaluates amortization periods assigned intangible assets determine whether events changes circumstances warrant revised estimates useful lives agco corporation notes consolidated financial statements continued accrued expenses accrued expenses december 31 2000 1999 consisted following millions warranty reserves companys agricultural equipment products generally warranty defects material workmanship period one four years company accrues future warranty costs time sale based historical warranty experience insurance reserves companys insurance programs coverage obtained significant liability limits well risks required insured law contract policy company selfinsure portion certain expected losses related primarily workers compensation comprehensive general product vehicle liability provisions losses expected programs recorded based companys estimates aggregate liabilities claims incurred research development expenses research development expenses expensed incurred included engineering expenses consolidated statements operations advertising costs company expenses advertising costs incurred cooperative advertising costs normally expensed time revenue earned advertising expenses years ended december 31 2000 1999 1998 totaled approximately 79 million 76 million 95 million respectively shipping handling expenses company accounts shipping handling fees costs accordance eitf 0010 shipping handling fees charged customers included component net sales shipping handling costs included part cost goods sold exception certain handling costs included selling general administrative expenses amount 111 million 119 million 126 million 2000 1999 1998 respectively agco corporation notes consolidated financial statements continued interest expense net interest expense net years ended december 31 2000 1999 1998 consisted following net income per common share computation presentation disclosure requirements earnings per share presented accordance sfas 128 earnings per share basic earnings per common share computed dividing net income weighted average number common shares outstanding period diluted earnings per share assumes exercise outstanding stock options vesting restricted stock common stock periods outstanding effects assumptions dilutive reconciliation net income loss weighted average number common equivalent shares outstanding used calculate basic diluted net income loss per common share years ended december 31 2000 1999 1998 follows millions except per share data stock options purchase 14 million 11 million 05 million shares 2000 1999 1998 respectively outstanding included calculation weighted average shares outstanding option exercise prices higher market price companys common stock related periods comprehensive income company reports comprehensive income defined total net income nonowner changes equity components thereof consolidated statements stockholders equity financial instruments carrying amount longterm debt companys revolving credit facility note 7 approximates fair value based borrowing rates currently available company loans similar agco corporation notes consolidated financial statements continued terms average maturities december 31 2000 estimated fair value companys 85 senior subordinated notes note 7 based listed market value 2239 million compared carrying value 2486 million company enters foreign exchange forward contracts hedge foreign currency exposure certain receivables payables committed purchases sales contracts periods consistent exposure hedged generally maturities one year less december 31 2000 1999 company foreign exchange forward contracts outstanding gross notional amounts 2447 million 3482 million respectively gains losses foreign exchange forward contracts deferred recognized income period hedged transaction company foreign forward exchange contracts market value gain approximately 14 million december 31 2000 foreign exchange forward contracts subject companys results operations risk due exchange rate fluctuations gains losses contracts generally offset gains losses exposure hedged company enter foreign exchange forward contracts speculative trading purposes company entered interest rate swap contract minimize effect potential interest rate increases floating rate debt december 31 2000 company euro denominated interest rate swap contract outstanding notional amount 883 million contract effect converting portion companys floating rate euro denominated indebtedness revolving credit facility note 7 fixed interest rate 53 interest rate swap contract expires december 31 2001 fair value companys interest rate swap agreement estimated amount company would receive pay terminate agreement reporting date taking account interest currency rates december 31 2000 company estimates interest rate swap agreement market value approximately 08 million company anticipates holding interest rate swap agreement maturity notional amounts foreign exchange forward contracts interest rate swap contract represent amounts exchanged parties therefore measure companys risk amounts exchanged calculated basis notional amounts terms contracts credit market risks contracts considered significant gains losses reported part sales cost sales depending whether underlying contract sale purchase goods contract qualify firm commitment accordance sfas 52 unrealized gains losses derivative instrument recorded immediately earnings fair value transactional hedge terminated gain loss recognized income underlying transaction recognized december 31 2000 1999 outstanding contracts related firm commitments accounting changes june 1999 financial accounting standards board fasb issued sfas 137 providing one year delay effective date sfas 133 accounting derivative instruments hedging activities sfas 133 establishes accounting reporting standards derivative instruments hedging activities requires entity recognize derivatives either assets liabilities balance sheet measure instruments fair value sfas 133 requires changes derivatives fair value recognized currently earnings unless specific hedge accounting treatment met june 2000 fasb issued sfas 138 amends accounting reporting derivatives sfas 133 exclude among things contracts normal purchases normal sales company adopted sfas 133 january 1 2001 company evaluated effect statement companys derivative instruments primarily interest rate swaps foreign currency forward agco corporation notes consolidated financial statements continued contracts determined cumulative effect january 1 2001 resulted fair value asset net taxes approximately 05 million december 1999 securities exchange commission sec released staff accounting bulletin 101 revenue recognition financial statements sab 101 change existing accounting literature revenue recognition rather explains secs general framework revenue recognition sec subsequently released sab 101b deferring implementation sab 101 fourth quarter 2000 company evaluated sab 101 believes compliance bulletin result bulletin effect results operations financial position company may 2000 eitf reached final consensus issue 0014 accounting certain sales incentives effective fourth quarter 2000 eitf 0014 addresses recognition measurement income statement classification sales incentives offered requires entity recognize cost sales incentive latter date related revenue recorded date sales incentive offered eitf 0014 also requires reduction refund selling price product resulting sales incentive classified reduction revenue company compliance issue material effect companys expense classifications operations financial position september 2000 eitf reached final consensus issue 0010 accounting shipping handling fees costs eitf 0010 also effective fourth quarter 2000 addresses income statement classification amounts charged customers shipping handling well costs incurred related shipping handling eitf concluded amounts billed customer sale transaction related shipping handling classified revenue eitf also concluded costs incurred related shipping handling significant included cost sales entity disclose amount costs line item income statement includes connection issue company reclassified certain revenue cost goods sold sga expense amounts periods presented statements operations reclassifications resulted increase net sales approximately 281 254 310 2000 1999 1998 respectively increase cost goods sold 248 218 274 2000 1999 1998 respectively increase sga expenses 33 36 2000 1999 1998 respectively reclassifications effect companys results operations financial position also september 2000 fasb issued sfas 140 accounting transfers servicing financial assets extinguishments liabilities replacement fasb statement 125 sfas 140 revises standards accounting securitizations transfers financial assets collateral requires certain disclosures statement effective transfers servicing financial assets extinguishments liabilities occurring march 31 2001 sfas 140 effective recognition reclassification collateral disclosures relating securitization transactions collateral fiscal years ending december 15 2000 adoption sfas 140 effect companys results operations financial position 2 acquisitions dispositions acquisitions may 2000 company acquired cnh global nv cnh 50 share hay forage industries hfi 10 million agreement terminated joint venture agreement cnh agco owned 50 interests hfi thereby providing agco sole ownership facility hfi located hesston kansas develops manufactures hay forage equipment implements agco sells various brand names acquired assets liabilities primarily consisted technology production inventories property plant equipment related manufacturing agco corporation notes consolidated financial statements continued operations accounts payable accrued liabilities financial statements hfi previously accounted equity method accounting consolidated companys financial statements date acquisition effective october 1 1998 company acquired net assets willmar product line brand agricultural selfpropelled sprayers spreaders loaders approximately 33 million acquired assets liabilities primarily consisted trademarks trade names technology accounts receivable inventories property plant equipment related manufacturing operations accounts payable accrued expenses effective july 1 1998 company acquired certain net assets related spracoupe product line brand selfpropelled sprayers approximately 372 million acquired assets liabilities primarily consisted trademarks trade names technology accounts receivable inventories production tooling accrued liabilities companys acquisitions accounted purchases accordance accounting principles board opinion apb 16 accordingly purchase price allocated assets acquired liabilities assumed based estimated fair values acquisition dates purchase price allocation certain past acquisitions included liabilities associated certain costs integrate acquired businesses companys operations connection acquisition xaver fendt gmbh 1997 company established liabilities primarily related severance costs associated planned closure certain sales marketing offices parts distribution operations spracoupe willmar acquisition liabilities related employee relocation costs integrate production one manufacturing facility activity related liabilities summarized following table dispositions effective february 5 1999 company sold manufacturing plant haedo argentina haedo sale approximately 190 million company received 123 million purchase price december 1998 form deposit received remaining balance december 1999 haedo sale included property plant equipment facility addition transfer hourly salaried manufacturing employees haedo sale material impact companys 1999 results operations pending acquisition november 2000 agco entered agreement acquire agchem equipment company inc agchem leading manufacturer distributor selfpropelled fertilizer chemical sprayers preemergent postemergent applications agchem sales 299 million year ended september 30 2000 merger agreement provides agco acquire agchem outstanding agchem common stock exchange combination cash shares agco common stock value combination 2580 per share agchem common stock total merger agco corporation notes consolidated financial statements continued consideration approximately 247 million combination cash stock dependent value agco common stock closing date amount common stock agco issue limited 11800000 shares transaction subject approval agchem shareholders expected close april 2001 3 restructuring infrequent expenses company recorded restructuring infrequent expenses 219 million 245 million 40 million 2000 1999 1998 respectively 2000 expense consisted 249 million associated closure certain manufacturing facilities united states argentina credit 30 million related reversal reserves established 1997 1999 expense also related manufacturing facility closures 1998 expense primarily related reduction companys worldwide workforce manufacturing facility closures second quarter 2000 company announced plan permanently close combine manufacturing facility independence missouri relocate existing production companys hesston kansas manufacturing facility fourth quarter 1999 company announced closure companys coldwater ohio lockney texas noetinger argentina manufacturing facilities majority production facilities relocated existing agco facilities remaining production outsourced third party suppliers company closed coldwater plant 1999 independence lockney noetinger plants 2000 company believes closure facilities significant impact 2000 1999 revenues connection closures company recorded restructuring infrequent expenses 249 million 2000 245 million 1999 components expenses summarized following table severance costs relate termination approximately 1050 employees substantially terminated december 31 2000 facility closure costs include employee costs exit costs incurred operations ceased addition noncancelable operating lease obligations writedown property plant equipment represents impairment assets resulting facility closures based estimated fair value assets compared carrying value writedown consisted 05 million 2000 70 million 1999 related machinery equipment 08 million 2000 79 million 1999 building improvements writedown net recoveries consisted 116 related coldwater 19 million related independence 27 million related noetinger estimated fair value equipment buildings determined based current conditions applicable markets machinery equipment tooling disposed within year buildings improvements currently marketed sale production transition costs expensed incurred represent costs relocate integrate production existing agco facilities remaining costs accrued december 31 2000 expected incurred 2001 agco corporation notes consolidated financial statements continued 1998 expense 1998 company recorded restructuring infrequent expenses 400 million primarily related severance related costs associated reduction companys worldwide permanent workforce approximately 1400 employees components restructuring expenses follows pension postretirement benefits related costs associated terminated employees writedown assets related cancellation systems projects order reduce headcount future expenses company expects remaining reserve balance utilized 2001 1997 expense 1997 company recorded restructuring infrequent expenses 182 million consisted 150 million related restructuring companys european operations integration deutz argentina fendt operations acquired december 1996 january 1997 respectively ii 32 million related executive severance costs associated restructuring integration activities primarily related centralization rationalization certain manufacturing selling administrative functions addition rationalization small portion companys european dealer network components expense follows 2000 company reversed 30 million restructuring expenses related dealer termination costs possible company could still incur costs associated dealer terminations company believes longer probable costs incurred 4 accounts receivable securitization january 2000 company entered 250 million asset backed securitization facility whereby certain us wholesale accounts receivables sold revolving basis whollyowned special purpose subsidiary third party securitization facility company initially funded 200 million securitization facility maintained level funding subsequent receivable sales proceeds funding used reduce outstanding borrowings companys revolving credit facility conjunction closing securitization transaction company recorded initial onetime 80 million loss first quarter 2000 initial loss consists 71 million difference current future value receivables sold related transaction expenses 09 million writeoff certain unamortized debt issuance costs due reduction lending agco corporation notes consolidated financial statements continued commitment companys revolving credit facility company recorded losses totaling 203 million 2000 including loss 71 million related initial funding securitization facility 132 million related subsequent sales receivables provided revolving basis losses determined calculating estimated present value receivables sold compared carrying amount present value based historical collection experience discount rate representing spread libor prescribed terms securitization facility 2000 losses based average liquidation period portfolio approximately 62 months average discount rate net estimated interest income 52 securitization facility allows company sell eligible us wholesale accounts receivables revolving basis december 31 2000 unpaid balance accounts receivable sold approximately 2674 million amount approximately 62 million past due december 31 2000 company continues service receivables maintains retained interest receivables company received approximately 26 million servicing fees 2000 company recorded servicing asset liability since cost service receivables approximates servicing income retained interest totaling approximately 674 million represents excess receivables sold whollyowned special purpose entity amount funded company retained interests receivables sold included caption accounts notes receivable net accompanying consolidated balance sheet december 31 2000 fair value retained interest approximately 654 million compared carrying amount 674 million based present value receivables calculated method consistent losses sales receivables discussed net anticipated credit losses approximately 76 million assuming increase average liquidation period 62 months 8 months 10 months fair value retained interest would lower 08 million 17 million respectively assuming increase discount rates net estimated interest income 52 62 72 fair value retained interest would lower 04 million 08 million respectively receivables sold collateralized security interests equipment sold dealers credit losses receivables sold 2000 approximately 04 million 2000 company received approximately 4873 million whollyowned special purpose entity amount consisted 200 million initial sale 2062 million related proceeds subsequent sales receivables 26 million servicing fees 785 collections receivables related companys retained interest 5 investments affiliates investments affiliates december 31 2000 1999 follows millions manufacturing joint ventures december 31 2000 consisted joint ventures unrelated manufacturers produce transmissions europe engines south america december 31 1999 manufacturing joint ventures also included hfi consolidated companys financial statements since hfi acquisition note 2 joint ventures represent minority investments farm equipment manufacturers licensees agco corporation notes consolidated financial statements continued companys equity net earnings affiliates 2000 1999 1998 follows millions manufacturing joint ventures company primarily sell products joint venture partners prices result operating near breakeven annual basis summarized combined financial information retail finance joint ventures years ended presented follows millions majority assets retail finance joint ventures represent finance receivables majority liabilities represent notes payable accrued interest 6 income taxes company accounts income taxes provisions sfas 109 accounting income taxes sfas 109 requires recognition deferred tax assets liabilities expected future tax consequences events included financial statements tax returns method deferred tax assets liabilities determined based differences financial reporting tax bases assets liabilities using enacted tax rates effect year differences expected reverse sources income loss income taxes equity net earnings affiliates follows years ended december 31 2000 1999 1998 millions agco corporation notes consolidated financial statements continued provision benefit income taxes location taxing jurisdiction years ended december 31 2000 1999 1998 consisted following millions certain foreign operations company subject united states well foreign income tax regulations therefore preceding sources income loss income taxes location provision benefit income taxes taxing jurisdiction directly related reconciliation income taxes computed united states federal statutory income tax rate 35 provision benefit income taxes reflected consolidated statements operations years ended december 31 2000 1999 1998 follows millions 2000 company included recognition united states tax credit carryback approximately 20 million agco corporation notes consolidated financial statements continued significant components net deferred tax assets december 31 2000 1999 follows millions december 31 2000 company recorded net deferred tax asset 1222 million included current assets consolidated balance sheet realization asset dependent generating sufficient taxable income future periods management believes likely deferred tax asset realized reflected preceding table company established valuation allowance 718 million 788 million december 31 2000 1999 respectively majority valuation allowance relates net operating loss carryforwards certain foreign entities uncertainty regarding realizability likely expire unused company net operating loss carryforwards 3548 million december 31 2000 expiration dates follows 2001 259 million 2002 149 million 2003 166 million 2004 390 million 2005 241 million thereafter unlimited 2343 million company paid income taxes 493 million 61 million 878 million years ended december 31 2000 1999 1998 respectively 7 longterm debt longterm debt consisted following december 31 2000 1999 millions revolving credit facility multicurrency unsecured line credit current lending commitment 800 million expiring january 2002 lending commitment subject reduction amount equal additional funding securitization facility note 4 aggregate borrowings outstanding revolving credit facility subject borrowing base limitation may time exceed sum 90 eligible accounts receivable 60 eligible inventory interest accrues agco corporation notes consolidated financial statements continued borrowings outstanding revolving credit facility primarily libor plus applicable margin defined year ended december 31 2000 interest rates outstanding borrowings including effect interest rate swap contract note 1 ranged 66 95 weighted average interest rate 65 excluding impact interest rate swap weighted average interest rate 66 revolving credit facility contains certain covenants including covenants restricting incurrence indebtedness making certain restrictive payments including dividends addition company must maintain certain financial covenants including among others debt capitalization ratio fixed charge coverage ratio debt cash flow defined availability revolving credit facility subject receivable inventory borrowing base requirements maintaining financial covenants included agreement approximately 1899 million 2109 million revolving credit facility payable euros approximately 707 million 895 million denominated canadian dollars december 31 2000 1999 respectively although company compliance financial covenants financial covenants revolving credit facility become stringent end second quarter 2001 result company anticipate able fulfill two financial covenants contained facility limitation ratio funded debt ebitda minimum fixed charge coverage ratio address issue company entered commitment letter rabobank new revolving credit facility company expects close early second quarter 2001 new facility expected permit borrowings 350 million 4 12 year term secured majority companys assets including portion capital stock certain foreign subsidiaries addition company process offering 250 million fixed rate senior notes sale private placement notes mature seven years terms substantially similar currently outstanding 8 12 senior subordinated notes except subordinated addition company intends enter new 100 million accounts receivable securitization facility europe 1996 company issued 2500 million 85 senior subordinated notes due 2006 notes 99139 principal amount notes unsecured obligations company redeemable option company whole part time march 15 2001 initially 10425 principal amount plus accrued interest declining ratably 100 principal amount plus accrued interest march 15 2003 indenture governing notes contains numerous covenants including limitations companys ability incur additional indebtedness make investments make restricted payments including dividends create liens indenture also requires company offer repurchase notes event change control subsequent yearend company issued notice default trustee notes regarding violation covenant restricting payments dividends periods 1999 2000 2001 interest coverage ratio met period company paid approximately 48 million dividends based upon companys interpretation need meet interest coverage ratio instead alternative total debt test company subsequently received sufficient waivers holders notes violation covenant might resulted dividend payments connection receipt waivers company paid waiver fee approximately 25 million expensed first quarter 2001 currently company prohibited paying dividends time interest coverage ratio indenture met agco corporation notes consolidated financial statements continued december 31 2000 aggregate scheduled maturities longterm debt follows millions cash payments interest 465 million 718 million 774 million years ended december 31 2000 1999 1998 respectively company arrangements various banks issue letters credit similar instruments guarantee companys obligations purchase sale certain inventories potential claims exposure insurance coverage december 31 2000 outstanding letters credit totaled 100 million 06 million issued revolving credit facility 8 employee benefit plans company defined benefit pension plans covering certain employees principally united states united kingdom germany company also provides certain postretirement health care life insurance benefits certain employees principally united states net annual pension postretirement cost measurement assumptions plans years ended december 31 2000 1999 1998 set forth millions agco corporation notes consolidated financial statements continued following tables set forth reconciliations changes benefit obligations plan assets funded status december 31 2000 1999 millions aggregate projected benefit obligation accumulated benefit obligation fair value plan assets pension plans accumulated benefit obligations excess plan assets 522 million 522 million 319 million respectively december 31 2000 322 million 302 million 119 million respectively december 31 1999 agco corporation notes consolidated financial statements continued measuring expected postretirement benefit obligation 75 health care cost trend rate assumed 2000 decreasing 075 per year 50 60 remaining level thereafter 1999 825 health care cost trend rate assumed changing assumed health care cost trend rates one percentage point year holding assumptions constant would following effect service interest cost accumulated postretirement benefit obligation december 31 2000 millions company maintains defined contribution plans covering certain employees primarily united states united kingdom plans company contributes specified percentage eligible employees compensation company contributed 16 million 15 million 16 million years ended december 31 2000 1999 1998 respectively 9 common stock december 31 2000 company 1500 million authorized shares common stock par value 001 596 million shares common stock outstanding 01 million shares reserved issuance companys 1991 stock option plan note 10 01 million shares reserved issuance companys nonemployee director stock incentive plan note 10 35 million shares reserved issuance companys longterm incentive plan note 10 december 1997 companys board directors authorized repurchase 1500 million outstanding common stock 1998 company repurchased approximately 35 million shares common stock cost approximately 881 million 1999 2000 company repurchase common stock purchases made open market transactions timing number shares purchased depend various factors price market conditions april 1994 company designated 300000 shares junior cumulative preferred stock junior preferred stock connection adoption stockholders rights plan rights plan terms rights plan onethird preferred stock purchase right attached outstanding share companys common stock rights plan contains provisions designed protect stockholders event certain unsolicited attempts acquire company terms rights plan right entitles holder purchase one onehundredth share junior preferred stock par value 001 per share exercise price 200 per share rights exercisable specified number days following acquisition person group persons 20 companys common stock ii commencement tender exchange offer 20 companys common stock event company surviving company merger person group persons owns 20 companys outstanding stock right entitle holder 20 stockholder receive upon exercise common stock company value equal two times rights exercise price addition event company sells transfers 50 assets earning power right entitle holder receive upon exercise common stock acquiring company value equal two times rights exercise price rights may redeemed company 001 per right prior expiration april 27 2004 agco corporation notes consolidated financial statements continued 10 stock incentive plans nonemployee director stock incentive plan companys nonemployee director stock incentive plan director plan provides restricted stock awards nonemployee directors based increases price companys common stock awarded shares earned specified increments 15 increase average market value companys common stock initial base price established plan increment awarded shares earned shares issued participant form restricted stock vests earlier 12 months specified performance period upon departure board directors restricted shares earned cash bonus equal 40 value shares date restricted stock award earned paid company satisfy portion estimated income tax liability incurred participant december 31 2000 10500 shares awarded earned director plan 10500 shares earned vested director plan longterm incentive plan companys longterm incentive plan ltip provides restricted stock awards executives based increases price companys common stock awarded shares may earned fiveyear performance period specified increments 20 increase average market value companys common stock established initial base price restricted stock awards prior 2000 earned shares issued participant form restricted stock generally carries fiveyear vesting period onethird earned award vesting end third fourth fifth year award earned 2000 ltip amended replace vesting schedule nontransferability period future grants accordingly restricted stock awards 2000 future awards earned shares subject nontransferability period expires fiveyear period transfer restrictions lapsing onethird increments end third fourth fifth year award earned nontransferability period participants restricted selling assigning transferring pledging otherwise disposing earned shares earned shares subject forfeiture event participant terminates employment company nontransferability period extended two years earned shares vested longer subject forfeiture company obligated pay cash bonus equal 40 value shares date shares earned order satisfy portion estimated income tax liability incurred participant time awarded shares earned market value stock added common stock additional paidin capital equal amount deducted stockholders equity unearned compensation ltip unearned compensation amount cash bonus paid awarded shares become vested amortized expense ratably vesting period awards granted 2000 future company record entire compensation expense relating earned shares related cash bonus period award earned company recognized compensation expense associated ltip 38 million 85 million 120 million years ended december 31 2000 1999 1998 respectively consisting amortization stock awards related cash bonus agco corporation notes consolidated financial statements continued additional information regarding ltip years ended december 31 2000 1999 1998 follows 2000 ltip amended increase number shares authorized issuance 1250000 shares stock option plan companys stock option plan option plan provides granting nonqualified incentive stock options officers employees directors others stock option exercise price determined board directors except case incentive stock option purchase price shall less 100 fair market value date grant recipient stock options entitled immediately exercise 20 options issued person additional 20 options vest ratably fouryear period expire later ten years date grant stock option transactions three years ended december 31 2000 1999 1998 follows december 31 2000 outstanding options weighted average remaining contractual life approximately 78 years 1192605 options currently exercisable option prices ranging 152 3125 weighted average exercise price 1692 agco corporation notes consolidated financial statements continued following table sets forth exercise price range number shares weighted average exercise price remaining contractual lives groups similar price grant date company accounts stockbased compensation awarded director plan ltip option plan prescribed apb 25 accounting stock issued employees also provides disclosures required sfas 123 accounting stock based compensation abp 25 requires recognition compensation expense options granted option plan however abp 25 require recognition compensation expense director plan ltip disclosure purposes sfas 123 company estimated fair value grants companys stock incentive plans using blackscholes pricing model based model weighted average fair value options granted option plan weighted average fair value awards granted director plan ltip including related cash bonus follows millions awards ltip 1998 director plan 2000 fair value grants awards amortized vesting period stock options earned awards director plan ltip performance period unearned awards director plan ltip based applying provisions sfas 123 pro forma net income net income per common share assumptions blackscholes pricing model follows millions except per share data agco corporation notes consolidated financial statements continued sfas 123 method accounting applied grants awards prior january 1 1995 resulting pro forma compensation cost may representative expected future years 11 commitments contingencies company leases land buildings machinery equipment furniture various noncancelable operating lease agreements december 31 2000 future minimum lease payments noncancelable operating leases follows millions total lease expense noncancelable operating leases 174 million 145 million 159 million years ended december 31 2000 1999 1998 respectively 1999 company entered saleleaseback transaction involving certain real property proceeds transaction 187 million used reduce outstanding borrowings revolving credit facility terms lease require company pay approximately 20 million per year next fifteen years time company option extend lease annual payments ranging 22 million 27 million accordance sfas 13 company accounted lease operating lease gain sale 24 million amortized life operating lease december 31 2000 company obligated certain circumstances purchase year 2005 196 million equipment upon expiration certain operating leases agco finance llc agricredit acceptance canada ltd companys retail finance joint ventures north america end users management believes losses might incurred resale equipment materially impact companys financial position results operations company party various claims lawsuits arising normal course business opinion management consultation legal counsel claims lawsuits resolved material adverse effect financial position results operations company 12 related party transactions addition retail finance joint ventures rabobank nederland principal agent participant companys revolving credit agreement securitization facility transactions joint ventures rabobank armslength basis based prevailing market conditions 2000 company entered supply agreements deutzfahr group spa sdf whereby sdf supplies certain orchard vineyard tractors agco supplies sdf combines european market beginning 2001 december 31 2000 sdf owns approximately 10 agcos common stock involvement agco management managements opinion transactions company sdf done armslength basis agco corporation notes consolidated financial statements continued 13 segment reporting company four geographic reportable segments north america south america europeafricamiddle east asiapacific segment distributes full range agricultural equipment related replacement parts accounting policies segments described summary significant accounting policies company evaluates segment performance based income operations sales segment based location thirdparty customer intercompany transactions segments eliminated companys selling general administrative expenses engineering expenses charged segment based region expenses incurred result components operating income one segment may comparable another segment results 2000 1999 1998 follows millions reconciliation segment information consolidated balances income operations assets set forth millions agco corporation notes consolidated financial statements continued net sales customer location years ended december 31 2000 1999 1998 follows millions net sales product years ended december 31 2000 1999 1998 follows millions item 9item 8 financial statements supplementary data following financial statements agco subsidiaries year ended december 31 2001 included item information heading quarterly results item 7 page 22 form 10k incorporated herein reference financial statements agco finance llc formerly agricredit acceptance llc included exhibits 991 992 form 10k incorporated herein reference report independent public accountants agco corporation audited accompanying consolidated balance sheets agco corporation subsidiaries december 31 2001 2000 related consolidated statements operations stockholders equity cash flows three years period ended december 31 2001 financial statements responsibility companys management responsibility express opinion financial statements based audits conducted audits accordance auditing standards generally accepted united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion financial statements referred present fairly material respects financial position agco corporation subsidiaries december 31 2001 2000 results operations cash flows three years period ended december 31 2001 conformity accounting principles generally accepted united states explained note 11 consolidated financial statements accordance requirements statement financial accounting standards 133 accounting derivative instruments hedging activities agco corporation subsidiaries changed method accounting derivative instruments hedging activities effective january 1 2001 arthur andersen llp atlanta georgia february 6 2002 agco corporation consolidated statements operations millions except per share data see accompanying notes consolidated financial statements agco corporation consolidated balance sheets millions except share amounts see accompanying notes consolidated financial statements agco corporation consolidated statements stockholders equity millions except share amounts see accompanying notes consolidated financial statements agco corporation consolidated statements cash flows see accompanying notes consolidated financial statements agco corporation notes consolidated financial statements 1 operations summary significant accounting policies business agco corporation agco company leading manufacturer distributor agricultural equipment related replacement parts throughout world company sells full range agricultural equipment including tractors combines hay tools sprayers forage equipment implements companys products widely recognized agricultural equipment industry marketed following brand names agcor agcorallis agcostarr agchemr farmhandr fendttm fieldstarr gleanerr glencoer hesstonr loralr massey fergusonr new idear rogatorr soilteq spracouper terragatorr tyer white tractors white planters willmarr company distributes products combination approximately 7350 independent dealers distributors associates licensees addition company provides retail financing north america united kingdom france germany spain ireland brazil retail finance joint ventures cooperative centrale raiffeisenboerenleenbank barabobank nederland basis presentation consolidated financial statements represent consolidation majorityowned companies controlling interest exists company records affiliate companies representing 20 50 ownership using equity method accounting investments representing ownership less 20 recorded cost significant intercompany transactions eliminated arrive consolidated financial statements certain prior period amounts reclassified conform current period presentation revenue recognition sales equipment replacement parts recorded company title risks ownership transferred independent dealer distributor customer payment terms vary market product fixed payment schedules sales company offer consignment terms products terms sale generally require purchase order confirmation accompany shipments title passes dealer distributor upon shipment risk loss upon damage theft destruction equipment responsibility dealer distributor dealer distributor may return equipment replacement parts contract company force replacement parts may returned promotional annual return programs provisions returns programs made time sale based terms program historical returns experience company may provide certain sales incentives dealers distributors provisions sales incentives made time sale existing incentive programs provisions revised event subsequent modification incentive program united states canada equipment sales dealers immediately due upon retail sale equipment dealer already paid dealer united states canada installment payments required generally beginning 7 13 months shipment remaining outstanding equipment balance generally due within 12 24 months shipment interest generally charged outstanding balance 4 13 months shipment sales terms highly seasonal products provide payment due dates based specified date year regardless shipment date equipment sold dealers united states canada paid full average within twelve months shipment sales replacement parts generally payable within 30 days shipment terms larger seasonal stock orders generally payable within 6 months shipment agco corporation notes consolidated financial statements continued international markets equipment sales payable full within 30 180 days shipment payment terms highly seasonal products specific due date year regardless shipment date sales replacement parts generally payable within 30 days shipment terms larger seasonal stock orders generally payable within 6 months shipment certain markets particularly north america time lag varies based timing level retail demand date company records sale dealer sells equipment retail customer foreign currency translation financial statements companys foreign subsidiaries translated us currency accordance statement financial accounting standards sfas 52 foreign currency translation assets liabilities translated us dollars periodend exchange rates income expense items translated average rates exchange prevailing period translation adjustments included accumulated comprehensive loss stockholders equity gains losses result foreign currency transactions included accompanying consolidated statements operations use estimates preparation financial statements conformity accounting principles generally accepted united states requires management make estimates assumptions affect reported amounts assets liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ estimates made management primarily relate receivable inventory allowances certain accrued liabilities principally relating reserves volume discounts sales incentives warranty insurance cash equivalents company considers investments original maturity three months less cash equivalents accounts notes receivable accounts notes receivable arise sale equipment replacement parts independent dealers distributors customers payments due companys terms sale contingent upon sale equipment dealer distributor retail customer normal circumstances payment terms extended equipment may returned certain regions including united states canada company obligated repurchase equipment replacement parts upon cancellation dealer distributor contract obligations required national state provincial laws require company repurchase dealer distributors unsold inventory including inventory receivable already paid sales outside united states canada company normally charge interest outstanding receivables dealers distributors sales dealers distributors united states canada approximately 29 companys net sales generated 2001 interest charged prime lending rates outstanding receivable balances interestfree periods interestfree periods vary product range 1 12 months exception certain seasonal products bear interest various periods depending time year sale dealer distributors sales volume preceding year ended december 31 2001 agco corporation notes consolidated financial statements continued 207 51 19 13 companys net sales maximum interestfree periods ranging 1 6 months 7 12 months 13 20 months 21 months respectively actual interestfree periods shorter equipment receivable dealers distributors united states canada due immediately upon sale equipment retail customer normal circumstances interest forgiven interestfree periods extended accounts notes receivable shown net allowances sales incentive discounts available dealers doubtful accounts notes receivable allowances december 31 2001 2000 follows millions company occasionally transfers certain accounts receivable various financial institutions company records transfers sales accounts receivable considered surrendered control receivables provisions sfas 140 accounting transfers servicing financial assets extinguishments liabilities replacement fasb 125 see note 4 inventories valued lower cost market using firstin firstout method market net realizable value finished goods repair replacement parts work process production parts raw materials market replacement cost inventory balances december 31 2001 2000 follows millions property plant equipment property plant equipment recorded cost less accumulated depreciation amortization depreciation provided straightline basis estimated useful lives 10 40 years buildings improvements 3 15 years machinery equipment 3 10 years furniture fixtures expenditures maintenance repairs charged expense incurred agco corporation notes consolidated financial statements continued property plant equipment december 31 2001 2000 consisted following millions intangible assets intangible assets december 31 2001 2000 consisted following millions 2001 excess cost net assets acquired goodwill amortized income straightline basis periods ranging 10 40 years company also assigned values certain acquired trademarks amortized income straightline basis 40 years 2002 accounting intangible assets change based adoption sfas 142 goodwill intangibles see accounting changes discussion company periodically reviews carrying values assigned goodwill intangible assets based expectations future cash flows operating income generated underlying tangible assets longlived assets company reviews longlived assets impairment whenever events changes circumstances indicate carrying amount asset may recoverable impairment loss recognized undiscounted future cash flows estimated generated asset sufficient recover unamortized balance asset impairment loss would recognized based difference carrying values estimated fair value estimated fair value determined based either discounted future cash flows appropriate fair value methods amount deficiency charged income current year asset tested recoverability acquired business combination intangible assets resulting acquisition related asset included assessment estimates future cash flows based many factors including current operating results expected market trends competitive influences company also evaluates amortization periods assigned intangible assets determine whether events changes circumstances warrant revised estimates useful lives agco corporation notes consolidated financial statements continued accrued expenses accrued expenses december 31 2001 2000 consisted following millions warranty reserves companys agricultural equipment products generally warranty defects material workmanship period one four years company accrues future warranty costs time sale based historical warranty experience insurance reserves companys insurance programs coverage obtained significant liability limits well risks required insured law contract policy company selfinsure portion certain expected losses related primarily workers compensation comprehensive general product vehicle liability provisions losses expected programs recorded based companys estimates aggregate liabilities claims incurred research development expenses research development expenses expensed incurred included engineering expenses consolidated statements operations advertising costs company expenses advertising costs incurred cooperative advertising costs normally expensed time revenue earned advertising expenses years ended december 31 2001 2000 1999 totaled approximately 99 million 79 million 76 million respectively shipping handling expenses shipping handling fees charged customers included component net sales shipping handling costs included part cost goods sold exception certain handling costs included selling general administrative expenses amount 117 million 111 million 119 million 2001 2000 1999 respectively agco corporation notes consolidated financial statements continued interest expense net interest expense net years ended december 31 2001 2000 1999 consisted following millions net income per common share basic earnings per common share computed dividing net income weighted average number common shares outstanding period diluted earnings per share assumes exercise outstanding stock options vesting restricted stock common stock periods outstanding effects assumptions dilutive reconciliation net income loss weighted average number common equivalent shares outstanding used calculate basic diluted net income loss per common share years ended december 31 2001 2000 1999 follows millions except per share data agco corporation notes consolidated financial statements continued stock options purchase 21 million 14 million 11 million shares 2001 2000 1999 respectively outstanding included calculation weighted average shares outstanding option exercise prices higher market price companys common stock related period comprehensive income loss company reports comprehensive income loss defined total net income nonowner changes equity components thereof consolidated statements stockholders equity components comprehensive loss related tax effects 2001 follows millions financial instruments carrying amounts reported companys consolidated balance sheets cash equivalents accounts notes receivable accounts payable approximate fair value due immediate shortterm maturity financial instruments carrying amount longterm debt companys revolving credit facility note 7 approximates fair value based borrowing rates currently available company loans similar terms average maturities december 31 2001 estimated fair values companys 95 senior notes 85 senior subordinated notes note 7 based listed market values 2600 million 2483 million respectively compared carrying values 2500 million 2489 million respectively company enters foreign exchange forward contracts hedge foreign currency exposure certain receivables payables committed purchases sales contracts periods consistent exposure hedged generally maturities one year less december 31 2001 2000 company foreign exchange forward contracts outstanding gross notional amounts 2161 million 2447 million respectively net market value foreign forward exchange contracts december 31 2001 significant foreign exchange forward contracts subject companys results operations risk due exchange rate fluctuations gains losses contracts generally offset gains losses exposure hedged company enter foreign exchange forward contracts speculative trading purposes notional amounts foreign exchange forward contracts represent amounts exchanged parties therefore measure companys risk amounts exchanged calculated basis notional amounts terms contracts credit market risks contracts considered significant accounting changes september 1999 financial accounting standards board fasb issued sfas 137 providing one year delay effective date sfas 133 accounting derivative instruments hedging activities january 1 2001 sfas 133 establishes accounting agco corporation notes consolidated financial statements continued reporting standards derivative instruments hedging activities requires entity recognize derivatives either assets liabilities balance sheet measure instruments fair value sfas 133 requires changes derivatives fair value recognized currently earnings unless specific hedge accounting treatment met june 2000 fasb issued sfas 138 amends accounting reporting derivatives sfas 133 exclude among things contracts normal purchases normal sales discussed note 11 company adopted sfas 133 january 1 2001 july 2001 fasb issued sfas 141 business combinations sfas 142 goodwill intangible assets sfas 141 prospectively prohibits pooling interest method accounting business combinations initiated june 30 2001 sfas 142 requires companies cease amortizing goodwill indefinite lived assets december 31 2001 existence june 30 2001 goodwill indefinite lived assets resulting acquisitions completed june 30 2001 amortized sfas 142 also establishes new method testing goodwill indefinite lived assets impairment annual basis interim basis event occurs circumstances change would reduce fair value reporting unit carrying value adoption sfas 142 result companys discontinuation amortization goodwill however company required test goodwill impairment new standard beginning 2002 could adverse effect companys future results operations impairment occurs sfas 142 requires initial impairment assessment performed goodwill indefinite lived intangible assets assessment involves determining estimate fair value companys reporting units trademarks order evaluate whether impairment current carrying amount goodwill intangible assets exist fair values derived based evaluation past expected future performance companys reporting units impairment charge initial assessment recorded cumulative effect accounting change company currently performing initial fair value assessment although assessment completed subject change company estimates cumulative effect adopting standard result noncash charge 18 million 28 million pretax basis company expects complete assessment record impact adoption standard first quarter 2002 adoption standard also benefit annual pretax earnings beginning 2002 approximately 18 million 016 per share reduced amortization intangibles july 2001 fasb also issued sfas 143 accounting asset retirement obligations sfas 143 sfas 143 requires entities record fair value liability asset retirement obligation period incurred liability initially recorded entity capitalizes cost increasing carrying amount related longlived asset time liability accreted present value period capitalized cost depreciated useful life related asset upon settlement liability entity either settles obligation amount recorded incurs gain loss sfas 143 effective fiscal years beginning june 15 2002 management evaluating effect statement companys results operations financial position believe impact material august 2001 fasb issued sfas 144 accounting impairment disposal longlived assets sfas 144 sfas 144 supersedes fasb statement 121 accounting impairment longlived assets longlived assets disposed sfas 121 accounting reporting provisions accounting principles board apb opinion 30 reporting results operations reporting effects disposal segment business extraordinary unusual infrequently occurring events transactions opinion 30 disposal segment business previously defined opinion 30 fasb issued sfas 144 establish single accounting model based framework established sfas agco corporation notes consolidated financial statements continued 121 longlived assets disposed sale sfas 144 broadens presentation discontinued operations statement operations include component entity rather segment business component entity comprises operations cash flows clearly distinguished operationally financial reporting purposes rest entity sfas 144 also requires discontinued operations measured lower carrying amount fair value less cost sell sfas 144 effective fiscal years beginning december 15 2001 applied prospectively standard impact companys current results operations financial position applied appropriate circumstances arise 2 acquisitions dispositions acquisitions april 16 2001 company completed acquisition agchem equipment co inc agchem manufacturer distributor selfpropelled sprayers company paid agchem shareholders approximately 2472 million consisting approximately 118 million agco common shares 1475 million cash funding cash component purchase price made borrowings companys revolving credit facility acquired assets liabilities primarily consisted technology trademarks tradenames accounts receivables inventories property plant equipment accounts payable accrued liabilities results operations agchem acquisition included companys consolidated financial statements date acquisition company recorded approximately 1416 million goodwill 272 million trademarks identifiable intangible assets associated acquisition agchem may 2000 company acquired cnh global nv cnh 50 share hay forage industries hfi 100 million agreement terminated joint venture agreement cnh agco owned 50 interests hfi thereby providing agco sole ownership facility hfi located hesston kansas develops manufactures hay forage equipment implements agco sells various brand names acquired assets liabilities primarily consisted technology production inventories property plant equipment related manufacturing operations accounts payable accrued liabilities financial statements hfi previously accounted equity method accounting consolidated companys financial statements date acquisition companys acquisitions accounted purchases accordance apb 16 accordingly purchase price allocated assets acquired liabilities assumed based estimated fair values acquisition dates purchase price allocation agchem acquisition preliminary subject adjustment completed 2002 purchase price allocation certain acquisitions included liabilities associated costs integrate acquired businesses companys operations connection acquisition agchem company established liabilities primarily related severance employee relocation costs associated planned closure agchems benson minnesota manufacturing facility minnetonka minnesota agco corporation notes consolidated financial statements continued administrative office fifteen parts service facilities activity related liabilities summarized following table millions severance relates planned termination approximately 350 agchem employees approximately 340 terminated december 31 2001 connection acquisition xaver fendt gmbh 1997 company established liabilities primarily related severance costs associated planned closure certain sales marketing offices parts distribution operations december 31 2001 approximately 31 million remains 71 million reserves originally established following unaudited pro forma data summarizes results operations year ended december 31 2001 2000 agchem acquisition occurred beginning 2000 unaudited pro forma information prepared comparative purposes purport represent results operations company would actually transactions occurred dates indicated results operations may future period dispositions effective february 5 1999 company sold manufacturing plant haedo argentina haedo sale approximately 190 million company received 123 million purchase price december 1998 form deposit received remaining balance december 1999 haedo sale included property plant equipment facility addition transfer manufacturing hourly salaried employees haedo sale material impact companys 1999 results operations 3 restructuring infrequent expenses company recorded restructuring infrequent expenses 130 million 219 million 245 million 2001 2000 1999 respectively 2001 expense consisted 85 million associated integration agchem acquisition 45 million associated manufacturing facilities rationalizations commenced prior years 2000 expense consisted 249 million associated closure certain manufacturing facilities united states argentina credit agco corporation notes consolidated financial statements continued 30 million related reversal reserves established 1997 1999 expense also related manufacturing facility closures agchem acquisition integration 2001 company announced plans rationalize certain facilities part agchem acquisition integration company consolidated agcos willmar minnesota manufacturing facility agchems benson minnesota manufacturing facility agchems jackson minnesota manufacturing plant addition company closed agchems minnetonka minnesota administrative offices relocated functions jackson facility lastly company closed fifteen parts service facilities integrated parts warehousing logistics agcos north american parts distribution system company believes closures material impact 2001 revenues components restructuring infrequent expenses summarized following table millions severance relates planned termination approximately 200 agco employees approximately 190 terminated december 31 2001 employee retention payments relate incentives paid agchem agco employees remain employed certain future termination dates accrued term retention period facility closure costs include employee costs exit costs incurred willmar operations cease writedown property plant equipment represents impairment machinery equipment willmar facility closures based estimated fair value assets compared carrying value facility relocation transition costs expensed incurred represent costs relocate employees inventory machinery costs integrate operations remaining facilities 09 million costs accrued december 31 2001 expected incurred 2002 manufacturing facility rationalizations 1999 2001 company completed several manufacturing rationalization initiatives included closure 1999 coldwater ohio tractor implement facility closures 2000 combine manufacturing facility independence missouri implement manufacturing facilities lockney texas noetinger argentina implement manufacturing facilities 2000 initiatives included relocation majority production engineering facilities existing company facilities company believes closure facilities significant impact agco corporation notes consolidated financial statements continued 2000 1999 revenues summary expenses related reserves associated initiatives included following table millions severance costs relate termination approximately 1050 employees terminated december 31 2001 facility closure costs include employee costs exit costs incurred operations ceased addition noncancelable operating lease obligations 2001 company reversed 07 million accrued facility closure costs incurred writedown property plant equipment represents impairment assets resulting facility closures based estimated fair value assets compared carrying value writedown consisted 05 million 2000 70 million 1999 related machinery equipment 08 million 2000 79 million 1999 building improvements 2001 company recorded recovery 07 million sale machinery equipment writedown net recoveries consisted 116 related coldwater 12 million related independence 27 million related noetinger estimated fair value equipment buildings determined based current conditions applicable markets machinery equipment tooling disposed buildings improvements currently marketed sale production transition costs expensed incurred represent costs relocate integrate production engineering existing agco facilities remaining costs accrued december 31 2001 expected incurred 2002 2003 1998 expense 1998 company recorded restructuring infrequent expenses 400 million primarily related severance related costs associated reduction companys worldwide permanent workforce approximately 1400 employees december 31 2001 approximately 04 million accrued severance remained paid company expects remaining costs paid 2002 4 accounts receivable securitization december 31 2001 company accounts receivable securitization facilities united states canada europe totaling approximately 4100 million facilities wholesale accounts receivable sold revolving basis commercial paper conduits either direct basis whollyowned special purpose us subsidiary company completed us securitization facility 2000 completed canadian european securitization facilities 2001 outstanding funding facilities totaled approximately 4020 million december 31 2001 2000 million december 31 2000 funded balance effect reducing accounts receivable shortterm liabilities amount losses sales receivables primarily securitization facilities 235 million 2001 245 million 2000 amounts include losses transaction fees associated initial closing agco corporation notes consolidated financial statements continued funding facilities amount 36 million 2001 71 million 2000 losses determined calculating estimated present value receivables sold compared carrying amount present value based historical collection experience discount rate representing spread libor prescribed terms agreements information related facilities assumptions used loss calculations summarized millions company continues service sold receivables maintains retained interest receivables company received approximately 43 million 26 million servicing fees 2001 2000 respectively servicing asset liability recorded since cost service receivables approximates servicing income retained interest receivables sold included caption accounts notes receivable net accompanying consolidated balance sheets represents companys maximum exposure facilities company maintains reserves portion residual interest estimates uncollectible december 31 2001 approximately 32 million unpaid balance receivables sold past due sixty days fair value retained interest approximately 1048 million compared carrying amount 1069 million based present value receivables calculated method consistent losses sales receivables discussed assuming 10 20 increase average liquidation period fair value residual interest would decline 02 million 04 million respectively assuming 10 20 increase discount rate assumed fair value residual interest would decline 02 million 04 million respectively 2001 company received approximately 8792 million sales receivables 43 million servicing fees 2000 company received 4062 sales receivables 26 million servicing fees 5 investments affiliates investments affiliates december 31 2001 2000 follows millions manufacturing joint ventures december 31 2001 consisted joint ventures unrelated manufacturers produce transmissions europe engines south america joint ventures represent minority investments farm equipment manufacturers licensees 2001 company sold minority interest european farm equipment manufacturer 86 million connection sale company recorded pretax gain 52 million included expense net consolidated statements operations companys equity earnings investment significant 2001 2000 1999 agco corporation notes consolidated financial statements continued companys equity net earnings affiliates 2001 2000 1999 follows millions manufacturing joint ventures company primarily sell products joint venture partners prices result operating near breakeven annual basis summarized combined financial information companys retail finance joint ventures years ended december 31 2001 2000 follows millions majority assets companys retail finance joint ventures represent finance receivables majority liabilities represent notes payable accrued interest 6 income taxes company accounts income taxes provisions sfas 109 accounting income taxes sfas 109 requires recognition deferred tax assets liabilities expected future tax consequences events included financial statements tax returns method deferred tax assets liabilities determined based differences financial reporting tax bases assets liabilities using enacted tax rates effect year differences expected reverse sources income loss income taxes equity net earnings affiliates extraordinary loss follows years ended december 31 2001 2000 1999 millions agco corporation notes consolidated financial statements continued provision benefit income taxes location taxing jurisdiction years ended december 31 2001 2000 1999 consisted following millions certain foreign operations company subject united states well foreign income tax regulations therefore preceding sources income loss income taxes location provision benefit income taxes taxing jurisdiction directly related december 31 2001 company approximately 6392 million undistributed earnings companys foreign subsidiaries earnings considered indefinitely invested accordingly united states federal state income taxes provided earnings determination amount unrecognized deferred taxes earnings practical however unrecognized foreign tax credits would available reduce portion tax liability reconciliation income taxes computed united states federal statutory income tax rate 35 provision benefit income taxes reflected consolidated statements operations years ended december 31 2001 2000 1999 follows millions 2000 company included recognition united states tax credit carryback approximately 20 million agco corporation notes consolidated financial statements continued significant components net deferred tax assets december 31 2001 2000 follows millions company recorded net deferred tax asset 1457 million 1222 million december 31 2001 2000 respectively majority relates taxes united states realization asset dependent generating sufficient taxable income future periods management believes likely deferred tax asset realized reflected preceding table company established valuation allowance 527 million 718 million december 31 2001 2000 respectively majority valuation allowance relates net operating loss carryforwards certain foreign entities uncertainty regarding realizability likely expire unused decline valuation allowance 2001 primarily due impact foreign currency translation reduced gross deferred tax assets valuation allowance impact net deferred tax asset significant company net operating loss carryforwards 3526 million december 31 2001 expiration dates follows 2002 89 million 2003 98 million 2004 250 million 2005 153 million 2006 108 million thereafter unlimited 2828 million company paid income taxes 269 million 493 million 61 million years ended december 31 2001 2000 1999 respectively agco corporation notes consolidated financial statements continued 7 longterm debt longterm debt consisted following december 31 2001 2000 millions april 17 2001 company issued 2500 million 9 12 senior notes due 2008 senior notes senior notes unsecured obligations company redeemable option company whole part commencing may 1 2005 initially 10475 principal amount plus accrued interest declining 100 principal amount plus accrued interest may 1 2007 indenture governing senior notes requires company offer repurchase senior notes 101 principal amount plus accrued interest date repurchase event change control indenture also contains certain covenants among things limit companys ability restricted subsidiaries incur additional indebtedness make restricted payments including dividends share repurchases make investments guarantee indebtedness create liens sell assets proceeds used repay borrowings outstanding companys existing revolving credit facility support financing agchem acquisition april 17 2001 company entered 3500 million multicurrency revolving credit facility rabobank mature october 2005 facility replaced companys existing revolving credit facility secured majority companys us canadian uk based assets pledge stock companys domestic material foreign subsidiaries interest accrue borrowings outstanding facility companys option either 1 libor plus margin based ratio companys senior debt ebitda adjusted 2 administrative agents base lending rate federal funds rate plus margin ranging 0625 15 whichever higher facility contains covenants including among others covenants restricting incurrence indebtedness making restrictive payments including dividends december 31 2001 interest rates outstanding borrowings ranged 46 63 weighted average interest rate 2001 68 including impact interest rate swap contract outstanding 2001 weighted average interest rate 66 addition company must fulfill financial covenants including among others total debt ebitda ratio senior debt ebitda ratio fixed charge coverage ratio defined facility approximately 355 million 1899 million revolving credit facility payable euros approximately 188 million 707 million payable canadian dollars december 31 2001 2000 respectively december 31 2001 company borrowings 890 million availability borrow 2566 million revolving credit facility 1996 company issued 2500 million 8 12 senior subordinated notes due 2006 notes 99139 principal amount notes unsecured obligations company redeemable option company whole part time march 15 2001 initially 10425 principal amount plus accrued interest declining ratably 100 principal amount plus accrued interest march 15 2003 notes include certain covenants restricting incurrence indebtedness making certain restrictive payments including dividends agco corporation notes consolidated financial statements continued march 2001 company issued notice default trustee 250 million 8 12 senior subordinated notes due 2006 notes regarding violation covenant restricting payment dividends periods 1999 2000 2001 interest coverage ratio met periods company paid approximately 48 million dividends based upon interpretation need meet interest coverage ratio instead alternative total debt test company subsequently received sufficient waivers holders notes violations covenant might resulted dividend payments connection solicitation waivers company incurred costs approximately 26 million expensed first quarter 2001 currently company prohibited paying dividends time interest coverage ratio indenture met december 31 2001 aggregate scheduled maturities longterm debt follows millions cash payments interest 657 million 607 million 718 million years ended december 31 2001 2000 1999 respectively company arrangements various banks issue letters credit similar instruments guarantee companys obligations purchase sale certain inventories potential claims exposure insurance coverage december 31 2001 outstanding letters credit totaled 104 million 44 million issued revolving credit facility 8 employee benefit plans company defined benefit pension plans covering certain employees principally united states united kingdom germany company also provides certain postretirement health care life insurance benefits certain employees principally united states agco corporation notes consolidated financial statements continued net annual pension postretirement cost measurement assumptions plans years ended december 31 2001 2000 1999 set forth millions following tables set forth reconciliations changes benefit obligations plan assets funded status december 31 2001 2000 millions agco corporation notes consolidated financial statements continued aggregate projected benefit obligation accumulated benefit obligation fair value plan assets pension plans accumulated benefit obligations excess plan assets 4313 million 4015 million 3729 million respectively december 31 2001 522 million 522 million 319 million respectively december 31 2000 december 31 2001 company recorded reduction equity 518 million less taxes 147 million related recording minimum pension liability primarily related companys uk plans accumulated benefit obligation exceeded plan assets measuring expected postretirement benefit obligation 675 health care cost trend rate assumed 2002 decreasing 60 remaining level thereafter 2001 75 health care cost trend rate assumed changing assumed health care cost trend rates one percentage point year holding assumptions constant would following effect service interest cost accumulated postretirement benefit obligation december 31 2001 millions supplemental executive retirement plan serp unfunded plan provides company executives retirement income period ten years based percentage final base salary reduced executives social security benefits 401k employer matching contributions account benefit paid executive equal 3 final base salary times credited years service maximum benefit 60 final base salary benefits serp vest age 65 agco corporation notes consolidated financial statements continued discretion board directors age 62 reduced factor recognize early commencement benefit payments net annual serp cost measurement assumptions plan years ended december 31 2001 2000 set forth millions following tables serp set forth reconciliations changes benefit obligations funded status december 31 2001 2000 millions company maintains separate defined contribution plans covering certain employees primarily united states united kingdom plans company contributes specified percentage eligible employees compensation company contributed 28 million 16 million 15 million years ended december 31 2001 2000 1999 respectively 9 common stock december 31 2001 company 1500 million authorized shares common stock par value 001 723 million shares common stock outstanding 19 million shares reserved issuance companys 1991 stock option plan note 10 01 million shares reserved issuance companys nonemployee director stock incentive plan note 10 33 million shares reserved issuance companys longterm incentive plan note 10 agco corporation notes consolidated financial statements continued april 1994 company designated 300000 shares junior cumulative preferred stock junior preferred stock connection adoption stockholders rights plan rights plan terms rights plan onethird preferred stock purchase right attached outstanding share companys common stock rights plan contains provisions designed protect stockholders event certain unsolicited attempts acquire company terms rights plan right entitles holder purchase one onehundredth share junior preferred stock par value 001 per share exercise price 200 per share rights exercisable specified number days following acquisition person group persons 20 companys common stock ii commencement tender exchange offer 20 companys common stock event company surviving company merger person group persons owns 20 companys outstanding stock right entitle holder 20 stockholder receive upon exercise common stock company value equal two times rights exercise price addition event company sells transfers 50 assets earning power right entitle holder receive upon exercise common stock acquiring company value equal two times rights exercise price rights may redeemed company 001 per right prior expiration april 27 2004 march 2001 company sold 555 nonvoting preferred shares convertible shares companys common stock private placement net proceeds approximately 53 million june 2001 preferred shares converted 550000 shares companys common stock 10 stock incentive plans nonemployee director stock incentive plan companys nonemployee director stock incentive plan director plan provides restricted stock awards nonemployee directors based increases price companys common stock awarded shares earned specified increments 15 increase average market value companys common stock initial base price established plan increment awarded shares earned shares issued participant form restricted stock vests earlier 12 months specified performance period upon departure board directors restricted shares earned cash bonus equal 40 value shares date restricted stock award earned paid company satisfy portion estimated income tax liability incurred participant expense related cash bonus recognized shares earned expense related shares recognized vesting period december 31 2001 shares awarded earned director plan 10000 shares earned vested director plan longterm incentive plan companys longterm incentive plan ltip provides restricted stock awards executives based increases price companys common stock awarded shares may earned fiveyear performance period specified increments 20 increase average market value companys common stock established initial base price restricted stock awards prior 2000 earned shares issued participant form restricted stock generally carries fiveyear vesting period onethird earned award vesting end third fourth fifth year award earned 2000 ltip amended replace vesting schedule nontransferability period future grants accordingly restricted stock agco corporation notes consolidated financial statements continued awards 2000 future awards earned shares subject nontransferability period expires fiveyear period transfer restrictions lapsing onethird increments end third fourth fifth year award earned nontransferability period participants restricted selling assigning transferring pledging otherwise disposing earned shares earned shares subject forfeiture event participant terminates employment company nontransferability period extended two years earned shares vested longer subject forfeiture company obligated pay cash bonus equal 40 value shares date shares earned order satisfy portion estimated income tax liability incurred participant awards granted 2000 future company record entire compensation expense relating market value earned shares related cash bonus period award earned awards granted prior 2000 market value awards earned added common stock additional paidin capital equal amount deducted stockholders equity unearned compensation ltip unearned compensation amount cash bonus paid awarded shares become vested amortized expense ratably vesting period company recognized compensation expense associated ltip 71 million 38 million 85 million years ended december 31 2001 2000 1999 respectively consisting compensation expense relating earned shares amortization stock awards earned shares issued prior 2000 related cash bonuses additional information regarding ltip years ended december 31 2001 2000 1999 follows 2001 ltip amended permit participant elect forfeit portion earned award order fully satisfy federal state employment taxes payable time shares related cash bonus earned number shares common stock equal value participants tax liability net cash bonus thereby forfeited lieu additional cash payment contributed participants tax withholding 2001 52540 earned shares forfeited manner 2000 ltip amended increase number shares authorized issuance 1250000 shares awards granted prior 2000 number shares vested years 2001 2000 1999 166500 411667 441166 respectively awards granted 2000 vest immediately upon earned stock option plan companys stock option plan option plan provides granting nonqualified incentive stock options officers employees directors others stock option exercise price agco corporation notes consolidated financial statements continued determined board directors except case incentive stock option purchase price shall less 100 fair market value date grant recipient stock options entitled immediately exercise 20 options issued person remaining 80 options vest ratably fouryear period expire later ten years date grant stock option transactions three years ended december 31 2001 2000 1999 follows december 31 2001 outstanding options weighted average remaining contractual life approximately 76 years 1521425 options currently exercisable option prices ranging 250 3125 weighted average exercise price 1683 2001 companys shareholders approved new stock option plan replace existing plan scheduled expire september 2001 new plan substantially contains terms prior plan expires 2011 new plan allows company issue stock option grants remaining unissued shares prior plan 123438 plus additional 2500000 shares following table sets forth exercise price range number shares weighted average exercise price remaining contractual lives groups similar price grant date agco corporation notes consolidated financial statements continued company accounts stockbased compensation awarded director plan ltip option plan prescribed apb 25 accounting stock issued employees also provides disclosures required sfas 123 accounting stockbased compensation apb 25 requires recognition compensation expense options granted option plan long certain conditions met compensation expense recorded apb 25 option plan however apb 25 require recognition compensation expense director plan ltip disclosure purposes sfas 123 company estimated fair value grants companys stock incentive plans using blackscholes option pricing model based model weighted average fair value options granted option plan weighted average fair value awards granted director plan ltip including related cash bonus follows millions fair value grants awards amortized vesting period stock options earned awards director plan ltip performance period unearned awards director plan ltip based applying provisions sfas 123 pro forma net income loss net income loss per common share assumptions blackscholes pricing model follows millions except per share data 11 derivative instruments hedging activities effective january 1 2001 company adopted sfas 133 accounting derivative instruments hedging activities amended sfas 138 cumulative effect adopting standard january 1 2001 resulted fair value asset net taxes approximately 05 million reclassified earnings next twelve months derivatives recognized balance sheet fair value date derivative contract entered company designates derivative either 1 fair value hedge recognized liability 2 cash flow hedge forecasted transaction 3 hedge net investment foreign operation 4 nondesignated derivative instrument company currently engages derivatives classified cash flow hedges nondesignated derivative instruments changes fair value derivative designated cash flow hedge recorded comprehensive income reclassified earnings time settlement forecasted transaction changes fair value nondesignated derivative contracts ineffective portion designated derivative instruments reported current earnings agco corporation notes consolidated financial statements continued company formally documents relationships hedging instruments hedged items well risk management objectives strategy undertaking various hedge transactions company formally assesses hedges inception ongoing basis whether derivatives used hedging transactions highly effective offsetting changes fair values cash flow hedged items determined derivative longer highly effective hedge accounting discontinued prospective basis foreign currency risk company significant manufacturing operations united states united kingdom france germany denmark brazil purchases portion tractors combines components third party foreign supplies primarily various european countries japan company also sells products 140 countries throughout world companys significant transactional foreign currency exposures include british pound relation euro us dollar ii euro canadian dollar relation us dollar company attempts manage transactional foreign exchange exposure hedging identifiable foreign currency cash flow commitments forecasts arising receivables payables expected purchases sales naturally offsetting currency positions occur company hedges certain exposures use foreign currency forward contracts company uses foreign currency forward contracts hedge receivables payables companys balance sheet denominated foreign currencies functional currency forward contracts classified nondesignated derivatives instruments year ended december 31 2001 company recorded losses approximately 78 million included current earnings caption expense net losses substantially offset gains remeasurement underlying asset liability hedged company uses foreign currency forward contracts hedge forecasted foreign currency inflows outflows resulting purchases sales company currently hedged anticipated foreign currency cash flows twelve months future december 31 2001 company deferred losses net taxes approximately 01 million included stockholders equity component accumulated comprehensive loss deferred loss expected reclassified earnings next twelve months company recorded gain loss resulting forward contracts ineffectiveness discontinuance cash flow hedge interest rate risk company may use interest rate swap agreements manage exposure interest rate changes currently company interest rate swap agreements outstanding following table summarizes activity accumulated comprehensive loss related derivatives held company period january 1 2001 december 31 2001 millions agco corporation notes consolidated financial statements continued addition company recorded deferred loss 58 million net taxes 40 million comprehensive loss related derivatives held affiliates losses interest rate swap contracts companys retail finance joint ventures swap contracts effect converting floating rate debt fixed rates order secure yield fixed rate loan portfolio amount 22 million net taxes 15 million represented cumulative effect adoption sfas 133 companys senior management establishes companys foreign currency interest rate risk management policies policy reviewed periodically audit committee board directors policy allows use derivative instruments hedge exposures movements foreign currency interest rates companys policy prohibits use derivative instruments speculative purposes 12 commitments contingencies company leases land buildings machinery equipment furniture various noncancelable operating lease agreements december 31 2001 future minimum lease payments noncancelable operating leases follows millions total lease expense noncancelable operating leases 172 million 174 million 145 million years ended december 31 2001 2000 1999 respectively 1999 company entered saleleaseback transaction involving certain real property proceeds transaction 187 million used reduce outstanding borrowings revolving credit facility terms lease require company pay approximately 20 million per year 15 years time company option extend lease annual payments ranging 22 million 27 million accordance sfas 13 company accounted lease operating lease gain sale 24 million amortized life operating lease december 31 2001 company obligated certain circumstances purchase year 2005 42 million equipment upon expiration certain operating leases agco finance llc agco finance canada ltd companys retail finance joint ventures north america end users company also maintains remarketing agreement joint ventures whereby obligated repurchase repossessed inventory market values management believes losses might incurred resale equipment materially impact companys financial position results operations december 31 2001 company guaranteed indebtedness owed third parties approximately 151 million primarily related dealer end user financing equipment company believes credit risk associated guarantees material financial position company agco corporation notes consolidated financial statements continued company party various claims lawsuits arising normal course business opinion management consultation legal counsel claims lawsuits resolved material adverse effect financial position results operations company 13 related party transactions rabobank nederland aaa rated financial institution based netherlands 51 owner companys retail finance joint ventures located united states canada united kingdom france germany spain ireland brazil rabobank also principal agent participant companys revolving credit facility securitization facilities finance joint ventures also financed lines credit rabobank credit facilities directly guaranteed company 2000 company entered supply agreements deutzfahr group spa sdfg whereby sdfg supplies certain orchard vineyard tractors agco supplies sdfg combines european market december 31 2001 sdfg owned approximately 5 agcos common stock involvement agco management 2001 company net sales 870 million baywa corporation german distributor ordinary course business president ceo baywa corporation also member board directors company 14 segment reporting company five reportable segments north america south america europeafricamiddle east asiapacific sprayer division regional segment distributes full range agricultural equipment related replacement parts sprayer division manufactures distributes selfpropelled agricultural sprayers replacement parts company evaluates segment performance primarily based income operations sales regional segment based location thirdparty customer significant intercompany transactions segments eliminated companys selling general administrative expenses engineering expenses charged segment based region division expenses incurred result components operating income one segment may comparable another segment result agchem acquisition company created new segment sprayer division includes agchem companys existing sprayer operations prior period segment results restated agco corporation notes consolidated financial statements continued conform new segments segment results years ended december 31 2001 2000 1999 follows millions reconciliation segment information consolidated balances income operations assets set forth millions agco corporation notes consolidated financial statements continued net sales customer location years ended december 31 2001 2000 1999 follows millions net sales product years ended december 31 2001 2000 1999 follows millions 15 guarantornonguarantor financials april 17 2001 agco corporation issued senior notes note 7 senior notes fully unconditionally guaranteed following us subsidiaries agco corporation agchem equipment co inc agchem equipment international inc agchem equipment canada ltd following financial information presents condensed consolidating balance sheets statements operations cash flows agco corporation parent company accounted subsidiaries equity method ii guarantor subsidiaries combined basis iii nonguarantor subsidiaries combined basis guarantor subsidiaries acquired april 16 2001 part acquisition agchem accordingly included following financial information periods prior acquisition agco corporation notes consolidated financial statements continued condensed consolidating statements operations year ended december 31 2001 millions agco corporation notes consolidated financial statements continued condensed consolidating statements operations year ended december 31 2000 millions agco corporation notes consolidated financial statements continued condensed consolidating statements operations year ended december 31 1999 millions agco corporation notes consolidated financial statements continued condensed consolidating balance sheets december 31 2001 millions agco corporation notes consolidated financial statements continued condensed consolidating balance sheets december 31 2000 millions agco corporation notes consolidated financial statements continued condensed consolidating statements cash flows year ended december 31 2001 millions agco corporation notes consolidated financial statements continued condensed consolidating statements cash flows year ended december 31 2000 millions agco corporation notes consolidated financial statements continued condensed consolidating statements cash flows year ended december 31 1999 millions 16 subsequent events unaudited 2002 acquisition march 5 2002 company completed agreement caterpillar inc acquire design assembly marketing new mt series caterpillars challenger tractor line company issued approximately 10 million shares common stock transaction valued approximately 21 million based closing price companys common stock acquisition date addition company expects purchase approximately 13 million initial production inventory caterpillar addition challenger tractor line provides company technological leader high horsepower tracktype tractors marketed worldwide basis primarily caterpillar distribution organization furthermore company plans provide caterpillar dealers additional products broaden equipment offerings enhance competitive position results operations product line included companys results date acquisition acquired assets consist technology trademarks trade names inventory property plant equipment accounts receivable acquired liabilities assumed transaction since rights obligations relating past sales prior series challenger product line remain caterpillar company expects preliminary allocation 21 million purchase price solely property plant equipment since preliminary fair value assets acquired agco corporation notes consolidated financial statements continued excess purchase price company expect record intangible assets goodwill associated acquisition restricted stock expense result increases companys common stock price 2002 portion outstanding awards ltip note 10 earned participants based restricted shares earned date company record compensation expense approximately 27 million first quarter 2002 approximately 15 million noncash expense item 9item 8 financial statements supplementary data following consolidated financial statements agco subsidiaries years threeyear period ended december 31 2002 included item information heading “quarterly results” item 7 page 24 form 10k incorporated herein reference independent auditors’ report board directors agco corporation audited accompanying consolidated balance sheet agco corporation subsidiaries december 31 2002 related consolidated statements operations stockholders’ equity cash flows year ended december 31 2002 connection audit 2002 consolidated financial statements also audited 2002 financial statement schedule listed item 15a3 consolidated financial statements financial statement schedule responsibility company’s management responsibility express opinion consolidated financial statements financial statement schedule based audit consolidated balance sheet december 31 2001 related statements operations stockholders’ equity cash flows years two year period ended december 31 2001 revision described note 1 consolidated financial statements financial statement schedule agco corporation subsidiaries listed item 15a3 audited auditors ceased operations auditors’ reports dated february 6 2002 consolidated financial statements financial statement schedule unqualified included explanatory paragraph described change company’s method accounting derivative instruments hedging activities discussed note 11 consolidated financial statements excluded revision described note 1 accompanying consolidated financial statements conducted audit accordance auditing standards generally accepted united states america standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audit provides reasonable basis opinion 2002 consolidated financial statements referred present fairly material respects financial position agco corporation subsidiaries december 31 2002 results operations cash flows year ended conformity accounting principles generally accepted united states america also opinion related 2002 financial statement schedule considered relation basic consolidated financial statements taken whole presents fairly material respects information set forth therein discussed note 1 consolidated financial statements company changed method accounting goodwill intangible assets 2002 discussed consolidated balance sheet december 31 2001 related statements operations stockholders’ equity cash flows years two year period ended december 31 2001 financial statement schedule agco corporation subsidiaries listed item 15a3 audited auditors ceased operations described note 1 consolidated financial statements revised include transitional disclosures required statement financial accounting standards 142 goodwill intangible assets adopted company january 1 2002 opinion disclosures 2001 2000 note 1 appropriate however engaged audit review apply procedures 2001 2000 consolidated financial statements financial statement schedule agco corporation subsidiaries respect disclosures accordingly express opinion form assurance 2001 2000 consolidated financial statements financial statement schedule taken whole kpmg llp atlanta georgia february 28 2003 note copy report previously issued arthur andersen llp company’s former independent public accountants arthur andersen report refers certain financial information fiscal year ended december 31 1999 certain balance sheet information december 31 2000 longer included accompanying financial statements report reissued arthur andersen llp connection filing annual report form 10k report independent public accountants agco corporation audited accompanying consolidated balance sheets agco corporation subsidiaries december 31 2001 2000 related consolidated statements operations stockholders’ equity cash flows three years period ended december 31 2001 financial statements responsibility company’s management responsibility express opinion financial statements based audits conducted audits accordance auditing standards generally accepted united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion financial statements referred present fairly material respects financial position agco corporation subsidiaries december 31 2001 2000 results operations cash flows three years period ended december 31 2001 conformity accounting principles generally accepted united states explained note 11 consolidated financial statements accordance requirements statement financial accounting standards 133 “accounting derivative instruments hedging activities” agco corporation changed method accounting derivative instruments hedging activities effective january 1 2001 arthur andersen llp atlanta georgia february 6 2002 agco corporation consolidated statements operations millions except per share data see accompanying notes consolidated financial statements agco corporation consolidated balance sheets millions except share amounts see accompanying notes consolidated financial statements agco corporation consolidated statements stockholders’ equity millions except share amounts additional columns continued table first columns repeated see accompanying notes consolidated financial statements agco corporation consolidated statements cash flows millions see accompanying notes consolidated financial statements agco corporation notes consolidated financial statements 1 operations summary significant accounting policies business agco corporation “agco” “company” leading manufacturer distributor agricultural equipment related replacement parts throughout world company sells full range agricultural equipment including tractors combines hay tools sprayers forage equipment implements company’s products widely recognized agricultural equipment industry marketed following brand names agco® agcoallis® agcostar® agchem® challenger® farmhand® fendt® fieldstar® gleaner® glencoe® hesston® loral® massey ferguson® new idea® rogator® soilteq™ spracoupe® sunflower® terragator® tye® white® willmar® company distributes products combination approximately 8450 independent dealers distributors associates licensees addition company provides retail financing north america united kingdom france germany spain brazil retail finance joint ventures coöperative centrale raiffeisenboerenleenbank ba “rabobank nederland” basis presentation consolidated financial statements represent consolidation whollyowned majorityowned companies controlling interest exists company records affiliate companies representing 20 50 ownership using equity method accounting investments representing ownership less 20 recorded cost significant intercompany balances transactions eliminated arrive consolidated financial statements certain prior period amounts reclassified conform current period presentation revenue recognition sales equipment replacement parts recorded company title risks ownership transferred independent dealer distributor customer payment terms vary market product fixed payment schedules sales terms sale generally require purchase order confirmation accompany shipments title generally passes dealer distributor upon shipment risk loss upon damage theft destruction equipment responsibility dealer distributor dealer distributor may return equipment replacement parts contract company force replacement parts may returned promotional annual return programs provisions returns programs made time sale based terms program historical returns experience company may provide certain sales incentives dealers distributors provisions sales incentives made time sale existing incentive programs provisions revised event subsequent modification incentive program united states canada equipment sales dealers immediately due upon retail sale equipment dealer already paid dealer united states canada installment payments required generally beginning 7 13 months shipment remaining outstanding equipment balance generally due within 12 24 months shipment interest generally charged outstanding balance 4 13 months shipment sales terms highly seasonal products provide payment due dates based specified date year regardless shipment date equipment sold dealers united states canada paid full average within 12 months shipment sales replacement parts generally payable within 30 days shipment terms larger seasonal stock orders generally payable within 6 months shipment international markets equipment sales generally payable full within 30 180 days shipment payment terms highly seasonal products specific due date year agco corporation notes consolidated financial statements continued regardless shipment date sales replacement parts generally payable within 30 days shipment terms larger seasonal stock orders generally payable within 6 months shipment certain markets particularly north america time lag varies based timing level retail demand date company records sale dealer sells equipment retail customer foreign currency translation financial statements company’s foreign subsidiaries translated us currency accordance statement financial accounting standards “sfas” 52 “foreign currency translation” assets liabilities translated us dollars periodend exchange rates income expense items translated average rates exchange prevailing period translation adjustments included “accumulated comprehensive loss” stockholders’ equity gains losses result foreign currency transactions included accompanying consolidated statements operations use estimates preparation financial statements conformity accounting principles generally accepted united states requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ estimates made management primarily relate receivables inventory deferred income tax allowances goodwill certain accrued liabilities principally relating reserves volume discounts sales incentives warranty insurance cash equivalents company considers investments original maturity three months less cash equivalents accounts notes receivable accounts notes receivable arise sale equipment replacement parts independent dealers distributors customers payments due company’s terms sale contingent upon sale equipment dealer distributor retail customer normal circumstances payment terms extended equipment may returned certain regions including united states canada company obligated repurchase equipment replacement parts upon cancellation dealer distributor contract obligations required national state provincial laws require company repurchase dealer distributor’s unsold inventory including inventory receivable already paid sales outside united states canada company normally charge interest outstanding receivables dealers distributors sales dealers distributors united states canada approximately 28 company’s net sales generated 2002 interest charged prime lending rates outstanding receivable balances interestfree periods interestfree periods vary product range 1 12 months exception certain seasonal products bear interest various periods depending time year sale dealer distributor’s sales volume preceding year ended december 31 2002 197 58 15 10 company’s net sales maximum interestfree periods ranging 1 6 months 7 12 months 13 20 months 21 months respectively actual interestfree periods shorter agco corporation notes consolidated financial statements continued equipment receivable dealers distributors united states canada due immediately upon sale equipment retail customer normal circumstances interest forgiven interestfree periods extended accounts notes receivable shown net allowances sales incentive discounts available dealers doubtful accounts notes receivable allowances december 31 2002 2001 follows millions company occasionally transfers certain accounts receivable various financial institutions company records transfers sales accounts receivable considered surrendered control receivables provisions sfas 140 “accounting transfers servicing financial assets extinguishments liabilities replacement sfas 125” note 4 inventories valued lower cost market using firstin firstout method market net realizable value finished goods repair replacement parts work process production parts raw materials market replacement cost december 31 2002 2001 company recorded 745 million 735 million allowances surplus obsolete inventories allowances reflected within “inventories net” inventory balances december 31 2002 2001 follows millions property plant equipment property plant equipment recorded cost less accumulated depreciation amortization depreciation provided straightline basis estimated useful lives 10 40 years buildings improvements 3 15 years machinery equipment 3 10 years furniture fixtures expenditures maintenance repairs charged expense incurred property plant equipment december 31 2002 2001 consisted following millions agco corporation notes consolidated financial statements continued intangible assets january 1 2002 company adopted sfas 142 “goodwill intangible assets” “sfas 142” sfas 142 requires companies cease amortizing goodwill indefinitelived intangible assets december 31 2001 existence june 30 2001 goodwill indefinitelived intangible assets resulting acquisitions completed june 30 2001 amortized sfas 142 also establishes new method testing goodwill indefinitelived intangible assets impairment annual basis interim basis event occurs circumstances change would reduce fair value reporting unit carrying value sfas 142 requires initial impairment assessment performed goodwill indefinitelived intangible assets assessment involves determining estimate fair value company’s reporting units including trademarks order evaluate whether impairment current carrying amount goodwill intangible assets exists fair values derived based evaluation past expected future performance company’s reporting units company’s acquired intangible assets follows millions company amortizes certain acquired intangible assets estimated useful lives 7 30 years ended december 31 2002 2001 acquired intangible asset amortization 14 million 22 million respectively accordance sfas 142 company ceased amortizing certain trademarks determined indefinite useful life january 1 2002 company estimates amortization existing intangible assets 15 million 2003 2004 14 million 2005 13 million 2006 2007 changes carrying amount goodwill year ended december 31 2002 summarized follows millions goodwill company’s segments tested impairment january 1 2002 required sfas 142 company utilized combination valuation techniques including discounted cash flow approach market multiple approach comparable transaction approach based agco corporation notes consolidated financial statements continued evaluation company determined goodwill associated argentina north america reporting units impaired result company recorded pretax writedown goodwill 277 million writedown recognized cumulative effect change accounting principle 241 million net 36 million taxes first quarter 2002 goodwill tested impairment annual basis often indications impairment exist results company’s analyses conducted october 1 2002 indicated reduction carrying amount goodwill required 2002 prior adoption sfas 142 company amortized goodwill indefinitelived intangible assets periods ranging 10 40 years addition company would periodically review carrying values assigned goodwill intangible assets based expectations future cash flows operating income generated underlying tangible assets following reconciliation company’s loss income cumulative effect change accounting principle net loss income net loss income per share goodwill indefinitelived intangible assets accounted accordance sfas 142 prior periods millions except per share data agco corporation notes consolidated financial statements continued longlived assets company reviews longlived assets impairment whenever events changes circumstances indicate carrying amount asset may recoverable accordance provisions sfas 144 “accounting impairment disposal longlived assets” “sfas 144” impairment loss recognized undiscounted future cash flows estimated generated asset sufficient recover unamortized balance asset impairment loss would recognized based difference carrying values estimated fair value estimated fair value determined based either discounted future cash flows appropriate fair value methods amount deficiency charged income current year asset tested recoverability acquired business combination intangible assets resulting acquisition related asset included assessment estimates future cash flows based many factors including current operating results expected market trends competitive influences company also evaluates amortization periods assigned intangible assets determine whether events changes circumstances warrant revised estimates useful lives second quarter 2002 company recorded writedown property plant equipment 112 million conjunction announced closure coventry england manufacturing facility note 3 accrued expenses accrued expenses december 31 2002 2001 consisted following millions warranty reserves warranty reserve activity year ended december 31 2002 consisted following millions company’s agricultural equipment products generally warranty defects material workmanship period one four years company accrues future warranty costs time sale based historical warranty experience insurance reserves company’s insurance programs coverage obtained significant liability limits well risks required insured law contract policy company selfinsure portion certain expected losses related primarily workers’ compensation comprehensive general product agco corporation notes consolidated financial statements continued vehicle liability provisions losses expected programs recorded based company’s estimates aggregate liabilities claims incurred stock incentive plans company accounts stockbased compensation awarded nonemployee director incentive plan longterm incentive plan stock option plan prescribed apb 25 “accounting stock issued employees” also provides disclosures required sfas 123 “accounting stockbased compensation” sfas 148 “accounting stockbased compensation transition disclosure” apb 25 requires recognition compensation expense options granted stock option plan long certain conditions met apb 25 require recognition compensation expense nonemployee director incentive plan longterm incentive plan refer note 10 additional information research development expenses research development expenses expensed incurred included engineering expenses consolidated statements operations advertising costs company expenses advertising costs incurred cooperative advertising costs normally expensed time revenue earned advertising expenses years ended december 31 2002 2001 2000 totaled approximately 89 million 99 million 79 million respectively shipping handling expenses shipping handling fees charged customers included component net sales shipping handling costs included part cost goods sold exception certain handling costs included selling general administrative expenses amount 128 million 117 million 111 million 2002 2001 2000 respectively interest expense net interest expense net years ended december 31 2002 2001 2000 consisted following millions net loss income per common share basic loss earnings per common share computed dividing net loss income weighted average number common shares outstanding period diluted loss earnings per share assumes exercise outstanding stock options vesting restricted stock common stock periods outstanding effects assumptions dilutive agco corporation notes consolidated financial statements continued reconciliation net loss income weighted average number common equivalent shares outstanding used calculate basic diluted net loss income per common share years ended december 31 2002 2001 2000 follows millions except per share data stock options purchase 06 million 21 million 14 million shares 2002 2001 2000 respectively outstanding included calculation weighted average shares outstanding option exercise prices higher average market price company’s common stock related period addition diluted loss per share calculation 2002 excludes potentially dilutive effect options purchase approximately 07 million shares company’s common stock company incurred loss inclusion would antidilutive agco corporation notes consolidated financial statements continued comprehensive loss company reports comprehensive loss income defined total net loss income nonowner changes equity components thereof consolidated statements stockholders’ equity components comprehensive loss related tax effects 2002 2001 follows millions financial instruments carrying amounts reported company’s consolidated balance sheets “cash equivalents” “accounts notes receivable” “accounts payable” approximate fair value due immediate shortterm maturity financial instruments carrying amount longterm debt company’s revolving credit facility note 7 approximates fair value based borrowing rates currently available company loans similar terms average maturities december 31 2002 estimated fair values company’s 9 12 senior notes 8 12 senior subordinated notes note 7 based listed market values 2721 million 2500 million respectively compared carrying values 2500 million 2491 million respectively company enters foreign exchange forward contracts hedge foreign currency exposure certain receivables payables committed purchases sales contracts periods consistent exposure hedged generally maturities one year less december 31 2002 2001 company foreign exchange forward contracts outstanding gross notional amounts 2254 million 2161 million respectively fair value gain foreign exchange forward contracts december 31 2002 71 million foreign exchange forward contracts subject company’s results operations risk due exchange rate fluctuations gains losses contracts generally offset gains losses exposure hedged company enter foreign exchange forward contracts speculative trading purposes notional amounts foreign exchange forward contracts represent amounts exchanged parties therefore measure company’s risk amounts exchanged calculated basis notional amounts terms contracts credit market risks contracts considered significant agco corporation notes consolidated financial statements continued accounting changes january 1 2002 company adopted sfas 142 sfas 142 requires companies cease amortizing goodwill indefinitelived intangible assets december 31 2001 existence june 30 2001 goodwill indefinitelived intangible assets resulting acquisitions completed june 30 2001 amortized sfas 142 also establishes new method testing goodwill indefinitelived intangible assets impairment annual basis interim basis event occurs circumstances change would reduce fair value reporting unit carrying value sfas 142 requires initial impairment assessment performed goodwill indefinitelived intangible assets assessment involves determining estimate fair value company’s reporting units trademarks order evaluate whether impairment current carrying amount goodwill intangible assets exists fair values derived based evaluation past expected future performance company’s reporting units adoption sfas 142 resulted reduction amortization expense approximately 171 million 2002 compared 2001 goodwill company’s segments tested impairment january 1 2002 required sfas 142 company utilized combination valuation techniques including discounted cash flow approach market multiple approach comparable transaction approach based evaluation company determined goodwill associated argentine north american reporting units impaired result company recorded pretax writedown goodwill 277 million writedown recognized cumulative effect change accounting principle 241 million net 36 million taxes first quarter 2002 july 2001 fasb also issued sfas 143 “accounting asset retirement obligations” “sfas 143” sfas 143 requires entities record fair value liability asset retirement obligation period incurred liability initially recorded entity capitalizes cost increasing carrying amount related longlived asset time liability accreted present value period capitalized cost depreciated useful life related asset upon settlement liability entity either settles obligation amount recorded incurs gain loss sfas 143 effective fiscal years beginning june 15 2002 company evaluating effect statement results operations financial position believe impact material august 2001 fasb issued sfas 144 “accounting impairment disposal longlived assets” “sfas 144” sfas 144 supersedes fasb statement 121 “accounting impairment longlived assets longlived assets disposed of” “sfas 121” accounting reporting provisions apb opinion 30 “reporting results operations reporting effects disposal segment business extraordinary unusual infrequently occurring events transactions” “apb opinion 30” disposal segment business previously defined apb opinion 30 fasb issued sfas 144 establish single accounting model based framework established sfas 121 longlived assets disposed sale sfas 144 broadens presentation discontinued operations statement operations include component entity rather segment business component entity comprises operations cash flows clearly distinguished operationally financial reporting purposes rest entity sfas 144 also requires discontinued operations measured lower carrying amount fair value less cost sell company adopted sfas 144 effective january 1 2002 adoption standard impact current results operations financial position april 2002 fasb issued sfas 145 “rescission fasb statements 4 44 64 amendment sfas 13 technical corrections” “sfas 145” sfas 145 eliminates requirement sfas 4 “reporting gains losses extinguishment debt” report gains agco corporation notes consolidated financial statements continued losses extinguishments debt extraordinary items income statement accordingly gains losses extinguishments debt fiscal years beginning may 15 2002 shall reported extraordinary items unless extinguishment qualifies extraordinary item provisions apb opinion 30 upon adoption sfas 145 gain loss extinguishment debt previously classified extraordinary item prior periods presented meet criteria apb opinion 30 classification reclassified conform provisions sfas 145 sfas 145 also amends sfas 13 “accounting leases” eliminate inconsistency required accounting saleleaseback transactions required accounting certain lease modifications economic effects similar saleleaseback transactions addition sfas 145 amends existing authoritative pronouncements make various technical corrections clarify meanings describe applicability changed conditions sfas 145 effective fiscal years beginning may 15 2002 company evaluating effect statement results operations financial position believe impact material new standard require company reclassify extraordinary loss recorded 2001 interest expense net result reduction income extraordinary loss 001 per share impact net income stockholders’ equity june 2002 fasb issued sfas 146 “accounting costs associated exit disposal activities” “sfas 146” sfas 146 addresses financial accounting reporting costs associated exit disposal activities nullifies emerging issues task force eitf issue 943 “liability recognition certain employee termination benefits costs exit activity including certain costs incurred restructuring” sfas 146 requires liability cost associated exit disposal activity recognized liability incurred eitf issue 943 liability exit cost defined issue recognized date entity’s commitment exit plan therefore sfas 146 eliminates definition requirements recognition exit costs eitf issue 943 also establishes fair value objective initial measurement liability sfas 146 effective exit disposal activities initiated december 31 2002 sfas 146 impact company’s current restructuring plans related closure coventry england manufacturing facility company comply statement future exit disposal activities dekalb illinois closure accounted requirements eitf issue 953 “recognition liabilities connection purchase business combination” november 2002 fasb issued interpretation 45 “guarantor’s accounting disclosure requirements guarantees including indirect guarantees indebtedness others” “fin 45” fin 45 requires guarantor recognize inception certain guarantees liability fair value obligation undertaken issuing guarantee fin 45 also requires additional disclosure guarantor’s obligations certain guarantees issued initial recognition measurement provisions interpretation applicable prospective basis guarantees issued modified december 31 2002 disclosure requirements effective december 15 2002 included note 12 december 2002 fasb issued sfas 148 “accounting stockbased compensationtransition disclosure amendment fasb statement 123” “sfas 148” sfas 148 amends sfas 123 provide alternative methods transition voluntary change fair value based method accounting stockbased employee compensation amends disclosure requirements sfas 123 require prominent disclosures annual interim financial statements method accounting stockbased employee compensation effect method used reported results transition annual disclosure provisions sfas 148 effective fiscal years ending december 15 2002 company adopted disclosure provisions sfas 148 effective year ending december 31 2002 note 10 agco corporation notes consolidated financial statements continued january 2003 fasb issued interpretation 46 “consolidation variable interest entities interpretation arb 51” “fin 46” fin 46 established criteria consolidating variable interest entities company currently evaluating fin 46 effective fiscal years interim periods beginning june 15 2003 variable entities acquired february 1 2003 company currently believe current securitization facilities special purpose entity affected interpretation 2 acquisitions november 7 2002 company completed acquisition sunflower manufacturing co inc “sunflower” former product line spx corporation sunflower leading producer tillage seeding specialty harvesting equipment serving north american market located beloit kansas purchase price approximately 480 million funded borrowings company’s revolving credit facility acquired assets liabilities consist primarily inventories accounts receivables property plant equipment technology tradenames patents results operations sunflower acquisition included company’s consolidated financial statements date acquisition company recorded approximately 49 million goodwill 71 million tradenames patents associated acquisition sunflower tradenames patents amortized period 15 30 years sunflower acquisition accounted accordance statement financial accounting standards “sfas” 141 “business combinations” “sfas 141” accordingly purchase price allocated assets acquired liabilities assumed based preliminary estimate fair values acquisition date purchase price allocation sunflower acquisition preliminary subject adjustment completed 2003 march 5 2002 company completed agreement caterpillar inc “caterpillar” acquire design assembly marketing new mt series caterpillar’s challenger tractor line company issued approximately 10 million shares common stock transaction valued approximately 213 million based closing price company’s common stock acquisition date july 2002 company received approximately 09 million caterpillar pursuant terms purchase agreement whereby proceeds caterpillar received upon sale company’s stock 210 million would refunded company addition company purchased approximately 136 million initial production inventory caterpillar connection supply agreement caterpillar addition challenger tractor line provides company technological leader high horsepower tracktype tractors marketed worldwide basis primarily caterpillar distribution organization furthermore company provide caterpillar dealers additional products broaden equipment offerings enhance competitive position results operations product line included company’s results date acquisition acquired assets consisted primarily inventory property plant equipment accounts receivable acquired liabilities assumed transaction since rights obligations relating past sales prior series challenger product line remain caterpillar challenger acquisition accounted accordance sfas 141 accordingly purchase price allocated assets acquired liabilities assumed based preliminary estimate fair values acquisition date since preliminary fair value assets acquired excess purchase price goodwill recorded connection acquisition purchase price allocation challenger acquisition preliminary subject adjustment completed 2003 april 16 2001 company completed acquisition agchem equipment co inc “agchem” manufacturer distributor selfpropelled sprayers company paid agchem shareholders approximately 2472 million consisting approximately 118 million agco common shares agco corporation notes consolidated financial statements continued 1475 million cash funding cash component purchase price made borrowings company’s revolving credit facility acquired assets liabilities primarily consisted technology trademarks tradenames accounts receivables inventories property plant equipment accounts payable accrued liabilities results operations agchem acquisition included company’s consolidated financial statements date acquisition company recorded approximately 1452 million goodwill 272 million trademarks identifiable intangible assets associated acquisition agchem trademarks identifiable intangible assets amortized periods ranging 8 30 years agchem acquisition accounted purchase accordance accounting principles board “apb” 16 “business combinations” accordingly purchase price allocated assets acquired liabilities assumed based fair values acquisition date connection acquisition agchem company established 31 million liabilities primarily related severance employee relocation costs associated planned closure agchem’s benson minnesota manufacturing facility minnetonka minnesota administrative office 15 parts service facilities first quarter 2002 costs connection liabilities established incurred accordingly company adjusted purchase price allocation reflect reduction established liabilities 04 million addition company finalized purchase price allocation resulting net total goodwill adjustment approximately 36 million adjustment primarily related reflection final appraised values property plant equipment acquired establishment certain liabilities related outstanding litigation warranty obligations may 2000 company acquired cnh global nv “cnh” 50 share hay forage industries “hfi” 100 million agreement terminated joint venture agreement cnh agco owned 50 interests hfi thereby providing agco sole ownership facility hfi located hesston kansas develops manufactures hay forage equipment implements agco sells various brand names acquired assets liabilities primarily consisted technology production inventories property plant equipment related manufacturing operations accounts payable accrued liabilities financial statements hfi previously accounted equity method accounting consolidated company’s financial statements date acquisition connection acquisition xaver fendt gmbh 1997 company established liabilities 71 million primarily related severance costs associated planned closure certain sales marketing offices parts distribution operations approximately 31 million reserves originally established remained december 31 2001 second quarter 2002 company reversed goodwill approximately 22 million restructuring reserves determined required 2002 08 million costs incurred leaving remaining 01 million reserves december 31 2002 costs expected incurred 2003 following unaudited pro forma data summarizes results operations years ended december 31 2002 2001 2000 agchem acquisition occurred beginning 2000 challenger sunflower acquisitions occurred beginning 2001 unaudited pro forma information prepared comparative purposes purport represent results operations company would actually transactions occurred dates indicated results operations may future period agco corporation notes consolidated financial statements continued 3 restructuring infrequent expenses company recorded restructuring infrequent expenses 427 million 130 million 219 million 2002 2001 2000 respectively 2002 expense consisted 402 million associated closure company’s tractor manufacturing facility coventry england 35 million primarily associated various functional rationalizations offset 10 million net gain related sale two closed manufacturing facilities 2001 expense consisted 85 million associated integration agchem acquisition 45 million associated manufacturing facility rationalizations commenced prior years 2000 expense consisted 249 million associated closure certain manufacturing facilities united states argentina credit 30 million related reversal reserves established 1997 coventry rationalization second quarter 2002 company announced initiated restructuring plan related closure tractor manufacturing facility coventry england relocation existing production coventry company’s beauvais france canoas brazil manufacturing facilities connection restructuring plan company recorded approximately 402 million restructuring infrequent expenses 2002 components restructuring expenses summarized following table millions severance costs relate termination approximately 1100 employees following completion production coventry facility approximately 250 employees terminated december 31 2002 employee retention payments relate incentives paid coventry employees remain employed certain future termination dates accrued term retention period facility closure costs include certain noncancelable operating lease termination facility exit costs writedown property plant equipment represents impairment machinery equipment resulting facility closure based estimated fair value assets compared carrying value estimated fair value equipment determined based current conditions market machinery equipment tooling disposed production ceases buildings land improvements marketed sale 283 million restructuring costs accrued agco corporation notes consolidated financial statements continued december 31 2002 expected incurred 2003 company also recorded approximately 14 million inventory reserves 2002 reflected costs goods sold related inventory identified obsolete result closure october 2002 company applied high court london england clarification rule uk pension plan governs value pension payments payable employee 50 years old retires service certain circumstances prior normal retirement date primary matter high court whether pension payments employees including terminated due closure company’s coventry facility reduced compensate fact pension payments begin prior normal retirement age 65 december 20 2002 high court ruled company’s position reduced pension payments payable context early retirements terminations high court’s ruling also granted company approval appeal judgment court appeal company advisors maintain view reduced pension payments payable result appealed judgment court appeal process england panel judges involvement high court proceedings hear appeal determine outcome merits majority ruling court appeal judges required overturn original high court decision company based upon advice legal advisors reassessed merits case consideration high court ruling maintains opinion likelihood unfavorable resolution matter reasonably possible consider probable consequently company recorded loss december 31 2002 related matter event company’s position ultimately upheld closure company’s coventry facility past early retirement programs would entitle certain terminated employees receive unreduced pension payments estimated impact company’s pension plan would increase company’s pension plan liabilities approximately 55 million 60 million related charge company’s consolidated statements operations company presently estimates additional funding pension plan related increased liability would approximately 65 million per annum next 10 years timing company’s obligation fund cash pension plan respect increased liability would depend many factors including overall funded status plan investment returns plan’s assets addition company recorded restructuring infrequent expenses 34 million 2002 expense primarily relates severance costs certain lease termination exit costs associated rationalization company’s european engineering marketing personnel certain components company’s german manufacturing facilities located kempten marktoberdorf germany well restructuring company’s north american information systems function 26 million severance costs recorded associated activities relate termination 137 employees total december 31 2002 approximately 26 million amount accrued incurred remaining balance 08 million expected incurred 2003 agchem acquisition integration 2001 company announced plans rationalize certain facilities part agchem acquisition integration company consolidated agco’s willmar minnesota manufacturing facility agchem’s benson minnesota manufacturing facility agchem’s jackson minnesota manufacturing plant addition company closed agchem’s minnetonka minnesota administrative offices relocated functions jackson facility company also closed fifteen parts service facilities integrated parts warehousing logistics agco’s north american parts distribution system employees identified restructuring plan terminated end first quarter 2002 employee retention payments related incentives paid agchem agco employees agco corporation notes consolidated financial statements continued remained employed certain future termination dates accrued term retention period company incurred facility closure costs included employee relocation costs future exit costs company’s willmar location operations ceased facility relocation transition costs expensed incurred represented costs relocate inventory machinery costs integrate operations remaining facilities remaining costs accrued related rationalizations december 31 2002 components restructuring expenses summarized following table millions 1999 2001 manufacturing facility rationalizations 2000 company permanently closed combine manufacturing facility independence missouri lockney texas noetinger argentina implement manufacturing facilities 1999 company permanently closed coldwater ohio manufacturing facility majority production facilities relocated existing company facilities outsourced third parties company expensed approximately 45 million 249 million associated rationalizations 2001 2000 respectively 10 million costs accrued related rationalizations december 31 2001 company record additional restructuring infrequent expenses 2002 related closures company incurred approximately 05 million expenses 2002 remaining accrued restructuring costs 05 million primarily relate noncancelable lease termination costs incurred 2005 addition 2002 company sold closed manufacturing facilities independence missouri coldwater ohio net gain sale two facilities 10 million reflected “restructuring infrequent expenses” company’s consolidated statements operations 4 accounts receivable securitization december 31 2002 company accounts receivable securitization facilities united states canada europe totaling approximately 4249 million facilities wholesale accounts receivable sold revolving basis commercial paper conduits either direct basis whollyowned special purpose us subsidiary company completed us securitization facility 2000 completed canadian european securitization facilities 2001 outstanding funding facilities totaled approximately 4239 million december 31 2002 4020 million december 31 2001 funded balance effect reducing accounts receivable shortterm liabilities amount agco corporation notes consolidated financial statements continued losses sales receivables primarily securitization facilities 148 million 2002 235 million 2001 amount 2001 includes 40 million losses transaction fees associated initial closing funding canadian european facilities losses determined calculating estimated present value receivables sold compared carrying amount present value based historical collection experience discount rate representing spread libor prescribed terms agreements information related facilities assumptions used loss calculations summarized dollar amounts millions company continues service sold receivables maintains retained interest receivables company received approximately 57 million 43 million servicing fees 2002 2001 respectively servicing asset liability recorded since estimated fair value servicing receivables approximates servicing income retained interest receivables sold included caption “accounts notes receivable net” accompanying consolidated balance sheets company’s risk loss securitization facilities limited portion unfunded balance receivables sold approximately 15 funded amount company maintains reserves portion residual interest estimates uncollectible december 31 2002 approximately 33 million unpaid balance receivables sold past due 60 days fair value retained interest approximately 973 million compared carrying amount 993 million based present value receivables calculated method consistent losses sales receivables discussed assuming 10 20 increase average liquidation period fair value residual interest would decline 02 million 04 million respectively assuming 10 20 increase discount rate assumed fair value residual interest would decline 02 million 04 million respectively 2002 company received approximately 9195 million sales receivables 57 million servicing fees 2001 company received 8792 million sales receivables 43 million servicing fees 5 investments affiliates investments affiliates december 31 2002 2001 follows millions manufacturing joint ventures december 31 2002 consisted joint ventures unrelated manufacturers produce transmissions europe engines south america joint ventures represent minority investments farm equipment manufacturers licensees 2001 company sold minority interest european farm equipment manufacturer exchange 86 million connection agco corporation notes consolidated financial statements continued sale company recorded pretax gain 52 million included expense net consolidated statements operations company’s equity earnings investment significant 2001 2000 company’s equity net earnings affiliates 2002 2001 2000 follows millions manufacturing joint ventures company primarily sell products joint venture partners prices result operating near breakeven annual basis summarized combined financial information company’s retail finance joint ventures december 31 2002 2001 years ended december 31 2002 2001 2000 follows millions majority assets company’s retail finance joint ventures represent finance receivables majority liabilities represent notes payable accrued interest various joint venture agreements rabobank affiliates obligated provide financing joint venture companies agco guarantee obligations retail finance joint ventures 6 income taxes company accounts income taxes provisions sfas 109 “accounting income taxes” sfas 109 requires recognition deferred tax assets liabilities expected future tax consequences events included financial statements tax returns method deferred tax assets liabilities determined based differences financial reporting tax bases assets liabilities using enacted tax rates effect year differences expected reverse agco corporation notes consolidated financial statements continued sources income loss income taxes equity net earnings affiliates extraordinary loss cumulative effect change accounting principle follows years ended december 31 2002 2001 2000 millions provision benefit income taxes location taxing jurisdiction years ended december 31 2002 2001 2000 consisted following millions december 31 2002 company approximately 7182 million undistributed earnings company’s foreign subsidiaries earnings considered indefinitely invested accordingly united states federal state income taxes provided earnings determination amount unrecognized deferred taxes earnings practical however unrecognized foreign tax credits would available reduce portion tax liability reconciliation income taxes computed united states federal statutory income tax rate 35 provision benefit income taxes reflected consolidated statements operations years ended december 31 2002 2001 2000 follows millions agco corporation notes consolidated financial statements continued 2000 company included “other” recognition united states tax credit carryback approximately 20 million significant components net deferred tax assets december 31 2002 2001 follows millions company recorded net deferred tax asset 1408 million 1457 million december 31 2002 2001 respectively reflected preceding table company established valuation allowance 1262 million 527 million december 31 2002 2001 respectively change valuation allowance 2002 2001 2000 increase 735 million decrease 191 million decrease 70 million respectively realization asset dependent generating sufficient taxable income future periods year ended december 31 2002 company recognized noncash income tax charge 910 million related increasing valuation allowance united states deferred tax assets accordance sfas 109 company assessed likelihood deferred tax assets would recovered future taxable income determined adjustment valuation allowance appropriate making assessment available evidence considered including current economic climate well reasonable tax planning strategies company believes likely company realize remaining deferred tax assets net valuation allowance future years company net operating loss carryforwards 4167 million december 31 2002 expiration dates follows 2004 168 million 2005 81 million 2006 84 million 2007 06 million 2008 27 million thereafter unlimited 3801 million net operating loss carryforwards include us net loss carryforwards 2851 million foreign net operating loss carryforwards agco corporation notes consolidated financial statements continued 1316 million company paid income taxes 415 million 269 million 493 million years ended december 31 2002 2001 2000 respectively 7 longterm debt longterm debt consisted following december 31 2002 2001 millions april 17 2001 company issued 2500 million 9 12 senior notes due 2008 “senior notes” senior notes unsecured obligations company redeemable option company whole part commencing may 1 2005 initially 10475 principal amount plus accrued interest declining 100 principal amount plus accrued interest may 1 2007 indenture governing senior notes requires company offer repurchase senior notes 101 principal amount plus accrued interest date repurchase event change control indenture also contains certain covenants among things limit company’s ability restricted subsidiaries incur additional indebtedness make restricted payments including dividends share repurchases make investments guarantee indebtedness create liens sell assets proceeds used repay borrowings outstanding company’s existing revolving credit facility support financing agchem acquisition april 17 2001 company entered 3500 million multicurrency revolving credit facility rabobank mature october 2005 facility replaced company’s existing revolving credit facility secured majority company’s us canadian uk based assets pledge portion stock company’s domestic material foreign subsidiaries interest accrue borrowings outstanding facility company’s option either 1 libor plus margin based ratio company’s senior debt ebitda adjusted 2 administrative agent’s base lending rate federal funds rate plus margin ranging 0625 15 whichever higher facility contains covenants including among others covenants restricting incurrence indebtedness making restrictive payments including dividends december 31 2002 interest rates outstanding borrowings ranged 39 55 weighted average interest rate 2002 47 addition company must fulfill financial covenants including among others total debt ebitda ratio senior debt ebitda ratio fixed charge coverage ratio defined facility portion revolving credit facility payable euros december 31 2002 355 million payable euros december 31 2001 approximately 191 million 188 million revolving credit facility payable canadian dollars december 31 2002 2001 respectively december 31 2002 company borrowings 1269 million availability borrow 2176 million revolving credit facility amended march 14 2002 allow longterm incentive plan “ltip” cash expense recorded evenly four quarters purposes calculating ebitda certain financial covenants facility also amended december 31 2002 change required ratios total debt ebitda senior debt ebitda covenants 1996 company issued 2500 million 8 12 senior subordinated notes due 2006 “notes” 99139 principal amount notes unsecured obligations company redeemable option company whole part time march 15 2001 initially 10425 principal amount plus accrued interest declining ratably 100 principal agco corporation notes consolidated financial statements continued amount plus accrued interest march 15 2003 notes include certain covenants restricting incurrence indebtedness making certain restrictive payments including dividends march 2001 company issued notice default trustee 250 million 8 12 senior subordinated notes due 2006 “notes” regarding violation covenant restricting payment dividends periods 1999 2000 2001 interest coverage ratio met periods company paid approximately 48 million dividends based upon interpretation need meet interest coverage ratio instead alternative total debt test company subsequently received sufficient waivers holders notes violations covenant might resulted dividend payments connection solicitation waivers company incurred costs approximately 26 million expensed first quarter 2001 currently company prohibited paying dividends time interest coverage ratio indenture met december 31 2002 aggregate scheduled maturities longterm debt follows millions cash payments interest 641 million 657 million 607 million years ended december 31 2002 2001 2000 respectively company arrangements various banks issue standby letters credit similar instruments guarantee company’s obligations purchase sale certain inventories potential claims exposure insurance coverage december 31 2002 outstanding letters credit totaled 99 million 55 million issued revolving credit facility 8 employee benefit plans company defined benefit pension plans covering certain employees principally united states united kingdom germany company also provides certain postretirement health care life insurance benefits certain employees principally united states agco corporation notes consolidated financial statements continued net annual pension postretirement cost measurement assumptions plans years ended december 31 2002 2001 2000 set forth millions following tables set forth reconciliations changes benefit obligation plan assets funded status december 31 2002 2001 millions agco corporation notes consolidated financial statements continued aggregate projected benefit obligation accumulated benefit obligation fair value plan assets pension plans accumulated benefit obligations excess plan assets 5091 million 4793 million 3720 million respectively december 31 2002 4313 million 4015 million 3729 million respectively december 31 2001 december 31 2002 company recorded reduction equity 1355 million net taxes 416 million related recording minimum pension liability primarily related company’s uk plans accumulated benefit obligation exceeded plan assets measuring expected postretirement benefit obligation 825 health care cost trend rate assumed 2003 decreasing 075 per year 60 remaining level thereafter 2002 675 health care cost trend rate assumed changing assumed health care cost trend rates one percentage point year holding assumptions constant would following effect service interest cost 2002 accumulated postretirement benefit obligation december 31 2002 millions supplemental executive retirement plan “serp” unfunded plan provides company executives retirement income period ten years based percentage final base salary reduced executive’s social security benefits 401k employer matching contributions account benefit paid executive equal 3 final base salary times credited years service maximum benefit 60 final base salary benefits serp vest age 65 discretion agco corporation notes consolidated financial statements continued board directors age 62 reduced factor recognize early commencement benefit payments net annual serp cost measurement assumptions plan years ended december 31 2002 2001 2000 set forth millions following tables set forth reconciliations changes benefit obligation funded status december 31 2002 2001 millions company maintains separate defined contribution plans covering certain employees primarily united states united kingdom plans company contributes specified percentage eligible employee’s compensation company contributed 34 million 28 million 16 million years ended december 31 2002 2001 2000 respectively 9 common stock december 31 2002 company 1500 million authorized shares common stock par value 001 752 million shares common stock outstanding 18 million shares reserved issuance company’s 2001 stock option plan note 10 01 million shares reserved issuance company’s nonemployee director stock incentive plan note 10 19 million shares reserved issuance company’s longterm incentive plan note 10 agco corporation notes consolidated financial statements continued april 1994 company designated 300000 shares junior cumulative preferred stock “junior preferred stock” connection adoption stockholders’ rights plan “rights plan” terms rights plan onethird preferred stock purchase right “right” attached outstanding share company’s common stock rights plan contains provisions designed protect stockholders event certain unsolicited attempts acquire company terms rights plan right entitles holder purchase one onehundredth share junior preferred stock par value 001 per share exercise price 200 per share rights exercisable specified number days following acquisition person group persons 20 company’s common stock ii commencement tender exchange offer 20 company’s common stock event company surviving company merger person group persons owns 20 company’s outstanding stock right entitle holder 20 stockholder receive upon exercise common stock company value equal two times right’s exercise price addition event company sells transfers 50 assets earning power right entitle holder receive upon exercise common stock acquiring company value equal two times right’s exercise price rights may redeemed company 001 per right prior expiration april 27 2004 march 2001 company sold 555 nonvoting preferred shares convertible shares company’s common stock private placement net proceeds approximately 53 million june 2001 preferred shares converted 555000 shares company’s common stock 10 stock incentive plans nonemployee director stock incentive plan company’s nonemployee director stock incentive plan “director plan” provides restricted stock awards nonemployee directors based increases price company’s common stock awarded shares earned specified increments 15 increase average market value company’s common stock initial base price established plan increment awarded shares earned shares issued participant form restricted stock vests earlier 12 months specified performance period upon departure board directors restricted shares earned cash bonus equal 40 value shares date restricted stock award earned paid company satisfy portion estimated income tax liability incurred participant december 31 2002 13500 shares awarded earned director plan 50976 shares earned vested director plan outstanding shares awarded earned december 31 2002 consist following earned company’s average common stock price reaches following increments consecutive 20day period longterm incentive plan “ltip” company’s ltip provides restricted stock awards executives based increases price company’s common stock awarded shares may earned fiveyear performance period specified increments 20 increase average market value company’s common stock established initial base price restricted stock awards prior 2000 earned shares issued agco corporation notes consolidated financial statements continued participant form restricted stock generally carries fiveyear vesting period onethird earned award vesting end third fourth fifth year award earned 2000 ltip amended replace vesting schedule nontransferability period future grants accordingly restricted stock awards 2000 future awards earned shares subject nontransferability period expires fiveyear period transfer restrictions lapsing onethird increments end third fourth fifth year award earned nontransferability period participants restricted selling assigning transferring pledging otherwise disposing earned shares earned shares subject forfeiture event participant terminates employment company nontransferability period extended two years earned shares vested longer subject forfeiture company obligated pay cash bonus equal 40 value shares date shares earned order satisfy portion estimated income tax liability incurred participant awards granted 2000 future company record entire compensation expense relating market value earned shares related cash bonus period award earned awards granted prior 2000 market value awards earned added common stock additional paidin capital equal amount deducted stockholders’ equity unearned compensation ltip unearned compensation amount cash bonus paid awarded shares become vested amortized expense ratably vesting period company recognized compensation expense associated ltip director plan 441 million 71 million 38 million years ended december 31 2002 2001 2000 respectively consisting compensation expense relating earned shares amortization stock awards earned shares issued prior 2000 related cash bonuses additional information regarding ltip years ended december 31 2002 2001 2000 follows outstanding shares awarded earned december 31 2002 consist following earned company’s average common stock price reaches following increments consecutive 20day period 2001 ltip amended permit participant elect forfeit portion earned award order fully satisfy federal state employment taxes payable time shares related cash bonus earned number shares common stock equal value participant’s tax liability net cash bonus thereby forfeited lieu additional cash payment contributed participant’s tax withholding 2002 2001 299409 52540 earned shares respectively forfeited manner agco corporation notes consolidated financial statements continued 2000 ltip amended increase number shares authorized issuance 1250000 shares awards granted prior 2000 number shares vested years 2002 2001 2000 201334 166500 411667 respectively awards granted 2000 vest immediately upon earned stock option plan company’s stock option plan “option plan” provides granting nonqualified incentive stock options officers employees directors others stock option exercise price determined board directors except case incentive stock option purchase price shall less 100 fair market value date grant recipient stock options entitled immediately exercise 20 options issued person remaining 80 options vest ratably fouryear period expire later ten years date grant stock option transactions three years ended december 31 2002 2001 2000 follows december 31 2002 outstanding options weighted average remaining contractual life approximately 69 years 1242826 options currently exercisable option prices ranging 625 3125 weighted average exercise price 1887 2001 company’s shareholders approved new stock option plan replace existing plan scheduled expire september 2001 new plan substantially contains terms prior plan expires 2011 new plan allows company issue stock option grants remaining unissued shares prior plan 123438 plus additional 2500000 shares agco corporation notes consolidated financial statements continued following table sets forth exercise price range number shares weighted average exercise price remaining contractual lives groups similar price grant date company accounts stockbased compensation awarded director plan ltip option plan prescribed apb 25 also provides disclosures required sfas 123 sfas 148 apb 25 requires recognition compensation expense options granted option plan long certain conditions met compensation expense recorded apb 25 option plan however apb 25 require recognition compensation expense director plan ltip disclosure purposes sfas 123 company estimated fair value grants company’s stock option plan using blackscholes option pricing model utilized barrier option model awards granted director plan ltip based models weighted average fair value options granted option plan weighted average fair value awards granted director plan ltip follows millions fair value grants awards amortized vesting period stock options awards earned director plan ltip performance period unearned awards director plan ltip following table illustrates effect net loss income loss earnings agco corporation notes consolidated financial statements continued per common share company applied fair value recognition provisions sfas 123 sfas 148 millions except per share data 11 derivative instruments hedging activities effective january 1 2001 company adopted sfas 133 “accounting derivative instruments hedging activities” amended sfas 138 cumulative effect adopting standard january 1 2001 resulted fair value asset net taxes approximately 05 million reclassified earnings next twelve months derivatives recognized consolidated balance sheets fair value date derivative contract entered company designates derivative either 1 fair value hedge recognized liability 2 cash flow hedge forecasted transaction 3 hedge net investment foreign operation 4 nondesignated derivative instrument company currently engages derivatives classified cash flow hedges nondesignated derivative instruments changes fair value derivative designated cash flow hedge recorded comprehensive income reclassified earnings time settlement forecasted transaction changes fair value nondesignated derivative contracts ineffective portion designated derivative instruments reported current earnings company formally documents relationships hedging instruments hedged items well risk management objectives strategy undertaking various hedge transactions company formally assesses hedge’s inception ongoing basis whether derivatives used hedging transactions highly effective offsetting changes fair values cash flow hedged items determined derivative longer highly effective hedge accounting discontinued prospective basis foreign currency risk company significant manufacturing operations united states united kingdom france germany denmark brazil purchases portion tractors combines components third party foreign suppliers primarily various european countries japan company also sells products 140 countries throughout world company’s significant transactional foreign currency exposures include british pound relation euro us dollar ii euro canadian dollar relation us dollar agco corporation notes consolidated financial statements continued company attempts manage transactional foreign exchange exposure hedging identifiable foreign currency cash flow commitments forecasts arising receivables payables expected purchases sales naturally offsetting currency positions occur company hedges certain exposures use foreign currency forward contracts company uses foreign currency forward contracts hedge receivables payables company subsidiaries’ balance sheets denominated foreign currencies functional currency forward contracts classified nondesignated derivatives instruments years ended december 31 2002 2001 company recorded net gains approximately 173 million net losses approximately 78 million caption expense net respectively gains losses substantially offset losses gains remeasurement underlying asset liability hedged company uses foreign currency forward contracts hedge forecasted foreign currency inflows outflows resulting purchases sales company currently hedged anticipated foreign currency cash flows twelve months future december 31 2002 company deferred gains net taxes approximately 08 million included stockholders’ equity component accumulated comprehensive loss deferred gain expected reclassified earnings next twelve months company recorded gain loss resulting forward contract’s ineffectiveness discontinuance cash flow hedge interest rate risk company may use interest rate swap agreements manage exposure interest rate changes currently company interest rate swap agreements outstanding following table summarizes activity accumulated comprehensive loss related derivatives held company periods january 1 2002 december 31 2002 january 1 2001 december 31 2001 millions addition company recorded deferred gain 04 million net taxes deferred loss 58 million net taxes comprehensive loss related derivatives held affiliates years ended december 31 2002 2001 respectively gain loss related interest rate agco corporation notes consolidated financial statements continued swap contracts company’s retail finance joint ventures swap contracts effect converting floating rate debt fixed rates order secure yield fixed rate loan portfolio company’s senior management establishes company’s foreign currency interest rate risk management policies reviewed periodically audit committee board directors policy allows use derivative instruments hedge exposures movements foreign currency interest rates company’s policy prohibits use derivative instruments speculative purposes 12 commitments contingencies future payments required company’s significant commitments december 31 2002 follows millions 1 unconditional purchase obligations exclude routine purchase orders normal course business guarantees december 31 2002 company obligated certain circumstances purchase year 2005 125 million equipment upon expiration certain operating leases agco finance llc agco finance canada ltd company’s retail finance joint ventures north america end users company also maintains remarketing agreement joint ventures whereby company obligated repurchase repossessed inventory market values company believes losses might incurred resale equipment materially impact company’s financial position results operations december 31 2002 company guaranteed indebtedness owed third parties approximately 118 million primarily related dealer end user financing equipment company believes credit risk associated guarantees material financial position addition december 31 2002 company outstanding foreign currency forward contracts approximately 1513 million contracts maturity less one year note 11 total lease expense noncancelable operating leases 189 million 172 million 174 million years ended december 31 2002 2001 2000 respectively discussed note 3 company involved litigation respect pension scheme coventry england company also party various claims lawsuits arising normal course business opinion management consultation legal counsel claims agco corporation notes consolidated financial statements continued lawsuits excluding potential adverse outcome respect pension case resolved material adverse effect financial position results operations company note 3 13 related party transactions rabobank nederland aaa rated financial institution based netherlands 51 owner company’s retail finance joint ventures located united states canada united kingdom france germany spain ireland brazil rabobank also principal agent participant company’s revolving credit facility securitization facilities majority assets company’s retail finance joint ventures represent finance receivables majority liabilities represent notes payable accrued interest various joint venture agreements rabobank affiliates obligated provide financing joint venture companies primarily lines credit company guarantee obligations retail finance joint ventures 49 solvency requirements brazil joint venture brazil company’s joint venture company agency relationship rabobank whereby rabobank provides funding provided entirely governmentsponsored finame facilities subject variation time brazilian government company’s retail finance joint ventures provide retail financing wholesale financing dealers terms financing arrangements offered company’s dealers similar arrangements retail finance joint ventures provide unaffiliated third parties december 31 2002 company obligated certain circumstances purchase year 2005 125 million equipment upon expiration certain operating leases agco finance llc agco finance canada ltd retail joint ventures north america end users company also maintains remarketing agreement joint ventures note 12 addition part sales incentives provided end users company may time subsidize interest rates retail financing provided retail joint ventures cost programs recognized time sale company’s dealers 2002 company net sales 1302 million baywa corporation german distributor ordinary course business president ceo baywa corporation also member board directors company 2002 company purchased approximately 1275 million equipment components manufacturing joint venture gima cost 2002 company also purchased approximately 53 million equipment components manufacturing joint venture deutz agco motores sa prices approximating cost 14 segment reporting company five reportable segments north america south america europe africa middle east asia pacific sprayers regional segment distributes full range agricultural equipment related replacement parts sprayers manufacture distribute selfpropelled agricultural sprayers replacement parts company evaluates segment performance primarily based income operations sales regional segment based location thirdparty customer significant intercompany transactions segments eliminated company’s selling general administrative expenses engineering expenses charged segment based region division expenses incurred result components operating income one segment may comparable another segment result agchem acquisition sprayers includes ag agco corporation notes consolidated financial statements continued chem company’s prior sprayer operations segment results years ended december 31 2002 2001 2000 follows millions reconciliation segment information consolidated balances income operations assets set forth millions agco corporation notes consolidated financial statements continued net sales customer location years ended december 31 2002 2001 2000 follows millions net sales product years ended december 31 2002 2001 2000 follows millions property plant equipment country december 31 2002 follows millions agco corporation notes consolidated financial statements continued 15 subsequent event unaudited march 3 2003 company announced closure track tractor facility dekalb illinois currently dekalb plant assembles challenger track tractors range 235 500 horsepower review cost reduction alternatives determined current forecasted production levels sufficient support stand alone track tractor site company evaluating relocation production current facilities hesston kansas jackson minnesota production dekalb facility planned cease late may 2003 production relocated resumed july 2003 march 3 2003 186 employees dekalb plant agco corporation notes consolidated financial statements continued item 9item 8 financial statements supplementary data following consolidated financial statements agco subsidiaries years threeyear period ended december 31 2003 included item information heading “quarterly results” item 7 page 24 form 10k incorporated herein reference independent auditors’ report board directors agco corporation audited accompanying consolidated balance sheets agco corporation subsidiaries december 31 2003 2002 related consolidated statements operations stockholders’ equity cash flows years twoyear period ended december 31 2003 connection audits 2003 2002 consolidated financial statements also audited 2003 2002 financial statement schedule listed item 15a2 consolidated financial statements financial statement schedule responsibility company’s management responsibility express opinion consolidated financial statements financial statement schedule based audits consolidated statements operations stockholders’ equity cash flows year ended december 31 2001 revision described note 1 consolidated financial statements financial statement schedule agco corporation subsidiaries listed item 15a2 audited auditors ceased operations auditors’ reports dated february 6 2002 consolidated financial statements financial statement schedule unqualified included explanatory paragraph described change company’s method accounting derivative instruments hedging activities discussed note 11 consolidated financial statements excluded revision described note 1 accompanying consolidated financial statements conducted audits accordance auditing standards generally accepted united states america standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion 2003 2002 consolidated financial statements referred present fairly material respects financial position agco corporation subsidiaries december 31 2003 2002 results operations cash flows years twoyear period ended december 31 2003 conformity accounting principles generally accepted united states america also opinion related 2003 2002 financial statement schedule considered relation basic consolidated financial statements taken whole presents fairly material respects information set forth therein discussed note 1 consolidated financial statements company changed method accounting goodwill intangible assets 2002 discussed consolidated statements operations stockholders’ equity cash flows year ended december 31 2001 financial statement schedule agco corporation subsidiaries listed item 15a2 audited auditors ceased operations described note 1 consolidated financial statements revised include transitional disclosures required statement financial accounting standards 142 “goodwill intangible assets” adopted company january 1 2002 described note 1 consolidated financial statements revised adopt provisions sfas 145 “rescission fasb statements 4 44 64 amendment fasb statement 13 technical corrections” requires reclassification gains losses debt extinguishments prior periods extraordinary items continuing operations opinion reclassifications disclosures 2001 described note 1 appropriate however engaged audit review apply procedures 2001 consolidated financial statements financial statement schedule agco corporation subsidiaries respect disclosures reclassifications accordingly express opinion form assurance 2001 consolidated financial statements financial statement schedule taken whole kpmg llp atlanta georgia february 27 2004 except fifth sixth paragraphs note 16 march 10 2004 note copy report previously issued arthur andersen llp company’s former independent public accountants arthur andersen report refers certain financial information fiscal years ended december 31 2000 1999 certain balance sheet information december 31 2001 2000 longer included accompanying financial statements report reissued arthur andersen llp connection filing annual report form 10k report independent public accountants agco corporation audited accompanying consolidated balance sheets agco corporation subsidiaries december 31 2001 2000 related consolidated statements operations stockholders’ equity cash flows three years period ended december 31 2001 financial statements responsibility company’s management responsibility express opinion financial statements based audits conducted audits accordance auditing standards generally accepted united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion financial statements referred present fairly material respects financial position agco corporation subsidiaries december 31 2001 2000 results operations cash flows three years period ended december 31 2001 conformity accounting principles generally accepted united states explained note 11 consolidated financial statements accordance requirements statement financial accounting standards 133 “accounting derivative instruments hedging activities” agco corporation changed method accounting derivative instruments hedging activities effective january 1 2001 arthur andersen llp atlanta georgia february 6 2002 agco corporation consolidated statements operations millions except per share data see accompanying notes consolidated financial statements agco corporation consolidated balance sheets millions except share amounts see accompanying notes consolidated financial statements agco corporation consolidated statements stockholders’ equity millions except share amounts additional columns continued table first columns repeated see accompanying notes consolidated financial statements agco corporation consolidated statements cash flows millions see accompanying notes consolidated financial statements agco corporation notes consolidated financial statements 1 operations summary significant accounting policies business agco corporation “agco” “company” leading manufacturer distributor agricultural equipment related replacement parts throughout world company sells full range agricultural equipment including tractors combines hay tools sprayers forage equipment implements company’s products widely recognized agricultural equipment industry marketed following brand names agco® agcoallis® agcostar® agchem® challenger® farmhand® fendt® fieldstar® gleaner® glencoe® hesston® lor al® massey ferguson® new idea® rogator® soilteqtm spracoupe® sunflower®terragator® tye® white® willmar® company distributes products combination approximately 8400 independent dealers distributors associates licensees addition company provides retail financing north america united kingdom france germany spain brazil retail finance joint ventures coöperative centrale raiffeisenboerenleenbank ba “rabobank nederland” basis presentation consolidated financial statements represent consolidation whollyowned companies majorityowned companies joint ventures company determined primary beneficiary fasb interpretation 46 “consolidation variable interest entities” “fin 46” company records investments affiliate companies using equity method accounting investments representing ownership less 20 recorded cost significant intercompany balances transactions eliminated consolidated financial statements certain prior period amounts reclassified conform current period presentation revenue recognition sales equipment replacement parts recorded company title risks ownership transferred independent dealer distributor customer payment terms vary market product fixed payment schedules sales terms sale generally require purchase order confirmation accompany shipments title generally passes dealer distributor upon shipment risk loss upon damage theft destruction equipment responsibility dealer distributor dealer distributor may return equipment replacement parts contract company force replacement parts may returned promotional annual return programs provisions returns programs made time sale based terms program historical returns experience company may provide certain sales incentives dealers distributors provisions sales incentives made time sale existing incentive programs provisions revised event subsequent modification incentive program united states canada equipment sales dealers immediately due upon retail sale equipment dealer already paid dealer united states canada installment payments required generally beginning 7 13 months shipment remaining outstanding equipment balance generally due within 12 24 months shipment interest generally charged outstanding balance 4 13 months shipment sales terms highly seasonal products provide payment due dates based specified date year regardless shipment date equipment sold dealers united states canada paid full average within 12 months shipment sales replacement parts generally payable within 30 days shipment terms larger seasonal stock orders generally payable within 6 months shipment international markets equipment sales generally payable full within 30 180 days shipment payment terms highly seasonal products specific due date year agco corporation notes consolidated financial statements continued regardless shipment date sales replacement parts generally payable within 30 days shipment terms larger seasonal stock orders generally payable within 6 months shipment certain markets particularly north america time lag varies based timing level retail demand date company records sale dealer sells equipment retail customer foreign currency translation financial statements company’s foreign subsidiaries translated us currency accordance statement financial accounting standards “sfas” 52 “foreign currency translation” assets liabilities translated us dollars periodend exchange rates income expense items translated average rates exchange prevailing period translation adjustments included “accumulated comprehensive loss” stockholders’ equity gains losses result foreign currency transactions included accompanying consolidated statements operations use estimates preparation financial statements conformity accounting principles generally accepted united states america requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ estimates made management primarily relate accounts notes receivable inventories deferred income tax valuation allowances intangible assets certain accrued liabilities principally relating reserves volume discounts sales incentives warranty product liability workers’ compensation obligations pensions postretirement benefits cash equivalents company considers investments original maturity three months less cash equivalents cash equivalents december 31 2003 929 million consisted overnight repurchase agreements financial institutions investments december 31 2002 accounts notes receivable accounts notes receivable arise sale equipment replacement parts independent dealers distributors customers payments due company’s terms sale contingent upon sale equipment dealer distributor retail customer normal circumstances payment terms extended equipment may returned certain regions including united states canada company obligated repurchase equipment replacement parts upon cancellation dealer distributor contract obligations required national state provincial laws require company repurchase dealer distributor’s unsold inventory including inventory receivable already paid sales outside united states canada company normally charge interest outstanding receivables dealers distributors sales dealers distributors united states canada approximately 275 company’s net sales generated 2003 interest charged prime lending rates outstanding receivable balances interestfree periods interestfree periods vary product generally range 6 12 months exception certain seasonal products bear interest various periods depending time year sale dealer distributor’s sales volume preceding year ended december 31 2003 186 agco corporation notes consolidated financial statements continued 67 14 08 company’s net sales maximum interestfree periods ranging 1 6 months 7 12 months 13 20 months 21 months respectively actual interestfree periods shorter equipment receivable dealers distributors united states canada due immediately upon sale equipment retail customer normal circumstances interest forgiven interestfree periods extended accounts notes receivable shown net allowances sales incentive discounts available dealers doubtful accounts notes receivable allowances december 31 2003 2002 follows millions company transfers certain accounts receivable various financial institutions primarily accounts receivable securitization facilities note 4 company records transfers sales accounts receivable considered surrendered control receivables provisions sfas 140 “accounting transfers servicing financial assets extinguishments liabilities replacement sfas 125” inventories valued lower cost market using firstin firstout method market net realizable value finished goods repair replacement parts work process production parts raw materials market replacement cost december 31 2003 2002 company recorded 836 million 745 million adjustments surplus obsolete inventories adjustments reflected within “inventories net” inventories net december 31 2003 2002 follows millions property plant equipment property plant equipment recorded cost less accumulated depreciation amortization depreciation provided straightline basis estimated useful lives 10 40 years buildings improvements 3 15 years machinery equipment 3 10 years furniture fixtures expenditures maintenance repairs charged expense incurred agco corporation notes consolidated financial statements continued property plant equipment net december 31 2003 2002 consisted following millions intangible assets january 1 2002 company adopted sfas 142 “goodwill intangible assets” “sfas 142” sfas 142 requires companies cease amortizing goodwill indefinitelived intangible assets december 31 2001 existence june 30 2001 goodwill indefinitelived intangible assets resulting acquisitions completed june 30 2001 amortized sfas 142 also establishes new method testing goodwill indefinitelived intangible assets impairment annual basis interim basis event occurs circumstances change would reduce fair value reporting unit carrying value sfas 142 requires initial impairment assessment performed goodwill indefinitelived intangible assets assessment involves determining estimate fair value company’s reporting units including trademarks order evaluate whether impairment current carrying amount goodwill intangible assets exists fair values derived based evaluation past expected future performance company’s reporting units company’s acquired intangible assets follows millions company amortizes certain acquired intangible assets estimated useful lives 7 30 years ended december 31 2003 2002 acquired intangible asset amortization 17 million 14 million respectively accordance sfas 142 company ceased amortizing certain trademarks determined indefinite useful life january 1 2002 company estimates amortization existing intangible assets 17 million 2004 16 million 2005 15 million 2006 2007 14 million 2008 agco corporation notes consolidated financial statements continued changes carrying amount goodwill years ended december 31 2003 2002 summarized follows millions goodwill company’s segments tested impairment january 1 2002 required sfas 142 company utilized combination valuation techniques including discounted cash flow approach market multiple approach comparable transaction approach based evaluation company determined goodwill associated argentina north america reporting units impaired result company recorded pretax writedown goodwill 277 million writedown recognized cumulative effect change accounting principle 241 million net 36 million taxes first quarter 2002 goodwill tested impairment annual basis often indications impairment exist results company’s analyses conducted october 1 2003 indicated reduction carrying amount goodwill required 2003 prior adoption sfas 142 company amortized goodwill indefinitelived intangible assets periods ranging 10 40 years addition company would periodically review carrying values assigned goodwill intangible assets based expectations future cash flows operating income generated underlying tangible assets following reconciliation company’s income loss cumulative effect change accounting principle net income loss agco corporation notes consolidated financial statements continued net income loss per share goodwill indefinitelived intangible assets accounted accordance sfas 142 prior periods millions except per share data longlived assets 2003 2002 company reviewed longlived assets impairment whenever events changes circumstances indicated carrying amount asset may recoverable accordance provisions sfas 144 “accounting impairment disposal longlived assets” “sfas 144” company adopted sfas 144 january 1 2002 adoption sfas 144 affect company’s consolidated financial statements prior sfas 144 company applied provisions sfas 121 “accounting impairment longlived assets longlived assets disposed of” sfas 144 impairment loss recognized undiscounted future cash flows estimated generated asset held used sufficient recover unamortized balance asset impairment loss would recognized based difference carrying values estimated fair value estimated fair value determined based either discounted future cash flows appropriate fair value methods amount deficiency charged income current year asset tested recoverability acquired business combination intangible assets resulting acquisition agco corporation notes consolidated financial statements continued related asset included assessment estimates future cash flows based many factors including current operating results expected market trends competitive influences company also evaluates amortization periods assigned intangible assets determine whether events changes circumstances warrant revised estimates useful lives assets disposed sale reported lower carrying amount fair value less estimated costs sell 2003 company recorded writedown property plant equipment net realizable value 20 million conjunction assets currently held sale company recorded writedown property plant equipment 112 million 2002 conjunction announced closure coventry england manufacturing facility note 3 accrued expenses accrued expenses december 31 2003 2002 consisted following millions warranty reserves warranty reserve activity years ended december 31 2003 2002 consisted following millions company’s agricultural equipment products generally warranty defects material workmanship period one four years company accrues future warranty costs time sale based historical warranty experience insurance reserves company’s insurance programs coverage obtained significant liability limits well risks required insured law contract policy company selfinsure portion certain expected losses related primarily workers’ compensation comprehensive general product vehicle liability provisions losses expected programs recorded based company’s estimates aggregate liabilities claims incurred agco corporation notes consolidated financial statements continued stock incentive plans company accounts stockbased compensation awarded nonemployee director incentive plan longterm incentive plan stock option plan prescribed apb 25 “accounting stock issued employees” also provides disclosures required sfas 123 “accounting stockbased compensation” sfas 148 “accounting stockbased compensation transition disclosure” apb 25 requires recognition compensation expense options granted stock option plan long certain conditions met apb 25 requires recognition compensation expense nonemployee director incentive plan longterm incentive plan time award earned refer note 10 additional information research development expenses research development expenses expensed incurred included engineering expenses consolidated statements operations advertising costs company expenses advertising costs incurred cooperative advertising costs normally expensed time revenue earned advertising expenses years ended december 31 2003 2002 totaled approximately 260 million 235 million respectively shipping handling expenses shipping handling fees charged customers included component net sales shipping handling costs included part cost goods sold exception certain handling costs included selling general administrative expenses amount 137 million 128 million 117 million years ended december 31 2003 2002 2001 respectively interest expense net interest expense net years ended december 31 2003 2002 2001 consisted following millions income taxes company accounts income taxes provisions sfas 109 “accounting income taxes” sfas 109 requires recognition deferred tax assets liabilities expected future tax consequences events included financial statements tax returns method deferred tax assets liabilities determined based differences financial reporting tax bases assets liabilities using enacted tax rates effect year differences expected reverse net income loss per common share basic earnings loss per common share computed dividing net income loss weighted average number common shares outstanding period diluted earnings loss per share assumes agco corporation notes consolidated financial statements continued exercise outstanding stock options vesting restricted stock common stock periods outstanding effects assumptions dilutive reconciliation net income loss weighted average number common equivalent shares outstanding used calculate basic diluted net income loss per common share years ended december 31 2003 2002 2001 follows millions except per share data stock options purchase 07 million 06 million 21 million shares years ended december 31 2003 2002 2001 respectively outstanding included calculation weighted average common equivalent shares outstanding option exercise prices higher average market price company’s common stock related period addition diluted loss per share calculation 2002 excludes potentially dilutive effect options purchase approximately 07 million shares company’s common stock company incurred loss inclusion would antidilutive agco corporation notes consolidated financial statements continued comprehensive income loss company reports comprehensive income loss defined total net income loss nonowner changes equity components thereof consolidated statements stockholders’ equity components comprehensive income loss related tax effects years ended december 31 2003 2002 2001 follows millions financial instruments carrying amounts reported company’s consolidated balance sheets “cash equivalents” “accounts notes receivable” “accounts payable” approximate fair value due immediate shortterm maturity financial instruments carrying amount longterm debt company’s revolving credit facility note 7 approximates fair value based borrowing rates currently available company loans similar terms average maturities december 31 2003 estimated fair values company’s 9 12 senior notes 8 12 senior subordinated notes 1 34 convertible notes note 7 based listed market values 2728 million 2491 million 2264 million respectively compared carrying values 2500 million 2493 million 2013 million respectively december 31 2002 estimated fair values company’s 9 12 senior notes 8 12 senior subordinated notes based listed market values 2721 million agco corporation notes consolidated financial statements continued 2500 million respectively compared carrying values 2500 million 2491 million respectively company enters foreign exchange forward contracts hedge foreign currency exposure certain receivables payables committed purchases sales contracts periods consistent exposure hedged generally maturities one year less december 31 2003 2002 company foreign exchange forward contracts outstanding gross notional amounts 12029 million 2254 million respectively changes fair value resulted gain foreign exchange forward contracts december 31 2003 2002 06 million 71 million respectively foreign exchange forward contracts subject company’s results operations risk due exchange rate fluctuations gains losses contracts generally offset gains losses exposure hedged company enter foreign exchange forward contracts speculative trading purposes notional amounts foreign exchange forward contracts represent amounts exchanged parties therefore measure company’s risk amounts exchanged calculated basis notional amounts terms contracts credit market risks contracts considered significant accounting changes january 1 2002 company adopted sfas 142 accordance transition provisions sfas 142 goodwill company’s segments tested impairment january 1 2002 required sfas 142 company utilized combination valuation techniques including discounted cash flow approach market multiple approach comparable transaction approach based evaluation company determined goodwill associated argentine north american reporting units impaired result company recorded pretax writedown goodwill 277 million writedown recognized cumulative effect change accounting principle 241 million net 36 million taxes first quarter 2002 july 2001 fasb issued sfas 143 “accounting asset retirement obligations” “sfas 143” sfas 143 requires entities record fair value liability asset retirement obligation period incurred liability initially recorded entity capitalizes cost increasing carrying amount related longlived asset time liability accreted present value period capitalized cost depreciated useful life related asset upon settlement liability entity either settles obligation amount recorded incurs gain loss sfas 143 effective fiscal years beginning june 15 2002 adoption standard 2003 impact company’s current results operations financial position april 2002 fasb issued sfas 145 “rescission fasb statements 4 44 64 amendment sfas 13 technical corrections” “sfas 145” sfas 145 eliminates requirement sfas 4 “reporting gains losses extinguishment debt” report gains losses extinguishments debt extraordinary items income statement accordingly gains losses extinguishments debt fiscal years beginning may 15 2002 shall reported extraordinary items unless extinguishment qualifies extraordinary item provisions apb opinion 30 upon adoption sfas 145 gain loss extinguishment debt previously classified extraordinary item prior periods presented meet criteria apb opinion 30 classification reclassified conform provisions sfas 145 sfas 145 also amends sfas 13 “accounting leases” eliminate inconsistency required accounting saleleaseback transactions required accounting certain lease modifications economic effects similar saleleaseback transactions addition sfas 145 amends existing authoritative pronouncements make various technical corrections agco corporation notes consolidated financial statements continued clarify meanings describe applicability changed conditions sfas 145 effective fiscal years beginning may 15 2002 new standard required company reclassify extraordinary loss recorded 2001 interest expense net resulted reduction income cumulative effect change accounting principle 08 million 001 per share impact net income stockholders’ equity consolidated statements operations reflect adoption standard june 2002 fasb issued sfas 146 “accounting costs associated exit disposal activities” “sfas 146” sfas 146 addresses financial accounting reporting costs associated exit disposal activities nullifies emerging issues task force eitf issue 943 “liability recognition certain employee termination benefits costs exit activity including certain costs incurred restructuring” sfas 146 requires liability cost associated exit disposal activity recognized liability incurred eitf issue 943 liability exit cost defined issue recognized date entity’s commitment exit plan therefore sfas 146 eliminates definition requirements recognition exit costs eitf issue 943 also establishes fair value objective initial measurement liability sfas 146 effective exit disposal activities initiated december 31 2002 adoption sfas 146 impact company’s restructuring plans related closure coventry england manufacturing facility dekalb illinois closure accounted requirements standard november 2002 fasb issued interpretation 45 “guarantor’s accounting disclosure requirements guarantees including indirect guarantees indebtedness others” “fin 45” fin 45 requires guarantor recognize inception certain guarantees liability fair value obligation undertaken issuing guarantee fin 45 also requires additional disclosure guarantor’s obligations certain guarantees issued initial recognition measurement provisions interpretation applicable prospective basis guarantees issued modified december 31 2002 disclosure requirements effective december 15 2002 included note 12 adoption fin 45 material impact results operations financial position company january 2003 fasb issued fin 46 revised december 2003 addresses consolidation business enterprises variable interest entities usual condition consolidating controlling financial interest apply fin 46 requires entity assess equity investments determine variable interest entities defined fin 46 variable interests contractual ownership interests entity change changes entity’s net asset value variable interests entity may arise financial instruments service contracts guarantees leases arrangements variable interest entity absorb majority variable interest entity’s expected losses expected residual returns defined fin 46 considered primary beneficiary variable interest entity primary beneficiary must include variable interest entity’s assets liabilities results operations consolidated financial statements fin 46 immediately effective variable interest entities created january 31 2003 variable interest entities created prior date provisions fin 46 must applied later first interim period ending march 15 2004 however public companies must apply unmodified provisions fin 46 entities considered “special purpose entities” end first reporting period ending december 15 2003 company analyzed provisions fin 46 relate current securitization facilities special purpose entity related facilities concluded believe special purpose entity securitization facilities impacted interpretation addition company analyzed provisions fin 46 relate accounting investments joint ventures determined primary beneficiary one joint ventures gima established 1994 company renault agriculture sa “renault” cooperate field purchasing design manufacturing components agricultural tractors party 50 ownership joint venture agco corporation notes consolidated financial statements continued july 1 2003 company began consolidating accounts gima historically company accounted investment gima equity method consolidation gima material impact results operations financial position company april 2003 fasb issued sfas 149 “amendment statement 133 derivative instruments hedging activities” statement effective contracts entered modified june 30 2003 hedging relationships designated june 30 2003 statement amends clarifies financial accounting reporting derivative instruments including certain derivative instruments embedded contracts hedging activities statement amends statement 133 decisions made part derivatives implementation group process connection board projects dealing financial instruments connection implementation issues raised relation application definition derivative adoption standard 2003 impact company’s current results operations financial position may 2003 fasb issued sfas 150 “accounting certain financial instruments characteristics liabilities equity” statement effective financial instruments entered modified may 31 2003 otherwise effective beginning first interim period beginning june 15 2003 company’s third quarter fiscal 2003 statement establishes standards issuer classifies measures certain financial instruments characteristics liabilities equity requires issuer classify financial instrument within scope liability adoption standard 2003 impact company’s current results operations financial position 2 acquisitions november 7 2002 company completed acquisition sunflower manufacturing co inc “sunflower” former product line spx corporation sunflower leading producer tillage seeding specialty harvesting equipment serving north american market located beloit kansas purchase price approximately 480 million funded borrowings company’s revolving credit facility acquired assets liabilities consist primarily inventories accounts receivables property plant equipment technology tradenames patents results operations sunflower acquisition included company’s consolidated financial statements date acquisition company recorded approximately 31 million goodwill approximately 87 million tradenames patents identifiable intangible assets associated acquisition sunflower tradenames patents identifiable intangible assets amortized period 12 30 years sunflower acquisition accounted accordance sfas 141 “business combinations” “sfas 141” accordingly purchase price allocated assets acquired liabilities assumed based estimated fair values acquisition date march 5 2002 company completed agreement caterpillar inc “caterpillar” acquire design assembly marketing new mt series caterpillar’s challenger tractor line company issued approximately 10 million shares common stock transaction valued approximately 213 million based closing price company’s common stock acquisition date july 2002 company received approximately 09 million caterpillar pursuant terms purchase agreement whereby proceeds caterpillar received upon sale company’s stock 210 million would refunded company addition company purchased approximately 136 million initial production inventory caterpillar connection supply agreement caterpillar results operations product line included company’s results date acquisition acquired assets consisted primarily inventories property plant equipment accounts receivable acquired liabilities assumed transaction agco corporation notes consolidated financial statements continued since rights obligations relating past sales prior series challenger product line remained caterpillar challenger acquisition accounted accordance sfas 141 accordingly purchase price allocated assets acquired liabilities assumed based estimated fair values acquisition date since estimated fair value assets acquired excess purchase price goodwill recorded connection acquisition april 16 2001 company completed acquisition agchem equipment co inc “agchem” manufacturer distributor selfpropelled sprayers company paid agchem shareholders approximately 2472 million consisting approximately 118 million agco common shares 1475 million cash funding cash component purchase price made borrowings company’s revolving credit facility acquired assets liabilities primarily consisted technology trademarks tradenames accounts receivables inventories property plant equipment accounts payable accrued liabilities results operations agchem acquisition included company’s consolidated financial statements date acquisition company recorded approximately 1452 million goodwill 272 million trademarks identifiable intangible assets associated acquisition agchem trademarks identifiable intangible assets amortized periods ranging 8 30 years agchem acquisition accounted purchase accordance accounting principles board “apb” opinion 16 “business combinations” accordingly purchase price allocated assets acquired liabilities assumed based fair values acquisition date connection acquisition agchem company established 31 million liabilities primarily related severance employee relocation costs associated planned closure agchem’s benson minnesota manufacturing facility minnetonka minnesota administrative office 15 parts service facilities first quarter 2002 costs connection liabilities established incurred accordingly company adjusted purchase price allocation reflect reduction established liabilities 04 million addition company finalized purchase price allocation resulting net total goodwill adjustment approximately 36 million adjustment primarily related reflection final appraised values property plant equipment acquired establishment certain liabilities related outstanding litigation warranty obligations connection acquisition xaver fendt gmbh 1997 company established liabilities 71 million primarily related severance costs associated planned closure certain sales marketing offices parts distribution operations approximately 31 million reserves originally established remained december 31 2001 second quarter 2002 company reversed goodwill approximately 22 million restructuring reserves determined required 2002 08 million costs incurred resulted remaining 01 million reserves december 31 2002 amount reversed goodwill fourth quarter 2003 determined required agco corporation notes consolidated financial statements continued following unaudited pro forma data summarizes results operations years ended december 31 2002 2001 agchem challenger sunflower acquisitions occurred beginning 2001 unaudited pro forma information prepared comparative purposes purport represent results operations company would actually transactions occurred dates indicated results operations may future period 3 restructuring infrequent expenses company recorded restructuring infrequent expenses 276 million 427 million 130 million years ended december 31 2003 2002 2001 respectively 2003 expense consisted 120 million associated closure company’s tractor manufacturing facility coventry england 124 million associated litigation regarding uk pension plan 25 million associated closure company’s tractor manufacturing facility dekalb illinois 12 million associated various functional rationalizations initiated 2002 2003 15 million writedown real estate associated closed agchem willmar minnesota facility offset 20 million gain related sale machinery equipment auction coventry facility 2002 expense consisted 402 million associated closure company’s tractor manufacturing facility coventry england 35 million primarily associated various functional rationalizations offset 10 million net gain related sale two closed manufacturing facilities 2001 expense consisted 85 million associated integration agchem acquisition 45 million associated manufacturing facility rationalizations commenced prior years dekalb rationalization march 2003 company announced closure challenger track tractor facility located dekalb illinois relocation production facility jackson minnesota production dekalb facility ceased may 2003 relocated resumed minnesota facility june 2003 connection restructuring plan company recorded approximately 25 million restructuring agco corporation notes consolidated financial statements continued infrequent expenses 2003 components restructuring expenses summarized following table writedown property plant equipment represents impairment real estate resulting facility closure based upon estimated fair value assets compared carrying value estimated fair value real estate determined based current conditions market severance costs relate termination 134 employees following completion production dekalb facility december 31 2003 employees terminated employee retention payments relate incentives paid dekalb employees remained employed certain future termination dates accrued term retention period severance costs also accrued term retention period employees entitled severance payments remained service scheduled termination dates certain employees relocated jackson minnesota facility costs associated relocation expensed incurred portion machinery equipment tooling located dekalb relocated jackson minnesota facility second quarter 2003 remaining portion machinery equipment disposed sold buildings land improvements marketed sale coventry rationalization 2002 company announced initiated restructuring plan related closure tractor manufacturing facility coventry england relocation existing production coventry company’s beauvais france canoas brazil manufacturing facilities components restructuring expenses summarized following table agco corporation notes consolidated financial statements continued writedown property plant equipment represents impairment machinery equipment resulting facility closure based estimated fair value assets compared carrying value estimated fair value equipment determined based current conditions market machinery equipment tooling disposed production ceases buildings land improvements marketed sale severance costs relate termination 1054 employees december 31 2003 1024 employees terminated employee retention payments relate incentives paid coventry employees remain employed certain future termination dates accrued term retention period facility closure costs include certain noncancelable operating lease terminations facility exit costs fourth quarter 2003 company sold machinery equipment auction result sales recognized net gain approximately 20 million gain reflected “restructuring infrequent expenses” company’s consolidated statements operations 41 million restructuring costs accrued december 31 2003 expected incurred 2004 january 30 2004 company sold land buildings improvements coventry facility note 16 october 2002 company applied high court london england clarification provision uk pension plan governs value pension payments payable employee 50 years old retires service certain circumstances prior normal retirement date primary matter high court whether pension payments employees including take early retirement terminated due closure company’s coventry facility reduced compensate fact pension payments begin prior normal retirement age 65 december 2002 high court ruled company’s position reduced pension payments payable context early retirements terminations company appealed high court’s ruling july 2003 court appeal ruled employees terminated result closure coventry facility qualify full pensions thereby reversing earlier high court ruling aspect case ruled employees might qualify court appeal ruling subject appeal representatives beneficiaries pension plan sought right appeal house lords house lords yet conclude matter result court’s ruling case certain employees took early retirement prior years voluntary retirement arrangements would entitled additional payments therefore company recorded charge second quarter 2003 included “restructuring infrequent expenses” approximately 124 million reflect current estimate additional pension liability associated previous early retirement programs event court appeal ruling successfully challenged company may incur additional pension liability within range approximately 400 million 500 million timing company’s obligation fund cash pension plan respect increased liability well company’s existing liabilities depends many factors including overall funded status plan investment returns plan’s assets subject ongoing negotiations representatives beneficiaries pension plan 2002 2003 functional rationalizations 2002 company initiated several rationalization plans recorded restructuring infrequent expenses 34 million expenses primarily related severance costs certain lease terminations exit costs associated rationalization company’s european engineering marketing personnel certain components company’s german manufacturing facilities located kempten marktoberdorf germany restructuring company’s north american information systems function year ended december 31 2003 company recorded additional 12 million restructuring infrequent expenses associated rationalization initiatives germany well european combine engineering rationalization initiated 2003 total 36 million severance costs recorded associated activities relate agco corporation notes consolidated financial statements continued termination approximately 180 employees total december 31 2003 total approximately 38 million expenses incurred paid remaining accrued balance 08 million december 31 2003 expected incurred 2004 agchem acquisition integration 2001 company announced plans rationalize certain facilities part agchem acquisition integration company consolidated agco’s willmar minnesota manufacturing facility agchem’s benson minnesota manufacturing facility agchem’s jackson minnesota manufacturing plant addition company closed agchem’s minnetonka minnesota administrative offices relocated functions jackson facility company also closed fifteen parts service facilities integrated parts warehousing logistics agco’s north american parts distribution system employees identified restructuring plan terminated end first quarter 2002 employee retention payments related incentives paid agchem agco employees remained employed certain future termination dates accrued term retention period company incurred facility closure costs included employee relocation costs exit costs company’s willmar location operations ceased facility relocation transition costs expensed incurred represented costs relocate inventory machinery costs integrate operations remaining facilities remaining costs accrued related rationalizations december 31 2002 costs incurred related rationalization 2003 components restructuring expenses summarized following table millions production ceased willmar facility manufacturing consolidated jackson minnesota company began marketing willmar facility real estate sale along closed facilities benson minnetonka facilities several parts service facilities sold 2001 2002 fourth quarter 2003 company wrote carrying value real estate willmar facility estimated fair value estimated fair value real estate determined based current conditions market writedown real estate approximately 15 million reflected “restructuring infrequent expenses” company’s condensed consolidated statements operations agco corporation notes consolidated financial statements continued 1999 2001 manufacturing facility rationalizations 2000 company permanently closed combine manufacturing facility independence missouri lockney texas noetinger argentina implement manufacturing facilities 1999 company permanently closed coldwater ohio manufacturing facility majority production facilities relocated existing facilities outsourced third parties company expensed approximately 45 million 249 million associated rationalizations 2001 2000 respectively 10 million costs accrued related rationalizations december 31 2001 company record additional restructuring infrequent expenses 2002 2003 related closures company incurred paid approximately 05 million expenses years ending december 31 2003 2002 respectively remaining costs accrued related rationalizations december 31 2003 addition 2002 company sold closed manufacturing facilities independence missouri coldwater ohio net gain sale two facilities 10 million reflected “restructuring infrequent expenses” company’s consolidated statements operations 4 accounts receivable securitization december 31 2003 2002 company accounts receivable securitization facilities united states canada europe totaling approximately 4485 million 4249 million respectively facilities wholesale accounts receivable sold revolving basis commercial paper conduits either direct basis whollyowned special purpose us subsidiary company completed us securitization facility 2000 completed canadian european securitization facilities 2001 outstanding funding facilities totaled approximately 4484 million december 31 2003 4239 million december 31 2002 funded balance effect reducing accounts receivable shortterm liabilities amount losses sales receivables primarily securitization facilities 146 million 2003 148 million 2002 235 million 2001 amount 2001 includes 40 million losses transaction fees associated initial closing funding canadian european facilities losses determined calculating estimated present value receivables sold compared carrying amount present value based historical collection experience discount rate representing spread libor prescribed terms agreements information related facilities assumptions used loss calculations summarized dollar amounts millions company continues service sold receivables maintains retained interest receivables company received approximately 57 million servicing fees 2003 2002 43 million 2001 servicing asset liability recorded since estimated fair value servicing receivables approximates servicing income retained interest receivables sold included caption “accounts notes receivable net” accompanying consolidated balance sheets company’s risk loss securitization facilities limited portion unfunded agco corporation notes consolidated financial statements continued balance receivables sold approximately 15 funded amount company maintains reserves portion residual interest estimates uncollectible december 31 2003 2002 approximately 52 million 33 million respectively unpaid balance receivables sold past due 60 days fair value retained interest approximately 1136 million 973 million respectively compared carrying amount 1159 million 993 million respectively december 31 2003 2002 based present value receivables calculated method consistent losses sales receivables discussed assuming 10 20 increase average liquidation period fair value residual interest would decline 02 million 04 million respectively assuming 10 20 increase discount rate assumed fair value residual interest would decline 02 million 04 million respectively 2003 company received approximately 10478 million sales receivables 57 million servicing fees 2002 company received 9195 million sales receivables 57 million servicing fees 2001 company received approximately 8792 million sales receivables 43 million servicing fees 5 investments affiliates investments affiliates december 31 2003 2002 follows millions manufacturing joint venture december 31 2003 consisted joint venture unrelated manufacturer produce engines south america joint ventures represent minority investments farm equipment manufacturers licensees company’s equity net earnings affiliates years ended december 31 2003 2002 2001 follows millions manufacturing joint venture company primarily sells products joint venture partners prices result operating near breakeven annual basis summarized combined financial information company’s retail finance joint ventures december 31 2003 2002 years ended december 31 2003 2002 2001 follows millions agco corporation notes consolidated financial statements continued majority assets company’s retail finance joint ventures represent finance receivables majority liabilities represent notes payable accrued interest various joint venture agreements rabobank affiliates obligated provide financing joint venture companies agco guarantee obligations retail finance joint ventures 6 income taxes sources income taxes equity net earnings affiliates cumulative effect change accounting principle follows years ended december 31 2003 2002 2001 millions provision income taxes location taxing jurisdiction years ended december 31 2003 2002 2001 consisted following millions december 31 2003 company approximately 9296 million undistributed earnings company’s foreign subsidiaries earnings considered indefinitely invested accordingly united states federal state income taxes provided earnings determination amount unrecognized deferred taxes earnings practical however unrecognized foreign tax credits would available reduce portion tax liability agco corporation notes consolidated financial statements continued reconciliation income taxes computed united states federal statutory income tax rate 35 provision income taxes reflected consolidated statements operations years ended december 31 2003 2002 2001 follows millions significant components deferred tax assets liabilities december 31 2003 2002 follows millions company recorded net deferred tax asset 1943 million 1408 million december 31 2003 2002 respectively reflected preceding table company established valuation allowance 1417 million 1262 million december 31 2003 2002 respectively agco corporation notes consolidated financial statements continued change valuation allowance years ended december 31 2003 2002 2001 increase 155 million increase 735 million decrease 191 million respectively accordance sfas 109 company assessed likelihood deferred tax assets would recovered future taxable income determined appropriate adjustment made company’s valuation allowance making assessment available evidence considered including current economic climate well reasonable tax planning strategies company believes likely company realize remaining deferred tax assets net valuation allowance future years company net operating loss carryforwards 5454 million december 31 2003 expiration dates follows 2004 36 million 2005 49 million 2006 83 million 2007 341 million 2008 33 million thereafter unlimited 4912 million net operating loss carryforwards include us net loss carryforwards 3154 million foreign net operating loss carryforwards 2300 million company paid income taxes 785 million 415 million 269 million years ended december 31 2003 2002 2001 respectively 7 longterm debt longterm debt consisted following december 31 2003 2002 millions december 23 2003 company issued 2013 million 1 34 convertible senior subordinated notes due 2033 private placement offering convertible senior subordinated notes unsecured obligations convertible shares company’s common stock upon satisfaction certain conditions discussed interest payable notes 1 34 per annum payable semiannually arrears cash june 30 december 31 year beginning june 30 2004 convertible senior subordinated notes convertible shares company’s common stock effective price 2236 per share subject adjustment holders notes may convert notes shares company’s common stock conversion rate 447193 shares per 1000 principal amount notes subject adjustment close business december 31 2033 following circumstances 1 fiscal quarter commencing march 31 2004 closing sales price company’s common stock exceeds 120 conversion price least 20 trading days 30 consecutive trading days ending last trading day preceding fiscal quarter 2 five business day period five consecutive trading day period trading price per note day period less 98 product closing sale price company’s common stock conversion rate 3 notes called redemption 4 upon occurrence certain corporate transactions defined beginning january 1 2011 company may redeem notes redemption price 100 principal amount plus accrued interest holders notes may require company repurchase notes repurchase price 100 principal amount plus accrued interest december 31 2010 2013 2018 2023 2028 agco corporation notes consolidated financial statements continued april 17 2001 company issued 2500 million 9 12 senior notes due 2008 “senior notes” senior notes unsecured obligations company redeemable option company whole part commencing may 1 2005 initially 10475 principal amount plus accrued interest declining 100 principal amount plus accrued interest may 1 2007 indenture governing senior notes requires company offer repurchase senior notes 101 principal amount plus accrued interest date repurchase event change control indenture also contains certain covenants among things limit company’s ability restricted subsidiaries incur additional indebtedness make restricted payments including dividends share repurchases make investments guarantee indebtedness create liens sell assets proceeds used repay borrowings outstanding company’s existing revolving credit facility support financing agchem acquisition april 17 2001 company entered 3500 million multicurrency revolving credit facility rabobank mature october 2005 facility secured majority company’s us canadian uk based assets pledge portion stock company’s domestic material foreign subsidiaries interest accrues borrowings outstanding facility company’s option either 1 libor plus margin based ratio company’s senior debt ebitda adjusted 2 higher administrative agent’s base lending rate onehalf one percent federal funds rate plus margin ranging 0625 15 based company’s senior debt ratio weighted average interest rate 2003 41 facility contains covenants including among others covenants restricting incurrence indebtedness making restrictive payments including dividends addition company must fulfill financial covenants including among others total debt ebitda ratio senior debt ebitda ratio fixed charge coverage ratio defined facility july 16 2003 company amended revolving credit facility adjust total debt ebitda senior debt ebitda financial covenants quarters ended june 30 2003 september 30 2003 december 31 2003 eliminate impact unfavorable judgments associated current pension litigation united kingdom consolidated tangible net worth covenant calculation december 31 2003 company outstanding borrowings availability borrow 3425 million revolving credit facility december 31 2002 company borrowings 1269 million availability borrow 2176 million revolving credit facility 191 million outstanding borrowings december 31 2002 payable canadian dollars company replaced credit facility subsequent december 31 2003 note 16 1996 company issued 2500 million 8 12 senior subordinated notes due 2006 “notes” 99139 principal amount notes unsecured obligations company redeemable option company whole part time 100 principal amount plus accrued interest indenture governing senior subordinated notes requires company offer repurchase senior subordinated notes 101 principal amount plus accrued interest date repurchase event change control notes include certain covenants restricting incurrence indebtedness making certain restrictive payments including dividends march 2001 company issued notice default trustee notes regarding violation covenant restricting payment dividends periods 1999 2000 2001 interest coverage ratio met periods company paid approximately 48 million dividends based upon interpretation need meet interest coverage ratio instead alternative total debt test company subsequently received sufficient waivers holders notes violations covenant might resulted dividend payments connection solicitation waivers company incurred costs approximately 26 million expensed first quarter 2001 company may pay dividends interest coverage ratio indenture met agco corporation notes consolidated financial statements continued december 31 2003 aggregate scheduled maturities longterm debt follows millions cash payments interest 753 million 641 million 657 million years ended december 31 2003 2002 2001 respectively company arrangements various banks issue standby letters credit similar instruments guarantee company’s obligations purchase sale certain inventories potential claims exposure insurance coverage december 31 2003 outstanding letters credit issued revolving credit facility totaled 75 million 8 employee benefit plans company defined benefit pension plans covering certain employees principally united states united kingdom germany company also provides certain postretirement health care life insurance benefits certain employees principally united states net annual pension postretirement cost measurement assumptions plans years ended december 31 2003 2002 2001 set forth millions weighted average assumptions used determine net annual benefit costs company’s pension plans years ended december 31 2003 2002 2001 follows agco corporation notes consolidated financial statements continued following tables set forth reconciliations changes benefit obligation plan assets funded status december 31 2003 2002 millions agco corporation notes consolidated financial statements continued weighted average assumptions used determine benefit obligation company’s pension plans december 31 2003 2002 follows aggregate projected benefit obligation accumulated benefit obligation fair value plan assets pension plans accumulated benefit obligations excess plan assets 6285 million 6018 million 4273 million respectively december 31 2003 5091 million 4793 million 3720 million respectively december 31 2002 projected benefit obligation accumulated benefit obligation fair value plan assets company’s us based pension plans 493 million 493 million 372 million respectively december 31 2003 438 million 438 million 347 million respectively december 31 2002 december 31 2003 2002 company recorded reduction equity 1858 million net taxes 574 million 1355 million net taxes 416 million respectively related recording minimum pension liability primarily related company’s uk plans accumulated benefit obligation exceeded plan assets agco corporation notes consolidated financial statements continued company utilizes september 30 measurement date determine pension benefit measurements company’s uk plans company utilizes december 31 measurement date determine pension postretirement benefit measurements company’s plans us germany weighted average asset allocation company’s us pension benefit plans december 31 2003 2002 follows taxqualified pension fund investments united states held agco corporation master pension trust pension fund strategy diversify investments across broad categories equity fixed income securities appropriate use alternative investment categories minimize risk volatility company’s target allocation retirement fund investments 40 large cap domestic equity securities 10 international equity securities 35 domestic fixed income securities 15 investments company noted long periods mix investments would achieve average return excess 9 arriving choice expected return assumption 8 us based plans company tempered historical indicator lower expectations returns equity investments future date company invested pension funds stock intention future weighted average discount rate used determine benefit obligation company’s postretirement benefit plans years ended december 31 2003 2002 625 675 respectively measuring expected postretirement benefit obligation december 31 2003 11 health care cost trend rate assumed 2004 decreasing 10 per year 50 remaining level thereafter measuring expected postretirement benefit obligation december 31 2002 825 health care cost trend rate assumed 2003 decreasing 075 per year 60 remaining level thereafter changing assumed health care cost trend rates one percentage point year holding assumptions constant would following effect service interest cost 2003 accumulated postretirement benefit obligation december 31 2003 millions november 2003 us congress passed medicare prescription drug improvement modernization act 2003 act signed law december 2003 act introduces prescription drug benefit medicare well federal subsidy sponsors retiree health care benefit plans provide benefit least equivalent medicare part measurements accumulated postretirement benefit obligation net periodic postretirement benefit cost reflect effects act company’s postretirement health care plans company currently evaluating impact act company’s plans agco corporation notes consolidated financial statements continued company currently estimates minimum contributions 2004 us based defined pension plans postretirement health care life insurance benefit plans aggregate approximately 52 million 36 million respectively supplemental executive retirement plan “serp” unfunded plan provides company executives retirement income period ten years based percentage final base salary reduced executive’s social security benefits 401k employer matching contributions account benefit paid executive equal 3 final base salary times credited years service maximum benefit 60 final base salary benefits serp vest age 65 discretion board directors age 62 reduced factor recognize early commencement benefit payments net annual serp cost measurement assumptions plan years ended december 31 2003 2002 2001 set forth millions following tables set forth reconciliations changes benefit obligation funded status december 31 2003 2002 millions weighted average discount rate used determine benefit obligation company’s serp plan years ended december 31 2003 2002 625 675 respectively company maintains separate defined contribution plans covering certain employees primarily united states united kingdom plans company contributes specified percentage agco corporation notes consolidated financial statements continued eligible employee’s compensation company contributed 31 million 34 million 28 million years ended december 31 2003 2002 2001 respectively 9 common stock december 31 2003 company 1500 million authorized shares common stock par value 001 per share 754 million shares common stock outstanding 19 million shares reserved issuance company’s 2001 stock option plan note 10 01 million shares reserved issuance company’s nonemployee director stock incentive plan note 10 19 million shares reserved issuance company’s longterm incentive plan note 10 april 1994 company designated 300000 shares junior cumulative preferred stock “junior preferred stock” connection adoption stockholders’ rights plan “rights plan” terms rights plan onethird preferred stock purchase right “right” attached outstanding share company’s common stock rights plan contains provisions designed protect stockholders event certain unsolicited attempts acquire company terms rights plan right entitles holder purchase one onehundredth share junior preferred stock par value 001 per share exercise price 200 per share rights exercisable specified number days following acquisition person group persons 20 company’s common stock ii commencement tender exchange offer 20 company’s common stock event company surviving company merger person group persons owns 20 company’s outstanding stock right entitle holder 20 stockholder receive upon exercise common stock company value equal two times right’s exercise price addition event company sells transfers 50 assets earning power right entitle holder receive upon exercise common stock acquiring company value equal two times right’s exercise price rights may redeemed company 001 per right prior expiration april 27 2004 march 2001 company sold 555 nonvoting preferred shares convertible shares company’s common stock private placement net proceeds approximately 53 million june 2001 preferred shares converted 555000 shares company’s common stock 10 stock incentive plans nonemployee director stock incentive plan company’s nonemployee director stock incentive plan “director plan” provides restricted stock awards nonemployee directors based increases price company’s common stock awarded shares earned specified increments 15 increase average market value company’s common stock initial base price established plan increment awarded shares earned shares issued participant form restricted stock vests earlier 12 months specified performance period upon departure board directors restricted shares earned cash bonus equal 40 value shares date restricted stock award earned paid company satisfy portion estimated income tax liability incurred participant december 31 2003 36000 shares awarded earned director plan 44870 shares earned vested director plan agco corporation notes consolidated financial statements continued outstanding shares awarded earned december 31 2003 consist following earned company’s average common stock price reaches following increments consecutive 20day period 2003 director plan amended increase number shares authorized issuance 150000 shares longterm incentive plan “ltip” company’s ltip provides restricted stock awards executives based increases price company’s common stock awarded shares may earned fiveyear performance period specified increments 20 increase average market value company’s common stock established initial base price restricted stock awards prior 2000 earned shares issued participant form restricted stock generally carries fiveyear vesting period onethird earned award vesting end third fourth fifth year award earned 2000 ltip amended replace vesting schedule nontransferability period future grants accordingly restricted stock awards 2000 future awards earned shares subject nontransferability period expires fiveyear period transfer restrictions lapsing onethird increments end third fourth fifth year award earned nontransferability period participants restricted selling assigning transferring pledging otherwise disposing earned shares earned shares subject forfeiture event participant terminates employment company nontransferability period extended two years earned shares vested longer subject forfeiture company obligated pay cash bonus equal 40 value shares date shares earned order satisfy portion estimated income tax liability incurred participant awards granted 2000 future company record entire compensation expense relating market value earned shares related cash bonus period award earned awards granted prior 2000 market value awards earned added common stock additional paidin capital equal amount deducted stockholders’ equity unearned compensation ltip unearned compensation amount cash bonus paid awarded shares become vested amortized expense ratably vesting period company recognized compensation expense associated ltip director plan 06 million 441 million 71 million years ended december 31 2003 2002 2001 respectively consisting compensation expense relating earned shares amortization stock awards earned shares issued prior 2000 related cash bonuses agco corporation notes consolidated financial statements continued additional information regarding ltip years ended december 31 2003 2002 2001 follows outstanding shares awarded earned december 31 2003 consist following earned company’s average common stock price reaches following increments consecutive 20day period 2001 ltip amended permit participant elect forfeit portion earned award order fully satisfy federal state employment taxes payable time shares related cash bonus earned number shares common stock equal value participant’s tax liability net cash bonus thereby forfeited lieu additional cash payment contributed participant’s tax withholding 2003 2002 2001 1513 299409 52540 earned shares respectively forfeited manner awards granted prior 2000 number shares vested years 2003 2002 2001 1667 201334 166500 respectively awards granted 2000 vest immediately upon earned stock option plan company’s stock option plan “option plan” provides granting nonqualified incentive stock options officers employees directors others stock option exercise price determined board directors except case incentive stock option purchase price shall less 100 fair market value date grant recipient stock options entitled immediately exercise 20 options issued person remaining 80 options vest ratably fouryear period expire later ten years date grant agco corporation notes consolidated financial statements continued stock option transactions years ended december 31 2003 2002 2001 follows december 31 2003 outstanding options weighted average remaining contractual life approximately 69 years 1226488 options currently exercisable option prices ranging 819 3125 weighted average exercise price 1859 following table sets forth exercise price range number shares weighted average exercise price remaining contractual lives groups similar price company accounts stockbased compensation awarded director plan ltip option plan prescribed apb 25 also provides disclosures required sfas 123 sfas 148 apb 25 requires recognition compensation expense options granted option plan long certain conditions met compensation expense recorded apb 25 option plan however apb 25 require recognition compensation expense director plan ltip disclosure purposes sfas 123 company estimated fair value grants company’s stock option plan using blackscholes option pricing model utilized barrier option model awards granted director plan ltip based models weighted average agco corporation notes consolidated financial statements continued fair value options granted option plan weighted average fair value awards granted director plan ltip follows millions fair value grants awards amortized vesting period stock options awards earned director plan ltip performance period unearned awards director plan ltip following table illustrates effect net income loss earnings loss per common share company applied fair value recognition provisions sfas 123 sfas 148 millions except per share data agco corporation notes consolidated financial statements continued 11 derivative instruments hedging activities effective january 1 2001 company adopted sfas 133 amended sfas 138 cumulative effect adopting standard january 1 2001 resulted fair value asset net taxes approximately 05 million reclassified earnings next twelve months derivatives recognized consolidated balance sheets fair value date derivative contract entered company designates derivative either 1 fair value hedge recognized liability 2 cash flow hedge forecasted transaction 3 hedge net investment foreign operation 4 nondesignated derivative instrument company currently engages derivatives classified cash flow hedges nondesignated derivative instruments changes fair value derivative designated cash flow hedge recorded comprehensive income reclassified earnings time settlement forecasted transaction changes fair value nondesignated derivative contracts ineffective portion designated derivative instruments reported current earnings company formally documents relationships hedging instruments hedged items well risk management objectives strategy undertaking various hedge transactions company formally assesses hedge’s inception ongoing basis whether derivatives used hedging transactions highly effective offsetting changes fair values cash flow hedged items determined derivative longer highly effective hedge accounting discontinued prospective basis foreign currency risk company significant manufacturing operations united states france germany denmark brazil purchases portion tractors combines components third party foreign suppliers primarily various european countries japan company also sells products 140 countries throughout world company’s significant transactional foreign currency exposures euro brazilian real canadian dollar relation us dollar company attempts manage transactional foreign exchange exposure hedging identifiable foreign currency cash flow commitments forecasts arising receivables payables expected purchases sales naturally offsetting currency positions occur company hedges certain exposures use foreign currency forward contracts company uses foreign currency forward contracts hedge receivables payables company subsidiaries’ balance sheets denominated foreign currencies functional currency forward contracts classified nondesignated derivatives instruments years ended december 31 2003 2002 company recorded net gains approximately 90 million 173 million net loss 78 million year ended december 31 2001 caption expense net respectively gains losses substantially offset losses gains remeasurement underlying asset liability hedged company uses foreign currency forward contracts hedge forecasted foreign currency inflows outflows resulting purchases sales company recorded gain loss resulting forward contract’s ineffectiveness discontinuance cash flow hedge interest rate risk company may use interest rate swap agreements manage exposure interest rate changes currently company interest rate swap agreements outstanding agco corporation notes consolidated financial statements continued following table summarizes activity accumulated comprehensive loss related derivatives held company years ended december 31 2003 2002 2001 millions addition company recorded deferred gain 27 million 04 million net taxes deferred loss 58 million net taxes comprehensive loss related derivatives held affiliates years ended december 31 2003 2002 2001 respectively gains loss related interest rate swap contracts company’s retail finance joint ventures swap contracts effect converting floating rate debt fixed rates order secure yield fixed rate loan portfolio company’s senior management establishes company’s foreign currency interest rate risk management policies reviewed periodically audit committee board directors policy allows use derivative instruments hedge exposures movements foreign currency interest rates company’s policy prohibits use derivative instruments speculative purposes agco corporation notes consolidated financial statements continued 12 commitments contingencies future payments required company’s significant commitments december 31 2003 follows millions 1 unconditional purchase obligations exclude routine purchase orders entered normal course business guarantees december 31 2003 company obligated certain circumstances purchase year 2009 137 million equipment upon expiration certain operating leases agco finance llc agco finance canada ltd company’s retail finance joint ventures north america end users company also maintains remarketing agreement joint ventures whereby company obligated repurchase repossessed inventory market values december 31 2003 company entered agreement agco finance llc limits company’s purchase obligations arrangement 60 million aggregate per calendar year company believes losses might incurred resale equipment materially impact company’s financial position results operations december 31 2003 company guaranteed indebtedness owed third parties approximately 302 million primarily related dealer end user financing equipment company believes credit risk associated guarantees material financial position addition december 31 2003 company outstanding net foreign currency forward contracts approximately 1466 million contracts maturity less one year note 11 total lease expense noncancelable operating leases 231 million 223 million 172 million years ended december 31 2003 2002 2001 respectively company received assessments brazilian tax authorities regarding transaction taxes payable certain foreign currency gains losses company currently contesting assessments believe calculation method applied tax authorities correct company believes probable likely assessments paid total assessment approximates 90 million 95 million company anticipates may take significant time resolve dispute brazilian tax authorities agco corporation notes consolidated financial statements continued discussed note 3 company involved litigation respect pension scheme coventry england company also party various claims lawsuits arising normal course business opinion management consultation legal counsel claims lawsuits excluding potential adverse outcome respect pension case resolved material adverse effect financial position results operations company 13 related party transactions rabobank nederland aaa rated financial institution based netherlands 51 owner company’s retail finance joint ventures located united states canada united kingdom france germany spain ireland brazil rabobank also principal agent participant company’s revolving credit facility securitization facilities majority assets company’s retail finance joint ventures represent finance receivables majority liabilities represent notes payable accrued interest various joint venture agreements rabobank affiliates obligated provide financing joint venture companies primarily lines credit company guarantee obligations retail finance joint ventures 49 approximately 198 million solvency requirements brazil joint venture brazil company’s joint venture company agency relationship rabobank whereby rabobank provides funding company’s retail finance joint ventures provide retail financing wholesale financing dealers terms financing arrangements offered company’s dealers similar arrangements retail finance joint ventures provide unaffiliated third parties december 31 2003 company obligated certain circumstances purchase year 2009 137 million equipment upon expiration certain operating leases agco finance llc agco finance canada ltd retail joint ventures north america end users company also maintains remarketing agreement joint ventures note 12 addition part sales incentives provided end users company may time subsidize interest rates retail financing provided retail joint ventures cost programs recognized time sale company’s dealers 2003 2002 company net sales 1161 million 1302 million respectively baywa corporation german distributor ordinary course business president ceo baywa corporation also member board directors company 2002 company purchased approximately 1275 million equipment components manufacturing joint venture gima cost july 1 2003 company began consolidating gima accordance requirements fin 46 note 14 2003 2002 company purchased approximately 56 million 53 million respectively equipment components manufacturing joint venture deutz agco motores sa prices approximating cost 14 consolidation joint venture company currently equity interests joint ventures entities joint ventures company primary beneficiary determined fin 46 company accounts investments equity method accounting third quarter 2003 company analyzed provisions fin 46 relate accounting investments joint ventures determined primary beneficiary one joint ventures gima established 1994 company renault cooperate field purchasing design manufacturing components agricultural tractors party current investment 48 million joint venture gima third party debt obligations agco corporation notes consolidated financial statements continued terms gima agreement either party may give notice wishes sell shares party receiving notice obligated purchase shares within eighteen months per gima agreement share price 25 net worth joint venture july 1 2003 company began consolidating accounts gima historically company accounted investment gima equity method consolidation gima material impact results operations financial position company equity interest renault reported minority interest included “other noncurrent liabilities” accompanying condensed consolidated balance sheet december 31 2003 15 segment reporting company five reportable segments north america south america europe africa middle east asia pacific sprayers regional segment distributes full range agricultural equipment related replacement parts sprayers manufactures distributes selfpropelled agricultural sprayers replacement parts company evaluates segment performance primarily based income operations sales regional segment based location thirdparty customer significant intercompany transactions segments eliminated company’s selling general administrative expenses engineering expenses charged segment based region division expenses incurred result components operating income one segment may comparable another segment result agchem acquisition sprayers includes agchem company’s prior sprayer operations segment results years ended december 31 2003 2002 2001 follows millions agco corporation notes consolidated financial statements continued reconciliation segment information consolidated balances income operations total assets set forth millions net sales customer location years ended december 31 2003 2002 2001 follows millions agco corporation notes consolidated financial statements continued net sales product years ended december 31 2003 2002 2001 follows millions property plant equipment country december 31 2003 2002 follows millions 16 subsequent events january 5 2004 company acquired valtra tractor diesel engine operations kone corporation finnish company 6006 million net approximately 214 million cash acquired approximately 7559 million net subject customary closing adjustments valtra global tractor offroad engine manufacturer nordic region europe latin america acquisition valtra provides company opportunity expand business significant global markets utilizing valtra’s technology productivity leadership agricultural equipment market valtra’s unaudited revenues twelve months ended september 30 2003 accounting principles generally accepted united states america approximately 9022 million acquired assets liabilities consist primarily inventories accounts receivable property plant equipment technology tradenames patents results operations valtra acquisition included company’s consolidated financial statements date acquisition valtra acquisition accounted accordance sfas 141 “business combinations” accordingly company allocate purchase price assets acquired liabilities assumed based preliminary estimate fair values acquisition date company expects record goodwill identifiable intangible assets tradenames technology related patents customer relationship intangibles part purchase price allocation company completed initial funding 6006 million cash purchase price valtra issuance 2013 million principal amount convertible senior subordinated notes note 7 funds borrowed company’s new credit facility term loan facility availability 7500 million entered january 5 2004 1000 million borrowed interim bridge facility also closed january 5 2004 company’s new credit facility provides 3000 million multicurrency revolving credit facility 3000 million us dollar denominated term loan 1200 million approximately 1500 million euro denominated term loan revolving credit facility mature january 2006 maturity date agco corporation notes consolidated financial statements continued revolving credit facility extended march 2008 company’s existing 8 12 senior subordinated notes due 2006 refinanced terms specified lenders prior date extended december 2008 company’s existing 9 12 senior notes due 2008 refinanced terms specified lenders prior date term loans amortize rate one percent per annum maturity date maturity date term loans january 2006 maturity date term loans extended march 2008 subordinated notes refinanced terms specified lender prior date extended june 2009 senior notes refinanced terms specified lenders prior date revolving credit term facilities secured majority company’s us canadian finnish uk based assets pledge portion stock company’s domestic material foreign subsidiaries interest accrues amounts outstanding facility company’s option either 1 libor plus margin ranging 150 225 based upon company’s senior debt ratio 2 higher administrative agent’s base lending rate onehalf one percent federal funds rate plus margin ranging 025 10 based company’s senior debt ratio facility contains covenants restricting among things incurrence indebtedness making certain payments including dividends company must also fulfill financial covenants including among others total debt ebitda ratio senior debt ebitda ratio fixed charge coverage ratio defined facility addition new credit facility requires company issue least 1000 million common stock january 5 2005 company borrowed 1000 million bridge financing facility january 5 2004 discussed loans bridge facility constitute unsecured senior subordinated obligations bridge loan facility matures january 5 2005 interest accrues borrowings increasing rate interest subject maximum rate bridge facility contains covenants restricting among things incurrence indebtedness making certain payments including dividends requires net proceeds issuances stock debt used prepay bridge financing bridge financing repaid first anniversary closing date january 5 2005 default event default bridge financing bridge lenders may approval holders 50 principal amount loans bridge facility exchange bridge loan “exchange notes” would mature tenth anniversary closing date january 30 2004 company sold land buildings improvements coventry facility approximately 407 million company lease part facility back buyers period three years ability exit lease within two years date sale company expects recognize gain sale real estate approximately 69 million company received approximately 344 million sale proceeds january 30 2004 remainder paid january 30 2005 february 5 2004 company announced received informal inquiry securities exchange commission “sec” asking policies related information regard company’s accounting revenue recognition particularly bill hold transactions sales returns allowances plant facility closing costs reserves personal use corporate aircraft company responded sec’s inquiry subsequently met sec answer questions sec regarding company’s response march 10 2004 sec informed company terminated inquiry result company’s announcement sec inquiry february 6 2004 sekuk global enterprises filed putative class action complaint us district court northern district illinois civil action 04cv961 behalf persons purchased otherwise acquired company’s securities february 6 2003 february 4 2004 inclusive “class period” subsequently three additional similar complaints filed us district court northern district georgia city dania beach police firefighters’ retirement system civil action agco corporation notes consolidated financial statements continued 104cv0535 ann vogel civil action 104cv0617 detectives endowment association annuity fund general complaints allege company chief executive officer chief financial officer violated securities laws regulations issuing materially false misleading statements regarding company’s financial results class period effect artificially inflating market price company’s securities request monetary damages attorneys’ fees fifth complaint filed us district court northern district illinois march 10 2004 sachin joshi civil action 104cv0669 complaint derivative action names directors agco defendants well general complaint alleges directors breached fiduciary duties shareholders permitting participating activities alleged complaints company believe cases merit intends defend actions item 9item 8 financial statements supplementary data following consolidated financial statements agco subsidiaries years threeyear period ended december 31 2004 included item information heading “quarterly results” item 7 page 23 form 10k incorporated herein reference report independent registered public accounting firm board directors stockholders agco corporation audited accompanying consolidated balance sheets agco corporation subsidiaries december 31 2004 2003 related consolidated statements operations stockholders’ equity cash flows years threeyear period ended december 31 2004 connection audits consolidated financial statements also audited financial statement schedule listed item 15a2 consolidated financial statements financial statement schedule responsibility company’s management responsibility express opinion consolidated financial statements financial statement schedule based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements referred present fairly material respects financial position agco corporation subsidiaries december 31 2004 2003 results operations cash flows years threeyear period ended december 31 2004 conformity us generally accepted accounting principles also opinion related financial statement schedule considered relation basic consolidated financial statements taken whole presents fairly material respects information set forth therein discussed note 1 consolidated financial statements company changed method accounting goodwill intangible assets 2002 also audited accordance standards public company accounting oversight board united states effectiveness agco corporation’s internal control financial reporting december 31 2004 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission coso report dated march 14 2005 expressed unqualified opinion management’s assessment effective operation internal control financial reporting kpmg llp atlanta georgia march 14 2005 agco corporation consolidated statements operations millions except per share data see accompanying notes consolidated financial statements agco corporation consolidated balance sheets millions except share amounts see accompanying notes consolidated financial statements agco corporation consolidated statements stockholders’ equity millions except share amounts see accompanying notes consolidated financial statements agco corporation consolidated statements cash flows millions see accompanying notes consolidated financial statements agco corporation notes consolidated financial statements 1 operations summary significant accounting policies business agco corporation “agco” “company” leading manufacturer distributor agricultural equipment related replacement parts throughout world company sells full range agricultural equipment including tractors combines hay tools sprayers forage equipment implements company’s products widely recognized agricultural equipment industry marketed number wellknown brand names including agco® challenger® fendt® gleaner® hesston® massey ferguson® new idea® rogator® spracoupe® sunflower® terragator® valtra® white™ planters company distributes products combination approximately 3900 independent dealers distributors addition company provides retail financing north america united kingdom australia france germany spain brazil retail finance joint ventures coöperative centrale raiffeisenboerenleenbank ba “rabobank nederland” basis presentation consolidated financial statements represent consolidation whollyowned companies majorityowned companies joint ventures company determined primary beneficiary fasb interpretation 46r “consolidation variable interest entities” “fin 46r” company records investments affiliate companies using equity method accounting investments representing ownership less 20 recorded cost significant intercompany balances transactions eliminated consolidated financial statements certain prior period amounts reclassified conform current period presentation revenue recognition sales equipment replacement parts recorded company title risks ownership transferred independent dealer distributor customer payment terms vary market product fixed payment schedules sales terms sale generally require purchase order confirmation accompany shipments title generally passes dealer distributor upon shipment risk loss upon damage theft destruction equipment responsibility dealer distributor thirdparty carrier certain foreign countries company retains form title goods delivered dealers dealer makes payment company recover goods event customer default payment occurs laws foreign countries provide seller’s retention security interest goods manner established united states uniform commercial code right company retains respect title enabling recovery goods event customer default payment dealer distributor may return equipment replacement parts contract company force replacement parts may returned promotional annual return programs provisions returns programs made time sale based terms program historical returns experience company may provide certain sales incentives dealers distributors provisions sales incentives made time sale existing incentive programs provisions revised event subsequent modification incentive program united states canada equipment sales dealers immediately due upon retail sale equipment dealer already paid dealer united states canada installment payments required generally beginning 7 13 months shipment remaining outstanding equipment balance generally due within 12 24 months shipment interest generally charged outstanding balance 4 13 months shipment sales terms highly seasonal products provide payment due dates based specified date year regardless shipment date equipment agco corporation notes consolidated financial statements continued sold dealers united states canada paid full average within 12 months shipment sales replacement parts generally payable within 30 days shipment terms larger seasonal stock orders generally payable within 6 months shipment international markets equipment sales generally payable full within 30 180 days shipment payment terms highly seasonal products specific due date year regardless shipment date sales replacement parts generally payable within 30 days shipment terms larger seasonal stock orders generally payable within 6 months shipment certain markets particularly north america time lag varies based timing level retail demand date company records sale dealer sells equipment retail customer foreign currency translation financial statements company’s foreign subsidiaries translated us currency accordance statement financial accounting standards “sfas” 52 “foreign currency translation” assets liabilities translated us dollars periodend exchange rates income expense items translated average rates exchange prevailing period translation adjustments included “accumulated comprehensive loss” stockholders’ equity gains losses result foreign currency transactions included accompanying consolidated statements operations use estimates preparation financial statements conformity us generally accepted accounting principles requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ estimates made management primarily relate accounts notes receivable inventories deferred income tax valuation allowances intangible assets certain accrued liabilities principally relating reserves volume discounts sales incentives warranty product liability workers’ compensation obligations pensions postretirement benefits cash equivalents company considers investments original maturity three months less cash equivalents cash equivalents december 31 2004 2330 million consisted overnight repurchase agreements financial institutions accounts notes receivable accounts notes receivable arise sale equipment replacement parts independent dealers distributors customers payments due company’s terms sale contingent upon sale equipment dealer distributor retail customer normal circumstances payment terms extended equipment may returned certain regions including united states canada company obligated repurchase equipment replacement parts upon cancellation dealer distributor contract obligations required national state provincial laws require company repurchase dealer distributor’s unsold inventory including inventory receivable already paid sales outside united states canada company normally charge interest outstanding receivables dealers distributors sales certain dealers distributors agco corporation notes consolidated financial statements continued united states canada approximately 215 company’s net sales generated 2004 interest charged prime lending rates outstanding receivable balances interestfree periods interestfree periods vary product generally range 6 12 months exception certain seasonal products bear interest various periods depending time year sale dealer distributor’s sales volume preceding year ended december 31 2004 146 60 07 02 company’s net sales maximum interestfree periods ranging 1 6 months 7 12 months 13 20 months 21 months respectively actual interestfree periods shorter equipment receivable dealers distributors united states canada due immediately upon sale equipment retail customer normal circumstances interest forgiven interestfree periods extended accounts notes receivable shown net allowances sales incentive discounts available dealers doubtful accounts notes receivable allowances december 31 2004 2003 follows millions company transfers certain accounts receivable various financial institutions primarily accounts receivable securitization facilities note 4 company records transfers sales accounts receivable considered surrendered control receivables provisions sfas 140 “accounting transfers servicing financial assets extinguishments liabilities replacement sfas 125” inventories valued lower cost market using firstin firstout method market net realizable value finished goods repair replacement parts work process production parts raw materials market replacement cost december 31 2004 2003 company recorded 1058 million 836 million adjustments surplus obsolete inventories adjustments reflected within “inventories net” inventories net december 31 2004 2003 follows millions property plant equipment property plant equipment recorded cost less accumulated depreciation amortization depreciation provided straightline basis estimated useful lives 10 40 years buildings improvements 3 15 years machinery equipment 3 10 years furniture fixtures expenditures maintenance repairs charged expense incurred agco corporation notes consolidated financial statements continued property plant equipment net december 31 2004 2003 consisted following millions goodwill intangible assets january 1 2002 company adopted sfas 142 “goodwill intangible assets” “sfas 142” sfas 142 required companies cease amortizing goodwill indefinitelived intangible assets december 31 2001 existence june 30 2001 goodwill indefinitelived intangible assets resulting acquisitions completed june 30 2001 amortized sfas 142 required initial impairment assessment performed goodwill indefinitelived intangible assets sfas 142 also established method testing goodwill indefinitelived intangible assets impairment annual basis interim basis event occurs circumstances change would reduce fair value reporting unit carrying value company’s initial assessment annual assessments involve determining estimate fair value company’s reporting units order evaluate whether impairment current carrying amount goodwill indefinitelived intangible assets exists fair values derived based evaluation past expected future performance company’s reporting units reporting unit operating segment one level operating segment eg component operating segment reporting unit component constitutes business discrete financial information available company’s executive management team regularly reviews operating results component addition company combines aggregates two components operating segment single reporting unit components similar economic characteristics company’s reportable segments reported guidance sfas 131 reporting units exception asia pacific geographical segment company utilized combination valuation techniques including discounted cash flow approach market multiple approach comparable transaction approach making initial subsequent annual interim assessments part adoption sfas 142 2002 company determined goodwill associated argentina agco north american reporting units impaired due fact enterprise book values reporting units greater respective calculated fair values result company recorded pretax writedown goodwill 277 million resulted reducing carrying value argentina agco north american reporting units’ goodwill zero writedown recognized cumulative effect change accounting principle 241 million net 36 million income taxes first quarter 2002 stated goodwill tested impairment annual basis often indications impairment exist results company’s analyses conducted october 1 2004 2003 respectively indicated reduction carrying amount goodwill required 2004 2003 agco corporation notes consolidated financial statements continued company’s acquired intangible assets follows millions company amortizes certain acquired intangible assets primarily straightline basis estimated useful lives range 3 30 years ended december 31 2004 2003 2002 acquired intangible asset amortization 158 million 17 million 14 million respectively company estimates amortization existing intangible assets 171 million 2005 170 million 2006 164 million 2007 162 million 2008 2009 accordance sfas 142 company ceased amortizing one trademarks determined indefinite useful life january 1 2002 massey ferguson trademark existence since 1952 formed merger masseyharris established 1890’s ferguson established 1930’s massey ferguson brand currently sold 140 countries worldwide making one widely sold tractor brands world result company’s acquisition valtra january 2004 note 2 company identified valtra trademark indefinitelived asset valtra trademark existence since late 1990’s derivative valmet trademark existence since 1951 valtra valmet used interchangeably marketplace today valtra recognized tractor line valmet name valtra brand currently sold approximately 50 countries around world massey ferguson brand valtra brand primary product lines company’s business company plans use trademarks indefinite period time company plans continue make investments product development enhance value brands future legal regulatory contractual competitive economic factors company aware company believes would limit useful lives trademarks massey ferguson valtra trademark registrations renewed countries company operates nominal cost agco corporation notes consolidated financial statements continued changes carrying amount goodwill years ended december 31 2004 2003 2002 summarized follows millions longlived assets 2004 2003 2002 company reviewed longlived assets impairment whenever events changes circumstances indicated carrying amount asset may recoverable accordance provisions sfas 144 “accounting impairment disposal longlived assets” “sfas 144” company adopted sfas 144 january 1 2002 adoption sfas 144 affect company’s consolidated financial statements sfas 144 impairment loss recognized undiscounted future cash flows estimated generated asset held used sufficient recover unamortized balance asset impairment loss would recognized based difference carrying values estimated fair value estimated fair value determined based either discounted future cash flows appropriate fair value methods amount deficiency charged income current year asset tested recoverability acquired business combination intangible assets resulting acquisition related asset included assessment estimates future cash flows based many factors including current operating results expected market trends competitive influences company also evaluates amortization periods assigned intangible assets determine whether events changes circumstances warrant revised estimates useful lives assets disposed sale reported lower carrying amount fair value less estimated costs sell 2004 company recorded writedown property plant equipment fair value 82 million conjunction assets related rationalization randers denmark combine manufacturing facility 2003 company recorded writedown property plant equipment fair value 20 million conjunction assets held sale primarily related rationalization closure dekalb illinois tractor manufacturing facility see note 3 additional information agco corporation notes consolidated financial statements continued accrued expenses accrued expenses december 31 2004 2003 consisted following millions warranty reserves warranty reserve activity years ended december 31 2004 2003 2002 consisted following millions company’s agricultural equipment products generally warranty defects material workmanship period one four years company accrues future warranty costs time sale based historical warranty experience insurance reserves company’s insurance programs coverage obtained significant liability limits well risks required insured law contract policy company selfinsure portion certain expected losses related primarily workers’ compensation comprehensive general product vehicle liability provisions losses expected programs recorded based company’s estimates aggregate liabilities claims incurred stock incentive plans company accounts stockbased compensation awarded nonemployee director incentive plan “director plan” longterm incentive plan “ltip” stock option plan “option plan” prescribed apb 25 “accounting stock issued employees” also provides disclosures required sfas 123 “accounting stockbased compensation” sfas 148 “accounting stockbased compensation transition disclosure” apb 25 requires recognition compensation expense options granted option plan long certain conditions met compensation expense recorded apb 25 option plan apb 25 requires recognition compensation expense director plan ltip time award earned refer note 10 additional information agco corporation notes consolidated financial statements continued disclosure purposes sfas 123 company estimated fair value grants company’s option plan using blackscholes option pricing model barrier option model awards granted director plan ltip based models weighted average fair value options granted option plan weighted average fair value awards granted director plan ltip follows millions fair value grants awards amortized vesting period stock options awards earned director plan ltip performance period unearned awards director plan ltip following table illustrates effect net income loss earnings loss per common share company applied fair value recognition provisions sfas 123 sfas 148 millions except per share data 2004 2003 diluted reported pro forma earnings per share include impact contingently convertible senior subordinated notes note 1 research development expenses research development expenses expensed incurred included engineering expenses consolidated statements operations agco corporation notes consolidated financial statements continued advertising costs company expenses advertising costs incurred cooperative advertising costs normally expensed time revenue earned advertising expenses years ended december 31 2004 2003 2002 totaled approximately 372 million 260 million 235 million respectively shipping handling expenses shipping handling fees charged customers included component net sales shipping handling costs included part cost goods sold exception certain handling costs included selling general administrative expenses amount 168 million 146 million 130 million years ended december 31 2004 2003 2002 respectively interest expense net interest expense net years ended december 31 2004 2003 2002 consisted following millions income taxes company accounts income taxes provisions sfas 109 “accounting income taxes” sfas 109 requires recognition deferred tax assets liabilities expected future tax consequences events included financial statements tax returns method deferred tax assets liabilities determined based differences financial reporting tax bases assets liabilities using enacted tax rates effect year differences expected reverse net income loss per common share fourth quarter 2004 emerging issues task force “eitf” reached consensus eitf issue 0408 “accounting issues related certain features contingently convertible debt effect diluted earnings per share” eitf issue 0408 requires shares subject issuance contingently convertible debt included calculation diluted earnings per share using ifconverted method regardless whether market price trigger met company adopted eitf 0408 fourth quarter 2004 included approximately 90 million additional shares common stock may issued upon conversion company’s outstanding 134 convertible senior subordinated notes diluted earnings per share calculation year ended december 31 2004 02 million additional shares common stock year ended december 31 2003 addition diluted earnings per share required restated period convertible debt outstanding company’s convertible senior subordinated notes issued december 23 2003 company benefiting losses united states tax purposes interest expense associated convertible senior subordinated notes included diluted earnings per share calculation reflect tax benefit agco corporation notes consolidated financial statements continued reconciliation net income weighted average common shares outstanding purposes calculating basic diluted earnings per share follows stock options purchase 05 million 07 million 06 million shares years ended december 31 2004 2003 2002 respectively outstanding included calculation weighted average common equivalent shares outstanding option exercise prices higher average market price company’s common stock related period addition diluted loss per share calculation 2002 excludes potentially dilutive effect options purchase approximately 07 million shares company’s common stock company incurred loss inclusion would antidilutive agco corporation notes consolidated financial statements continued comprehensive income loss company reports comprehensive income loss defined total net income loss nonowner changes equity components thereof consolidated statements stockholders’ equity components comprehensive income loss related tax effects years ended december 31 2004 2003 2002 follows millions financial instruments carrying amounts reported company’s consolidated balance sheets “cash equivalents” “accounts notes receivable” “accounts payable” approximate fair value due immediate shortterm maturity financial instruments carrying amount longterm debt company’s credit facility note 7 approximates fair value based borrowing rates currently available company loans similar terms average maturities december 31 2004 estimated fair values company’s 912 senior notes 678 senior subordinated notes 134 convertible notes note 7 based listed market values 2663 million 2846 million 2362 million respectively compared carrying values 2500 million 2711 million 2013 million respectively december 31 2003 estimated fair values company’s 912 senior notes 812 senior subordinated notes 134 convertible notes based listed market values 2728 million 2491 million 2264 million respectively compared carrying values 2500 million 2493 2013 million respectively agco corporation notes consolidated financial statements continued company enters foreign exchange forward contracts hedge foreign currency exposure certain receivables payables committed purchases sales contracts periods consistent exposure hedged generally maturities one year less december 31 2004 2003 company foreign exchange forward contracts outstanding gross notional amounts 7436 million 12029 million respectively company unrealized loss foreign exchange forward contracts december 31 2004 36 million unrealized gain 06 million december 31 2003 reflected company’s consolidated statements operations foreign exchange forward contracts subject company’s results operations risk due exchange rate fluctuations gains losses contracts generally offset gains losses exposure hedged company enter foreign exchange forward contracts speculative trading purposes notional amounts foreign exchange forward contracts represent amounts exchanged parties therefore measure company’s risk amounts exchanged calculated basis notional amounts terms contracts credit market risks contracts considered significant accounting changes december 2004 financial accounting standards board fasb issued statement financial accounting standards 123r “sfas 123r” “sharebased payment” sfas 123r requires cost resulting sharebased payment transactions recognized financial statements sfas 123r also establishes fair value measurement method accounting sharebased payments employees required sfas 123r company adopt new accounting standard effective july 1 2005 company estimates application expensing provisions sfas 123r result pretax expense approximately 34 million second half 2005 november 2004 fasb issued sfas 151 “inventory costsan amendment arb 43 chapter 4” “sfas 151” sfas 151 amends guidance arb 43 chapter 4 “inventory pricing” clarify accounting abnormal amounts idle facility expense freight handling costs wasted material spoilage among provisions new rule requires items idle facility expense excessive spoilage double freight rehandling costs recognized currentperiod charges regardless whether meet criterion “so abnormal” stated arb 43 additionally sfas 151 requires allocation fixed production overheads costs conversion based normal capacity production facilities sfas 151 effective fiscal years beginning june 15 2005 required adopted first quarter 2006 company currently evaluating effect adoption sfas 151 consolidated results operations financial condition october 22 2004 american jobs creation act 2004 “ajca” enacted ajca provides deduction income qualified domestic production activities phased 2005 2010 ajca also provides twoyear phase existing extraterritorial income exclusion eti foreign sales viewed inconsistent international trade protocols european union guidance fasb staff position 1091 “application fasb statement 109 “accounting income taxes” tax deduction qualified production activities provided american jobs creation act 2004” deduction treated “special deduction” described sfas 109 special deduction effect deferred tax assets liabilities existing enactment date ajca provides multinational companies election deduct taxable income 85 eligible dividends repatriated foreign subsidiaries eligible dividends generally cannot exceed 500 million must meet certain business purposes qualify deduction addition provisions prohibit use net operating losses avoid tax liability taxable portion qualifying dividend agco corporation notes consolidated financial statements continued estimated impact current tax expense united states generally equal 525 qualifying dividend ajca generally allows company take advantage special deduction november 2004 end calendar year 2005 company propose qualifying plan repatriation 2004 company currently assessing whether propose plan qualifying repatriation 2005 estimated range dividend amounts company may consider would exceed eligible dividend amounts allowable ajca fourth quarter 2004 emerging issues task force “eitf” reached consensus eitf issue 0408 “accounting issues related certain features contingently convertible debt effect diluted earnings per share” eitf issue 0408 requires shares subject issuance contingently convertible debt included calculation diluted earnings per share using ifconverted method regardless whether market price trigger met company adopted eitf 0408 fourth quarter 2004 included approximately 90 million additional shares common stock may issued upon conversion outstanding 134 convertible senior subordinated notes diluted earnings per share calculation year ended december 31 2004 02 million additional shares common stock year ended december 31 2003 addition diluted earnings per share required restated period convertible debt outstanding company’s convertible senior subordinated notes issued december 23 2003 reconciliation net income weighted average common shares outstanding purposes calculating basic diluted earnings per share presented note 1 company’s consolidated financial statements may 19 2004 fasb issued fasb staff position 1062 “fsp 1062” “accounting disclosure requirements related medicare prescription drug improvement modernization act 2003” fsp 1062 relates medicare prescription drug improvement modernization act 2003 “act” signed law december 8 2003 act introduced prescription drug benefit medicare well federal subsidy sponsors retiree health care benefit plans provide benefit least actuarially equivalent medicare company currently evaluating whether benefits provided postretirement benefit plans actuarially equivalent medicare part act decisions regarding impact act company’s plans addressed completion evaluation company currently expect impact material december 2003 fasb issued interpretation 46 “consolidation variable interest entities interpretation arb 51 revised december 2003” “fin 46r” addresses consolidation business enterprises variable interest entities usual condition consolidating controlling financial interest apply fin 46r requires entity assess equity investments determine variable interest entities defined fin 46r variable interests contractual ownership interests entity change changes entity’s net asset value variable interests entity may arise financial instruments service contracts guarantees leases arrangements variable interest entity absorb majority variable interest entity’s expected losses expected residual returns defined fin 46r considered primary beneficiary variable interest entity primary beneficiary must include variable interest entity’s assets liabilities results operations consolidated financial statements provisions fin 46r must applied later first interim period ending march 15 2004 however public companies required apply unmodified provisions fin 46 entities considered “special purpose entities” end first reporting period ending december 15 2003 company analyzed provisions fin 46r relate current securitization facilities special purpose entity related facilities concluded believe impacted interpretation addition company analyzed provisions fin 46r relate accounting investments joint ventures determined primary beneficiary one joint ventures gima established 1994 company renault agriculture sa “renault” cooperate field purchasing design manufacturing components agricultural tractors party 50 agco corporation notes consolidated financial statements continued ownership joint venture july 1 2003 company began consolidating accounts gima historically company accounted investment gima equity method consolidation gima material impact company’s results operations financial position december 2003 fasb issued sfas 132 revised 2003 “employers’ disclosures pensions postretirement benefitsan amendment fasb statements 87 88 106” statement requires disclosures addition required original sfas 132 related assets obligations cash flows net periodic benefit cost defined benefit pension plans defined benefit postretirement plans additional disclosures required company’s year ended december 31 2003 us defined benefit plans defined benefit plans year ended december 31 2004 note 8 2 acquisitions january 5 2004 company acquired valtra tractor diesel engine operations kone corporation finnish company 6046 million net approximately 214 million cash acquired approximately 760 million net valtra global tractor offroad engine manufacturer nordic region europe latin america acquisition valtra provided company opportunity expand business significant global markets utilizing valtra’s technology productivity leadership agricultural equipment market results operations valtra acquisition included company’s consolidated financial statements date acquisition company completed initial funding cash purchase price valtra issuance 2013 million principal amount convertible senior subordinated notes december 2003 funds borrowed revolving credit term loan facilities entered january 5 2004 1000 million borrowed interim bridge facility also closed january 5 2004 valtra acquisition accounted accordance sfas 141 “business combinations” accordingly company allocated purchase price assets acquired liabilities assumed based fair values acquisition date following table presents allocation acquisition cost including professional fees related acquisition costs assets acquired liabilities assumed based upon fair value agco corporation notes consolidated financial statements continued net assets acquired include transaction costs incurred 2004 2003 company recorded approximately 3584 million goodwill approximately 1569 million identifiable intangible assets follows millions acquired intangible assets weighted average useful life approximately 9 years december 31 2004 approximately 3117 million 749 million goodwill reported within company’s europemiddle eastafrica south american reportable segments respectively two components tax deductible goodwill associated acquisition valtra specifically related operations valtra finland first component tax deductible goodwill approximately 2011 million generate deferred income taxes future asset amortized income tax purposes second component tax deductible goodwill approximately 1577 million relates tax deductible goodwill excess goodwill financial reporting purposes tax benefits associated excess applied reduce amount goodwill financial reporting purposes future tax benefits realized income tax return purposes november 7 2002 company completed acquisition sunflower manufacturing co inc “sunflower” former product line spx corporation sunflower leading producer tillage seeding specialty harvesting equipment serving north american market located beloit kansas purchase price approximately 480 million funded borrowings company’s revolving credit facility acquired assets liabilities consist primarily inventories agco corporation notes consolidated financial statements continued accounts receivables property plant equipment technology tradenames patents results operations sunflower acquisition included company’s consolidated financial statements date acquisition company recorded approximately 31 million goodwill approximately 87 million tradenames patents identifiable intangible assets associated acquisition sunflower tradenames patents identifiable intangible assets amortized period 12 30 years sunflower acquisition accounted accordance sfas 141 “business combinations” “sfas 141” accordingly purchase price allocated assets acquired liabilities assumed based estimated fair values acquisition date march 5 2002 company completed agreement caterpillar inc “caterpillar” acquire design assembly marketing new mt series caterpillar’s challenger tractor line company issued approximately 10 million shares common stock transaction valued approximately 213 million based closing price company’s common stock acquisition date july 2002 company received approximately 09 million caterpillar pursuant terms purchase agreement whereby proceeds caterpillar received upon sale company’s stock 210 million would refunded company addition company purchased approximately 136 million initial production inventory caterpillar connection supply agreement caterpillar results operations product line included company’s results date acquisition acquired assets consisted primarily inventories property plant equipment accounts receivable acquired liabilities assumed transaction since rights obligations relating past sales prior series challenger product line remained caterpillar challenger acquisition accounted accordance sfas 141 accordingly purchase price allocated assets acquired liabilities assumed based estimated fair values acquisition date since estimated fair value assets acquired excess purchase price goodwill recorded connection acquisition april 16 2001 company completed acquisition agchem equipment co inc “agchem” manufacturer distributor selfpropelled sprayers company paid agchem shareholders approximately 2472 million consisting approximately 118 million agco common shares 1475 million cash funding cash component purchase price made borrowings company’s revolving credit facility agchem acquisition accounted purchase accordance accounting principles board “apb” opinion 16 “business combinations” accordingly purchase price allocated assets acquired liabilities assumed based fair values acquisition date acquired assets liabilities primarily consisted technology trademarks tradenames accounts receivables inventories property plant equipment accounts payable accrued liabilities results operations agchem acquisition included company’s consolidated financial statements date acquisition company recorded approximately 1423 million goodwill 272 million trademarks identifiable intangible assets associated acquisition agchem trademarks identifiable intangible assets amortized periods ranging 8 30 years agco corporation notes consolidated financial statements continued following pro forma data summarizes results operations years ended december 31 2003 2002 valtra acquisition occurred january 1 2003 sunflower challenger acquisitions occurred january 1 2002 unaudited pro forma information prepared comparative purposes purport represent results operations company actually would transaction occurred date indicated results operations may future period following pro forma information also excludes impact equity debt offerings completed company second quarter 2004 notes 7 9 millions except per share data 2003 diluted earnings per share includes impact contingently convertible senior subordinated notes note 1 3 restructuring infrequent expenses company recorded restructuring infrequent expenses 01 million 276 million 427 million years ended december 31 2004 2003 2002 respectively 2004 expense consisted 82 million pretax writedown property plant equipment associated rationalization randers denmark combine manufacturing operations announced july 2004 33 million severance facility closure costs associated randers rationalization 14 million charge associated rationalization certain administrative functions within company’s finnish tractor manufacturing facility well 05 million charges associated various rationalization initiatives europe us initiated 2002 2003 2004 charges offset gains sale company’s coventry england manufacturing facility related machinery equipment 83 million 09 million restructuring reserve reversals related coventry closure reversal 41 million previously established provision related litigation involving company’s uk pension scheme company record income tax benefit associated charges relating randers rationalization 2004 2003 expense consisted 120 million charge associated closure company’s coventry england manufacturing facility 124 million charge associated litigation regarding uk pension scheme 25 million costs associated closure company’s dekalb illinois manufacturing facility 12 million charges associated various functional rationalizations initiated 2002 2003 15 million writedown real estate associated closed agchem willmar minnesota facility offset 20 million gain related sale machinery equipment auction coventry england facility 2002 expense consisted 402 million associated closure company’s coventry england manufacturing facility 35 million primarily associated various functional rationalizations offset 10 million net gain related sale two closed manufacturing facilities valtra finland administrative rationalization fourth quarter 2004 company initiated restructuring certain administrative functions within finnish tractor manufacturing operations resulting termination approximately 58 employees company recorded severance costs approximately 14 million associated rationalization 16 58 employees terminated december 31 2004 14 million severance payments accrued december 31 2004 paid 2005 agco corporation notes consolidated financial statements continued randers denmark rationalization july 2 2004 company announced initiated plan related restructuring european combine manufacturing operations located randers denmark include elimination facility’s component manufacturing operations well rationalization combine model range assembled randers restructuring plan reduce cost complexity randers manufacturing operation simplifying model range company outsource manufacturing majority parts components suppliers retain critical key assembly operations randers facility components restructuring expenses summarized following table millions writedown certain property plant equipment within component manufacturing operation represents impairment real estate machinery equipment resulting restructuring rationalization eliminate majority square footage utilized facility impairment charge based upon estimated fair value assets compared carrying value estimated fair value property plant equipment determined based current conditions market carrying value property plant equipment approximately 116 million 82 million impairment charge land buildings machinery equipment tooling disposed marketed sale facility’s component manufacturing production ceases first quarter 2005 impaired property plant equipment associated randers rationalization reported within company’s europe africa middle east segment severance costs associated rationalization relate termination 298 employees december 31 2004 240 298 employees terminated employee retention payments relate incentives paid randers employees remain employed certain future termination dates accrued term retention period facility closure costs include certain noncancelable operating lease terminations facility exit costs total cash restructuring costs associated plan expected approximately 40 million 50 million company also recorded writedown approximately 37 million inventory reflected costs goods sold 2004 related inventory identified obsolete result rationalization 28 million restructuring costs accrued december 31 2004 expected incurred 2005 coventry rationalization 2002 company announced initiated restructuring plan related closure tractor manufacturing facility coventry england relocation existing production coventry company’s beauvais france canoas brazil manufacturing facilities closure facility consistent company’s strategy reduce excess manufacturing capacity particular facility manufactured transaxles assembled tractors range 50110 horsepower trend towards higher horsepower tractors resulting consolidation farms caused product segment industry agco corporation notes consolidated financial statements continued decline recent years negatively impacted facility’s utilization components restructuring expenses summarized following table millions writedown property plant equipment represents impairment machinery equipment resulting facility closure based estimated fair value assets compared carrying value estimated fair value equipment determined based current conditions market time decision made close facility machinery equipment carrying value approximately 140 million 112 million impairment charge recorded second quarter 2002 impaired machinery equipment associated coventry rationalization reported within company’s europeafricamiddle east segment company determined discussions third party real estate advisors land buildings impaired fourth quarter 2003 company sold machinery equipment auction result sales recognized net gain approximately 20 million gain reflected “restructuring infrequent expenses” company’s consolidated statements operations year ended december 31 2003 january 30 2004 company sold land buildings improvements coventry facility approximately 410 million result sale recognized net gain selling costs approximately 69 million gain reflected “restructuring infrequent expenses” company’s consolidated statements operations year ended december 31 2004 company lease part facility back buyers period three years ability exit lease within two years date sale company received approximately 344 million sale proceeds january 30 2004 remaining 66 million january 28 2005 addition company completed auctions remaining machinery equipment well finalized sale facility associated selling costs second quarter 2004 recorded additional 14 million net gains related actions net gains reflected “restructuring infrequent expenses” company’s consolidated statements operations addition company also recorded writedown approximately 14 million inventory reflected costs goods sold year ended december 31 2002 related inventory identified obsolete result rationalization agco corporation notes consolidated financial statements continued severance costs relate termination 1049 employees december 31 2004 employees terminated employee retention payments relate incentives paid coventry employees remain employed certain future termination dates accrued term retention period facility closure costs include certain noncancelable operating lease terminations facility exit costs 2004 company reversed approximately 09 million provisions related restructuring previously established reversals necessary adequately reflect accurate estimates remaining obligations related retention payments lease termination payouts exit costs employees redeployed terminated earlier estimated supplier rental contracts finalized terminated earlier anticipated 07 million restructuring costs accrued december 31 2004 expected incurred 2005 october 2002 company applied high court london england clarification provision uk pension plan governs value pension payments payable employee 50 years old retires service certain circumstances prior normal retirement date primary matter high court whether pension payments employees including take early retirement terminated due closure company’s coventry facility reduced compensate fact pension payments begin prior normal retirement age 65 december 2002 high court ruled company’s position reduced pension payments payable context early retirements terminations company appealed high court’s ruling july 2003 court appeal ruled employees terminated result closure coventry facility qualify full pensions thereby reversing earlier high court ruling aspect case ruled employees might qualify representatives beneficiaries pension plan sought right appeal house lords march 26 2004 house lords denied request result high court’s ruling case certain employees took early retirement prior years voluntary retirement arrangements would entitled additional payments therefore company recorded charge second quarter 2003 included “restructuring infrequent expenses” approximately £75 million approximately 124 million reflect estimate additional pension liability associated previous early retirement programs subsequently full details court appeal judgment published company received detailed legal advice regarding specific circumstances past voluntary retirements would subject court’s ruling based advice company completed detailed review past terminations fourth quarter 2004 concluded number former employees considered eligible receive enhanced pensions court’s ruling lower company’s initial estimate company therefore reduced established provision approximately £25 million approximately 41 million fourth quarter 2004 included “restructuring infrequent expenses” company’s consolidated statements operations dekalb rationalization march 2003 company announced closure challenger track tractor facility located dekalb illinois relocation production facility jackson minnesota production dekalb facility ceased may 2003 relocated resumed minnesota facility june 2003 dekalb plant assembled challenger track tractors range 235 500 horsepower review cost reduction alternatives determined current future production levels time sufficient support standalone track tractor site connection restructuring plan agco corporation notes consolidated financial statements continued company recorded approximately 25 million restructuring infrequent expenses 2003 components restructuring expenses summarized following table millions writedown property plant equipment represented impairment real estate resulting facility closure based upon estimated fair value assets compared carrying value estimated fair value real estate determined based current conditions market carrying value real estate approximately 35 million impairment charge 05 million recorded impaired real estate associated dekalb rationalization reported within company’s north american segment severance costs relate termination 134 employees following completion production dekalb facility december 31 2003 employees terminated employee retention payments relate incentives paid dekalb employees remained employed certain future termination dates accrued term retention period severance costs also accrued term retention period employees entitled severance payments remained service scheduled termination dates certain employees relocated jackson minnesota facility costs associated relocation expensed incurred portion machinery equipment tooling located dekalb relocated jackson minnesota facility second quarter 2003 remaining portion machinery equipment disposed sold company sold dekalb facility real estate fourth quarter 2004 approximately 30 million associated selling costs recorded net loss sale facilities approximately 01 million loss reflected “restructuring infrequent expenses” company’s consolidated statements operations 2002 2003 2004 functional rationalizations 2002 2003 company initiated several rationalization plans recorded restructuring infrequent expenses approximately 34 million 12 million respectively expenses primarily related severance costs certain lease termination exit costs associated rationalization company’s european engineering marketing personnel certain components company’s german manufacturing facilities located kempten marktoberdorf germany well european combine engineering rationalization initiated 2003 year ended 2004 company recorded 02 million restructuring infrequent expenses associated european rationalization initiatives well 02 million charges related closure consolidation valtra’s us canadian sales offices company’s existing us canadian sales organizations 50 million total costs approximately 40 million relate severance costs associated termination approximately 215 employees total december 31 2004 total approximately 44 million expenses incurred paid remaining accrued balance 06 million december 31 2004 expected incurred 2005 agco corporation notes consolidated financial statements continued 1999 2001 rationalizations 2001 company announced plans rationalize certain facilities part agchem acquisition integration consolidated it’s willmar minnesota manufacturing facility it’s agchem benson minnesota manufacturing facility agchem’s jackson minnesota manufacturing plant company recorded approximately 85 million associated rationalization 2001 approximately 01 million costs 2002 fourth quarter 2003 company wrote carrying value real estate willmar facility totaling approximately 23 million estimated fair value recorded impairment charge approximately 15 million reflected “restructuring infrequent expenses” company’s consolidated statements operations estimated fair value real estate determined based current conditions market impaired property plant equipment associated willmar facility closure reported within company’s north american segment fourth quarter 2004 company sold portion willmar facility approximately 08 million 2000 company permanently closed combine manufacturing facility independence missouri 1999 company permanently closed coldwater ohio manufacturing facility company record restructuring infrequent expenses 2002 2003 related closures company incurred paid approximately 05 million expenses years ending december 31 2003 2002 respectively expensed 2000 2001 2002 company sold independence coldwater facilities recorded net gain sale two facilities approximately 10 million reflected “restructuring infrequent expenses” company’s consolidated statements operations 4 accounts receivable securitization december 31 2004 2003 company accounts receivable securitization facilities united states canada europe totaling approximately 4991 million 4485 million respectively company completed us securitization facility 2000 completed canadian european securitization facilities 2001 second quarter 2004 company amended certain provisions united states canada receivable securitization facilities including expansion facilities additional 300 million 100 million respectively eliminate ratings triggers facilities december 31 2004 additional amounts utilized outstanding funding facilities totaled approximately 4589 million december 31 2004 4484 million december 31 2003 funded balance effect reducing accounts receivable shortterm liabilities amount facilities wholesale accounts receivable sold revolving basis commercial paper conduits either direct basis whollyowned special purpose us subsidiary company reviewed accounting securitization facilities whollyowned special purpose us entity accordance sfas 140 “accounting transfers servicing financial assets extinguishments liabilities replacement fasb statement 125” “sfas 140” fas interpretation 46r “consolidation variable interest entities interpretation arb 51” “fin 46r” due fact receivables sold commercial paper conduits insignificant portion conduits’ total asset portfolios receivables siloed consolidation appropriate fin 46r company absorb majority losses transactions addition facilities accounted offbalance sheet transactions accordance sfas 140 losses sales receivables primarily securitization facilities 156 million 2004 146 million 2003 148 million 2002 included “other expense net” company’s consolidated statements operations losses determined calculating estimated present value receivables sold compared carrying amount present value based historical collection agco corporation notes consolidated financial statements continued experience discount rate representing spread libor prescribed terms agreements information related facilities assumptions used loss calculations summarized dollar amounts millions company continues service sold receivables maintains retained interest receivables servicing asset liability recorded since estimated fair value servicing receivables approximates servicing income retained interest receivables sold included caption “accounts notes receivable net” accompanying consolidated balance sheets company’s risk loss securitization facilities limited portion unfunded balance receivables sold approximately 15 funded amount company maintains reserves portion residual interest estimates uncollectible december 31 2004 2003 approximately 111 million 52 million respectively unpaid balance receivables sold past due 60 days fair value retained interest approximately 1168 million 1136 million respectively compared carrying amount 1191 million 1159 million respectively december 31 2004 2003 based present value receivables calculated method consistent losses sales receivables discussed assuming 10 20 increase average liquidation period fair value residual interest would decline 02 million 05 million respectively assuming 10 20 increase discount rate assumed fair value residual interest would decline 02 million 05 million respectively 2004 company received approximately 12702 million sales receivables 56 million servicing fees 2003 company received 10478 million sales receivables 57 million servicing fees 2002 company received approximately 9195 million sales receivables 57 million servicing fees 5 investments affiliates investments affiliates december 31 2004 2003 follows millions manufacturing joint venture december 31 2004 2003 consisted joint venture unrelated manufacturer produce engines south america joint ventures represent minority investments farm equipment manufacturers distributors licensees agco corporation notes consolidated financial statements continued company’s equity net earnings affiliates years ended december 31 2004 2003 2002 follows millions summarized combined financial information company’s retail finance joint ventures december 31 2004 2003 years ended december 31 2004 2003 2002 follows millions majority assets company’s retail finance joint ventures represent finance receivables majority liabilities represent notes payable accrued interest various joint venture agreements rabobank affiliates obligated provide financing joint venture companies agco guarantee debt obligations retail finance joint ventures note 13 6 income taxes sources income taxes equity net earnings affiliates cumulative effect change accounting principle follows years ended december 31 2004 2003 2002 millions agco corporation notes consolidated financial statements continued provision income taxes location taxing jurisdiction years ended december 31 2004 2003 2002 consisted following millions december 31 2004 company’s foreign subsidiaries approximately 11 billion undistributed earnings considered indefinitely invested accordingly united states federal state income taxes provided earnings determination amount unrecognized deferred taxes earnings practical however unrecognized foreign tax credits would available reduce portion tax liability october 22 2004 united states enacted american jobs creation act “ajca” 2004 ajca provides multinational companies election deduct taxable income 85 eligible dividends repatriated foreign subsidiaries eligible dividends generally cannot exceed 500 million must meet certain business purposes qualify deduction addition provisions prohibit use net operating losses avoid tax liability taxable portion qualifying dividend estimated impact current tax expense united states generally equal 525 qualifying dividend ajca generally allows company take advantage special deduction november 2004 end calendar year 2005 company propose qualifying plan repatriation 2004 company currently assessing whether propose plan qualifying repatriation 2005 estimated range dividend amounts company may consider would exceed eligible dividend amounts allowable ajca agco corporation notes consolidated financial statements continued reconciliation income taxes computed united states federal statutory income tax rate 35 provision income taxes reflected consolidated statements operations years ended december 31 2004 2003 2002 follows millions significant components deferred tax assets liabilities december 31 2004 2003 follows millions company recorded net deferred tax asset 1472 million 1856 million december 31 2004 2003 respectively reflected preceding table company established valuation allowance 1429 million 1417 million december 31 2004 2003 respectively agco corporation notes consolidated financial statements continued change valuation allowance years ended december 31 2004 2003 2002 increase 12 million 155 million 735 million respectively accordance sfas 109 company assessed likelihood deferred tax assets would recovered future taxable income determined appropriate adjustment made company’s valuation allowance making assessment available evidence considered including current economic climate well reasonable tax planning strategies company believes likely company realize remaining deferred tax assets net valuation allowance future years december 31 2004 approximately 35 million valuation allowance relates acquired assets valtra recorded reduction goodwill reversed company net operating loss carryforwards 4670 million december 31 2004 expiration dates follows 2006 56 million 2007 287 million 2009 14 million thereafter unlimited 4313 million net operating loss carryforwards include us net loss carryforwards 2759 million foreign net operating loss carryforwards 1911 million company paid income taxes 834 million 785 million 415 million years ended december 31 2004 2003 2002 respectively 7 longterm debt longterm debt consisted following december 31 2004 2003 millions company’s credit facility provides 3000 million multicurrency revolving credit facility 3000 million us dollar denominated term loan 1200 million approximately 1627 million euro denominated term loan revolving credit facility mature march 2008 maturity date revolving credit facility may extended december 2008 company’s existing 912 senior notes due 2008 refinanced terms specified lenders prior date term loans amortize rate one percent per annum maturity date company required prepay approximately 223 million us dollar denominated term loan 90 million euro denominated term loan result excess proceeds received common stock public offering april 2004 beginning march 31 2005 year thereafter company may required prepay portion term loans depending amount cash flow generated prior year addition prepayments company required make quarterly payments towards us dollar denominated term loan euro denominated term loan 075 million 03 million respectively maturity date term loans march 2008 maturity date term loans may extended june 2009 aforementioned senior notes refinanced terms specified lenders prior date revolving credit term facilities secured majority company’s us canadian finnish uk based assets pledge portion stock company’s domestic material foreign subsidiaries interest accrues amounts outstanding facility company’s option either agco corporation notes consolidated financial statements continued 1 libor plus margin ranging 150 225 based upon company’s senior debt ratio 2 higher administrative agent’s base lending rate onehalf one percent federal funds rate plus margin ranging 025 10 based company’s senior debt ratio interest accrues amounts outstanding term loans libor plus 200 facility contains covenants restricting among things incurrence indebtedness making certain payments including dividends company must also fulfill financial covenants including among others total debt ebitda ratio senior debt ebitda ratio fixed charge coverage ratio defined facility december 31 2004 company total borrowings 4247 million credit facility included 2755 million us dollar denominated term loan facility 1101 million approximately 1492 million euro denominated term loan facility december 31 2004 company availability borrow 2912 million revolving credit facility company borrowed 1000 million interim bridge loan facility january 5 2004 april 7 2004 bridge loan facility repaid proceeds common stock offering described note 9 april 23 2004 company completed offering 2000 million 678 senior subordinated notes due 2014 received proceeds approximately 2340 million offering related fees expenses may 24 2004 company used net proceeds offering available cash redeem 2500 million principal amount 812 senior subordinated notes 678 senior subordinated notes unsecured obligations subordinated right payment company’s 912 senior notes existing future senior indebtedness interest payable notes 678 per annum payable semiannually april 15 october 15 year beginning october 15 2004 beginning april 15 2009 company may redeem notes whole part initially 103438 principal amount plus accrued interest declining 100 principal amount plus accrued interest time april 15 2012 addition april 15 2009 company may redeem notes whole part redemption price equal 100 principal amount plus accrued interest plus makewhole premium april 15 2007 company may also redeem 35 notes 106875 principal amount using proceeds sales certain kinds capital stock notes include certain covenants restricting incurrence indebtedness making certain restrictive payments including dividends december 23 2003 company issued 2013 million 134 convertible senior subordinated notes due 2033 private placement offering convertible senior subordinated notes unsecured obligations convertible shares company’s common stock upon satisfaction certain conditions discussed interest payable notes 134 per annum payable semiannually arrears cash june 30 december 31 year convertible senior subordinated notes convertible shares company’s common stock effective price 2236 per share subject adjustment holders notes may convert notes shares company’s common stock conversion rate 447193 shares per 1000 principal amount notes subject adjustment close business december 31 2033 following circumstances 1 fiscal quarter commencing march 31 2004 closing sales price company’s common stock exceeds 120 conversion price least 20 trading days 30 consecutive trading days ending last trading day preceding fiscal quarter 2 five business day period five consecutive trading day period trading price per note day period less 98 product closing sale price company’s common stock conversion rate 3 notes called redemption 4 upon occurrence certain corporate transactions defined beginning january 1 2011 company may redeem notes redemption price 100 principal amount plus accrued interest holders notes may require agco corporation notes consolidated financial statements continued company repurchase notes repurchase price 100 principal amount plus accrued interest december 31 2010 2013 2018 2023 2028 april 17 2001 company issued 2500 million 912 senior notes due 2008 “senior notes” senior notes unsecured obligations company redeemable option company whole part commencing may 1 2005 initially 10475 principal amount plus accrued interest declining 100 principal amount plus accrued interest may 1 2007 indenture governing senior notes requires company offer repurchase senior notes 101 principal amount plus accrued interest date repurchase event change control indenture also contains certain covenants among things limit company’s ability restricted subsidiaries incur additional indebtedness make restricted payments including dividends share repurchases make investments guarantee indebtedness create liens sell assets december 31 2004 aggregate scheduled maturities longterm debt follows millions cash payments interest 956 million 753 million 641 million years ended december 31 2004 2003 2002 respectively company arrangements various banks issue standby letters credit similar instruments guarantee company’s obligations purchase sale certain inventories potential claims exposure insurance coverage december 31 2004 outstanding letters credit issued revolving credit facility totaled 88 million 8 employee benefit plans company defined benefit pension plans covering certain employees principally united states united kingdom germany finland norway france australia brazil company also provides certain postretirement health care life insurance benefits certain employees principally united states net annual pension postretirement cost measurement assumptions plans years ended december 31 2004 2003 2002 set forth millions agco corporation notes consolidated financial statements continued weighted average assumptions used determine net annual benefit costs company’s pension plans years ended december 31 2004 2003 2002 follows following tables set forth reconciliations changes benefit obligation plan assets funded status december 31 2004 2003 millions agco corporation notes consolidated financial statements continued accrued pension costs approximately 58 million classified current liabilities december 31 2004 weighted average assumptions used determine benefit obligation company’s pension plans december 31 2004 2003 follows aggregate projected benefit obligation accumulated benefit obligation fair value plan assets pension plans accumulated benefit obligations excess plan assets 7475 million 7100 million 4904 million respectively december 31 2004 6285 million 6018 million 4273 million respectively december 31 2003 projected benefit obligation accumulated benefit obligation fair value plan assets company’s usbased pension plans 517 million 517 million 397 million respectively december 31 2004 493 million 493 million 372 million respectively december 31 2003 december 31 2004 2003 company recorded reduction equity 2132 million net taxes 659 million 1858 million net taxes agco corporation notes consolidated financial statements continued 574 million respectively related recording minimum pension liability primarily related company’s uk pension scheme accumulated benefit obligation exceeded plan assets company utilizes september 30 measurement date determine pension benefit measurements company’s uk pension scheme company utilizes december 31 measurement date determine pension postretirement benefit measurements company’s plans us rest world weighted average asset allocation company’s us pension benefit plans december 31 2004 2003 follows weighted average asset allocation company’s non us pension benefit plans december 31 2004 follows taxqualified pension fund investments united states held agco corporation master pension trust company’s global pension fund strategy diversify investments across broad categories equity fixed income securities appropriate use alternative investment categories minimize risk volatility company’s us target allocation retirement fund investments 40 large cap domestic equity securities 10 international equity securities 35 domestic fixed income securities 15 invested investments company noted long periods mix investments would achieve average return excess 9 arriving choice expected return assumption 8 us based plans company tempered historical indicator lower expectations returns equity investments future well considered administrative costs plans date company invested pension funds stock intention future company’s nonus target allocation retirement fund investments 50 equity securities 40 fixed income securities 10 percent invested investments majority company’s nonus pension fund investments related company’s pension scheme uk company noted long periods target mix investments would achieve average return excess 73 arriving choice expected return assumption 7 ukbased pension scheme company tempered historical indicator slightly lower expectation future returns equity investments weighted average discount rate used determine benefit obligation company’s postretirement benefit plans years ended december 31 2004 2003 575 625 respectively measuring expected postretirement benefit obligation december 31 2004 10 health care cost trend rate assumed 2005 decreasing 10 per year 50 remaining level thereafter agco corporation notes consolidated financial statements continued measuring expected postretirement benefit obligation december 31 2003 11 health care cost trend rate assumed 2004 decreasing 10 per year 50 remaining level thereafter changing assumed health care cost trend rates one percentage point year holding assumptions constant would following effect service interest cost 2004 accumulated postretirement benefit obligation december 31 2004 millions november 2003 us congress passed medicare prescription drug improvement modernization act 2003 act signed law december 2003 act introduces prescription drug benefit medicare well federal subsidy sponsors retiree health care benefit plans provide benefit least equivalent medicare part measurements accumulated postretirement benefit obligation net periodic postretirement benefit cost reflect effects act company’s postretirement health care plans company currently evaluating whether benefits provided plans actuarially equivalent medicare part act decisions regarding impact act company’s plans addressed completion evaluation company currently estimates minimum contributions 2005 usbased defined pension plans postretirement health care life insurance benefit plans aggregate approximately 34 million 35 million respectively company currently estimates minimum contributions 2005 nonusbased defined pension plans aggregate approximately 244 million 233 million relates uk pension scheme december 31 2004 aggregate expected benefit payments company’s pension plans follows millions december 31 2004 aggregate expected benefit payments company’s us postretirement benefit plans follows millions agco corporation notes consolidated financial statements continued supplemental executive retirement plan “serp” unfunded plan provides company executives retirement income period ten years based percentage final base salary reduced executive’s social security benefits 401k employer matching contributions account benefit paid executive equal 3 final base salary times credited years service maximum benefit 60 final base salary benefits serp vest age 65 discretion board directors age 62 reduced factor recognize early commencement benefit payments net annual serp cost measurement assumptions plan years ended december 31 2004 2003 2002 set forth millions following tables set forth reconciliations changes benefit obligation funded status december 31 2004 2003 millions weighted average discount rate used determine benefit obligation company’s serp plan years ended december 31 2004 2003 575 625 respectively agco corporation notes consolidated financial statements continued december 31 2004 aggregate expected benefit payments company’s serp plan follows millions company maintains separate defined contribution plans covering certain employees primarily united states united kingdom plans company contributes specified percentage eligible employee’s compensation company contributed approximately 75 million 64 million 68 million years ended december 31 2004 2003 2002 respectively 9 common stock december 31 2004 company 1500 million authorized shares common stock par value 001 per share 904 million shares common stock outstanding 19 million shares reserved issuance company’s 2001 stock option plan note 10 01 million shares reserved issuance company’s nonemployee director stock incentive plan note 10 19 million shares reserved issuance company’s longterm incentive plan note 10 april 7 2004 company sold 14720000 shares common stock underwritten public offering received proceeds approximately 3001 million company used net proceeds repay 1000 million interim bridge loan facility repay borrowings credit facility pay offering related fees expenses note 7 company stockholder rights plan adopted april 1994 following stockholder approval plan provides share common stock outstanding attached right purchase onehundredth share junior cumulative preferred stock par value 01 per share purchase price per onehundredth share 10000 subject adjustment rights exercisable person group “acquirer” acquires 20 company’s common stock announces tender offer exchange offer would result acquisition 20 company’s common stock circumstances additional conditions met exercisable plan allows stockholders acquirer purchase company’s common stock securities acquirer current market value two times exercise price right rights redeemable 01 per right subject adjustment option company’s board directors rights expire april 26 2014 unless extended redeemed exchanged company date 10 stock incentive plans nonemployee director stock incentive plan company’s nonemployee director stock incentive plan “director plan” provides restricted stock awards nonemployee directors based increases price company’s common stock awarded shares earned specified increments 15 increase average market value company’s common stock initial base price established plan increment awarded shares earned shares issued participant form restricted agco corporation notes consolidated financial statements continued stock vests earlier 12 months specified performance period upon departure board directors restricted shares earned cash bonus equal 40 value shares date restricted stock award earned paid company satisfy portion estimated income tax liability incurred participant december 31 2004 86000 shares awarded earned director plan 27846 shares earned vested director plan outstanding shares awarded earned december 31 2004 consist following earned company’s average common stock price reaches following increments consecutive 20day period 2003 director plan amended increase number shares authorized issuance 150000 shares december 31 2004 75874 shares reserved issuance longterm incentive plan “ltip” company’s ltip provides restricted stock awards executives based increases price company’s common stock awarded shares may earned fiveyear performance period specified increments 20 increase average market value company’s common stock established initial base price restricted stock awards prior 2000 earned shares issued participant form restricted stock generally carries fiveyear vesting period onethird earned award vesting end third fourth fifth year award earned 2000 ltip amended replace vesting schedule nontransferability period future grants accordingly restricted stock awards 2000 future awards earned shares subject nontransferability period expires fiveyear period transfer restrictions lapsing onethird increments end third fourth fifth year award earned nontransferability period participants restricted selling assigning transferring pledging otherwise disposing earned shares earned shares subject forfeiture event participant terminates employment company nontransferability period extended two years earned shares vested longer subject forfeiture company obligated pay cash bonus equal 40 value shares date shares earned order satisfy portion estimated income tax liability incurred participant awards granted 2000 thereafter company recorded entire compensation expense relating market value earned shares related cash bonus period award earned awards granted prior 2000 market value awards earned added common stock additional paidin capital equal amount deducted stockholders’ equity unearned compensation ltip unearned compensation amount cash bonus paid awarded shares become vested amortized expense ratably vesting period company recognized compensation expense associated ltip director plan 05 million 06 million 441 million years ended december 31 2004 2003 2002 respectively consisting compensation expense relating earned shares amortization stock awards earned shares issued prior 2000 related cash bonuses agco corporation notes consolidated financial statements continued additional information regarding ltip years ended december 31 2004 2003 2002 follows outstanding shares awarded earned december 31 2004 consist following earned company’s average common stock price reaches following increments consecutive 20day period 2001 ltip amended permit participant elect forfeit portion earned award order fully satisfy federal state employment taxes payable time shares related cash bonus earned number shares common stock equal value participant’s tax liability net cash bonus thereby forfeited lieu additional cash payment contributed participant’s tax withholding 2004 2003 2002 1513 0 299409 earned shares respectively forfeited manner awards granted prior 2000 number shares vested years 2004 2003 2002 4166 1667 201334 respectively awards granted 2000 vest immediately upon earned stock option plan company’s stock option plan “option plan” provides granting nonqualified incentive stock options officers employees directors others stock option exercise price determined board directors except case incentive stock option purchase price shall less 100 fair market value date grant recipient stock options entitled immediately exercise 20 options issued person remaining 80 options vest ratably fouryear period expire later ten years date grant agco corporation notes consolidated financial statements continued stock option transactions years ended december 31 2004 2003 2002 follows december 31 2004 outstanding options weighted average remaining contractual life approximately 51 years 1220638 options currently exercisable option prices ranging 850 3125 weighted average exercise price 1791 following table sets forth exercise price range number shares weighted average exercise price remaining contractual lives groups similar price 11 derivative instruments hedging activities company applies provisions sfas 133 amended sfas 138 derivatives recognized consolidated balance sheets fair value date derivative contract entered company designates derivative either 1 fair value hedge recognized liability 2 cash flow hedge forecasted transaction 3 hedge net investment foreign operation 4 nondesignated derivative instrument company currently engages derivatives designated nondesignated derivative instruments changes fair value nondesignated derivative contracts reported current earnings company formally documents relationships hedging instruments hedged items well risk management objectives strategy undertaking various hedge transactions company formally assesses hedge’s inception ongoing basis whether derivatives agco corporation notes consolidated financial statements continued used hedging transactions highly effective offsetting changes fair values cash flow hedged items determined derivative longer highly effective hedge accounting discontinued prospective basis foreign currency risk company significant manufacturing operations united states france germany finland denmark brazil purchases portion tractors combines components third party foreign suppliers primarily various european countries japan company also sells products 140 countries throughout world company’s significant transactional foreign currency exposures euro brazilian real canadian dollar relation us dollar company attempts manage transactional foreign exchange exposure hedging identifiable foreign currency cash flow commitments forecasts arising receivables payables expected purchases sales naturally offsetting currency positions occur company hedges certain exposures use foreign currency forward contracts company uses foreign currency forward contracts hedge receivables payables company subsidiaries’ balance sheets denominated foreign currencies functional currency forward contracts classified nondesignated derivatives instruments year ended december 31 2004 company recorded net losses approximately 376 million caption expense net losses substantially offset gains remeasurement underlying asset liability hedged years ended december 31 2003 2002 company recorded net gains approximately 90 million 173 million respectively caption expense net gains substantially offset losses remeasurement underlying asset liability hedged company uses foreign currency forward contracts hedge portion forecasted foreign currency inflows outflows resulting purchases sales company recorded gain loss resulting forward contract’s ineffectiveness discontinuance cash flow hedge interest rate risk company may use interest rate swap agreements manage exposure interest rate changes currently company interest rate swap agreements outstanding following table summarizes activity accumulated comprehensive loss related derivatives held company years ended december 31 2003 2002 millions derivatives held company accounted hedges 2004 agco corporation notes consolidated financial statements continued addition company recorded deferred gain 38 million 27 million 04 million net taxes comprehensive loss related derivatives held affiliates years ended december 31 2004 2003 2002 respectively gains related interest rate swap contracts company’s retail finance joint ventures swap contracts effect converting floating rate debt fixed rates order secure yield fixed rate loan portfolio company’s senior management establishes company’s foreign currency interest rate risk management policies reviewed periodically audit committee board directors policy allows use derivative instruments hedge exposures movements foreign currency interest rates company’s policy prohibits use derivative instruments speculative purposes 12 commitments contingencies future payments required company’s significant commitments december 31 2004 follows millions unconditional purchase obligations exclude routine purchase orders entered normal course business result rationalization company’s european combine manufacturing operations 2004 company entered agreement third party manufacturer produce certain combine model ranges fiveyear period agreement provides company purchase minimum quantity 200 combines per year cost approximately 200 million per year december 2009 obligation included within “unconditional purchase obligations” agco corporation notes consolidated financial statements continued balance sheet arrangements guarantees december 31 2004 company obligated certain circumstances purchase year 2009 168 million equipment upon expiration certain operating leases agco finance llc agco finance canada ltd company’s retail finance joint ventures north america end users company also maintains remarketing agreement joint ventures whereby company obligated repurchase repossessed inventory market values december 31 2003 company entered agreement agco finance llc limits company’s purchase obligations arrangement 60 million aggregate per calendar year company believes losses might incurred resale equipment materially impact company’s financial position results operations december 31 2004 company guaranteed indebtedness owed third parties approximately 783 million primarily related dealer end user financing equipment company believes credit risk associated guarantees material financial position addition december 31 2004 company foreign currency forward contracts buy aggregate approximately 308 million united states dollar equivalents foreign currency forward contracts sell aggregate approximately 2910 million united states dollar equivalents contracts maturity less one year note 11 time company sells certain trade receivables factoring arrangements financial institutions throughout world company evaluates sale receivables pursuant guidelines sfas 140 “accounting transfers servicing financial assets extinguishments liabilities replacement fasb statement 125” determined facilities accounted offbalance sheet transactions accordance sfas 140 total lease expense noncancelable operating leases 281 million 231 million 223 million years ended december 31 2004 2003 2002 respectively contingencies company received assessments brazilian tax authorities regarding transaction taxes payable certain foreign currency gains losses company currently contesting assessments disputing calculation method applied tax authorities company believes probable likely assessments paid total assessment approximates 90 million 95 million company anticipates may take significant time resolve dispute brazilian tax authorities october 2004 company notified customer claim costs damages arising alleged breaches supply agreement customer’s initial evaluation indicated claim approximately 105 million approximately 140 million company vigorously contesting claim legal proceedings initiated discussions company customer ongoing company party various claims lawsuits arising normal course business opinion management consultation legal counsel claims lawsuits material adverse effect financial position results operations company agco corporation notes consolidated financial statements continued 13 related party transactions rabobank nederland aaa rated financial institution based netherlands 51 owner company’s retail finance joint ventures located united states canada united kingdom australia france germany spain ireland brazil rabobank also principal agent participant company’s revolving credit facility securitization facilities notes 4 7 majority assets company’s retail finance joint ventures represent finance receivables majority liabilities represent notes payable accrued interest various joint venture agreements rabobank affiliates obligated provide financing joint venture companies primarily lines credit company guarantee debt obligations retail finance joint ventures 49 approximately 317 million solvency requirements brazil joint venture brazil company’s joint venture company agency relationship rabobank whereby rabobank provides funding february 2005 company made 213 million investment retail finance joint venture rabobank brazil additional investment joint venture’s organizational structure comparable company’s retail finance joint ventures result gradual elimination company’s solvency guarantee rabobank portfolio originally funded rabobank brazil company’s retail finance joint ventures provide retail financing wholesale financing dealers terms financing arrangements offered company’s dealers similar arrangements retail finance joint ventures provide unaffiliated third parties december 31 2004 company obligated certain circumstances purchase year 2009 168 million equipment upon expiration certain operating leases agco finance llc agco finance canada ltd retail joint ventures north america end users company also maintains remarketing agreement joint ventures note 12 addition part sales incentives provided end users company may time subsidize interest rates retail financing provided retail joint ventures cost programs recognized time sale company’s dealers 2004 2003 company net sales 1865 million 1161 million respectively baywa corporation german distributor ordinary course business president ceo baywa corporation also member board directors company 2002 company purchased approximately 1275 million equipment components manufacturing joint venture gima cost july 1 2003 company began consolidating gima accordance requirements fin 46r note 14 2004 2003 company purchased approximately 24 million 26 million respectively equipment components manufacturing joint venture deutz agco motores sa prices approximating cost 14 consolidation joint venture company currently equity interests joint ventures entities joint ventures company primary beneficiary determined fin 46r company accounts investments equity method accounting third quarter 2003 company analyzed provisions fin 46r relate accounting investments joint ventures determined primary beneficiary one joint ventures gima established 1994 company renault cooperate field purchasing design manufacturing components agricultural tractors party original investment 48 million joint venture gima third party debt obligations terms gima agreement either party may give notice wishes sell shares party receiving notice obligated purchase shares within eighteen months per gima agreement share price 25 net worth joint venture agco corporation notes consolidated financial statements continued july 1 2003 company began consolidating accounts gima historically company accounted investment gima equity method consolidation gima material impact results operations financial position company equity interest renault reported minority interest included “other noncurrent liabilities” accompanying condensed consolidated balance sheets december 31 2004 2003 15 segment reporting company four reportable segments north america south america europeafricamiddle east asiapacific regional segment distributes full range agricultural equipment related replacement parts company evaluates segment performance primarily based income operations sales regional segment based location thirdparty customer beginning first quarter 2004 company modified segment reporting five reportable segments four reportable segments company longer considers sprayers division reportable segment requirements sfas 131 “disclosures segments enterprise related information” due organizational changes distribution servicing certain sprayer products became effective january 1 2004 therefore segment disclosures 2003 2002 reclassified conform presentation going forward intercompany transactions segments eliminated company’s selling general administrative expenses engineering expenses excluding corporate expense charged segment based region division expenses incurred result components operating income one segment may comparable another segment results years ended december 31 2004 2003 2002 follows millions agco corporation notes consolidated financial statements continued reconciliation segment information consolidated balances income operations total assets set forth millions net sales customer location years ended december 31 2004 2003 2002 follows millions agco corporation notes consolidated financial statements continued net sales product years ended december 31 2004 2003 2002 follows millions property plant equipment country december 31 2004 2003 follows millions item 9item 8 financial statements supplementary data following consolidated financial statements agco subsidiaries years threeyear period ended december 31 2005 included item information heading “quarterly results” item 7 page 29 form 10k incorporated herein reference report independent registered public accounting firm board directors stockholders agco corporation audited accompanying consolidated balance sheets agco corporation subsidiaries december 31 2005 2004 related consolidated statements operations stockholders’ equity cash flows years threeyear period ended december 31 2005 connection audits consolidated financial statements also audited financial statement schedule listed item 15a2 consolidated financial statements financial statement schedule responsibility company’s management responsibility express opinion consolidated financial statements financial statement schedule based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements referred present fairly material respects financial position agco corporation subsidiaries december 31 2005 2004 results operations cash flows years threeyear period ended december 31 2005 conformity us generally accepted accounting principles also opinion related financial statement schedule considered relation basic consolidated financial statements taken whole presents fairly material respects information set forth therein also audited accordance standards public company accounting oversight board united states effectiveness agco corporation’s internal control financial reporting december 31 2005 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission coso report dated march 9 2006 expressed unqualified opinion management’s assessment effective operation internal control financial reporting kpmg llp atlanta georgia march 9 2006 agco corporation consolidated statements operations millions except per share data see accompanying notes consolidated financial statements agco corporation consolidated balance sheets millions except share amounts see accompanying notes consolidated financial statements agco corporation consolidated statements stockholders’ equity millions except share amounts see accompanying notes consolidated financial statements agco corporation consolidated statements cash flows millions see accompanying notes consolidated financial statements agco corporation notes consolidated financial statements 1 operations summary significant accounting policies business agco corporation “agco” “company” leading manufacturer distributor agricultural equipment related replacement parts throughout world company sells full range agricultural equipment including tractors combines hay tools sprayers forage equipment implements company’s products widely recognized agricultural equipment industry marketed number wellknown brand names including agco® challenger® fendt® gleaner® hesston® massey ferguson® new idea® rogator® spracoupe® sunflower® terragator® valtra® whitetm planters company distributes products combination approximately 3600 independent dealers distributors addition company provides retail financing united states canada brazil germany france united kingdom australia ireland retail finance joint ventures coöperative centrale raiffeisenboerenleenbank ba “rabobank” basis presentation consolidated financial statements represent consolidation whollyowned companies majorityowned companies joint ventures company determined primary beneficiary financial accounting standards board “fasb” interpretation 46r “consolidation variable interest entities” “fin 46r” company records investments affiliate companies using equity method accounting investments representing ownership less 20 recorded cost significant intercompany balances transactions eliminated consolidated financial statements certain prior period amounts reclassified conform current period presentation revenue recognition sales equipment replacement parts recorded company title risks ownership transferred independent dealer distributor customer payment terms vary market product fixed payment schedules sales terms sale generally require purchase order confirmation accompany shipments title generally passes dealer distributor upon shipment risk loss upon damage theft destruction equipment responsibility dealer distributor thirdparty carrier certain foreign countries company retains form title goods delivered dealers dealer makes payment company recover goods event customer default payment occurs laws foreign countries provide seller’s retention security interest goods manner established united states uniform commercial code right company retains respect title enabling recovery goods event customer default payment dealer distributor may return equipment replacement parts contract company force replacement parts may returned promotional annual return programs provisions returns programs made time sale based terms program historical returns experience company may provide certain sales incentives dealers distributors provisions sales incentives made time sale existing incentive programs provisions revised event subsequent modification incentive program united states canada equipment sales dealers immediately due upon retail sale equipment dealer already paid dealer united states canada installment payments required generally beginning seven 13 months shipment remaining outstanding equipment balance generally due within 12 18 months shipment interest generally charged outstanding balance six 12 months shipment sales terms highly seasonal agco corporation notes consolidated financial statements continued products provide payment due dates based specified date year regardless shipment date equipment sold dealers united states canada paid full average within 12 months shipment sales replacement parts generally payable within 30 days shipment terms larger seasonal stock orders generally requiring payment within six months shipment international markets equipment sales generally payable full within 30 180 days shipment payment terms highly seasonal products specified due date year regardless shipment date sales replacement parts generally payable within 30 90 days shipment terms larger seasonal stock orders generally payable within six months shipment certain markets particularly north america time lag varies based timing level retail demand date company records sale dealer sells equipment retail customer foreign currency translation financial statements company’s foreign subsidiaries translated united states currency accordance statement financial accounting standards “sfas” 52 “foreign currency translation” assets liabilities translated united states dollars periodend exchange rates income expense items translated average rates exchange prevailing period translation adjustments included “accumulated comprehensive loss” stockholders’ equity gains losses result foreign currency transactions included accompanying consolidated statements operations use estimates preparation financial statements conformity us generally accepted accounting principles requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ estimates made management primarily relate accounts notes receivable inventories deferred income tax valuation allowances intangible assets certain accrued liabilities principally relating reserves volume discounts sales incentives warranty product liability workers’ compensation obligations pensions postretirement benefits cash equivalents company considers investments original maturity three months less cash equivalents cash equivalents december 31 2005 2004 1463 million 2330 million respectively consisted overnight repurchase agreements financial institutions accounts notes receivable accounts notes receivable arise sale equipment replacement parts independent dealers distributors customers payments due company’s terms sale generally range one 18 months contingent upon sale equipment dealer distributor retail customer normal circumstances payment terms extended equipment may returned certain regions including united states canada company obligated repurchase equipment replacement parts upon cancellation dealer distributor contract obligations required national state provincial laws require company repurchase dealer distributor’s unsold inventory including inventory receivable already paid agco corporation notes consolidated financial statements continued sales outside united states canada company normally charge interest outstanding receivables dealers distributors sales certain dealers distributors united states canada approximately 29 company’s net sales generated 2005 interest charged prime lending rates outstanding receivable balances interestfree periods interestfree periods vary product generally range six 12 months year ended december 31 2005 158 114 company’s net sales maximum interestfree periods ranging one six months seven 12 months respectively actual interestfree periods shorter equipment receivable dealers distributors united states canada due immediately upon sale equipment retail customer normal circumstances interest forgiven interestfree periods extended may 2005 company completed agreement permit transferring ongoing basis majority interestbearing receivables north america united states canadian retail finance joint ventures upon transfer receivables maintain standard payment terms including required regular principal payments amounts outstanding interest charges market rates arrangement qualified dealers may obtain additional financing united states canadian retail finance joint ventures accounts notes receivable shown net allowances sales incentive discounts available dealers doubtful accounts cash flows related collection receivables reported within “cash flows operating activities” within company’s consolidated statements cash flows accounts notes receivable allowances december 31 2005 2004 follows millions company transfers certain accounts receivable various financial institutions primarily accounts receivable securitization facilities note 4 company records transfers sales accounts receivable considered surrendered control receivables provisions sfas 140 “accounting transfers servicing financial assets extinguishments liabilities replacement sfas 125” “sfas 140” inventories valued lower cost market using firstin firstout method market net realizable value finished goods repair replacement parts work process production parts raw materials market replacement cost december 31 2005 2004 company recorded 797 million 1058 million adjustments surplus obsolete inventories adjustments reflected within “inventories net” inventories net december 31 2005 2004 follows millions agco corporation notes consolidated financial statements continued cash flows related sale inventories reported within “cash flows operating activities” within company’s consolidated statements cash flows property plant equipment property plant equipment recorded cost less accumulated depreciation amortization depreciation provided straightline basis estimated useful lives ten 40 years buildings improvements three 15 years machinery equipment three ten years furniture fixtures expenditures maintenance repairs charged expense incurred property plant equipment net december 31 2005 2004 consisted following millions goodwill intangible assets sfas 142 “goodwill intangible assets” “sfas 142” establishes method testing goodwill indefinitelived intangible assets impairment annual basis interim basis event occurs circumstances change would reduce fair value reporting unit carrying value company’s initial assessment annual assessments involve determining estimate fair value company’s reporting units order evaluate whether impairment current carrying amount goodwill indefinitelived intangible assets exists fair values derived based evaluation past expected future performance company’s reporting units reporting unit operating segment one level operating segment example component operating segment reporting unit component constitutes business discrete financial information available company’s executive management team regularly reviews operating results component addition company combines aggregates two components operating segment single reporting unit components similar economic characteristics company’s reportable segments reported guidance sfas 131 “disclosures segments enterprise related information” reporting units exception asia pacific geographical segment company utilized combination valuation techniques including discounted cash flow approach market multiple approach comparable transaction approach making initial subsequent annual interim assessments stated goodwill tested impairment annual basis often indications impairment exist results company’s analyses conducted october 1 2005 2004 2003 indicated reduction carrying amount goodwill required agco corporation notes consolidated financial statements continued changes carrying amount acquired intangible assets 2005 2004 summarized follows millions company amortizes certain acquired intangible assets primarily straightline basis estimated useful lives range three 30 years acquired intangible assets weighted average useful life follows years ended december 31 2005 2004 2003 acquired intangible asset amortization 165 million 158 million 17 million respectively company estimates amortization existing intangible assets 160 million 2006 155 million 2007 153 million 2008 2009 152 million 2010 agco corporation notes consolidated financial statements continued accordance sfas 142 company determined two trademarks indefinite useful life massey ferguson trademark existence since 1952 formed merger masseyharris established 1890’s ferguson established 1930’s massey ferguson brand currently sold 140 countries worldwide making one widely sold tractor brands world result company’s acquisition valtra january 2004 note 2 company identified valtra trademark indefinitelived asset valtra trademark existence since late 1990’s derivative valmet trademark existence since 1951 valtra valmet used interchangeably marketplace today valtra recognized tractor line valmet name valtra brand currently sold approximately 50 countries around world massey ferguson brand valtra brand primary product lines company’s business company plans use trademarks indefinite period time company plans continue make investments product development enhance value brands future legal regulatory contractual competitive economic factors company aware company believes would limit useful lives trademarks massey ferguson valtra trademark registrations renewed nominal cost countries company operates changes carrying amount goodwill years ended december 31 2005 2004 2003 summarized follows millions longlived assets 2005 2004 2003 company reviewed longlived assets impairment whenever events changes circumstances indicated carrying amount asset may recoverable accordance provisions sfas 144 “accounting impairment disposal longlived assets” “sfas 144” sfas 144 impairment loss recognized undiscounted future cash flows estimated generated asset held used sufficient recover unamortized balance asset impairment loss would recognized based difference carrying values estimated fair value estimated fair value determined based either discounted future cash flows appropriate fair value methods amount deficiency charged income current year asset tested recoverability acquired business combination intangible assets resulting acquisition related asset included assessment estimates future cash flows based many factors including current operating results expected market trends competitive influences company also evaluates amortization periods assigned intangible assets determine whether events changes circumstances warrant revised estimates useful lives assets disposed sale reported lower carrying amount agco corporation notes consolidated financial statements continued fair value less estimated costs sell 2004 company recorded writedown property plant equipment fair value 82 million conjunction assets related rationalization randers denmark combine manufacturing facility 2003 company recorded writedown property plant equipment fair value 20 million conjunction assets held sale primarily related rationalization closure dekalb illinois tractor manufacturing facility see note 3 additional information accrued expenses accrued expenses december 31 2005 2004 consisted following millions warranty reserves warranty reserve activity years ended december 31 2005 2004 2003 consisted following millions company’s agricultural equipment products generally warranty defects material workmanship period one four years company accrues future warranty costs time sale based historical warranty experience insurance reserves company’s insurance programs coverage obtained significant liability limits well risks required insured law contract policy company selfinsure portion certain expected losses related primarily workers’ compensation comprehensive general product vehicle liability provisions losses expected programs recorded based company’s estimates aggregate liabilities claims incurred stock incentive plans company accounts stockbased compensation awarded nonemployee director incentive plan “director plan” longterm incentive plan “ltip” stock option plan “option plan” prescribed accounting principles board opinion 25 “accounting stock issued employees” “apb 25” also provides disclosures required sfas 123 agco corporation notes consolidated financial statements continued “accounting stockbased compensation” “sfas 123” sfas 148 “accounting stockbased compensation transition disclosure” “sfas 148” apb 25 requires recognition compensation expense options granted option plan long certain conditions met compensation expense recorded apb 25 option plan apb 25 requires recognition compensation expense director plan ltip time award earned refer note 10 additional information grants option plan years ended december 31 2005 2004 2003 disclosure purposes sfas 123 company estimated fair value grants company’s option plan using blackscholes option pricing model barrier option model awards granted director plan ltip based models weighted average fair value options granted option plan weighted average fair value awards granted director plan ltip follows fair value grants awards amortized vesting period stock options awards earned director plan ltip performance period unearned awards director plan ltip following table illustrates effect net income earnings per common share company applied fair value recognition provisions sfas 123 sfas 148 millions except per share data 2004 2003 diluted reported pro forma earnings per share include impact contingently convertible senior subordinated notes 2005 pro forma earnings per share include impact cancellation awards director plan ltip december 2005 note 10 agco corporation notes consolidated financial statements continued research development expenses research development expenses expensed incurred included engineering expenses consolidated statements operations advertising costs company expenses advertising costs incurred cooperative advertising costs normally expensed time revenue earned advertising expenses years ended december 31 2005 2004 2003 totaled approximately 358 million 372 million 260 million respectively shipping handling expenses shipping handling fees charged customers included component net sales shipping handling costs included part cost goods sold exception certain handling costs included selling general administrative expenses amount 186 million 168 million 146 million years ended december 31 2005 2004 2003 respectively interest expense net interest expense net years ended december 31 2005 2004 2003 consisted following millions income taxes income taxes accounted asset liability method prescribed provisions sfas 109 “accounting income taxes” “sfas 109” deferred tax assets liabilities recognized future tax consequences attributable differences financial statement carrying amounts existing assets liabilities respective tax bases operating loss tax credit carryforwards deferred tax assets liabilities measured using enacted tax rates expected apply taxable income years temporary differences expected recovered settled effect deferred tax assets liabilities change tax rates recognized income period includes enactment date net income per common share computation presentation disclosure requirements earnings per share presented accordance sfas 128 “earnings per share” basic earnings per common share computed dividing net income weighted average number common shares outstanding period diluted earnings per common share assumes exercise outstanding stock options vesting restricted stock effects assumptions dilutive fourth quarter 2004 emerging issues task force “eitf” reached consensus eitf issue 0408 “accounting issues related certain features contingently convertible debt effect diluted earnings per share” “eitf 0408” eitf 0408 requires shares subject issuance contingently convertible debt included calculation diluted earnings per share using ifconverted method regardless whether market price trigger met company agco corporation notes consolidated financial statements continued adopted eitf 0408 fourth quarter 2004 included approximately 90 million additional shares common stock may issued upon conversion company’s former 134 convertible senior subordinated notes diluted earnings per share calculation year ended december 31 2004 02 million additional shares common stock year ended december 31 2003 addition diluted earnings per share required restated period convertible debt outstanding company’s convertible senior subordinated notes issued december 23 2003 company benefiting losses united states tax purposes interest expense associated convertible senior subordinated notes included diluted earnings per share calculation reflect tax benefit june 29 2005 company completed exchange 2013 million aggregate principal amount 134 convertible senior subordinated notes company exchanged existing convertible notes new notes provide settlement upon conversion cash principal amount converted new notes excess conversion value settled shares company’s common stock ii conversion rate increased certain circumstances new notes converted connection certain change control transactions occurring prior december 10 2010 otherwise substantially old notes impact exchange resulted reduction diluted weighted average shares outstanding approximately 90 million shares prospective basis future dilution weighted shares outstanding depend company’s stock price market price trigger specified conversion circumstances met note 7 reconciliation net income weighted average common shares outstanding purposes calculating basic diluted earnings per share follows millions except per share data stock options purchase 05 million 05 million 07 million shares years ended december 31 2005 2004 2003 respectively outstanding included calculation weighted average common equivalent shares outstanding option exercise prices higher average market price company’s common stock related period agco corporation notes consolidated financial statements continued comprehensive income loss company reports comprehensive income loss defined total net income nonowner changes equity components thereof consolidated statements stockholders’ equity components comprehensive income loss related tax effects years ended december 31 2005 2004 2003 follows millions financial instruments carrying amounts reported company’s consolidated balance sheets “cash equivalents” “accounts notes receivable” “accounts payable” approximate fair value due immediate shortterm maturity financial instruments carrying amount longterm debt company’s credit facility note 7 approximates fair value based borrowing rates currently available company loans similar terms average maturities december 31 2005 estimated fair values company’s 678 senior subordinated notes 134 convertible notes note 7 based listed market values 2464 million 1872 million respectively compared carrying values 2370 million 2013 million respectively december 31 2004 estimated fair values company’s 912 senior notes 678 senior subordinated notes 134 convertible notes based listed market values 2663 million 2846 million 2362 million respectively compared carrying values 2500 million 2711 million 2013 million respectively company enters foreign currency forward contracts hedge foreign currency exposure certain receivables payables committed purchases sales contracts periods consistent exposure hedged generally maturities one year less december 31 2005 agco corporation notes consolidated financial statements continued 2004 company foreign currency forward contracts outstanding gross notional amounts 2553 million 7436 million respectively company unrealized loss foreign currency forward contracts december 31 2005 2004 03 million 36 million respectively reflected company’s consolidated statements operations foreign currency forward contracts subject company’s results operations risk due exchange rate fluctuations gains losses contracts generally offset gains losses exposure hedged company enter foreign currency forward contracts speculative trading purposes notional amounts foreign exchange forward contracts represent amounts exchanged parties therefore measure company’s risk amounts exchanged calculated basis notional amounts terms contracts credit market risks contracts considered significant accounting changes june 2005 fasb issued sfas 154 “accounting changes error corrections replacement apb opinion 20 accounting changes statement 3 reporting accounting changes interim financial statements” “sfas 154” sfas 154 changes requirements accounting reporting change accounting principle previously voluntary changes accounting principles required recognized way cumulative effect adjustment within net income period change sfas 154 requires retrospective application prior periods’ financial statements unless impracticable determine either periodspecific effects cumulative effect change sfas 154 effective accounting changes made fiscal years beginning december 15 2005 however statement change transition provisions existing accounting pronouncements company believe adoption sfas 154 material effect consolidated results operations financial position april 2005 sec adopted new rule changes adoption dates sfas 123r revised 2004 “sharebased payment” “sfas 123r” revision sfas 123 sec’s new rule allows companies implement sfas 123r beginning next fiscal year instead next reporting period begins june 15 2005 rule change accounting required sfas 123r changes dates compliance standard company adopted sfas 123r using modified prospective method effective january 1 2006 company terminated executive director longterm incentive plans end 2005 outstanding awards plans forfeited decision terminate plans related forfeitures made primarily avoid recognizing compensation cost company’s future financial statements upon adoption sfas 123r awards establish new longterm incentive program company plans grant awards new longterm incentive program 2006 subject approval company’s stockholders annual stockholders’ meeting april 2006 approved company currently estimates application expensing provisions sfas 123r result pretax expense 2006 approximately 7 8 million march 2005 fasb issued fasb interpretation “fin” 47 “accounting conditional asset retirement obligations interpretation fasb statement 143” “fin 47” result consistent recognition liabilities relating asset retirement obligations b information expected future cash outflows associated obligations c information investments longlived assets additional asset retirement costs recognized part carrying amounts assets fin 47 clarifies term conditional asset retirement obligation used sfas 143 “accounting asset retirement obligations” refers legal obligation perform asset retirement activity timing method settlement conditional future event may within control entity obligation perform asset retirement agco corporation notes consolidated financial statements continued activity unconditional even though uncertainty exists timing method settlement uncertainty timing method settlement conditional asset retirement obligation factored measurement liability sufficient information exists fin 47 also clarifies entity would sufficient information reasonably estimate fair value asset retirement obligation fin 47 effective later end fiscal years ending december 15 2005 company’s adoption fin 47 december 31 2005 material impact company’s consolidated results operations financial position november 2004 fasb issued sfas 151 “inventory costs amendment arb 43 chapter 4” “sfas 151” sfas 151 amends guidance accounting research bulletin 43 chapter 4 “inventory pricing” “arb 43” clarify accounting abnormal amounts idle facility expense freight handling costs wasted material spoilage among provisions new rule requires items idle facility expense excessive spoilage double freight rehandling costs recognized currentperiod charges regardless whether meet criterion “so abnormal” stated arb 43 additionally sfas 151 requires allocation fixed production overheads costs conversion based normal capacity production facilities sfas 151 effective fiscal years beginning june 15 2005 required adopted first quarter 2006 company currently believe adoption sfas 151 material impact consolidated results operations financial condition october 22 2004 american jobs creation act 2004 “ajca” enacted ajca provides deduction income qualified domestic production activities phased 2005 2010 ajca also provides twoyear phase existing extraterritorial income exclusion “eti” foreign sales viewed inconsistent international trade protocols european union guidance fasb staff position 1091 “application fasb statement 109 ’accounting income taxes ’ tax deduction qualified production activities provided american jobs creation act 2004” deduction treated “special deduction” described sfas 109 “accounting income taxes” special deduction effect deferred tax assets liabilities existing enactment date december 2004 fasb issued staff position 1092 “accounting disclosure guidance foreign earnings repatriation provision within american jobs creation act 2004” ajca provides multinational companies election deduct taxable income 85 eligible dividends repatriated foreign subsidiaries ajca generally allows companies take advantage special deduction november 2004 end calendar year 2005 company propose qualifying plan repatriation 2005 2004 may 19 2004 fasb issued fasb staff position 1062 “accounting disclosure requirements related medicare prescription drug improvement modernization act 2003” “fsp 1062” fsp 1062 relates medicare prescription drug improvement modernization act 2003 “act” signed law december 8 2003 act introduced prescription drug benefit medicare well federal subsidy sponsors retiree health care benefit plans provide benefit least actuarially equivalent medicare based upon final regulations released january 2005 third quarter 2005 company reviewed provisions postretirement health care plans actuaries determine whether benefits offered plans met statutory definition “actuarially equivalent” prescription drug benefits qualify federal subsidy based upon review company believes two plans qualify subsidy accordance fsp 1062 company began reflecting impact anticipated subsidies july 1 2005 prospective basis revalued projected benefit obligation july 1 2005 1 incorporate benefit associated federal subsidy expected received 2 reduce discount rate 575 december 31 2004 525 july 1 2005 revised obligation july 1 2005 reflects reduction approximately 50 million due impact federal subsidy offset increase approximately 18 million due change discount rate last six months 2005 company’s net agco corporation notes consolidated financial statements continued postretirement cost reduced approximately 03 million due impact expected federal subsidy reduction evenly split reduced interest cost lower amortization net actuarial losses note 8 2 acquisitions january 5 2004 company acquired valtra tractor diesel engine operations kone corporation finnish company 6046 million net approximately 214 million cash acquired approximately 760 million net valtra global tractor offroad engine manufacturer nordic region europe latin america acquisition valtra provided company opportunity expand business significant global markets utilizing valtra’s technology productivity leadership agricultural equipment market results operations valtra acquisition included company’s consolidated financial statements date acquisition company completed initial funding cash purchase price valtra issuance 2013 million principal amount 134 convertible senior subordinated notes december 2003 funds borrowed revolving credit term loan facilities entered january 5 2004 1000 million borrowed interim bridge facility also closed january 5 2004 interim bridge facility subsequently repaid april 2004 upon completion common stock offering note 9 valtra acquisition accounted accordance sfas 141 “business combinations” accordingly company allocated purchase price assets acquired liabilities assumed based fair values acquisition date following table presents allocation acquisition cost including professional fees related acquisition costs assets acquired liabilities assumed based upon fair value net assets acquired included transaction costs incurred 2004 2003 agco corporation notes consolidated financial statements continued company recorded approximately 3584 million goodwill approximately 1569 million identifiable intangible assets follows millions acquired intangible assets weighted average useful life approximately nine years date acquisition two components taxdeductible goodwill specifically related operations valtra finland first component tax deductible goodwill approximately 2011 million relates goodwill financial reporting purposes asset generate deferred income taxes future asset amortized income tax purposes second component taxdeductible goodwill approximately 1577 million relates tax deductible goodwill excess goodwill financial reporting purposes tax benefits associated excess applied reduce amount goodwill financial reporting purposes future tax benefits realized income tax return purposes 2005 company realized approximately 38 million tax benefits associated excess tax basis deductible goodwill thus resulting reduction goodwill financial reporting purposes following pro forma data summarizes results operations year ended december 31 2003 valtra acquisition occurred january 1 2003 unaudited pro forma information prepared comparative purposes purport represent results operations company actually would transaction occurred date indicated results operations may future period following pro forma information also excludes impact equity debt offerings completed company second quarter 2004 notes 7 9 millions except per share data pro forma diluted earnings per share includes impact contingently convertible senior subordinated note 1 3 restructuring infrequent expenses company recorded restructuring infrequent expenses 00 million 01 million 276 million years ended december 31 2005 2004 2003 respectively net charges 2005 include 15 million gain sale property plant equipment related completion auctions machinery equipment associated rationalization randers denmark combine manufacturing operations announced july 2004 gain offset 08 million employee retention payments facility closure costs incurred associated randers rationalization well agco corporation notes consolidated financial statements continued 07 million severance facility closure costs related rationalization company’s finnish tractor manufacturing sales parts operations company record income tax benefit provision associated charges gain relating randers rationalization 2005 2004 net charges consisted 82 million pretax writedown property plant equipment associated randers rationalization 33 million severance facility closure costs associated randers rationalization 14 million charge associated rationalization certain administrative functions within company’s finnish tractor manufacturing facility well 05 million charges associated various rationalization initiatives europe united states initiated 2002 2003 2004 charges offset gains sale company’s coventry england manufacturing facility related machinery equipment 83 million 09 million restructuring reserve reversals related coventry closure reversal 41 million previously established provision related company’s uk pension plan company record income tax benefit associated charges relating randers rationalization 2004 2003 expense consisted 120 million charge associated closure company’s coventry manufacturing facility 124 million charge associated uk pension plan 25 million costs associated closure company’s dekalb illinois manufacturing facility 12 million charges associated various functional rationalizations initiated 2002 2003 15 million writedown real estate associated company’s closed willmar minnesota facility offset 20 million gain related sale machinery equipment auction coventry facility valtra european sales office rationalizations second quarter 2005 company announced change distribution valtra fendt products scandinavia entering distribution agreement thirdparty distributor distribute valtra fendt equipment sweden valtra equipment norway denmark result agreement decision close valtra european sales offices company initiated restructuring closure valtra sales offices located united kingdom spain denmark norway resulting termination approximately 24 employees danish norwegian sales operations transferred thirdparty scandinavian equipment distributor october 2005 included transfer certain employees assets lease supplier contracts company recorded severance costs asset writedowns facility closure costs approximately 04 million 01 million 01 million respectively related closures 2005 fourth quarter 2005 company completed sale property plant equipment associated sales offices united kingdom norway recorded gain approximately 02 million reflected within “restructuring infrequent expenses” within company’s consolidated statements operations approximately 02 million severance facility closure costs paid december 31 2005 10 24 employees terminated remaining 03 million severance facility closure costs paid 2006 valtra finland administrative european parts rationalizations fourth quarter 2004 company initiated restructuring certain administrative functions within finnish operations resulting termination approximately 58 employees 2004 company recorded severance costs approximately 14 million associated rationalization company recorded additional 01 million costs first quarter 2005 associated rationalization incurred paid 08 million severance costs 2005 fourth quarter 2005 company reversed 01 million previously established provisions related severance costs severance claims finalized quarter december 31 2005 56 58 employees terminated remaining 06 million severance payments accrued december 31 2005 paid 2009 addition 2005 company incurred expensed approximately agco corporation notes consolidated financial statements continued 03 million contract termination costs associated rationalization valtra european parts distribution operations randers denmark rationalization july 2004 company announced initiated plan related restructuring european combine manufacturing operations located randers denmark include elimination facility’s component manufacturing operations well rationalization combine model range assembled randers restructuring plan reduce cost complexity randers manufacturing operations simplifying model range company outsources manufacturing majority parts components suppliers retained critical key assembly operations randers facility component manufacturing operations ceased february 2005 components restructuring expenses summarized following table millions writedown certain property plant equipment within component manufacturing operation represents impairment real estate machinery equipment resulting restructuring rationalization eliminated majority square footage utilized facility impairment charge based upon estimated fair value assets compared carrying value estimated fair value property plant equipment based current conditions market carrying value property plant equipment approximately 116 million 82 million impairment charge machinery equipment tooling disposed sold portion buildings land improvements marketed sale impaired property plant equipment associated randers rationalization reported within company’s europe africa middle east segment second quarter 2005 company completed auctions remaining machinery equipment recorded gain approximately 15 million associated actions gain reflected within “restructuring infrequent expenses” within company’s consolidated statements operations severance costs relate termination 298 employees december 31 2005 298 employees terminated employee retention payments relate incentives paid randers employees remained employed certain future termination dates accrued term retention period third quarter 2005 company reversed 01 million previously established provisions related retention payments employee retention claims finalized quarter facility closure costs include certain noncancelable operating lease terminations facility exit costs company also recorded writedown approximately 37 million inventory reflected agco corporation notes consolidated financial statements continued costs goods sold 2004 related inventory identified obsolete result rationalization coventry rationalization second quarter 2002 company announced initiated restructuring plan related closure tractor manufacturing facility coventry england relocation existing production coventry company’s beauvais france canoas brazil manufacturing facilities closure facility consistent company’s strategy reduce excess manufacturing capacity particular facility manufactured transaxles assembled tractors range 50 110 horsepower trend towards higher horsepower tractors resulting consolidation farms caused product segment industry decline recent years negatively impacted facility’s utilization components restructuring expenses summarized following table millions 2003 company sold certain machinery equipment coventry facility auction result sales recognized net gain approximately 20 million gain reflected “restructuring infrequent expenses” company’s consolidated statements operations year ended december 31 2003 january 30 2004 company sold land buildings improvements coventry facility approximately 410 million result sale recognized net gain selling costs approximately 69 million gain reflected “restructuring infrequent expenses” company’s consolidated statements operations year ended december 31 2004 company lease part facility back buyers period three years ability exit lease within two years date sale company intends exit lease 2006 required give six months advance notice company received approximately 344 million sale proceeds january 30 2004 remaining 66 million january 28 2005 addition company completed auctions remaining machinery equipment well finalized sale facility associated selling costs second quarter 2004 recorded additional 14 million net gains related actions net gains reflected “restructuring infrequent expenses” company’s consolidated statements operations year ended december 31 2004 employee severance costs relate termination 1049 employees terminated december 31 2004 employee retention payments relate incentives paid coventry employees remained employed certain future termination dates accrued term agco corporation notes consolidated financial statements continued retention period facility closure costs include certain noncancelable operating lease terminations facility exit costs 2004 company reversed approximately 09 million provisions related restructuring previously established reversals necessary adequately reflect accurate estimates remaining obligations related retention payments lease termination payouts exit costs employees redeployed terminated earlier estimated supplier rental contracts finalized terminated earlier anticipated october 2002 company applied high court london england clarification provision uk pension plan governs value pension payments payable employee 50 years old retires service certain circumstances prior normal retirement date primary matter high court whether pension payments employees including take early retirement terminated due closure company’s coventry facility reduced compensate fact pension payments begin prior normal retirement age 65 july 2003 uk court appeal ruled employees terminated result closure coventry facility qualify full pensions ruled employees might qualify result ruling case certain employees took early retirement prior years voluntary retirement arrangements would entitled additional payments therefore company recorded charge second quarter 2003 included “restructuring infrequent expenses” approximately £75 million approximately 124 million reflect estimate additional pension liability associated previous early retirement programs subsequently full details court appeal judgment published company received detailed legal advice regarding specific circumstances past voluntary retirements would subject court’s ruling based advice company completed detailed review past terminations fourth quarter 2004 concluded number former employees considered eligible receive enhanced pensions court’s ruling lower company’s initial estimate company therefore recorded reversal established provision approximately £25 million approximately 41 million fourth quarter 2004 included “restructuring infrequent expenses” company’s consolidated statements operations dekalb rationalization march 2003 company announced closure challenger track tractor facility located dekalb illinois relocation production facility jackson minnesota production dekalb facility ceased may 2003 relocated resumed minnesota facility june 2003 dekalb plant assembled challenger track tractors range 235 500 horsepower review cost reduction alternatives determined current future production levels time sufficient support standalone track tractor site connection restructuring plan agco corporation notes consolidated financial statements continued company recorded approximately 25 million restructuring infrequent expenses 2003 components restructuring expenses summarized following table millions writedown property plant equipment represented impairment real estate resulting facility closure based upon estimated fair value assets compared carrying value estimated fair value real estate determined based current conditions market carrying value real estate approximately 35 million impairment charge 05 million recorded impaired real estate associated dekalb rationalization reported within company’s north american segment severance costs relate termination 134 employees following completion production dekalb facility december 31 2003 employees terminated employee retention payments relate incentives paid dekalb employees remained employed certain future termination dates accrued term retention period severance costs also accrued term retention period employees entitled severance payments remained service scheduled termination dates certain employees relocated jackson minnesota facility costs associated relocation expensed incurred portion machinery equipment tooling located dekalb relocated jackson minnesota facility second quarter 2003 remaining portion machinery equipment disposed sold company sold dekalb facility real estate fourth quarter 2004 approximately 30 million associated selling costs recorded net loss sale facilities approximately 01 million loss reflected “restructuring infrequent expenses” company’s consolidated statements operations 2002 2003 2004 functional rationalizations 2002 2004 company initiated several rationalization plans recorded restructuring infrequent expenses total approximately 50 million 2002 2003 2004 expenses primarily related severance costs certain lease termination exit costs associated rationalization company’s european engineering marketing personnel certain components company’s german manufacturing facilities located kempten marktoberdorf germany rationalization company’s european combine engineering operations closure consolidation company’s valtra united states canadian sales offices existing united states canadian sales organizations company record costs associated rationalizations 2005 50 million total costs approximately 40 million relate severance costs associated termination approximately 215 employees total december 31 2005 accrued expenses incurred paid agco corporation notes consolidated financial statements continued 2001 rationalizations 2001 company permanently closed manufacturing facility willmar minnesota consolidating operations closed facilities jackson minnesota manufacturing plant fourth quarter 2003 company wrote carrying value real estate willmar minnesota facility totaling approximately 23 million estimated fair value recorded impairment charge approximately 15 million reflected “restructuring infrequent expenses” company’s consolidated statements operations estimated fair value real estate determined based current conditions market impaired property plant equipment associated willmar facility closure reported within company’s north american segment fourth quarter 2004 company sold portion willmar facility approximately 08 million 4 accounts receivable securitization december 31 2005 2004 company accounts receivable securitization facilities united states canada europe totaling approximately 4803 million 4991 million respectively 2004 company amended certain provisions united states canadian receivable securitization facilities including expansion facilities additional 300 million 100 million respectively eliminate requirement maintain certain debt rating levels standard poor’s moody’s investor services outstanding funding facilities totaled approximately 4627 million december 31 2005 4589 million december 31 2004 funded balance effect reducing accounts receivable shortterm liabilities amount facilities wholesale accounts receivable sold revolving basis commercial paper conduits either direct basis whollyowned special purpose us subsidiary company reviewed accounting securitization facilities whollyowned special purpose us entity accordance sfas 140 fin 46r due fact receivables sold commercial paper conduits insignificant portion conduits’ total asset portfolios receivables siloed consolidation appropriate fin 46r company absorb majority losses transactions addition facilities accounted offbalance sheet transactions accordance sfas 140 losses sales receivables primarily securitization facilities 224 million 2005 156 million 2004 146 million 2003 included “other expense net” company’s consolidated statements operations losses determined calculating estimated present value receivables sold compared carrying amount present value based historical collection experience discount rate representing spread libor prescribed terms agreements information related facilities assumptions used loss calculations summarized dollar amounts millions company continues service sold receivables maintains retained interest receivables servicing asset liability recorded since estimated fair value servicing agco corporation notes consolidated financial statements continued receivables approximates servicing income retained interest receivables sold included caption “accounts notes receivable net” accompanying consolidated balance sheets company’s risk loss securitization facilities limited portion unfunded balance receivables sold approximately 15 funded amount company maintains reserves portion residual interest estimates uncollectible december 31 2005 2004 approximately 14 million 111 million respectively unpaid balance receivables sold past due 60 days fair value retained interest approximately 1059 million 1168 million respectively compared carrying amount 1079 million 1191 million respectively december 31 2005 2004 based present value receivables calculated method consistent losses sales receivables discussed assuming 10 20 increase average liquidation period fair value residual interest would decline 02 million 04 million respectively assuming 10 20 increase discount rate fair value residual interest would decline 02 million 04 million respectively 2005 company received approximately 12724 million sales receivables 64 million servicing fees 2004 company received 12702 million sales receivables 56 million servicing fees 2003 company received approximately 10478 million sales receivables 57 million servicing fees may 2005 company completed agreement permit transferring ongoing basis majority wholesale interestbearing receivables north america agco finance llc agco finance canada ltd united states canadian retail finance joint ventures company 49 ownership interest joint ventures transfer receivables without recourse company continue service receivables company maintain direct retained interest receivables servicing asset liability recorded since estimated fair value servicing receivables approximates servicing income initial transfer wholesale interestbearing receivables resulted net proceeds approximately 94 million used redeem company’s 250 million 912 senior notes note 7 december 31 2005 balance interestbearing receivables transferred agco finance llc agco finance canada ltd agreement approximately 1099 million 5 investments affiliates investments affiliates december 31 2005 2004 follows millions manufacturing joint venture december 31 2005 2004 consisted joint venture unrelated manufacturer produce engines south america joint ventures represent minority investments farm equipment manufacturers distributors licensees company’s equity net earnings affiliates years ended december 31 2005 2004 2003 follows millions agco corporation notes consolidated financial statements continued summarized combined financial information company’s retail finance joint ventures december 31 2005 2004 years ended december 31 2005 2004 2003 follows millions majority assets company’s retail finance joint ventures represent finance receivables majority liabilities represent notes payable accrued interest various joint venture agreements rabobank affiliates obligated provide financing joint venture companies agco guarantee debt obligations retail finance joint ventures note 13 6 income taxes sources income taxes equity net earnings affiliates follows years ended december 31 2005 2004 2003 millions provision income taxes location taxing jurisdiction years ended december 31 2005 2004 2003 consisted following millions agco corporation notes consolidated financial statements continued december 31 2005 company’s foreign subsidiaries approximately 12 billion undistributed earnings considered indefinitely invested accordingly united states federal state income taxes provided earnings determination amount unrecognized deferred taxes earnings practical however unrecognized foreign tax credits would available reduce portion tax liability october 22 2004 united states enacted american jobs creation act “ajca” 2004 ajca provides multinational companies election deduct taxable income 85 eligible dividends repatriated foreign subsidiaries ajca generally allows companies take advantage special deduction november 2004 end calendar year 2005 company propose qualifying plan repatriation 2005 2004 reconciliation income taxes computed united states federal statutory income tax rate 35 provision income taxes reflected consolidated statements operations years ended december 31 2005 2004 2003 follows millions agco corporation notes consolidated financial statements continued significant components deferred tax assets liabilities december 31 2005 2004 follows millions company recorded net deferred tax asset 269 million 1472 million december 31 2005 2004 respectively reflected preceding table company established valuation allowance 2528 million 1429 million december 31 2005 2004 respectively change valuation allowance years ended december 31 2005 2004 2003 increase 1099 million 12 million 155 million respectively fourth quarter 2005 company recognized noncash deferred income tax charge 908 million related increasing valuation allowance united states deferred tax assets sfas 109 requires establishment valuation allowance likely portion deferred tax assets realized accordance sfas 109 company assessed likelihood deferred tax assets would recovered estimated future taxable income available tax planning strategies determined adjustment valuation allowance appropriate making assessment available evidence considered including current economic climate well reasonable tax planning strategies company believes likely company realize remaining deferred tax assets net valuation allowance future years december 31 2005 approximately 33 million valuation allowance relates acquired assets valtra recorded reduction goodwill realized company net operating loss carryforwards 5362 million december 31 2005 expiration dates follows 2006 44 million 2007 282 million 2010 26 million thereafter agco corporation notes consolidated financial statements continued unlimited 5010 million net operating loss carryforwards include united states net loss carryforwards 3022 million foreign net operating loss carryforwards 2340 million company paid income taxes 559 million 834 million 785 million years ended december 31 2005 2004 2003 respectively 7 longterm debt longterm debt consisted following december 31 2005 2004 millions company’s credit facility provides 3000 million multicurrency revolving credit facility 3000 million united states dollar denominated term loan 1200 million euro denominated term loan maturity date revolving credit facility automatically extended march 2008 december 2008 due redemption company’s 912 senior notes june 23 2005 company required prepay approximately 223 million united states dollar denominated term loan 90 million euro denominated term loan result excess proceeds received common stock public offering april 2004 company required make quarterly payments towards united states dollar denominated term loan euro denominated term loan 075 million 03 million respectively amortization one percent per annum maturity date term loan maturity date term loans automatically extended march 2008 june 2009 due redemption company’s 912 senior notes june 23 2005 revolving credit term loan facilities secured majority company’s united states canadian finnish uk based assets pledge portion stock domestic material foreign subsidiaries interest accrues amounts outstanding revolving credit facility company’s option either 1 libor plus margin ranging 150 225 based upon company’s senior debt ratio 2 higher administrative agent’s base lending rate onehalf one percent federal funds rate plus margin ranging 025 10 based company’s senior debt ratio interest accrues amounts outstanding term loans libor plus 175 credit facility contains covenants restricting among things incurrence indebtedness making certain payments including dividends company also must fulfill financial covenants including among others total debt ebitda ratio senior debt ebitda ratio fixed charge coverage ratio defined facility december 31 2005 company total borrowings 4015 million credit facility included 2725 million united states dollar denominated term loan facility 1089 million approximately 1290 million euro denominated term loan facility december 31 2005 company availability borrow 2929 million revolving credit facility december 31 2004 company total borrowings 4247 million credit facility included 2755 million united states dollar denominated term loan facility 1101 million approximately 1492 million euro denominated term loan facility december 31 2004 company availability borrow 2912 million revolving credit facility march 22 2005 agco corporation notes consolidated financial statements continued company amended term loan agreements among reasons lower borrowing rate 25 basis points libor plus 200 libor plus 175 december 23 2003 company issued 2013 million 134 convertible senior subordinated notes due 2033 private placement offering notes unsecured obligations convertible shares company’s common stock upon satisfaction certain conditions discussed interest payable notes 134 per annum payable semiannually arrears cash june 30 december 31 year notes convertible shares company’s common stock effective price 2236 per share subject adjustment june 29 2005 company exchanged notes new notes provide settlement upon conversion cash principal amount converted new notes excess conversion value settled shares company’s common stock ii conversion rate increased certain circumstances new notes converted connection certain change control transactions occurring prior december 10 2010 otherwise substantially old notes holders may convert notes following circumstances 1 fiscal quarter closing sales price company’s common stock exceeds 120 conversion price least 20 trading days 30 consecutive trading days ending last trading day preceding fiscal quarter 2 five business day period five consecutive trading day period trading price per note day period less 98 product closing sale price company’s common stock conversion rate 3 notes called redemption 4 upon occurrence certain corporate transactions beginning january 1 2011 company may redeem notes redemption price 100 principal amount plus accrued interest holders notes may require company repurchase notes repurchase price 100 principal amount plus accrued interest december 31 2010 2013 2018 2023 2028 impact exchange completed june 2005 discussed reduce diluted weighted average shares outstanding future periods reduction diluted shares approximately 90 million shares prospective basis vary future based company’s stock price market price trigger specified conversion circumstances met june 23 2005 company completed redemption 250 million 912 senior notes due 2008 company redeemed notes price approximately 2619 million included premium 475 face amount senior notes premium approximately 119 million writeoff remaining balance deferred debt issuance costs approximately 22 million recognized interest expense net second quarter 2005 funding source redemption combination cash generated transfer north american wholesale interestbearing receivables company’s united states canadian retail finance joint ventures agco finance llc agco finance canada ltd well revolving credit facility borrowings available cash hand note 4 april 23 2004 company completed offering 2000 million 678 senior subordinated notes due 2014 received proceeds approximately 2340 million offering related fees expenses 678 senior subordinated notes unsecured obligations subordinated right payment company’s existing future senior indebtedness interest payable notes 678 per annum payable semiannually april 15 october 15 year beginning october 15 2004 beginning april 15 2009 company may redeem notes whole part initially 103438 principal amount plus accrued interest declining 100 principal amount plus accrued interest time april 15 2012 addition april 15 2009 company may redeem notes whole part redemption price equal 100 principal amount plus accrued interest plus makewhole premium april 15 2007 company also may redeem 35 notes 106875 principal amount using proceeds sales certain kinds capital stock agco corporation notes consolidated financial statements continued notes include certain covenants restricting incurrence indebtedness making certain restrictive payments including dividends december 31 2005 aggregate scheduled maturities longterm debt excluding current portion longterm debt follows millions cash payments interest 978 million 956 million 753 million years ended december 31 2005 2004 2003 respectively company arrangements various banks issue standby letters credit similar instruments guarantee company’s obligations purchase sale certain inventories potential claims exposure insurance coverage december 31 2005 outstanding letters credit issued revolving credit facility totaled 71 million 8 employee benefit plans company defined benefit pension plans covering certain employees principally united states united kingdom germany finland norway france australia argentina brazil company also provides certain postretirement health care life insurance benefits certain employees principally united states net annual pension costs years ended december 31 2005 2004 2003 set forth millions agco corporation notes consolidated financial statements continued weighted average assumptions used determine net annual pension costs company’s pension plans years ended december 31 2005 2004 2003 follows net annual postretirement costs years ended december 31 2005 2004 2003 set forth millions except percentages following tables set forth reconciliations changes benefit obligation plan assets funded status december 31 2005 2004 millions agco corporation notes consolidated financial statements continued accrued pension costs approximately 44 million classified current liabilities december 31 2005 weighted average assumptions used determine benefit obligation company’s pension plans december 31 2005 2004 follows aggregate projected benefit obligation accumulated benefit obligation fair value plan assets pension plans accumulated benefit obligations excess plan assets 7700 million 7323 million 5158 million respectively december 31 2005 7475 million 7100 million 4904 million respectively december 31 2004 projected benefit obligation accumulated benefit obligation fair value plan assets company’s usbased pension plans 521 million 521 million 417 million respectively december 31 2005 517 million 517 million 397 million respectively december 31 2004 december 31 2005 2004 company recorded reduction equity 2164 million net taxes 663 million 2132 million net taxes agco corporation notes consolidated financial statements continued 659 million respectively related recording minimum pension liability primarily related company’s uk pension plan accumulated benefit obligation exceeded plan assets company utilizes september 30 measurement date determine pension benefit measurements company’s uk pension plan company utilizes december 31 measurement date determine pension postretirement benefit measurements company’s plans united states rest world company bases discount rate used determine projected benefit obligation us pension plans moody’s investor service aa bond yield december 31 year nonus plans company bases discount rate comparable indices within countries 15year iboxx aa corporate bond yield united kingdom indices used united states united kingdom countries chosen match expected plan obligations related expected cash flows weighted average asset allocation company’s us pension benefit plans december 31 2005 2004 follows weighted average asset allocation company’s non us pension benefit plans december 31 2005 2004 follows taxqualified pension fund investments united states held agco corporation master pension trust company’s global pension fund strategy diversify investments across broad categories equity fixed income securities appropriate use alternative investment categories minimize risk volatility company’s us target allocation retirement fund investments 50 large cap domestic equity securities 10 international equity securities 25 domestic fixed income securities 15 invested investments company noted long periods mix investments would achieve average return excess 9 arriving choice expected return assumption 8 usbased plans company tempered historical indicator lower expectations returns equity investments future well considered administrative costs plans date company invested pension funds stock intention future company’s nonus target allocation retirement fund investments 50 equity securities 35 fixed income securities 15 percent invested investments majority company’s nonus pension fund investments related company’s pension plan united kingdom company noted long periods target mix investments would achieve average return excess 73 arriving choice expected return assumption 7 ukbased pension plan company tempered historical indicator slightly lower expectation future returns equity investments agco corporation notes consolidated financial statements continued weighted average discount rate used determine benefit obligation company’s postretirement benefit plans years ended december 31 2005 2004 55 575 respectively measuring expected postretirement benefit obligation december 31 2005 9 health care cost trend rate assumed 2006 decreasing 10 per year 50 remaining level thereafter measuring expected postretirement benefit obligation december 31 2004 10 health care cost trend rate assumed 2005 decreasing 10 per year 50 remaining level thereafter changing assumed health care cost trend rates one percentage point year holding assumptions constant would following effect service interest cost 2005 accumulated postretirement benefit obligation december 31 2005 millions december 2003 united states congress enacted medicare prescription drug improvement modernization act 2003 provide prescription drug subsidy beginning 2006 companies sponsor postretirement health care plans provide drug benefits based upon final regulations released january 2005 third quarter 2005 company reviewed provisions postretirement health care plans actuaries determine whether benefits offered plans met statutory definition “actuarially equivalent” prescription drug benefits qualify federal subsidy based upon review company believes two plans qualify subsidy accordance fsp 1062 fully described note 1 company began reflecting impact anticipated subsidies july 1 2005 prospective basis revalued projected benefit obligation july 1 2005 1 incorporate benefit associated federal subsidy expected received 2 reduce discount rate 575 december 31 2004 525 july 1 2005 revised obligation july 1 2005 reflects reduction approximately 50 million due impact federal subsidy offset increase approximately 18 million due change discount rate last six months 2005 company’s net postretirement cost reduced approximately 03 million due impact expected federal subsidy reduction evenly split reduced interest cost lower amortization net actuarial losses 2005 company recognized curtailment two postretirement health care plans resulting 19 million decrease net postretirement cost company currently estimates minimum contributions 2006 usbased defined pension plans postretirement health care life insurance benefit plans aggregate approximately 04 million 29 million respectively company currently estimates minimum contributions 2006 nonusbased defined pension plans aggregate approximately 215 million 209 million relates uk pension plan agco corporation notes consolidated financial statements continued december 31 2005 aggregate expected benefit payments company’s pension plans follows millions december 31 2005 aggregate expected benefit payments company’s us postretirement benefit plans follows millions supplemental executive retirement plan “serp” unfunded plan provides company executives retirement income period ten years based percentage final base salary reduced executive’s social security benefits 401k employer matching contributions account benefit paid executive equal 3 final base salary times credited years service maximum benefit 60 final base salary benefits serp vest age 65 discretion board directors age 62 reduced factor recognize early commencement benefit payments net annual serp cost measurement assumptions plan years ended december 31 2005 2004 2003 set forth millions agco corporation notes consolidated financial statements continued following tables set forth reconciliations changes benefit obligation funded status december 31 2005 2004 millions weighted average discount rate used determine benefit obligation company’s serp plan years ended december 31 2005 2004 55 575 respectively december 31 2005 aggregate expected benefit payments company’s serp plan follows millions company maintains separate defined contribution plans covering certain employees primarily united states united kingdom brazil plans company contributes specified percentage eligible employee’s compensation company contributed approximately 83 million 75 million 64 million years ended december 31 2005 2004 2003 respectively 9 common stock december 31 2005 company 1500 million authorized shares common stock par value 001 per share 905 million shares common stock outstanding 19 million shares reserved issuance company’s 2001 stock option plan note 10 01 million shares reserved issuance company’s nonemployee director stock incentive plan note 10 19 million shares reserved issuance company’s longterm incentive plan note 10 agco corporation notes consolidated financial statements continued april 7 2004 company sold 14720000 shares common stock underwritten public offering received net proceeds approximately 3001 million company used net proceeds repay 1000 million interim bridge loan facility repay borrowings credit facility pay offering related fees expenses company stockholder rights plan adopted april 1994 following stockholder approval plan provides share common stock outstanding attached right purchase onehundredth share junior cumulative preferred stock par value 01 per share purchase price per onehundredth share 10000 subject adjustment rights exercisable person group “acquirer” acquires 20 company’s common stock announces tender offer exchange offer would result acquisition 20 company’s common stock circumstances additional conditions met exercisable plan allows stockholders acquirer purchase company’s common stock securities acquirer current market value two times exercise price right rights redeemable 01 per right subject adjustment option company’s board directors rights expire april 26 2014 unless extended redeemed exchanged company date 10 stock incentive plans nonemployee director stock incentive plan company’s director plan provides restricted stock awards nonemployee directors based increases price company’s common stock awarded shares earned specified increments 15 increase average market value company’s common stock initial base price established plan increment awarded shares earned shares issued participant form restricted stock vests earlier 12 months specified performance period upon departure board directors restricted shares earned cash bonus equal 40 value shares date restricted stock award earned paid company satisfy portion estimated income tax liability incurred participant addition december 31 2005 12251 shares earned vested director plan december 2005 company’s board directors elected discontinue director plan consequently december 2005 75000 awarded unearned shares forfeited director plan remaining 15000 awarded unearned shares outstanding december 31 2005 forfeited january 2006 resulting awards currently outstanding director plan longterm incentive plan company’s ltip provides restricted stock awards executives based increases price company’s common stock awarded shares may earned fiveyear performance period specified increments 20 increase average market value company’s common stock established initial base price restricted stock awards prior 2000 earned shares issued participant form restricted stock generally carries fiveyear vesting period onethird earned award vesting end third fourth fifth year award earned 2000 ltip amended replace vesting schedule nontransferability period future grants accordingly restricted stock awards 2000 future awards earned shares subject nontransferability period expires fiveyear period transfer restrictions lapsing onethird increments end third fourth fifth year award earned nontransferability period participants restricted selling assigning transferring pledging otherwise disposing earned shares earned shares subject forfeiture event participant terminates employment company nontransferability period extended two years agco corporation notes consolidated financial statements continued earned shares vested longer subject forfeiture company obligated pay cash bonus equal 40 value shares date shares earned order satisfy portion estimated income tax liability incurred participant awards granted 2000 thereafter company recorded entire compensation expense relating market value earned shares related cash bonus period award earned awards granted prior 2000 market value awards earned added common stock additional paidin capital equal amount deducted stockholders’ equity unearned compensation ltip unearned compensation amount cash bonus paid awarded shares become vested amortized expense ratably vesting period company recognized compensation expense associated ltip director plan 04 million 05 million 06 million years ended december 31 2005 2004 2003 respectively consisting compensation expense relating earned shares amortization stock awards earned shares issued prior 2000 related cash bonuses additional information regarding ltip years ended december 31 2005 2004 2003 follows 2001 ltip amended permit participant elect forfeit portion earned award order fully satisfy federal state employment taxes payable time shares related cash bonus earned number shares common stock equal value participant’s tax liability net cash bonus thereby forfeited lieu additional cash payment contributed participant’s tax withholding 2005 2004 2003 zero 1513 zero earned shares respectively forfeited manner awards granted prior 2000 number shares vested years 2005 2004 2003 15000 4166 1667 respectively awards granted 2000 vest immediately upon earned december 2005 company’s board directors elected discontinue ltip consequently december 2005 857000 awarded shares cancelled ltip remaining 135000 awarded shares outstanding december 31 2005 cancelled january 2006 resulting awards currently outstanding ltip decision terminate plans related forfeitures made primarily avoid recognizing compensation cost company’s future financial statements upon adoption sfas 123r awards establish new longterm incentive program company also discontinuing director plan ltip due fact new accounting provisions sfas 123r allow reversal previously recognized compensation expense marketbased performance targets stock price targets met agco corporation notes consolidated financial statements continued stock option plan company’s option plan provides granting nonqualified incentive stock options officers employees directors others stock option exercise price determined board directors except case incentive stock option purchase price shall less 100 fair market value date grant recipient stock options entitled immediately exercise 20 options issued person remaining 80 options vest ratably fouryear period expire later ten years date grant stock option transactions years ended december 31 2005 2004 2003 follows december 31 2005 outstanding options weighted average remaining contractual life approximately 4 years 1228558 options currently exercisable option prices ranging 850 3125 weighted average exercise price 1797 following table sets forth exercise price range number shares weighted average exercise price remaining contractual lives groups similar price new proposed stock incentive plans company’s april 2006 annual stockholders’ meeting company seeking stockholder approval authorization reserve 5000000 shares order provide awards proposed employee director stock incentive plans described agco corporation notes consolidated financial statements continued employee plans subject stockholder approval company’s board directors approved two new stock incentive plans company executives key managers primary longterm incentive plan performance share plan provides awards shares common stock based achieving financial targets determined board directors stock awards earned performance period number shares earned determined based cumulative average results period depending measurement performance periods consecutive overlapping threeyear cycles performance targets set beginning cycle order transition new performance share plan company established award targets 2006 oneyear twoyear performance period addition normal threeyear targets subject stockholder approval company’s board directors established initial grants certain executives key managers plan earned one two threeyear performance periods based achieving targets earnings per share return invested capital grants entitle participants receive various levels shares company’s common stock based company’s relative achievement compared established minimum target maximum levels performance company achieve target level performance initial grant would award 631200 shares performance share plan provides participants earn 33 200 target awards depending actual performance achieved shares earned performance established minimum target awards earned performance share plan paid shares common stock end performance period plan allows participant option forfeiting portion shares earned lieu cash payment contributed participant’s tax withholding satisfy participant’s statutory minimum federal state employment taxes would payable time award earned addition performance share plan certain executives key managers eligible receive grants stock settled stock appreciation rights “ssars” incentive stock options depending participant’s country employment ssars provide participant right receive aggregate appreciation stock price market price company’s common stock date grant payable shares company’s common stock participant may exercise ssar time grant vested later seven years date grant ssars vest ratably threeyear period date grant subject stockholder approval company’s board directors established initial grants 217500 ssars certain executives key managers base price company’s common stock date company’s annual stockholders’ meeting april 27 2006 plan allows participant option forfeiting portion shares earned lieu cash payment contributed participant’s tax withholding satisfy participant’s statutory minimum federal state employment taxes would payable time ssars exercised director restricted stock grants subject stockholder approval board directors approved plan provide annual restricted stock grants nonemployee directors proposed plan allows annual award stock director payable shares company’s common stock shares restricted transferability period three years nontransferability period directors restricted selling assigning transferring pledging otherwise disposing shares subject forfeiture event director departs board directors nontransferability period would expire immediately plan allows director option forfeiting portion shares awarded lieu cash payment contributed participant’s tax withholding satisfy participant’s statutory minimum federal state employment taxes would payable time grant subject stockholder approval effective january 1 2006 board directors awarded restricted stock agco corporation notes consolidated financial statements continued grants valued 25000 nonemployee director represents total grant 18610 shares common stock 11 derivative instruments hedging activities company applies provisions sfas 133 “accounting derivative instruments hedging activities” amended sfas 138 “accounting certain derivative instruments certain hedging activities amendment fasb statement 133” derivatives recognized consolidated balance sheets fair value date derivative contract entered company designates derivative either 1 fair value hedge recognized liability 2 cash flow hedge forecasted transaction 3 hedge net investment foreign operation 4 nondesignated derivative instrument company currently engages derivatives designated nondesignated derivative instruments changes fair value nondesignated derivative contracts reported current earnings company formally documents relationships hedging instruments hedged items well risk management objectives strategy undertaking various hedge transactions company formally assesses hedge’s inception ongoing basis whether derivatives used hedging transactions highly effective offsetting changes fair values cash flow hedged items determined derivative longer highly effective hedge accounting discontinued prospective basis foreign currency risk company significant manufacturing operations united states france germany finland brazil denmark purchases portion tractors combines components thirdparty foreign suppliers primarily various european countries japan company also sells products 140 countries throughout world company’s significant transactional foreign currency exposures euro brazilian real canadian dollar relation united states dollar company attempts manage transactional foreign exchange exposure economically hedging identifiable foreign currency cash flow commitments forecasts arising receivables payables expected purchases sales naturally offsetting currency positions occur company economically hedges certain exposures use foreign currency forward contracts company uses foreign currency forward contracts economically hedge receivables payables company subsidiaries’ balance sheets denominated foreign currencies functional currency forward contracts classified nondesignated derivatives instruments years ended december 31 2005 2004 company recorded net losses approximately 03 million 376 million respectively caption expense net losses substantially offset gains remeasurement underlying asset liability hedged year ended december 31 2003 company recorded net gain approximately 90 million caption expense net gains substantially offset losses remeasurement underlying asset liability hedged company uses foreign currency forward contracts hedge portion forecasted foreign currency inflows outflows resulting purchases sales company recorded gain loss resulting forward contract’s ineffectiveness discontinuance cash flow hedge interest rate risk company may use interest rate swap agreements manage exposure interest rate changes currently company interest rate swap agreements outstanding agco corporation notes consolidated financial statements continued following table summarizes activity accumulated comprehensive loss related derivatives held company year ended december 31 2003 millions derivatives held company accounted hedges 2005 2004 addition company recorded deferred gain 28 million 38 million 27 million net taxes comprehensive income related derivatives held affiliates years ended december 31 2005 2004 2003 respectively gains related interest rate swap contracts company’s retail finance joint ventures swap contracts effect converting floating rate debt fixed rates order secure retail finance joint ventures’ yields fixed rate loan portfolios company’s senior management establishes company’s foreign currency interest rate risk management policies reviewed periodically audit committee board directors policy allows use derivative instruments hedge exposures movements foreign currency interest rates company’s policy prohibits use derivative instruments speculative purposes agco corporation notes consolidated financial statements continued 12 commitments contingencies future payments required company’s significant commitments december 31 2005 follows millions 1 estimated interest payments calculated assuming current interest rates minimum maturity periods specified debt agreements debt may repaid sooner later minimum maturity periods 2 unconditional purchase obligations exclude routine purchase orders entered normal course business result rationalization company’s european combine manufacturing operations 2004 company entered agreement thirdparty manufacturer produce certain combine model ranges fiveyear period agreement provides purchase minimum quantity 200 combines per year cost approximately 162 million per year approximately 192 million may 2009 3 shortterm longterm obligations include estimates future minimum contribution requirements us nonus defined benefit pension postretirement plans estimates based current legislation countries operate within subject change balance sheet arrangements guarantees december 31 2005 company obligated certain circumstances purchase year 2010 113 million equipment upon expiration certain operating leases agco finance llc agco finance canada ltd company’s retail finance joint ventures north america end users company also maintains remarketing agreement joint ventures whereby company obligated repurchase repossessed inventory market values company agreement agco finance llc limits company’s purchase obligations arrangement 60 million aggregate per calendar year company believes losses might incurred resale equipment materially impact company’s financial position results operations december 31 2005 company guaranteed indebtedness owed third parties approximately 825 million primarily related dealer end user financing equipment company believes credit risk associated guarantees material financial position agco corporation notes consolidated financial statements continued addition december 31 2005 company foreign currency forward contracts buy aggregate approximately 785 million united states dollar equivalents foreign currency forward contracts sell aggregate approximately 1000 million united states dollar equivalents contracts maturity less one year note 11 time company sells certain trade receivables factoring arrangements financial institutions throughout world company evaluates sale receivables pursuant guidelines sfas 140 determined facilities accounted offbalance sheet transactions accordance sfas 140 total lease expense noncancelable operating leases 400 million 350 million 231 million years ended december 31 2005 2004 2003 respectively contingencies october 2004 company notified customer claim costs damages arising alleged breaches supply agreement customer’s initial evaluation indicated claim approximately 105 million approximately 125 million company settled matter customer december 2005 approximately 16 million result recent brazilian tax legislative changes impacting value added taxes “vat” company recorded reserve approximately 214 million outstanding balance brazilian vat taxes receivable december 31 2005 due uncertainty company’s ability collect amounts outstanding company party various claims lawsuits arising normal course business opinion management consultation legal counsel claims lawsuits material adverse effect financial position results operations company 13 related party transactions rabobank aaa rated financial institution based netherlands 51 owner company’s retail finance joint ventures located united states canada brazil germany france united kingdom australia ireland rabobank also principal agent participant company’s revolving credit facility securitization facilities notes 4 7 majority assets company’s retail finance joint ventures represent finance receivables majority liabilities represent notes payable accrued interest various joint venture agreements rabobank affiliates obligated provide financing joint venture companies primarily lines credit company guarantee debt obligations retail finance joint ventures portion retail portfolio brazil held outside joint venture rabobank brazil prior 2005 company’s joint venture brazil agency relationship rabobank whereby rabobank provided funding february 2005 company made 213 million investment retail finance joint venture rabobank brazil additional investment joint venture’s organizational structure comparable company’s retail finance joint ventures result gradual elimination company’s solvency guarantee rabobank portfolio originally funded rabobank brazil december 31 2005 solvency requirement portfolio held rabobank approximately 86 million company’s retail finance joint ventures provide retail financing wholesale financing dealers terms financing arrangements offered company’s dealers similar arrangements retail finance joint ventures provide unaffiliated third parties december 31 2005 company agco corporation notes consolidated financial statements continued obligated certain circumstances purchase year 2010 113 million equipment upon expiration certain operating leases agco finance llc agco finance canada ltd retail joint ventures north america end users company also maintains remarketing agreement joint ventures note 12 addition part sales incentives provided end users company may time subsidize interest rates retail financing provided retail joint ventures cost programs recognized time sale company’s dealers may 2005 company completed agreement permit transferring ongoing basis majority wholesale interestbearing receivables north america agco finance llc agco finance canada ltd united states canadian retail finance joint ventures company 49 ownership interest joint ventures transfer receivables without recourse company continue service receivables company maintain direct retained interest receivables servicing asset liability recorded since estimated fair value servicing receivables approximates servicing income initial transfer wholesale interestbearing receivables resulted net proceeds approximately 94 million used redeem company’s 250 million 912 senior notes note 7 december 31 2005 balance interestbearing receivables transferred agco finance llc agco finance canada ltd agreement approximately 1099 million 2005 2004 2003 company net sales 1538 million 1628 million 1161 million respectively baywa corporation german distributor ordinary course business president ceo baywa corporation also member board directors company 2005 company made license fee payments purchased raw materials including engines totaling approximately 1845 million caterpillar inc ordinary course business one group presidents caterpillar inc also member board directors company 2005 2004 2003 company purchased approximately 44 million 24 million 26 million respectively equipment components manufacturing joint venture deutz agco motores sa prices approximating cost 14 consolidation joint venture company currently equity interests joint ventures entities joint ventures company primary beneficiary determined fin 46r company accounts investments equity method accounting third quarter 2003 company analyzed provisions fin 46r relate accounting investments joint ventures determined primary beneficiary one joint ventures gima established 1994 agco renault agriculture sa “renault” cooperate field purchasing design manufacturing components agricultural tractors party 50 ownership joint venture original investment approximately 48 million joint venture gima thirdparty debt obligations terms gima agreement either party may give notice wishes sell shares party receiving notice obligated purchase shares within eighteen months per gima agreement share price 25 net worth joint venture july 1 2003 company began consolidating accounts gima historically company accounted investment gima equity method consolidation gima material impact results operations financial position company equity interest agco corporation notes consolidated financial statements continued renault reported minority interest included “other noncurrent liabilities” accompanying consolidated balance sheets december 31 2005 2004 15 segment reporting company four reportable segments north america south america europeafricamiddle east asiapacific regional segment distributes full range agricultural equipment related replacement parts company evaluates segment performance primarily based income operations sales regional segment based location thirdparty customer intercompany transactions segments eliminated company’s selling general administrative expenses engineering expenses excluding corporate expense charged segment based region division expenses incurred result components operating income one segment may comparable another segment results years ended december 31 2005 2004 2003 follows millions agco corporation notes consolidated financial statements continued reconciliation segment information consolidated balances income operations total assets set forth millions net sales customer location years ended december 31 2005 2004 2003 follows millions agco corporation notes consolidated financial statements continued net sales product years ended december 31 2005 2004 2003 follows millions property plant equipment amortizable intangible assets country december 31 2005 2004 follows millions item 9item 8 financial statements supplementary data following consolidated financial statements agco subsidiaries years threeyear period ended december 31 2006 included item information heading “quarterly results” item 7 page 31 form 10k incorporated herein reference report independent registered public accounting firm board directors stockholders agco corporation audited accompanying consolidated balance sheets agco corporation subsidiaries december 31 2006 2005 related consolidated statements operations stockholders’ equity cash flows years threeyear period ended december 31 2006 connection audits consolidated financial statements also audited financial statement schedule listed item 15a2 consolidated financial statements financial statement schedule responsibility company’s management responsibility express opinion consolidated financial statements financial statement schedule based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements referred present fairly material respects financial position agco corporation subsidiaries december 31 2006 2005 results operations cash flows years threeyear period ended december 31 2006 conformity us generally accepted accounting principles also opinion related financial statement schedule considered relation basic consolidated financial statements taken whole presents fairly material respects information set forth therein discussed notes 1 8 10 consolidated financial statements company changed methods accounting sharebased payment defined benefit pension postretirement plans method quantifying errors 2006 also audited accordance standards public company accounting oversight board united states effectiveness agco corporation’s internal control financial reporting december 31 2006 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission coso report dated february 28 2007 expressed unqualified opinion management’s assessment effective operation internal control financial reporting kpmg llp atlanta georgia february 28 2007 agco corporation consolidated statements operations millions except per share data see accompanying notes consolidated financial statements agco corporation consolidated balance sheets millions except share amounts see accompanying notes consolidated financial statements agco corporation consolidated statements stockholders’ equity millions except share amounts see accompanying notes consolidated financial statements agco corporation consolidated statements cash flows millions see accompanying notes consolidated financial statements agco corporation notes consolidated financial statements 1 operations summary significant accounting policies business agco corporation “agco” “company” leading manufacturer distributor agricultural equipment related replacement parts throughout world company sells full range agricultural equipment including tractors combines hay tools sprayers forage equipment implements company’s products widely recognized agricultural equipment industry marketed number wellknown brand names including agco® challenger® fendt® gleaner® hesston® massey ferguson® new idea® rogator® spracoupe® sunflower®terragator® valtra® whitetm planters company distributes products combination approximately 3200 independent dealers distributors addition company provides retail financing united states canada brazil germany france united kingdom australia ireland austria retail finance joint ventures coöperative centrale raiffeisenboerenleenbank ba “rabobank” basis presentation consolidated financial statements represent consolidation whollyowned companies majorityowned companies joint ventures company determined primary beneficiary financial accounting standards board “fasb” interpretation 46r “consolidation variable interest entities” “fin 46r” company records investments affiliate companies using equity method accounting investments representing ownership less 20 recorded cost significant intercompany balances transactions eliminated consolidated financial statements certain prior period amounts reclassified conform current period presentation joint ventures company currently equity interests joint ventures entities joint ventures company primary beneficiary determined fin 46r company accounts investments equity method accounting company analyzed provisions fin 46r relate accounting investments joint ventures determined primary beneficiary one joint ventures gima established 1994 agco renault agriculture sa “renault” cooperate field purchasing design manufacturing components agricultural tractors party 50 ownership joint venture original investment approximately 48 million joint venture gima thirdparty debt obligations consolidation gima material impact results operations financial position company equity interest renault reported minority interest included “other noncurrent liabilities” accompanying consolidated balance sheets december 31 2006 2005 may 25 2006 company established agco sm group joint venture located russia agco sibmashholding co ltd purpose distributing fendt valtra branded equipment throughout russia kazakhstan company 51 ownership joint venture original investment less 01 million joint venture company began consolidating accounts agco sm group upon establishment revenue recognition sales equipment replacement parts recorded company title risks ownership transferred independent dealer distributor customer payment terms vary market agco corporation notes consolidated financial statements continued product fixed payment schedules sales terms sale generally require purchase order confirmation accompany shipments title generally passes dealer distributor upon shipment risk loss upon damage theft destruction equipment responsibility dealer distributor thirdparty carrier certain foreign countries company retains form title goods delivered dealers dealer makes payment company recover goods event customer default payment occurs laws foreign countries provide seller’s retention security interest goods manner established united states uniform commercial code right company retains respect title enabling recovery goods event customer default payment dealer distributor may return equipment replacement parts contract company force replacement parts may returned promotional annual return programs provisions returns programs made time sale based terms program historical returns experience company may provide certain sales incentives dealers distributors provisions sales incentives made time sale existing incentive programs provisions revised event subsequent modification incentive program united states canada equipment sales dealers immediately due upon retail sale equipment dealer already paid dealer united states canada installment payments required generally beginning seven 13 months shipment remaining outstanding equipment balance generally due within 12 18 months shipment interest generally charged outstanding balance six 12 months shipment sales terms highly seasonal products provide payment due dates based specified date year regardless shipment date equipment sold dealers united states canada paid full average within 12 months shipment sales replacement parts generally payable within 30 days shipment terms larger seasonal stock orders generally requiring payment within six months shipment international markets equipment sales generally payable full within 30 180 days shipment payment terms highly seasonal products specified due date year regardless shipment date sales replacement parts generally payable within 30 90 days shipment terms larger seasonal stock orders generally payable within six months shipment certain markets particularly north america time lag varies based timing level retail demand date company records sale dealer sells equipment retail customer foreign currency translation financial statements company’s foreign subsidiaries translated united states currency accordance statement financial accounting standards “sfas” 52 “foreign currency translation” assets liabilities translated united states dollars periodend exchange rates income expense items translated average rates exchange prevailing period translation adjustments included “accumulated comprehensive loss” stockholders’ equity gains losses result foreign currency transactions included accompanying consolidated statements operations use estimates preparation financial statements conformity us generally accepted accounting principles requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ estimates made management primarily relate accounts notes receivable inventories agco corporation notes consolidated financial statements continued deferred income tax valuation allowances valuation goodwill intangible assets certain accrued liabilities principally relating reserves volume discounts sales incentives warranty product liability workers’ compensation obligations pensions postretirement benefits adoption sec staff accounting bulletin 108 september 2006 securities exchange commission “sec” staff issued staff accounting bulletin 108 “considering effects prior year misstatements quantifying misstatements current year financial statements” “sab 108” sab 108 requires public companies utilize “dualapproach” assessing quantitative effects financial misstatements dual approach includes income statement focused assessment sometimes referred “rollover” method balance sheet focused assessment sometimes referred “iron curtain” method guidance sab 108 must applied annual financial statements fiscal years ending november 15 2006 company’s year ended december 31 2006 transition provisions sab 108 permit registrant adjust opening retained earnings cumulative effect immaterial errors related prior years deemed material corrected current year historically company evaluated uncorrected misstatements utilizing rollover method pursuant adoption sab 108 company identified two uncorrected misstatements previously determined material prior years rollover method iron curtain method items deemed material company’s financial statements year ended december 31 2006 therefore company recorded adjustment increase opening retained earnings balance january 1 2006 approximately 136 million net taxes accordance implementation guidance sab 108 first uncorrected misstatement related excess contingency reserve balances approximately 109 million net taxes accumulated several years majority excess contingency reserve balances ceased accumulating december 31 2001 second uncorrected misstatement 27 million related undercapitalization certain parts inventory volume purchaserelated variances years ended december 31 2004 2005 cash equivalents company considers investments original maturity three months less cash equivalents cash equivalents december 31 2006 2005 2735 million 1463 million respectively consisted overnight repurchase agreements financial institutions accounts notes receivable accounts notes receivable arise sale equipment replacement parts independent dealers distributors customers payments due company’s terms sale generally range one 12 months contingent upon sale equipment dealer distributor retail customer normal circumstances payment terms extended equipment may returned certain regions including united states canada company obligated repurchase equipment replacement parts upon cancellation dealer distributor contract obligations required national state provincial laws require company repurchase dealer distributor’s unsold inventory including inventory receivable already paid sales outside united states canada company normally charge interest outstanding receivables dealers distributors sales certain dealers distributors united states canada approximately 22 company’s net sales generated 2006 interest charged prime lending rates outstanding receivable balances interestfree periods interestfree periods vary product generally range one 12 months exception certain seasonal products bear interest various periods 23 months depending agco corporation notes consolidated financial statements continued time year sale dealer’s distributor’s sales volume preceding year ended december 31 2006 122 67 company’s net sales maximum interestfree periods ranging one six months seven 12 months respectively net sales maximum interestfree periods ranging 13 23 months insignificant 2006 actual interestfree periods shorter equipment receivable dealers distributors united states canada due immediately upon sale equipment retail customer normal circumstances interest forgiven interestfree periods extended may 2005 company completed agreement permit transferring ongoing basis majority interestbearing receivables north america united states canadian retail finance joint ventures upon transfer receivables maintain standard payment terms including required regular principal payments amounts outstanding interest charges market rates arrangement qualified dealers may obtain additional financing united states canadian retail finance joint ventures accounts notes receivable shown net allowances sales incentive discounts available dealers doubtful accounts cash flows related collection receivables reported within “cash flows operating activities” within company’s consolidated statements cash flows accounts notes receivable allowances december 31 2006 2005 follows millions company transfers certain accounts receivable various financial institutions primarily accounts receivable securitization facilities note 4 company records transfers sales accounts receivable considered surrendered control receivables provisions sfas 140 “accounting transfers servicing financial assets extinguishments liabilities replacement sfas 125” “sfas 140” inventories valued lower cost market using firstin firstout method market net realizable value finished goods repair replacement parts work process production parts raw materials market replacement cost december 31 2006 2005 company recorded 847 million 797 million respectively adjustments surplus obsolete inventories adjustments reflected within “inventories net” inventories net december 31 2006 2005 follows millions cash flows related sale inventories reported within “cash flows operating activities” within company’s consolidated statements cash flows agco corporation notes consolidated financial statements continued property plant equipment property plant equipment recorded cost less accumulated depreciation amortization depreciation provided straightline basis estimated useful lives ten 40 years buildings improvements three 15 years machinery equipment three ten years furniture fixtures expenditures maintenance repairs charged expense incurred property plant equipment net december 31 2006 2005 consisted following millions goodwill intangible assets sfas 142 “goodwill intangible assets” “sfas 142” establishes method testing goodwill indefinitelived intangible assets impairment annual basis interim basis event occurs circumstances change would reduce fair value reporting unit carrying value company’s initial assessment annual assessments involve determining estimate fair value company’s reporting units order evaluate whether impairment current carrying amount goodwill indefinitelived intangible assets exists fair values derived based evaluation past expected future performance company’s reporting units reporting unit operating segment one level operating segment example component operating segment reporting unit component constitutes business discrete financial information available company’s executive management team regularly reviews operating results component addition company combines aggregates two components operating segment single reporting unit components similar economic characteristics company’s reportable segments reported guidance sfas 131 “disclosures segments enterprise related information” reporting units exception asiapacific geographical segment company utilized combination valuation techniques including discounted cash flow approach market multiple approach making annual interim assessments stated goodwill tested impairment annual basis often indications impairment exist results company’s analyses conducted october 1 2005 2004 indicated reduction carrying amount goodwill required 2006 sales operating income company’s sprayer operations declined significantly compared prior years addition company’s projections sprayer business result valuation sufficient support carrying amount goodwill balance company’s consolidated balance sheet result company concluded goodwill associated sprayer operations impaired recognized writedown total amount recorded goodwill approximately 1714 million fourth quarter 2006 results company’s analyses conducted october 1 2006 associated reporting units indicated reduction carrying amounts goodwill required agco corporation notes consolidated financial statements continued changes carrying amount acquired intangible assets 2006 2005 summarized follows millions company amortizes certain acquired intangible assets primarily straightline basis estimated useful lives range three 30 years acquired intangible assets weighted average useful life follows years ended december 31 2006 2005 2004 acquired intangible asset amortization 169 million 165 million 158 million respectively company estimates amortization existing intangible assets 170 million 2007 169 million 2008 168 million 2009 167 million 2010 99 million 2011 agco corporation notes consolidated financial statements continued accordance sfas 142 company determined two trademarks indefinite useful life massey ferguson trademark existence since 1952 formed merger masseyharris established 1890’s ferguson established 1930’s massey ferguson brand currently sold 140 countries worldwide making one widely sold tractor brands world result company’s acquisition valtra january 2004 note 2 company identified valtra trademark indefinitelived asset valtra trademark existence since late 1990’s derivative valmet trademark existence since 1951 valtra valmet used interchangeably marketplace today valtra recognized tractor line valmet name valtra brand currently sold approximately 50 countries around world massey ferguson brand valtra brand primary product lines company’s business company plans use trademarks indefinite period time company plans continue make investments product development enhance value brands future legal regulatory contractual competitive economic factors company aware company believes would limit useful lives trademarks massey ferguson valtra trademark registrations renewed nominal cost countries company operates changes carrying amount goodwill years ended december 31 2006 2005 2004 summarized follows millions see note 2 information regarding adjustments related income taxes longlived assets 2006 2005 2004 company reviewed longlived assets impairment whenever events changes circumstances indicated carrying amount asset may recoverable accordance provisions sfas 144 “accounting impairment disposal longlived assets” “sfas 144” sfas 144 impairment loss recognized undiscounted future cash flows estimated generated asset held used sufficient recover unamortized balance asset impairment loss would recognized based difference carrying values estimated fair value estimated fair value determined based either discounted future cash flows appropriate fair value methods amount deficiency charged income current year asset tested recoverability acquired business combination intangible assets resulting acquisition related asset included assessment estimates future cash flows based many factors including current operating results expected market trends competitive influences company also evaluates amortization periods agco corporation notes consolidated financial statements continued assigned intangible assets determine whether events changes circumstances warrant revised estimates useful lives assets disposed sale reported lower carrying amount fair value less estimated costs sell 2004 company recorded writedown property plant equipment fair value 82 million conjunction assets related rationalization randers denmark combine manufacturing facility accrued expenses accrued expenses december 31 2006 2005 consisted following millions warranty reserves warranty reserve activity years ended december 31 2006 2005 2004 consisted following millions company’s agricultural equipment products generally warranty defects material workmanship period one four years company accrues future warranty costs time sale based historical warranty experience approximately 116 million warranty reserves included “other noncurrent liabilities” company’s consolidated balance sheet december 31 2006 insurance reserves company’s insurance programs coverage obtained significant liability limits well risks required insured law contract policy company selfinsure portion certain expected losses related primarily workers’ compensation comprehensive general product vehicle liability provisions losses expected programs recorded based company’s estimates aggregate liabilities claims incurred stock incentive plans stock compensation expense first quarter 2006 company adopted sfas 123r revised 2004 “sharebased payment” “sfas 123r” revision sfas 123 “accounting stockbased agco corporation notes consolidated financial statements continued compensation” “sfas 123” 2006 company recorded approximately 36 million stock compensation expense accordance sfas 123r refer note 10 additional information regarding company’s stock incentive plans place 2006 2005 2004 company recorded approximately 04 million 05 million respectively accordance apb 25 stock compensation expense recorded follows millions proforma disclosure sfas 123 2005 prior adoption sfas 123r company accounted stockbased compensation awarded former nonemployee director incentive plan “director plan” longterm incentive plan “ltip” stock option plan “option plan” prescribed accounting principles board opinion 25 “accounting stock issued employees” “apb 25” provided disclosures required sfas 123 sfas 148 “accounting stockbased compensation transition disclosure” “sfas 148” discussed note 10 company’s ltip director plan terminated december 2005 apb 25 required recognition compensation expense options granted option plan long certain conditions met compensation expense recorded apb 25 option plan 2005 2004 apb 25 required recognition compensation expense director plan ltip time award earned grants option plan years ended december 31 2006 2005 2004 disclosure purposes sfas 123 company estimated fair value grants company’s option plan using blackscholes option pricing model barrier option model awards granted director plan ltip based models weighted average fair value options granted option plan weighted average fair value awards granted director plan ltip follows fair value grants awards amortized vesting period stock options awards earned director plan ltip performance period unearned awards director plan ltip following table illustrates effect net income earnings per common agco corporation notes consolidated financial statements continued share company applied fair value recognition provisions sfas 123 sfas 148 millions except per share data 2004 diluted reported pro forma earnings per share include impact company’s 134 contingently convertible senior subordinated notes 2005 pro forma earnings per share include impact cancellation awards director plan ltip december 2005 note 10 research development expenses research development expenses expensed incurred included engineering expenses consolidated statements operations advertising costs company expenses advertising costs incurred cooperative advertising costs normally expensed time revenue earned advertising expenses years ended december 31 2006 2005 2004 totaled approximately 360 million 358 million 372 million respectively shipping handling expenses shipping handling fees charged customers included component net sales shipping handling costs included part cost goods sold exception certain handling costs included selling general administrative expenses amount 198 million 186 million 168 million years ended december 31 2006 2005 2004 respectively interest expense net interest expense net years ended december 31 2006 2005 2004 consisted following millions agco corporation notes consolidated financial statements continued income taxes income taxes accounted asset liability method prescribed provisions sfas 109 “accounting income taxes” “sfas 109” deferred tax assets liabilities recognized future tax consequences attributable differences financial statement carrying amounts existing assets liabilities respective tax bases operating loss tax credit carryforwards deferred tax assets liabilities measured using enacted tax rates expected apply taxable income years temporary differences expected recovered settled effect deferred tax assets liabilities change tax rates recognized income period includes enactment date net income loss per common share computation presentation disclosure requirements earnings loss per share presented accordance sfas 128 “earnings per share” basic earnings loss per common share computed dividing net income loss weighted average number common shares outstanding period diluted earnings loss per common share assumes exercise outstanding stock options vesting restricted stock appreciation excess conversion value contingently convertible senior subordinated notes using treasury stock method effects assumptions dilutive fourth quarter 2004 emerging issues task force “eitf” reached consensus eitf issue 0408 “accounting issues related certain features contingently convertible debt effect diluted earnings per share” “eitf 0408” eitf 0408 requires shares subject issuance contingently convertible debt included calculation diluted earnings per share using ifconverted method regardless whether market price trigger met company adopted eitf 0408 fourth quarter 2004 included approximately 90 million additional shares common stock may issued upon conversion company’s former 134 convertible senior subordinated notes diluted earnings per share calculation year ended december 31 2004 six months ended june 30 2005 addition diluted earnings per share prior fourth quarter 2004 required restated period convertible debt outstanding company’s 134 convertible senior subordinated notes issued december 23 2003 company benefiting losses united states tax purposes interest expense associated convertible senior subordinated notes included diluted earnings per share calculation reflect tax benefit june 29 2005 company completed exchange 2013 million aggregate principal amount 134 convertible senior subordinated notes company exchanged existing convertible notes new notes provide settlement upon conversion cash principal amount converted new notes excess conversion value settled shares company’s common stock ii conversion rate increased certain circumstances new notes converted connection certain change control transactions occurring prior december 10 2010 otherwise substantially old notes impact exchange resulted reduction diluted weighted average shares outstanding approximately 90 million shares prospective basis dilution weighted shares outstanding subsequent exchange depends company’s stock price market price trigger specified conversion circumstances met excess conversion value using treasury stock method note 7 company’s 114 convertible senior subordinated notes due 2036 issued december 2006 also potentially impact dilution weighted shares outstanding excess conversion value using treasury stock method note 7 reconciliation net loss income weighted average common agco corporation notes consolidated financial statements continued shares outstanding purposes calculating basic diluted earnings loss per share follows millions except per share data stock options stocksettled stock appreciation rights “ssars” purchase 01 million shares year ended december 31 2006 stock options purchase 05 million 05 million shares years ended december 31 2005 2004 respectively outstanding included calculation weighted average common equivalent shares outstanding option exercise prices higher average market price company’s common stock related period addition weighted average common shares outstanding purposes computing diluted net loss per share year ended december 31 2006 include assumed conversion company’s 134 convertible senior subordinated notes impact dilutive stock options ssars impact would dilutive number shares excluded weighted average common shares outstanding years ended december 31 2006 2005 approximately 12 million shares 44 million shares respectively agco corporation notes consolidated financial statements continued comprehensive income loss company reports comprehensive income loss defined total net income loss nonowner changes equity components thereof consolidated statements stockholders’ equity components comprehensive income loss related tax effects years ended december 31 2006 2005 2004 follows millions financial instruments carrying amounts reported company’s consolidated balance sheets “cash equivalents” “accounts notes receivable” “accounts payable” approximate fair value due immediate shortterm maturity financial instruments carrying amount longterm debt company’s credit facility note 7 approximates fair value based borrowing rates currently available company loans similar terms average maturities december 31 2006 estimated fair values company’s 678 senior subordinated notes 134 convertible notes note 7 114 convertible notes note 7 based listed market values 2742 million 3073 million 1995 million respectively compared carrying values 2640 million 2013 million 2013 million respectively december 31 2005 estimated fair values company’s 678 senior subordinated notes 134 convertible notes based listed market values 2464 million 1872 million respectively compared carrying values 2370 million 2013 million respectively company enters foreign currency forward contracts hedge foreign currency exposure certain receivables payables committed purchases sales contracts periods consistent exposure hedged generally maturities one year less december 31 2006 agco corporation notes consolidated financial statements continued 2005 company foreign currency forward contracts outstanding gross notional amounts 3565 million 2553 million respectively company unrealized gain 12 million unrealized loss 03 million foreign currency forward contracts december 31 2006 2005 respectively reflected company’s consolidated statements operations foreign currency forward contracts subject company’s results operations risk due exchange rate fluctuations gains losses contracts generally offset gains losses exposure hedged company enter foreign currency forward contracts speculative trading purposes second quarter 2006 company designated certain foreign currency option contracts cash flow hedges expected sales effective portion fair value gains losses cash flow hedges recorded comprehensive income subsequently reclassified net sales recognized amounts offset effect changes foreign exchange rates related sale transactions amount gain recorded comprehensive income reclassified net sales year ended december 31 2006 approximately 40 million aftertax basis contracts expired prior december 31 2006 notional amounts foreign exchange forward contracts represent amounts exchanged parties therefore measure company’s risk amounts exchanged calculated basis notional amounts terms contracts credit market risks contracts considered significant accounting changes february 2007 fasb issued sfas 159 “the fair value option financial assets financial liabilities” “sfas 159” sfas 159 provides companies option report selected financial assets liabilities fair value provide additional information help investors users financial statements understand easily effect earnings company ’s choice use fair value also requires companies display fair value assets liabilities company chosen use fair value face balance sheet company required adopt sfas 159 january 1 2008 currently evaluating impact sfas 159 consolidated financial statements september 2006 sec staff issued sab 108 sab 108 requires public companies utilize “dualapproach” assessing quantitative effects financial misstatements dual approach includes income statement focused assessment balance sheet focused assessment guidance sab 108 must applied annual financial statements fiscal years ending november 15 2006 see “adoption sec staff accounting bulletin 108” information september 2006 fasb issued sfas 158 “employers’ accounting defined benefit pension postretirement plans amendment fasb statements 87 88 106 132r” “sfas 158” sfas 158 requires employer sponsors one singleemployer defined benefit plans recognize overfunded underfunded status benefit plan statement financial position ii recognize component comprehensive income net tax gains losses prior service costs credits arise period recognized components net periodic benefit cost pursuant sfas 87 “employers’ accounting pensions” sfas 106 “employers’ accounting postretirement benefits pensions” iii measure defined benefit plan assets obligations date employer’s fiscal yearend iv disclose notes financial statements additional information certain effects net periodic benefit cost next fiscal year arise delayed recognition gains losses prior service costs credits transition assets obligations sfas 158 effective company’s year ended december 31 2006 adoption sfas 158 268 million impact company’s consolidated accumulated agco corporation notes consolidated financial statements continued comprehensive loss balance december 31 2006 related underfunded defined benefit pension retirement health care plans primarily united kingdom united states see note 8 discussion company’s defined benefit pension postretirement health care benefit plans september 2006 fasb issued sfas 157 “fair value measurements” “sfas 157” sfas 157 establishes common definition fair value applied guidance regarding us generally accepted accounting principles requiring use fair value establishes framework measuring fair value expands disclosure fair value measurements sfas 157 effective fiscal years beginning november 15 2007 company currently assessing impact adoption sfas 157 2008 consolidated financial position results operations september 2006 fasb issued fasb staff position “fsp” aug air1 “accounting planned major maintenance activities” “fsp aug air1” fsp aug air1 amends guidance accounting planned major maintenance activities specifically precludes use previously acceptable “accrue advance” method fsp aug air1 effective fiscal years beginning december 15 2006 implementation standard expected material impact company’s consolidated financial position results operations company employ “accrue advance” method june 2006 eitf reached consensus eitf issue 064 “accounting deferred compensation postretirement benefit aspects endorsement splitdollar life insurance arrangements” “eitf 064” requires application provisions sfas 106 “employers’ accounting postretirement benefits pensions” “sfas 106” endorsement splitdollar life insurance arrangements sfas 106 would require company recognize liability discounted future benefit obligation company pay upon death underlying insured employee endorsementtype arrangement generally exists company owns controls incidents ownership underlying policies eitf 064 effective fiscal years beginning december 15 2007 company may certain policies subject provisions new pronouncement believe adoption eitf 064 material impact consolidated results operations financial position 2008 fiscal year june 2006 fasb issued fasb interpretation 48 “accounting uncertainty income taxes interpretation fasb statement 109” “fin 48” fin 48 clarifies accounting uncertainty income taxes prescribing recognition threshold measurement attribute financial statement recognition measurement tax position taken expected taken tax return interpretation also provides guidance derecognition classification interest penalties accounting interim periods disclosure fin 48 effective fiscal years beginning december 15 2006 adoption fin 48 expected material effect company’s 2007 consolidated financial statements march 2006 fasb issued sfas 156 “accounting servicing financial assets amendment fasb statement 140” “sfas 156” sfas 156 requires entity recognize servicing asset liability time undertakes obligation service financial asset entering servicing contract specified situations servicing assets liabilities would initially measured fair value practicable subsequently measured amortized value fair value based upon election reporting entity sfas 156 also specifies certain financial statement presentations disclosures connection servicing assets liabilities sfas 156 effective fiscal years beginning september 15 2006 may adopted earlier adoption first quarter fiscal year adoption sfas 156 expected material effect company’s 2007 consolidated financial statements march 2006 eitf reached consensus eitf issue 063 “how taxes collected customers remitted governmental authorities presented income statement agco corporation notes consolidated financial statements continued gross versus net presentation” “eitf 063” allows companies adopt policy presenting taxes income statement either gross net basis taxes within scope eitf would include taxes imposed revenue transaction seller customer example sales taxes use taxes valueadded taxes types excise taxes eitf 063 effective interim annual reporting periods beginning december 15 2006 eitf 063 impact method recording reporting sales taxes company’s consolidated results operations financial position company’s policy exclude taxes net sales present taxes consolidated statements operations net basis april 2005 sec adopted new rule changed adoption date sfas 123r company adopted sfas 123r effective january 1 2006 using modified prospective method adoption application expensing provisions sfas 123r 2006 resulted pretax expense approximately 36 million see notes 1 10 company’s stock compensation plans discussed november 2004 fasb issued sfas 151 “inventory costsan amendment arb 43 chapter 4” “sfas 151” sfas 151 amends guidance accounting research bulletin 43 chapter 4 “inventory pricing” “arb 43” clarify accounting abnormal amounts idle facility expense freight handling costs wasted material spoilage among provisions new rule requires items idle facility expense excessive spoilage double freight rehandling costs recognized currentperiod charges regardless whether meet criterion “so abnormal” stated arb 43 additionally sfas 151 requires allocation fixed production overheads costs conversion based normal capacity production facilities sfas 151 effective fiscal years beginning june 15 2005 company’s adoption sfas 151 2006 material impact company’s consolidated results operations financial position 2 acquisitions january 5 2004 company acquired valtra tractor diesel engine operations kone corporation finnish company 6046 million net approximately 214 million cash acquired approximately 760 million net valtra global tractor offroad engine manufacturer nordic region europe latin america acquisition valtra provided company opportunity expand business significant global markets utilizing valtra’s technology productivity leadership agricultural equipment market results operations valtra acquisition included company’s consolidated financial statements date acquisition company completed initial funding cash purchase price valtra issuance 2013 million principal amount 134 convertible senior subordinated notes december 2003 funds borrowed revolving credit term loan facilities entered january 5 2004 1000 million borrowed interim bridge facility also closed january 5 2004 interim bridge facility subsequently repaid april 2004 upon completion common stock offering note 9 agco corporation notes consolidated financial statements continued valtra acquisition accounted accordance sfas 141 “business combinations” accordingly company allocated purchase price assets acquired liabilities assumed based fair values acquisition date following table presents allocation acquisition cost including professional fees related acquisition costs assets acquired liabilities assumed based upon fair value net assets acquired included transaction costs incurred 2004 company recorded approximately 3584 million goodwill approximately 1569 million identifiable intangible assets follows millions acquired intangible assets weighted average useful life approximately nine years date acquisition two components taxdeductible goodwill specifically related operations valtra finland first component tax deductible goodwill approximately 2011 million relates goodwill financial reporting purposes asset generate deferred income taxes future asset amortized income tax purposes second component taxdeductible goodwill approximately 1577 million relates tax deductible goodwill excess goodwill financial reporting purposes tax benefits associated excess applied reduce amount goodwill financial reporting purposes future tax benefits realized income tax return purposes 2006 company recorded additional goodwill approximately 172 million approximately 227 million december 31 2006 associated reallocation certain intangible assets goodwill income tax purposes finland well additional preacquisition income tax agco corporation notes consolidated financial statements continued contingencies identified valtra european sales office 2006 2005 company realized approximately 93 million 38 million respectively tax benefits associated excess tax basis deductible goodwill thus resulting reductions goodwill financial reporting purposes date acquisition company identified certain income tax contingencies associated operations valtra brazil related preacquisition tax years 2006 determined identified contingencies longer existed company therefore recognized reduction goodwill approximately 31 million associated reversal contingent liabilities 3 restructuring infrequent expenses company recorded restructuring infrequent expenses 10 million 00 million 01 million years ended december 31 2006 2005 2004 respectively charges 2006 include severance costs associated rationalization certain parts sales marketing administrative functions united kingdom germany well rationalization certain valtra european sales offices located denmark norway germany united kingdom net charges 2005 include 15 million gain sale property plant equipment related completion auctions machinery equipment associated rationalization randers denmark combine manufacturing operations gain offset 08 million employee retention payments facility closure costs incurred associated randers rationalization well 07 million severance facility closure costs related rationalization company’s finnish tractor manufacturing sales parts operations company record income tax benefit provision associated charges gain relating randers rationalization 2005 2004 net charges consisted 82 million pretax writedown property plant equipment associated randers rationalization 33 million severance facility closure costs associated randers rationalization 14 million charge associated rationalization certain administrative functions within company’s finnish tractor manufacturing facility well 05 million charges associated various rationalization initiatives europe united states initiated 2002 2003 2004 charges offset gains sale company’s coventry england manufacturing facility related machinery equipment 83 million 09 million restructuring reserve reversals related coventry closure reversal 41 million previously established provision related company’s uk pension plan company record income tax benefit associated charges relating randers rationalization 2004 plan announced coventry united kingdom european headquarters rationalization third quarter 2006 company initiated restructuring certain parts sales marketing administrative functions within coventry united kingdom european headquarters resulting termination approximately 13 employees company recorded severance costs approximately 04 million associated restructuring 2006 employees terminated severance costs paid december 31 2006 german sales office rationalizations third quarter 2006 company announced closure two sales offices located germany one valtra sales office closures result termination approximately 16 employees company recorded severance costs approximately 05 million associated closures 2006 none severance costs paid december 31 2006 none employees terminated severance costs related terminations expected paid completed 2007 agco corporation notes consolidated financial statements continued valtra european sales office rationalizations second quarter 2005 company announced changing distribution arrangements valtra fendt products scandinavia entering distribution agreement thirdparty distributor distribute valtra fendt equipment sweden valtra equipment norway denmark result agreement decision close valtra european sales offices company initiated restructuring closure valtra sales offices located united kingdom spain denmark norway resulting termination approximately 24 employees danish norwegian sales offices transferred thirdparty scandinavian equipment distributor october 2005 included transfer certain employees assets lease supplier contracts company recorded severance costs asset writedowns facility closure costs approximately 04 million 01 million 01 million respectively related closures 2005 fourth quarter 2005 company completed sale property plant equipment associated sales offices united kingdom norway recorded gain approximately 02 million reflected within “restructuring infrequent expenses” within company’s consolidated statements operations company paid approximately 02 million 04 million severance facility closure costs 2005 2006 respectively first quarter 2006 company recorded additional 01 million severance costs related closures december 31 2006 employees terminated severance facility closure costs paid valtra finland administrative european parts rationalizations fourth quarter 2004 company initiated restructuring certain administrative functions within finnish operations resulting termination approximately 58 employees 2004 company recorded severance costs approximately 14 million associated rationalization company recorded additional 01 million severance costs first quarter 2005 associated rationalization incurred paid approximately 08 million severance costs 2005 fourth quarter 2005 company reversed 01 million previously established provisions related severance costs severance claims finalized quarter march 31 2006 58 employees terminated 06 million severance payments accrued december 31 2006 expected paid 2009 addition 2005 incurred expensed approximately 03 million contract termination costs associated rationalization valtra european parts distribution operations agco corporation notes consolidated financial statements continued randers denmark rationalization third quarter 2004 company announced initiated plan related restructuring european combine manufacturing operations located randers denmark include elimination facility’s component manufacturing operations well rationalization combine model range assembled randers restructuring plan reduce cost complexity randers manufacturing operations simplifying model range company outsources manufacturing majority parts components suppliers retained critical key assembly operations randers facility component manufacturing operations ceased february 2005 components restructuring expenses summarized following table millions writedown certain property plant equipment within component manufacturing operation represents impairment real estate machinery equipment resulting restructuring rationalization eliminated majority square footage utilized facility impairment charge based upon estimated fair value assets compared carrying value estimated fair value property plant equipment based current conditions market carrying value property plant equipment approximately 116 million 82 million impairment charge machinery equipment tooling disposed sold portion buildings land improvements marketed sale impaired property plant equipment associated randers rationalization reported within company’s europeafricamiddle east segment second quarter 2005 company completed auctions remaining machinery equipment recorded gain approximately 15 million associated actions gain reflected within “restructuring infrequent expenses” within company’s consolidated statements operations severance costs relate termination 298 employees december 31 2005 298 employees terminated employee retention payments relate incentives paid randers employees remained employed certain future termination dates accrued term retention period third quarter 2005 company reversed 01 million previously established provisions related retention payments employee retention claims finalized quarter facility closure costs included certain noncancelable operating lease terminations facility exit costs company also recorded writedown approximately 37 million inventory reflected costs goods sold 2004 related inventory identified obsolete result rationalization agco corporation notes consolidated financial statements continued coventry rationalization second quarter 2002 company announced initiated restructuring plan related closure tractor manufacturing facility coventry england relocation existing production coventry company’s beauvais france canoas brazil manufacturing facilities closure facility consistent company’s strategy reduce excess manufacturing capacity particular facility manufactured transaxles assembled tractors range 50 110 horsepower trend towards higher horsepower tractors resulting consolidation farms caused product segment industry decline recent years negatively impacted facility’s utilization components restructuring expenses incurred paid 2004 2005 summarized following table millions january 30 2004 company sold land buildings improvements coventry facility approximately 410 million result sale recognized net gain selling costs approximately 69 million gain reflected “restructuring infrequent expenses” company’s consolidated statements operations year ended december 31 2004 company leased part facility back buyers november 2006 company received approximately 344 million sale proceeds january 30 2004 remaining 66 million january 28 2005 addition company completed auctions remaining machinery equipment well finalized sale facility associated selling costs second quarter 2004 recorded additional 14 million net gains related actions net gains reflected “restructuring infrequent expenses” company’s consolidated statements operations year ended december 31 2004 employee severance costs relate termination 1049 employees terminated december 31 2004 employee retention payments relate incentives paid coventry employees remained employed certain future termination dates accrued term retention period facility closure costs include certain noncancelable operating lease terminations facility exit costs 2004 company reversed approximately 09 million provisions related restructuring previously established reversals necessary adequately reflect accurate estimates remaining obligations related retention payments lease termination payouts exit costs employees redeployed terminated earlier estimated supplier rental contracts finalized terminated earlier anticipated 2004 “restructuring infrequent expenses” company’s consolidated statements operations included credit approximately £25 million approximately 41 million due reduction previously established reserve benefits company’s uk pension plan reduction reflects reassessment based upon analysis prior employee terminations light uk agco corporation notes consolidated financial statements continued court appeals interpretation company’s uk pension plan number former employees entitled receive benefits dekalb rationalization march 2003 company announced closure challenger track tractor facility located dekalb illinois relocation production facility jackson minnesota production dekalb facility ceased may 2003 relocated resumed minnesota facility june 2003 dekalb plant assembled challenger track tractors range 235 500 horsepower review cost reduction alternatives determined current future production levels time sufficient support standalone track tractor site company sold dekalb facility real estate fourth quarter 2004 approximately 30 million associated selling costs recorded net loss sale facilities approximately 01 million loss reflected “restructuring infrequent expenses” company’s consolidated statements operations 2002 2003 2004 functional rationalizations 2002 2004 company initiated several rationalization plans recorded restructuring infrequent expenses total approximately 50 million 2002 2003 2004 expenses primarily related severance costs certain lease termination exit costs associated rationalization company’s european engineering marketing personnel certain components company’s german manufacturing facilities located kempten marktoberdorf germany rationalization company’s european combine engineering operations closure consolidation company’s valtra united states canadian sales offices existing united states canadian sales organizations company record costs associated rationalizations 2005 2006 50 million total costs approximately 40 million relate severance costs associated termination approximately 215 employees total december 31 2005 accrued expenses incurred paid 4 accounts receivable securitization december 31 2006 2005 company accounts receivable securitization facilities united states canada europe totaling approximately 4952 million 4803 million respectively october 2006 company’s european securitization renewed restructured wholesale receivables sold qualifying special purpose entity “qspe” addition new securitization eliminates requirement maintain certain debt rating levels standard poor’s moody’s investor services applicable previous securitization facility 2004 company amended certain provisions united states canadian receivable securitization facilities including expansion facilities additional 300 million 100 million respectively eliminate requirement maintain certain debt rating levels standard poor’s moody’s investor services outstanding funding facilities totaled approximately 4296 million december 31 2006 4627 million december 31 2005 funded balance effect reducing accounts receivable shortterm liabilities amount 2006 company fully utilize securitization facility united states due company’s efforts reduce dealer inventory levels resulted reduction wholesale accounts receivable available sale facilities wholesale accounts receivable sold revolving basis commercial paper conduits whollyowned special purpose us subsidiary qspe united kingdom company reviewed accounting securitization facilities whollyowned special purpose united states qspe united kingdom accordance sfas 140 fin 46r agco corporation notes consolidated financial statements continued united states due fact receivables sold commercial paper conduits insignificant portion conduits’ total asset portfolios receivables siloed consolidation appropriate fin 46r company absorb majority losses transactions europe commercial paper conduit purchases majority receivables deemed majority beneficial interest holder qspe thus consolidation company appropriate fin 46r company absorb majority losses transactions addition facilities accounted offbalance sheet transactions accordance provisions sfas 140 losses sales receivables primarily securitization facilities 299 million 2006 224 million 2005 156 million 2004 included “other expense net” company’s consolidated statements operations losses determined calculating estimated present value receivables sold compared carrying amount present value based historical collection experience discount rate representing spread libor prescribed terms agreements information related facilities assumptions used loss calculations summarized dollar amounts millions company continues service sold receivables maintains retained interest receivables servicing asset liability recorded since estimated fair value servicing receivables approximates servicing income retained interest receivables sold included caption “accounts notes receivable net” accompanying consolidated balance sheets company’s risk loss securitization facilities limited portion unfunded balance receivables sold approximately 15 funded amount company maintains reserves portion residual interest estimates uncollectible december 31 2006 2005 approximately 05 million 14 million respectively unpaid balance receivables sold past due 60 days fair value retained interest approximately 593 million 1059 million respectively compared carrying amount 604 million 1078 million respectively december 31 2006 2005 based present value receivables calculated method consistent losses sales receivables discussed assuming 10 20 increase average liquidation period fair value residual interest would decline 01 million 02 million respectively assuming 10 20 increase discount rate fair value residual interest would decline 01 million 02 million respectively 2006 company received approximately 11624 million sales receivables 52 million servicing fees 2005 company received 12724 million sales receivables 64 million servicing fees 2004 company received approximately 12702 million sales receivables 56 million servicing fees may 2005 company completed agreement permit transferring ongoing basis majority wholesale interestbearing receivables north america agco finance llc agco finance canada ltd united states canadian retail finance joint ventures company 49 ownership interest joint ventures transfer receivables without recourse company continues service receivables company maintain direct retained interest receivables servicing asset liability recorded since estimated fair value agco corporation notes consolidated financial statements continued servicing receivables approximates servicing income initial transfer wholesale interestbearing receivables resulted net proceeds approximately 94 million used redeem company’s 250 million 912 senior notes note 7 december 31 2006 2005 balance interestbearing receivables transferred agco finance llc agco finance canada ltd agreement approximately 1241 million 1099 million respectively 5 investments affiliates investments affiliates december 31 2006 2005 follows millions manufacturing joint venture december 31 2006 2005 consisted joint venture third party manufacturer produce engines south america joint ventures represent minority investments farm equipment manufacturers distributors licensees company’s equity net earnings affiliates years ended december 31 2006 2005 2004 follows millions summarized combined financial information company’s retail finance joint ventures december 31 2006 2005 years ended december 31 2006 2005 2004 follows millions majority assets company’s retail finance joint ventures represent finance receivables majority liabilities represent notes payable accrued interest various joint venture agreements rabobank affiliates obligated provide financing joint venture companies company guarantee debt obligations retail finance joint ventures note 13 agco corporation notes consolidated financial statements continued portion company’s retained earnings balance represents undistributed retained earnings equity method investees approximately 1054 million december 31 2006 6 income taxes sources loss income taxes equity net earnings affiliates follows years ended december 31 2006 2005 2004 millions provision income taxes location taxing jurisdiction years ended december 31 2006 2005 2004 consisted following millions december 31 2006 company’s foreign subsidiaries approximately 14 billion undistributed earnings considered indefinitely invested accordingly income taxes provided earnings determination amount unrecognized deferred taxes earnings practical however unrecognized foreign tax credits would available reduce portion tax liability october 22 2004 united states enacted american jobs creation act “ajca” 2004 ajca provides multinational companies election deduct taxable income 85 eligible dividends repatriated foreign subsidiaries ajca generally allowed companies take advantage special deduction november 2004 end calendar year 2005 company propose qualifying plan repatriation 2005 2004 agco corporation notes consolidated financial statements continued reconciliation income taxes computed united states federal statutory income tax rate 35 provision income taxes reflected consolidated statements operations years ended december 31 2006 2005 2004 follows millions significant components deferred tax assets liabilities december 31 2006 2005 follows millions company recorded net deferred tax liability 20 million december 31 2006 net deferred tax asset 269 million december 31 2005 reflected preceding table company agco corporation notes consolidated financial statements continued established valuation allowance 2914 million 2528 million december 31 2006 2005 respectively change valuation allowance years ended december 31 2006 2005 2004 increase 386 million 1099 million 12 million respectively fourth quarter 2005 company recognized noncash deferred income tax charge 908 million related increasing valuation allowance united states deferred tax assets sfas 109 requires establishment valuation allowance likely portion deferred tax assets realized accordance sfas 109 company assessed likelihood deferred tax assets would recovered estimated future taxable income available tax planning strategies determined adjustment valuation allowance december 31 2006 2005 2004 appropriate making assessment available evidence considered including current economic climate well reasonable tax planning strategies company believes likely company realize remaining deferred tax assets net valuation allowance future years company net operating loss carryforwards 6934 million december 31 2006 expiration dates follows 2011 80 million thereafter unlimited 6854 million net operating loss carryforwards include united states net loss carryforwards 3960 million foreign net operating loss carryforwards 2974 million company paid income taxes 436 million 559 million 834 million years ended december 31 2006 2005 2004 respectively 7 longterm debt longterm debt consisted following december 31 2006 2005 millions december 4 2006 company issued 2013 million 114 convertible senior subordinated notes due december 15 2036 received proceeds approximately 1964 million related fees expenses notes unsecured obligations convertible cash shares company’s common stock upon satisfaction certain conditions discussed notes provide settlement upon conversion cash principal amount notes excess conversion value settled shares company’s common stock ii conversion rate increased certain circumstances notes converted connection certain change control transactions occurring prior december 15 2013 pursuant eitf 0019 “accounting derivative financial instruments indexed potentially settled company’s stock” “eitf 0019” embedded conversion feature classified equity interest payable notes 114 per annum payable semiannually arrears cash june 15 december 15 year beginning june 15 2007 notes convertible shares company’s common stock effective price 4073 per share subject adjustment holders may convert notes following circumstances 1 fiscal quarter closing sales price company’s common stock exceeds 120 conversion price agco corporation notes consolidated financial statements continued least 20 trading days 30 consecutive trading days ending last trading day preceding fiscal quarter 2 five business day period five consecutive trading day period trading price per note day period less 98 product closing sale price company’s common stock conversion rate 3 notes called redemption 4 upon occurrence certain corporate transactions beginning december 15 2013 company may redeem notes redemption price 100 principal amount plus accrued interest holders notes may require company repurchase notes repurchase price 100 principal amount plus accrued interest december 15 2013 2016 2021 2026 2031 holders may also require company repurchase portion notes upon fundamental change defined indenture repurchase price equal 100 principal amount notes repurchased plus accrued unpaid interest notes senior subordinated obligations subordinated company’s existing future senior indebtedness effectively subordinated debt liabilities company’s subsidiaries notes equal right payment company’s 678 senior subordinated notes due 2014 134 convertible senior subordinated notes due 2033 company used net proceeds received issuance 114 convertible senior subordinated notes well available cash repay 1969 million outstanding united states dollar denominated term loan 791 million outstanding euro denominated term loan addition company recorded interest expense approximately 20 million proportionate writeoff deferred debt issuance costs associated term loan balances repaid company’s united states dollar denominated euro denominated term loans discussed company’s credit facility provides 3000 million multicurrency revolving credit facility 3000 million united states dollar denominated term loan 1200 million euro denominated term loan maturity date revolving credit facility december 2008 maturity date term loan facility june 2009 company required make quarterly payments towards united states dollar denominated term loan euro denominated term loan 075 million 03 million respectively amortization one percent per annum maturity date term loan revolving credit term loan facilities secured majority company’s united states canadian finnish uk based assets pledge portion stock domestic material foreign subsidiaries interest accrues amounts outstanding revolving credit facility company’s option either 1 libor plus margin ranging 125 20 based upon company’s senior debt ratio 2 higher administrative agent’s base lending rate onehalf one percent federal funds rate plus margin ranging 00 075 based company’s senior debt ratio interest accrues amounts outstanding term loans libor plus 175 credit facility contains covenants restricting among things incurrence indebtedness making certain payments including dividends company also must fulfill financial covenants including among others total debt ebitda ratio senior debt ebitda ratio fixed charge coverage ratio defined facility december 31 2006 company total borrowings 1114 million credit facility included 733 million united states dollar denominated term loan facility 289 million approximately 381 million euro denominated term loan facility amounts outstanding multicurrency revolving credit facility december 31 2006 company availability borrow 2922 million revolving credit facility december 31 2005 company total borrowings 4015 million credit facility included 2725 million united states dollar denominated term loan facility 1089 million approximately 1290 million euro denominated term loan facility amounts outstanding multicurrency revolving credit facility december 31 2005 company availability borrow 2929 million revolving credit facility june 29 2005 company exchanged 2013 million 134 convertible senior subordinated notes due 2033 new notes provide settlement upon conversion cash principal agco corporation notes consolidated financial statements continued amount converted new notes excess conversion value settled shares company’s common stock ii conversion rate increased certain circumstances new notes converted connection certain change control transactions occurring prior december 10 2010 otherwise substantially old notes pursuant eitf 0019 embedded conversion feature classified equity notes unsecured obligations convertible cash shares company’s common stock upon satisfaction certain conditions discussed interest payable notes 134 per annum payable semiannually arrears cash june 30 december 31 year notes convertible shares company’s common stock effective price 2236 per share subject adjustment holders may convert notes following circumstances 1 fiscal quarter closing sales price company’s common stock exceeds 120 conversion price least 20 trading days 30 consecutive trading days ending last trading day preceding fiscal quarter 2 five business day period five consecutive trading day period trading price per note day period less 98 product closing sale price company’s common stock conversion rate 3 notes called redemption 4 upon occurrence certain corporate transactions beginning january 1 2011 company may redeem notes redemption price 100 principal amount plus accrued interest holders notes may require company repurchase notes repurchase price 100 principal amount plus accrued interest december 31 2010 2013 2018 2023 2028 impact exchange completed june 2005 discussed reduce diluted weighted average shares outstanding future periods reduction diluted shares approximately 90 million shares prospective basis vary future based company’s stock price market price trigger specified conversion circumstances met december 31 2006 closing sales price company’s common stock exceeded 120 conversion price 2236 per share least 20 trading days 30 consecutive trading days ending december 31 2006 therefore company classified 134 convertible senior subordinated notes current liability future classification notes current longterm debt dependent closing sales price company’s common stock future quarters company believes unlikely holders notes would convert notes provisions indenture agreement thereby requiring company repay principal portion cash event notes converted company believes could repay notes available cash hand funds company’s existing 3000 million multicurrency revolving credit facility combination sources june 23 2005 company completed redemption 250 million 912 senior notes due 2008 company redeemed notes price approximately 2619 million included premium 475 face amount senior notes premium approximately 119 million writeoff remaining balance deferred debt issuance costs approximately 22 million recognized interest expense net second quarter 2005 funding source redemption combination cash generated transfer north american wholesale interestbearing receivables company’s united states canadian retail finance joint ventures agco finance llc agco finance canada ltd well revolving credit facility borrowings available cash hand note 4 april 23 2004 company sold 2000 million 678 senior subordinated notes due 2014 received proceeds approximately 2340 million offering related fees expenses 678 senior subordinated notes unsecured obligations subordinated right payment company’s existing future senior indebtedness interest payable notes 678 per annum payable semiannually april 15 october 15 year beginning october 15 2004 beginning april 15 2009 company may redeem notes whole part initially 103438 principal amount plus accrued interest declining 100 principal amount plus accrued interest time april 15 2012 addition april 15 2009 company may redeem notes whole part agco corporation notes consolidated financial statements continued redemption price equal 100 principal amount plus accrued interest plus makewhole premium april 15 2007 company also may redeem 35 notes 106875 principal amount using proceeds sales certain kinds capital stock notes include certain covenants restricting incurrence indebtedness making certain restrictive payments including dividends december 31 2006 aggregate scheduled maturities longterm debt excluding current portion longterm debt follows millions cash payments interest 705 million 978 million 956 million years ended december 31 2006 2005 2004 respectively company arrangements various banks issue standby letters credit similar instruments guarantee company’s obligations purchase sale certain inventories potential claims exposure insurance coverage december 31 2006 outstanding letters credit issued revolving credit facility totaled 78 million 8 employee benefit plans company defined benefit pension plans covering certain employees principally united states united kingdom germany finland norway france australia argentina brazil company also provides certain postretirement health care life insurance benefits certain employees principally united states effective december 31 2006 company adopted recognition disclosure provisions sfas 158 key changes new statement follows recognition funded status statement financial position sfas 158 requires employer sponsors one singleemployer defined benefit plans recognize overfunded underfunded status benefit plan measured difference fair value plan assets benefit obligation projected benefit obligation defined benefit pension plans accumulated postretirement benefit obligation postretirement plans statement financial position recognition unamortized amounts accumulated comprehensive income sfas 158 requires companies recognize component comprehensive income net tax gains losses prior service costs credits arise period recognized components net periodic benefit cost pursuant sfas 87 “employers’ accounting pensions” “sfas 87” sfas 106 “employers’ accounting postretirement benefits pensions” “sfas 106” words change funded status plan year change occurs reflected combination net annual pension cost component net income company’s accumulated comprehensive income loss component stockholder’s equity elimination use early measurement date sfas 158 requires companies measure defined benefit plan assets obligations date company’s fiscal yearend measurement provision agco corporation notes consolidated financial statements continued sfas 158 effective years beginning december 15 2008 company yet adopted measurement provisions sfas 158 december 31 2006 upon adoption change impact measurement company’s uk pension plan additional disclosures last sfas 158 requires companies disclose notes financial statements additional information certain effects net periodic benefit cost next fiscal year arise delayed recognition gains losses prior service costs credits transition asset obligation addition companies must disclose current noncurrent components assets liabilities defined benefit pension postretirement plans prior adoption recognition provisions sfas 158 company accounted defined benefit pension plans sfas 87 postretirement health care plans sfas 106 well disclosure provisions sfas 132r “employers disclosures pensions postretirement benefits amendment fasb statements 87 88 106” “sfas 132r” sfas 87 required liability referred additional minimum pension liability recorded accumulated benefit obligation exceeded fair value plan assets adjustments recorded noncash charges company’s accumulated comprehensive loss within stockholders’ equity reflected “additional minimum liability adjustments” sfas 106 required liability recorded represent actuarial present value future benefits attributable employee’s service rendered date requirement reflect additional minimum liability difference accumulated benefit obligation plan assets upon adoption recognition provisions sfas 158 company recognized difference projected benefit obligation includes impact future salary increases accumulated benefit obligation related defined pension benefit plans well entire obligation related unfunded postretirement health care life insurance benefit plans united states resulted increase accumulated comprehensive loss approximately 268 million net taxes increase liabilities approximately 375 million increase noncurrent assets approximately 16 million increase noncurrent deferred tax assets approximately 91 million sfas 158 effective periods ending december 15 2006 retroactive application permitted therefore disclosures year ended december 31 2006 reflect provisions sfas 158 disclosures years ended december 31 2005 2004 reflect requirements sfas 132r net annual pension costs years ended december 31 2006 2005 2004 set forth millions agco corporation notes consolidated financial statements continued weighted average assumptions used determine net annual pension costs company’s pension plans years ended december 31 2006 2005 2004 follows net annual postretirement costs years ended december 31 2006 2005 2004 set forth millions except percentages following tables set forth reconciliations changes benefit obligation plan assets funded status december 31 2006 2005 millions agco corporation notes consolidated financial statements continued accrued pension costs approximately 51 million 44 million classified current liabilities within “accrued expenses” company’s consolidated balance sheets december 31 2006 2005 respectively related company’s phased retirement plan obligations germany december 31 2006 company’s accumulated comprehensive loss included net actuarial loss approximately 2414 million net prior service credit approximately 30 million related company’s defined benefit pension plans estimated net actuarial loss net prior service credit defined benefit pension plans amortized company’s accumulated comprehensive loss year ended december 31 2007 approximately 150 million 02 million respectively december 31 2006 company’s accumulated comprehensive loss included net actuarial loss approximately 37 million net prior service credit approximately 04 million related company’s us postretirement health care benefit plans estimated net actuarial loss net prior service credit postretirement health care benefit plans amortized company’s accumulated comprehensive loss year ended december 31 2007 approximately 01 million 01 million respectively agco corporation notes consolidated financial statements continued weighted average assumptions used determine benefit obligation company’s pension plans december 31 2006 2005 follows aggregate projected benefit obligation accumulated benefit obligation fair value plan assets pension postretirement plans accumulated benefit obligations excess plan assets 8814 million 8178 million 6093 million respectively december 31 2006 7700 million 7323 million 5158 million respectively december 31 2005 projected benefit obligation accumulated benefit obligation fair value plan assets company’s us based pension plans 497 million 497 million 437 million respectively december 31 2006 521 million 521 million 417 million respectively december 31 2005 accordance sfas 158 december 31 2006 company’s accumulated comprehensive loss reflects reduction equity 2417 million net taxes 741 million primarily related company’s uk us pension plans projected benefit obligation exceeded plan assets accordance sfas 87 december 31 2005 company’s accumulated comprehensive loss reflects reduction equity 2164 million net taxes 663 million related recording minimum pension liability primarily related company’s uk pension plan accumulated benefit obligation exceeded plan assets company utilizes september 30 measurement date determine pension benefit measurements company’s uk pension plan company utilizes december 31 measurement date determine pension postretirement benefit measurements company’s plans united states rest world year ended december 31 2006 company based discount rate used determine projected benefit obligation us pension plans postretirement health care benefit plans executive nonqualified pension plan “enpp” matching projected cash flows plans citibank pension discount curve prior december 31 2006 company based discount rate used determine projected benefit obligation us pension plans moody’s investor service aa bond yield december 31 year nonus plans company bases discount rate comparable indices within countries 15year iboxx aa corporate bond yield united kingdom indices used united states united kingdom countries chosen match expected plan obligations related expected cash flows weighted average asset allocation company’s us pension benefit plans december 31 2006 2005 follows agco corporation notes consolidated financial statements continued weighted average asset allocation company’s non us pension benefit plans december 31 2006 2005 follows taxqualified pension fund investments united states held agco corporation master pension trust company’s global pension fund strategy diversify investments across broad categories equity fixed income securities appropriate use alternative investment categories minimize risk volatility company’s us target allocation retirement fund investments 50 large cap domestic equity securities 10 international equity securities 20 domestic fixed income securities 20 invested investments company noted long periods mix investments would achieve average return excess 9 arriving choice expected return assumption 8 us based plans company tempered historical indicator lower expectations returns equity investments future well considered administrative costs plans date company invested pension funds stock intention future company’s nonus target allocation retirement fund investments 50 equity securities 30 fixed income securities 20 percent invested investments majority company’s nonus pension fund investments related company’s pension plan united kingdom company noted long periods target mix investments would achieve average return excess 75 arriving choice expected return assumption 7 ukbased pension plan company tempered historical indicator slightly lower expectation future returns equity investments well plan expenses weighted average discount rate used determine benefit obligation company’s postretirement benefit plans years ended december 31 2006 2005 58 55 respectively measuring expected postretirement benefit obligation december 31 2006 9 health care cost trend rate assumed 2007 decreasing 10 per year 50 remaining level thereafter measuring expected postretirement benefit obligation december 31 2005 9 health care cost trend rate assumed 2006 decreasing 10 per year 50 remaining level thereafter changing assumed health care cost trend rates one percentage point year holding assumptions constant would following effect service interest cost 2007 accumulated postretirement benefit obligation december 31 2006 millions december 2003 united states congress enacted medicare prescription drug improvement modernization act 2003 provides prescription drug subsidy beginning 2006 companies sponsor postretirement health care plans provide drug benefits based upon final regulations released january 2005 third quarter 2005 company reviewed provisions postretirement health care plans actuaries determine whether benefits offered plans met statutory definition “actuarially equivalent” prescription drug benefits qualify federal subsidy based upon review company believes two plans qualify subsidy accordance fsp agco corporation notes consolidated financial statements continued 1062 “accounting disclosure requirements related medicare prescription drug improvement modernization act 2003” company began reflecting impact anticipated subsidies july 1 2005 prospective basis revalued projected benefit obligation july 1 2005 company recognized curtailment two postretirement health care plans resulting 19 million decrease net postretirement cost company currently estimates minimum contributions benefit payments 2007 us based defined pension plans postretirement health care life insurance benefit plans aggregate approximately 19 million 22 million respectively company currently estimates minimum contributions underfunded plans benefit payments unfunded plans 2007 nonusbased defined pension plans aggregate approximately 262 million approximately 211 million relates uk pension plan 2006 approximately 419 million benefit payments made related company’s pension plans december 31 2006 aggregate expected benefit payments company’s pension plans follows millions 2006 approximately 26 million benefit payments made related company’s us postretirement benefit plans december 31 2006 aggregate expected benefit payments company’s us postretirement benefit plans follows millions company’s supplemental executive retirement plan “serp” unfunded plan provides company executives retirement income period ten years based percentage final base salary reduced executive’s social security benefits 401k employer matching contributions account prior january 1 2007 benefit paid executive equal 3 final base salary times credited years service maximum benefit 60 final base salary benefits serp vested age 65 discretion company’s board directors age 62 reduced factor recognize early commencement benefit payments november 3 2006 company entered executive nonqualified pension plan effective january 1 2007 “2007 enpp” intended amend restate company’s existing serp plan provide senior company executives appropriate retirement benefit 2007 enpp provides group senior company executives retirement income period 15 years based percentage agco corporation notes consolidated financial statements continued average final salary bonus reduced executive’s social security benefits 401k employer matching contributions account benefit paid executives ranges 225 3 average last three years base salary plus bonus prior termination employment “final earnings” times credited years service maximum benefit 45 60 final earnings depending level executive benefits 2007 enpp vest participant attained age 50 least ten years service five years include years participation 2007 enpp payable participant reaches age 65 upon termination services death disability adjusted reflect payment prior age 65 net annual enpp serp cost measurement assumptions plans years ended december 31 2006 2005 2004 set forth millions following tables set forth reconciliations changes benefit obligation funded status december 31 2006 2005 millions weighted average discount rate used determine benefit obligation company’s 2007 enpp serp plans years ended december 31 2006 2005 58 55 respectively agco corporation notes consolidated financial statements continued december 31 2006 company’s accumulated comprehensive loss included net actuarial gain approximately 18 million net prior service cost approximately 45 million related company’s enpp plan estimated net actuarial gain net prior service cost related enpp amortized company’s accumulated comprehensive loss year ended december 31 2007 approximately 01 million 05 million respectively accordance sfas 158 december 31 2006 company recorded reduction equity 27 million related unfunded projected benefit obligation company’s enpp company benefiting losses tax purposes united states tax impact charge 2006 approximately 04 million benefit payments made related company’s enpp plan december 31 2006 aggregate expected benefit payments company’s enpp plan follows millions company maintains separate defined contribution plans covering certain employees primarily united states united kingdom brazil plans company contributes specified percentage eligible employee’s compensation company contributed approximately 85 million 83 million 75 million years ended december 31 2006 2005 2004 respectively 9 common stock december 31 2006 company 1500 million authorized shares common stock par value 001 per share approximately 912 million shares common stock outstanding approximately 19 million shares reserved issuance company’s 2001 stock option plan note 10 approximately 35 million shares reserved issuance 2006 long term incentive plan “2006 plan” note 10 april 7 2004 company sold 14720000 shares common stock underwritten public offering received net proceeds approximately 3001 million company used net proceeds repay 1000 million interim bridge loan facility repay borrowings credit facility pay offering related fees expenses company stockholder rights plan adopted april 1994 following stockholder approval plan provides share common stock outstanding attached right purchase onehundredth share junior cumulative preferred stock par value 001 per share purchase price per onehundredth share 10000 subject adjustment rights exercisable person group “acquirer” acquires 20 company’s common stock announces tender offer exchange offer would result acquisition 20 company’s common stock circumstances additional conditions met exercisable plan allows stockholders acquirer purchase company’s common stock securities acquirer current market value two times exercise price right rights redeemable 001 per right subject adjustment option company’s board agco corporation notes consolidated financial statements continued directors rights expire april 26 2014 unless extended redeemed exchanged company date 10 stock incentive plans company’s april 2006 annual stockholders’ meeting company obtained stockholder approval 2006 plan 5000000 shares common stock may issued 2006 plan allows company direction board director’s compensation committee make grants performance shares stock appreciation rights stock options stock awards employees officers nonemployee directors company’s board directors approved grants awards 2006 effective employee director stock incentive plans described employee plans company’s board directors approved two new stock incentive plans company executives key managers primary longterm incentive plan performance share plan provides awards shares common stock based achieving financial targets earnings per share return invested capital determined company’s board directors stock awards earned performance period number shares earned determined based cumulative average results period depending measurement performance periods consecutive overlapping threeyear cycles performance targets set beginning cycle order transition new performance share plan company established award targets 2006 oneyear twoyear performance period addition normal threeyear period plan provides participants earn 33 200 target awards depending actual performance achieved shares earned performance established minimum target awards earned performance share plan paid shares common stock end performance period participants may elect forfeit portion earned award order fully satisfy federal state employment taxes payable time shares earned company recorded stock compensation expense approximately 14 million associated awards 2006 compensation expense recorded based price company’s common stock april 27 2006 date company’s annual stockholder meeting respect initial grants plan based upon stock price grant date subsequent grants made third quarter 2006 compensation expense associated awards amortized ratably vesting performance period based company’s projected assessment level performance achieved earned compensation expense recorded associated company’s oneyear performance period transition plan shares earned weighted average grantdate fair value performance awards granted 2006 plan year ended december 31 2006 2386 performance award transactions year ended december 31 2006 follows presented company achieve target levels performance plan addition performance share plan certain executives key managers eligible receive grants ssars incentive stock options depending participant’s country employment ssars provide participant right receive aggregate appreciation stock price market price company’s common stock date grant payable shares company’s common stock participant may exercise ssar time grant vested later seven years agco corporation notes consolidated financial statements continued date grant ssars vest ratably fouryear period date grant ssar award grants made certain executives key managers 2006 plan made base price equal price company’s common stock date grant company recorded stock compensation expense approximately 03 million associated ssar award grants 2006 compensation expense associated awards amortized ratably vesting period awards currently exercisable december 31 2006 company estimated fair value grants using blackscholes option pricing model weighted average grantdate fair value ssars granted 2006 plan weighted average assumptions blacksholes option model follows year ended december 31 2006 december 31 2006 weighted average remaining contractual life ssars outstanding approximately six years december 31 2006 total compensation cost related unvested ssars yet recognized approximately 17 million weightedaverage period expected recognized approximately three years december 31 2006 total compensation cost related unearned performance awards yet recognized assuming minimum thresholds performance achieved approximately 37 million weightedaverage period expected recognized approximately two years february 15 2007 company granted 515000 performance award shares company achieve target levels performance 224500 ssars 2006 plan agco corporation notes consolidated financial statements continued director restricted stock grants company’s board directors approved plan provide 25000 annual restricted stock grants nonemployee directors effective first day calendar year shares restricted transferability period three years subject forfeiture event director departs company’s board directors nontransferability period would expire immediately plan allows director option forfeiting portion shares awarded lieu cash payment contributed participant’s tax withholding satisfy participant’s statutory minimum federal state employment taxes would payable time grant january 1 2006 grant equated 11550 shares common stock 8832 shares common stock issued shares withheld withholding taxes company recorded stock compensation expense approximately 03 million 2006 associated grants december 31 2006 5000000 shares reserved issuance 2006 plan 3485251 shares available grant assuming maximum number shares earned related performance award grants discussed january 1 2007 company granted 8080 shares common stock 2006 plan 6346 shares common stock issued shares withheld withholding taxes former nonemployee director stock incentive plan longterm incentive plan december 2005 company’s board directors elected terminate company’s ltip director plan outstanding awards plans cancelled decision terminate plans related cancellations made primarily avoid recognizing compensation cost company’s future financial statements upon adoption sfas 123r awards establish new longterm incentive program new accounting provisions sfas 123r allow reversal previously recognized compensation expense marketbased performance awards stock price targets met new longterm incentive program performancebased targets december 31 2005 75000 awarded unearned shares director plan cancelled remaining 15000 awarded unearned shares director plan cancelled january 2006 december 31 2005 857000 awarded unearned shares ltip cancelled remaining 135000 shares cancelled january 2006 awards cancelled prior december 31 2005 result compensation expense provisions apb 25 however awards cancelled january 1 2006 subject provisions sfas 123r therefore company recorded approximately 13 million stock compensation expense first quarter 2006 associated cancellations former nonemployee director stock incentive plan company’s former director plan provided restricted stock awards nonemployee directors based increases price company’s common stock awarded shares earned specified increments 15 increase average market value company’s common stock initial base price established plan increment awarded shares earned shares issued participant form restricted stock vested earlier 12 months specified performance period upon departure company’s board directors restricted shares earned cash bonus equal 40 value shares date restricted stock award earned paid company satisfy portion estimated income tax liability incurred participant addition december 31 2006 8999 shares earned vested director plan agco corporation notes consolidated financial statements continued former longterm incentive plan company’s former ltip provided restricted stock awards executives based increases price company’s common stock awarded shares earned fiveyear performance period specified increments 20 increase average market value company’s common stock established initial base price restricted stock awards prior 2000 earned shares issued participant form restricted stock generally carried fiveyear vesting period onethird earned award vesting end third fourth fifth year award earned 2000 ltip amended replace vesting schedule nontransferability period future grants accordingly restricted stock awards 2000 2005 earned shares subject nontransferability period expired fiveyear period transfer restrictions lapsing onethird increments end third fourth fifth year award earned nontransferability period participants restricted selling assigning transferring pledging otherwise disposing earned shares earned shares subject forfeiture event participant terminated employment company nontransferability period extended two years earned shares vested longer subject forfeiture company obligated pay cash bonus equal 40 value shares date shares earned order satisfy portion estimated income tax liability incurred participant awards granted 2000 thereafter company recorded entire compensation expense relating market value earned shares related cash bonus period award earned awards granted prior 2000 market value awards earned added common stock additional paidin capital equal amount deducted stockholders’ equity unearned compensation ltip unearned compensation amount cash bonus paid awarded shares became vested amortized expense ratably vesting period company recognized compensation expense associated former ltip director plan 01 million 04 million 05 million years ended december 31 2006 2005 2004 respectively consisting compensation expense relating earned shares amortization stock awards earned shares issued prior 2000 related cash bonuses 2001 former ltip amended permit participant elect forfeit portion earned award order fully satisfy federal state employment taxes payable time shares related cash bonus earned number shares common stock equal value participant’s tax liability net cash bonus thereby forfeited lieu additional cash payment contributed participant’s tax withholding 2005 2004 zero 1513 earned shares respectively forfeited manner awards granted prior 2000 number shares vested years 2006 2005 2004 15000 4166 respectively awards granted 2000 vest immediately upon earned stock option plan company’s option plan provides granting nonqualified incentive stock options officers employees directors others stock option exercise price determined company’s board directors except case incentive stock option purchase price shall less 100 fair market value date grant recipient stock options entitled immediately exercise 20 options issued person remaining 80 options vest ratably fouryear period expire later ten years date grant grants option plan years ended december 31 2006 2005 2004 company estimated fair value grants company’s option plan using blackscholes option pricing model disclosure purposes prior adoption sfas 123r fair value grants amortized applicable agco corporation notes consolidated financial statements continued vesting period result applying provisions sfas 123r company recognized 02 million stock compensation expense associated stock options vested 2006 stock option transactions year ended december 31 2006 follows december 31 2006 outstanding options weighted average remaining contractual life approximately three years 505170 options currently exercisable option prices ranging 850 3125 weighted average exercise price 1868 aggregate intrinsic value 62 million following table sets forth exercise price range number shares weighted average exercise price remaining contractual lives groups similar price total intrinsic value options exercised years ended december 31 2006 2005 2004 approximately 70 million 07 million 16 million respectively total fair value shares vested periods approximately 02 million 11 million 18 million respectively 6000 stock options vested december 31 2006 cash proceeds received stock option exercises 2006 2005 2004 approximately 108 million 14 million 33 million respectively company realize tax benefit exercise options 11 derivative instruments hedging activities company applies provisions sfas 133 “accounting derivative instruments hedging activities” amended sfas 138 “accounting certain derivative instruments agco corporation notes consolidated financial statements continued certain hedging activities amendment fasb statement 133” derivatives recognized consolidated balance sheets fair value date derivative contract entered company designates derivative either 1 fair value hedge recognized liability 2 cash flow hedge forecasted transaction 3 hedge net investment foreign operation 4 nondesignated derivative instrument company primarily engages derivatives designated nondesignated derivative instruments changes fair value nondesignated derivative contracts reported current earnings company formally documents relationships hedging instruments hedged items well risk management objectives strategy undertaking various hedge transactions company formally assesses hedge’s inception ongoing basis whether derivatives used hedging transactions highly effective offsetting changes fair values cash flow hedged items determined derivative longer highly effective hedge accounting discontinued prospective basis foreign currency risk company significant manufacturing operations united states france germany finland brazil denmark purchases portion tractors combines components thirdparty foreign suppliers primarily various european countries japan company also sells products 140 countries throughout world company’s significant transactional foreign currency exposures euro brazilian real canadian dollar relation united states dollar company attempts manage transactional foreign exchange exposure hedging foreign currency cash flow forecasts commitments arising settlement receivables payables future purchases sales naturally offsetting currency positions occur company hedges certain exposures use foreign currency forward contracts company’s hedging policy prohibits foreign currency forward contracts speculative trading purposes company uses foreign currency forward contracts economically hedge receivables payables company subsidiaries’ balance sheets denominated foreign currencies functional currency forward contracts classified nondesignated derivatives instruments gains losses contracts historically substantially offset losses gains remeasurement underlying asset liability hedged changes fair value nondesignated derivative contracts reported current earnings 2006 company designated certain foreign currency option contracts cash flow hedges expected sales effective portion fair value gains losses cash flow hedges recorded comprehensive loss subsequently reclassified net sales recognized amounts offset effect changes foreign exchange rates related sale transactions amount gain recorded comprehensive loss reclassified net sales year ended december 31 2006 approximately 40 million aftertax basis contracts expired prior december 31 2006 agco corporation notes consolidated financial statements continued following table summarizes activity accumulated comprehensive loss related derivatives held company year ended december 31 2006 millions derivatives held company accounted hedges 2005 2004 company uses foreign currency forward contracts economically hedge receivables payables company subsidiaries’ balance sheets denominated foreign currencies functional currency forward contracts classified nondesignated derivatives instruments years ended december 31 2006 2005 2004 company recorded net gain approximately 134 million net losses approximately 03 million 376 million respectively caption expense net gains losses substantially offset losses gains remeasurement underlying asset liability hedged interest rate risk company may use interest rate swap agreements manage exposure interest rate changes currently company interest rate swap agreements outstanding addition company recorded deferred loss 20 million net taxes year ended december 31 2006 deferred gain 28 million 38 million net taxes years ended december 31 2005 2004 respectively comprehensive income loss related derivatives held affiliates losses gains related interest rate swap contracts company’s retail finance joint ventures swap contracts effect converting floating rate debt fixed rates order secure retail finance joint ventures’ yields fixed rate loan portfolios company’s senior management establishes company’s foreign currency interest rate risk management policies reviewed periodically audit committee company’s board directors policy allows use derivative instruments hedge exposures movements foreign currency interest rates company’s policy prohibits use derivative instruments speculative purposes agco corporation notes consolidated financial statements continued 12 commitments contingencies future payments required company’s significant commitments december 31 2006 follows millions 1 estimated interest payments calculated assuming current interest rates minimum maturity periods specified debt agreements debt may repaid sooner later minimum maturity periods 2 unconditional purchase obligations exclude routine purchase orders entered normal course business result rationalization company’s european combine manufacturing operations 2004 company entered agreement thirdparty manufacturer produce certain combine model ranges fiveyear period agreement provides purchase minimum quantity 200 combines per year cost approximately 162 million per year approximately 214 million may 2009 3 shortterm longterm obligations include estimates future minimum contribution requirements us nonus defined benefit pension postretirement plans estimates based current legislation countries operate within subject change balance sheet arrangements guarantees december 31 2006 company obligated certain circumstances purchase year 2010 72 million equipment upon expiration certain operating leases agco finance llc agco finance canada ltd company’s retail finance joint ventures north america end users company also maintains remarketing agreement joint ventures whereby company obligated repurchase repossessed inventory market values company agreement agco finance llc limits company’s purchase obligations arrangement 60 million aggregate per calendar year company believes losses might incurred resale equipment materially impact company’s financial position results operations december 31 2006 company guaranteed indebtedness owed third parties approximately 808 million primarily related dealer end user financing equipment company believes credit risk associated guarantees material financial position agco corporation notes consolidated financial statements continued addition december 31 2006 company foreign currency forward contracts buy aggregate approximately 1660 million united states dollar equivalents foreign currency forward contracts sell aggregate approximately 1723 million united states dollar equivalents contracts maturity less one year note 11 time company sells certain trade receivables factoring arrangements financial institutions throughout world company evaluates sale receivables pursuant guidelines sfas 140 determined facilities accounted offbalance sheet transactions accordance sfas 140 total lease expense noncancelable operating leases 378 million 376 million 350 million years ended december 31 2006 2005 2004 respectively contingencies result recent brazilian tax legislative changes impacting value added taxes “vat” company recorded reserve approximately 200 million 214 million outstanding balance brazilian vat taxes receivable december 31 2006 2005 respectively due uncertainty company’s ability collect amounts outstanding february 2006 company received subpoena sec connection nonpublic factfinding inquiry entitled “in matter certain participants oil food program” subpoena requested documents concerning transactions united nations oil food program company certain company’s subsidiaries subpoena arises sales company’s subsidiaries farm equipment iraq ministry agriculture company cooperating fully inquiry subpoena imply violations federal securities laws however sec us department justice participating sec’s inquiry determine company violated federal law company could subject civil criminal fines penalties similar proceeding initiated one company’s subsidiaries denmark november 28 2006 french government initiated investigation one company’s subsidiaries france possible predict outcome inquiries impact company party various claims lawsuits arising normal course business opinion management consultation legal counsel claims lawsuits material adverse effect financial position results operations company 13 related party transactions rabobank aaa rated financial institution based netherlands 51 owner company’s retail finance joint ventures located united states canada brazil germany france united kingdom australia ireland austria rabobank also principal agent participant company’s revolving credit facility securitization facilities notes 4 7 majority assets company’s retail finance joint ventures represent finance receivables majority liabilities represent notes payable accrued interest various joint venture agreements rabobank affiliates obligated provide financing joint venture companies primarily lines credit company guarantee debt obligations retail finance joint ventures portion retail portfolio brazil held outside joint venture rabobank brazil prior 2005 company’s joint venture brazil agency relationship rabobank whereby rabobank provided funding february 2005 company made 213 million investment retail finance joint venture rabobank brazil additional investment joint venture’s organizational structure comparable company’s retail finance joint ventures result gradual elimination agco corporation notes consolidated financial statements continued company’s solvency guarantee rabobank portfolio originally funded rabobank brazil december 31 2006 solvency requirement portfolio held rabobank approximately 83 million company’s retail finance joint ventures provide retail financing wholesale financing dealers terms financing arrangements offered company’s dealers similar arrangements retail finance joint ventures provide unaffiliated third parties december 31 2006 company obligated certain circumstances purchase year 2010 72 million equipment upon expiration certain operating leases agco finance llc agco finance canada ltd retail joint ventures north america end users company also maintains remarketing agreement joint ventures note 12 addition part sales incentives provided end users company may time subsidize interest rates retail financing provided retail joint ventures cost programs recognized time sale company’s dealers may 2005 company completed agreement permit transferring ongoing basis majority wholesale interestbearing receivables north america agco finance llc agco finance canada ltd company 49 ownership interest joint ventures transfer receivables without recourse company continues service receivables company maintain direct retained interest receivables servicing asset liability recorded since estimated fair value servicing receivables approximates servicing income initial transfer wholesale interestbearing receivables resulted net proceeds approximately 94 million used redeem company’s 250 million 912 senior notes note 7 december 31 2006 2005 balance interest bearing receivables transferred agco finance llc agco finance canada ltd agreement approximately 1241 million 1099 million respectively 2006 2005 2004 company net sales 1909 million 1538 million 1628 million respectively baywa corporation german distributor ordinary course business president ceo baywa corporation also member board directors company 2006 2005 company made license fee payments purchased raw materials including engines totaling approximately 2113 million 1845 million respectively caterpillar inc ordinary course business one group presidents caterpillar inc also member board directors company 2006 2005 2004 company purchased approximately 14 million 44 million 24 million respectively equipment components manufacturing joint venture deutz agco motores sa prices approximating cost 14 segment reporting company four reportable segments north america south america europeafricamiddle east asiapacific regional segment distributes full range agricultural equipment related replacement parts company evaluates segment performance primarily based income operations sales regional segment based location thirdparty customer intercompany transactions segments eliminated company’s selling general administrative expenses engineering expenses excluding corporate expense charged segment based region division expenses incurred result components operating income one agco corporation notes consolidated financial statements continued segment may comparable another segment results years ended december 31 2006 2005 2004 follows millions reconciliation segment information consolidated balances income operations total assets set forth millions agco corporation notes consolidated financial statements continued net sales customer location years ended december 31 2006 2005 2004 follows millions net sales product years ended december 31 2006 2005 2004 follows millions property plant equipment amortizable intangible assets country december 31 2006 2005 follows millions item 9item 8 financial statements supplementary data following consolidated financial statements agco subsidiaries years threeyear period ended december 31 2007 included item information heading “quarterly results” item 7 pages 29 30 form 10k incorporated herein reference report independent registered public accounting firm board directors stockholders agco corporation audited accompanying consolidated balance sheets agco corporation subsidiaries december 31 2007 2006 related consolidated statements operations stockholders’ equity cash flows years threeyear period ended december 31 2007 connection audits consolidated financial statements also audited financial statement schedule listed item 15a2 consolidated financial statements financial statement schedule responsibility company’s management responsibility express opinion consolidated financial statements financial statement schedule based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements referred present fairly material respects financial position agco corporation subsidiaries december 31 2007 2006 results operations cash flows years threeyear period ended december 31 2007 conformity us generally accepted accounting principles also opinion related financial statement schedule considered relation basic consolidated financial statements taken whole presents fairly material respects information set forth therein discussed notes 1 8 10 company changed methods accounting sharebased payment defined benefit pension postretirement plans method quantifying errors 2006 also audited accordance standards public company accounting oversight board united states agco corporation’s internal control financial reporting december 31 2007 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission coso report dated february 28 2008 expressed unqualified opinion effectiveness company’s internal control financial reporting kpmg llp atlanta georgia february 28 2008 agco corporation consolidated statements operations millions except per share data see accompanying notes consolidated financial statements agco corporation consolidated balance sheets millions except share amounts see accompanying notes consolidated financial statements agco corporation consolidated statements stockholders’ equity millions except share amounts see accompanying notes consolidated financial statements agco corporation consolidated statements cash flows millions see accompanying notes consolidated financial statements agco corporation notes consolidated financial statements 1 operations summary significant accounting policies business agco corporation “agco” “company” leading manufacturer distributor agricultural equipment related replacement parts throughout world company sells full range agricultural equipment including tractors combines hay tools sprayers forage equipment implements company’s products widely recognized agricultural equipment industry marketed number wellknown brand names including agco® challenger® fendt® gleaner® hesston® massey ferguson® rogator® spracoupe® sunflower®terragator® valtra® whitetm planters company distributes products combination approximately 3000 independent dealers distributors addition company provides retail financing united states canada brazil germany france united kingdom australia ireland austria retail finance joint ventures coöperative centrale raiffeisenboerenleenbank ba “rabobank” basis presentation consolidated financial statements represent consolidation whollyowned companies majorityowned companies joint ventures company determined primary beneficiary financial accounting standards board “fasb” interpretation 46r “consolidation variable interest entities” “fin 46r” company records investments affiliate companies using equity method accounting investments representing ownership less 20 recorded cost significant intercompany balances transactions eliminated consolidated financial statements joint ventures company analyzed provisions fin 46r relate accounting investments joint ventures determined primary beneficiary one joint ventures gima established 1994 agco renault agriculture sa “renault” cooperate field purchasing design manufacturing components agricultural tractors party 50 ownership joint venture original investment approximately 48 million joint venture gima thirdparty debt obligations equity interest renault reported minority interest included “other noncurrent liabilities” accompanying consolidated balance sheets december 31 2007 2006 may 25 2006 company established agco sm group joint venture located russia agco sibmashholding co ltd purpose distributing fendt valtra branded equipment throughout russia kazakhstan time company 51 ownership joint venture original investment less 01 million joint venture october 2007 company became sole owners joint venture acquiring remaining ownership interest sibmashingholding co ltd subsequently changed name entity agco machinery llc results operations agco machinery llc included company’s consolidated financial statements date company’s acquisition remaining ownership interest revenue recognition sales equipment replacement parts recorded company title risks ownership transferred independent dealer distributor customer payment terms vary market product fixed payment schedules sales terms sale generally require purchase order confirmation accompany shipments title generally passes dealer distributor upon shipment risk loss upon damage theft destruction equipment responsibility agco corporation notes consolidated financial statements continued dealer distributor thirdparty carrier certain foreign countries company retains form title goods delivered dealers dealer makes payment company recover goods event customer default payment occurs laws foreign countries provide seller’s retention security interest goods manner established united states uniform commercial code right company retains respect title enabling recovery goods event customer default payment dealer distributor may return equipment replacement parts contract company force replacement parts may returned promotional annual return programs provisions returns programs made time sale based terms program historical returns experience company may provide certain sales incentives dealers distributors provisions sales incentives made time sale existing incentive programs provisions revised event subsequent modification incentive program see “accounts notes receivable” discussion united states canada equipment sales dealers immediately due upon retail sale equipment dealer already paid dealer united states canada installment payments required generally beginning seven 13 months shipment remaining outstanding equipment balance generally due within 12 18 months shipment interest generally charged outstanding balance six 18 months shipment sales terms highly seasonal products provide payment due dates based specified date year regardless shipment date equipment sold dealers united states canada paid full average within 12 months shipment sales replacement parts generally payable within 30 days shipment terms larger seasonal stock orders generally requiring payment within six months shipment international markets equipment sales generally payable full within 30 180 days shipment payment terms highly seasonal products specified due date year regardless shipment date sales replacement parts generally payable within 30 90 days shipment terms larger seasonal stock orders generally payable within six months shipment certain markets particularly north america time lag varies based timing level retail demand date company records sale dealer sells equipment retail customer foreign currency translation financial statements company’s foreign subsidiaries translated united states currency accordance statement financial accounting standards “sfas” 52 “foreign currency translation” assets liabilities translated united states dollars periodend exchange rates income expense items translated average rates exchange prevailing period translation adjustments included “accumulated comprehensive income loss” stockholders’ equity gains losses result foreign currency transactions included accompanying consolidated statements operations use estimates preparation financial statements conformity us generally accepted accounting principles requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ estimates made management primarily relate accounts notes receivable inventories deferred income tax valuation allowances intangible assets certain accrued liabilities principally relating reserves volume discounts sales incentives warranty obligations product liability workers’ compensation obligations pensions postretirement benefits agco corporation notes consolidated financial statements continued adoption sec staff accounting bulletin 108 september 2006 securities exchange commission “sec” staff issued staff accounting bulletin 108 “considering effects prior year misstatements quantifying misstatements current year financial statements” “sab 108” sab 108 requires public companies utilize “dualapproach” assessing quantitative effects financial misstatements dual approach includes income statement focused assessment sometimes referred “rollover” method balance sheet focused assessment sometimes referred “iron curtain” method guidance sab 108 required adopted company’s year ended december 31 2006 transition provisions sab 108 permitted company adjust opening retained earnings cumulative effect immaterial errors related prior years deemed material corrected current year prior 2006 company evaluated uncorrected misstatements utilizing “rollover” method connection implementation sab 108 applying “iron curtain” method company identified two types uncorrected misstatements previously determined material prior years rollover method iron curtain method items deemed material company’s financial statements year ended december 31 2006 therefore company recorded adjustment increase opening retained earnings balance january 1 2006 approximately 136 million net taxes accordance implementation sab 108 misstatements consisted cash equivalents company considers investments original maturity three months less cash equivalents cash equivalents december 31 2007 2006 4662 million 2735 million respectively consisted primarily overnight repurchase agreements financial institutions accounts notes receivable accounts notes receivable arise sale equipment replacement parts independent dealers distributors customers payments due company’s terms sale generally range one 12 months contingent upon sale equipment dealer distributor retail agco corporation notes consolidated financial statements continued customer normal circumstances payment terms extended equipment may returned certain regions including united states canada company obligated repurchase equipment replacement parts upon cancellation dealer distributor contract obligations required national state provincial laws require company repurchase dealer distributor’s unsold inventory including inventory receivable already paid sales markets outside united states canada company normally charge interest outstanding receivables dealers distributors sales certain dealers distributors united states canada approximately 20 company’s net sales generated 2007 interest charged prime lending rates outstanding receivable balances interestfree periods interestfree periods vary product generally range one 12 months exception certain seasonal products bear interest various periods 23 months depending time year sale dealer’s distributor’s sales volume preceding year ended december 31 2007 124 76 company’s net sales maximum interestfree periods ranging one six months seven 12 months respectively net sales maximum interestfree periods ranging 13 23 months approximately 18 net sales 2007 actual interestfree periods shorter equipment receivable dealers distributors united states canada due immediately upon sale equipment retail customer normal circumstances interest forgiven interestfree periods extended may 2005 company completed agreement permit transferring ongoing basis majority interestbearing receivables north america united states canadian retail finance joint ventures upon transfer receivables maintain standard payment terms including required regular principal payments amounts outstanding interest charges market rates arrangement qualified dealers may obtain additional financing united states canadian retail finance joint ventures company provides various incentive programs respect products incentive programs include reductions invoice prices reductions retail financing rates dealer commissions dealer incentive allowances volume discounts cases incentive programs established communicated company’s dealers quarterly basis incentives paid either time invoice reduction invoice price time settlement receivable time retail financing time warranty registration subsequent time based dealer purchases incentive programs product line specific generally vary dealer cost sales incentives associated dealer commissions dealer incentive allowances estimated based upon terms programs historical experience based percentage sales price recorded later date related revenue recognized b date sales incentive offered related provisions accruals made product line basis monitored adequacy revised least quarterly event subsequent modifications programs volume discounts estimated recognized based historical experience related reserves monitored adjusted based actual dealer purchases dealers’ progress towards achieving specified cumulative target levels company records cost interest subsidy payments reduction retail financing rates later date related revenue recognized b date sales incentive offered estimates incentives based terms programs historical experience incentive programs recorded presented reduction revenue accordance emerging issues task force “eitf” eitf 0109 “accounting consideration given vendor customer including reseller vendor’s products” due fact company receive identifiable benefit exchange consideration provided reserves incentive programs paid either reduction future invoices credit memos recorded “accounts receivable allowances” within company’s consolidated balance sheet reserves incentive programs paid cash case company’s volume discount programs recorded within “accrued expenses” within company’s consolidated balance sheet agco corporation notes consolidated financial statements continued accounts notes receivable shown net allowances sales incentive discounts available dealers doubtful accounts cash flows related collection receivables reported within “cash flows operating activities” within company’s consolidated statements cash flows accounts notes receivable allowances december 31 2007 2006 follows millions company transfers certain accounts receivable various financial institutions primarily accounts receivable securitization facilities note 4 company records transfers sales accounts receivable considered surrendered control receivables provisions sfas 140 “accounting transfers servicing financial assets extinguishments liabilities replacement sfas 125” “sfas 140” inventories valued lower cost market using firstin firstout method market current replacement cost purchase reproduction dependent type inventory cases market exceeds net realizable value ie estimated selling price less reasonably predictable costs completion disposal inventories stated net realizable value market considered less net realizable value reduced allowance approximately normal profit margin december 31 2007 2006 company recorded 967 million 847 million respectively adjustment surplus obsolete inventories adjustments reflected within “inventories net” inventories net december 31 2007 2006 follows millions cash flows related sale inventories reported within “cash flows operating activities” within company’s consolidated statements cash flows property plant equipment property plant equipment recorded cost less accumulated depreciation amortization depreciation provided straightline basis estimated useful lives ten 40 years buildings improvements three 15 years machinery equipment three ten years furniture fixtures expenditures maintenance repairs charged expense incurred agco corporation notes consolidated financial statements continued property plant equipment net december 31 2007 2006 consisted following millions goodwill intangible assets sfas 142 “goodwill intangible assets” “sfas 142” establishes method testing goodwill indefinitelived intangible assets impairment annual basis interim basis event occurs circumstances change would reduce fair value reporting unit carrying value company’s annual assessments involve determining estimate fair value company’s reporting units order evaluate whether impairment current carrying amount goodwill indefinitelived intangible assets exists first step goodwill impairment test used identify potential impairment compares fair value reporting unit carrying amount including goodwill fair value reporting unit exceeds carrying amount goodwill reporting unit considered impaired thus second step impairment test unnecessary carrying amount reporting unit exceeds fair value second step goodwill impairment test performed measure amount impairment loss fair values derived based evaluation past expected future performance company’s reporting units reporting unit operating segment one level operating segment example component operating segment reporting unit component constitutes business discrete financial information available company’s executive management team regularly reviews operating results component addition company combines aggregates two components operating segment single reporting unit components similar economic characteristics company’s reportable segments reported guidance sfas 131 “disclosures segments enterprise related information” reporting units exception asiapacific south american geographical segments second step goodwill impairment test used measure amount impairment loss compares implied fair value reporting unit goodwill carrying amount goodwill carrying amount reporting unit goodwill exceeds implied fair value goodwill impairment loss recognized amount equal excess loss recognized cannot exceed carrying amount goodwill implied fair value goodwill determined manner amount goodwill recognized business combination determined company allocates fair value reporting unit assets liabilities unit including unrecognized intangible assets reporting unit acquired business combination fair value reporting unit price paid acquire reporting unit excess fair value reporting unit amounts assigned assets liabilities implied fair value goodwill company utilizes combination valuation techniques including discounted cash flow approach market multiple approach making annual interim assessments stated goodwill tested impairment annual basis often indications impairment exist results company’s analyses conducted october 1 2007 2005 indicated reduction carrying agco corporation notes consolidated financial statements continued amount goodwill required 2006 sales operating income company’s sprayer operations declined significantly compared prior years primarily due increased competition resulting updated product offerings company’s major competitors shift industry demand away strength commercial application segment farmerowned segment addition company’s projections sprayer operations result valuation sufficient support carrying amount goodwill balance company’s consolidated balance sheet excess fair value reporting unit amounts assigned assets liabilities could allocated implied fair value goodwill result company concluded goodwill associated sprayer operations impaired recognized writedown total amount recorded goodwill approximately 1714 million fourth quarter 2006 results company’s analyses conducted october 1 2006 associated reporting units indicated reduction carrying amounts goodwill required changes carrying amount acquired intangible assets 2007 2006 summarized follows millions agco corporation notes consolidated financial statements continued company amortizes certain acquired intangible assets primarily straightline basis estimated useful lives range three 30 years acquired intangible assets weighted average useful life follows years ended december 31 2007 2006 2005 acquired intangible asset amortization 179 million 169 million 165 million respectively company estimates amortization existing intangible assets 189 million 2008 188 million 2009 188 million 2010 113 million 2011 113 million 2012 accordance sfas 142 company determined two trademarks indefinite useful life massey ferguson trademark existence since 1952 formed merger masseyharris established 1890’s ferguson established 1930’s massey ferguson brand currently sold 140 countries worldwide making one widely sold tractor brands world company also identified valtra trademark indefinitelived asset valtra trademark existence since late 1990’s derivative valmet trademark existence since 1951 valtra valmet used interchangeably marketplace today valtra recognized tractor line valmet name valtra brand currently sold approximately 50 countries around world massey ferguson brand valtra brand primary product lines company’s business company plans use trademarks indefinite period time company plans continue make investments product development enhance value brands future legal regulatory contractual competitive economic factors company aware company believes would limit useful lives trademarks massey ferguson valtra trademark registrations renewed nominal cost countries company operates changes carrying amount goodwill years ended december 31 2007 2006 2005 summarized follows millions see note 2 information regarding adjustments related income taxes agco corporation notes consolidated financial statements continued longlived assets 2007 2006 2005 company reviewed longlived assets impairment whenever events changes circumstances indicated carrying amount asset may recoverable accordance provisions sfas 144 “accounting impairment disposal longlived assets” “sfas 144” sfas 144 impairment loss recognized undiscounted future cash flows estimated generated asset held used sufficient recover unamortized balance asset impairment loss would recognized based difference carrying values estimated fair value estimated fair value determined based either discounted future cash flows appropriate fair value methods amount deficiency charged income current year asset tested recoverability acquired business combination intangible assets resulting acquisition related asset included assessment estimates future cash flows based many factors including current operating results expected market trends competitive influences company also evaluates amortization periods assigned intangible assets determine whether events changes circumstances warrant revised estimates useful lives assets disposed sale reported lower carrying amount fair value less estimated costs sell accrued expenses accrued expenses december 31 2007 2006 consisted following millions warranty reserves warranty reserve activity years ended december 31 2007 2006 2005 consisted following millions company’s agricultural equipment products generally warranty defects material workmanship period one four years company accrues future warranty costs time sale based historical warranty experience approximately 146 million 116 million warranty reserves included “other noncurrent liabilities” company’s consolidated balance sheet december 31 2007 2006 respectively agco corporation notes consolidated financial statements continued insurance reserves company’s insurance programs coverage obtained significant liability limits well risks required insured law contract policy company selfinsure portion certain expected losses related primarily workers’ compensation comprehensive general product vehicle liability provisions losses expected programs recorded based company’s estimates aggregate liabilities claims incurred stock incentive plans stock compensation expense first quarter 2006 company adopted sfas 123r revised 2004 “sharebased payment” “sfas 123r” revision sfas 123 “accounting stockbased compensation” “sfas 123” 2007 2006 company recorded approximately 260 million 36 million respectively stock compensation expense accordance sfas 123r refer note 10 additional information regarding company’s stock incentive plans place 2007 2006 2005 company recorded approximately 04 million stock compensation expense accordance accounting principles board “apb” opinion 25 “accounting stock issued employees” “apb 25” stock compensation expense recorded follows millions proforma disclosure sfas 123 2005 prior adoption sfas 123r company accounted stockbased compensation awarded former nonemployee director incentive plan “director plan” longterm incentive plan “ltip” stock option plan “option plan” prescribed apb 25 provided disclosures required sfas 123 sfas 148 “accounting stockbased compensation transition disclosure” “sfas 148” discussed note 10 ltip director plan terminated december 2005 apb 25 required recognition compensation expense options granted option plan long certain conditions met compensation expense recorded apb 25 option plan 2005 apb 25 required recognition compensation expense director plan ltip time award earned awards earned director plan ltip 2005 grants option plan years ended december 31 2007 2006 2005 disclosure purposes sfas 123 company estimated fair value grants option plan using blackscholes option pricing model barrier option model awards granted director plan ltip based models weighted average fair value options granted option plan weighted average agco corporation notes consolidated financial statements continued fair value awards granted director plan ltip year ended december 31 2005 follows fair value grants awards amortized vesting period stock options awards earned director plan ltip performance period unearned awards director plan ltip following table illustrates effect net income earnings per common share company applied fair value recognition provisions sfas 123 sfas 148 millions except per share data 2005 pro forma earnings per share included impact cancellation awards director plan ltip december 2005 note 10 research development expenses research development expenses expensed incurred included engineering expenses company’s consolidated statements operations advertising costs company expenses advertising costs incurred cooperative advertising costs normally expensed time revenue earned advertising expenses years ended december 31 2007 2006 2005 totaled approximately 525 million 398 million 358 million respectively shipping handling expenses shipping handling fees charged customers included component net sales shipping handling costs included part cost goods sold exception certain handling costs agco corporation notes consolidated financial statements continued included selling general administrative expenses amount 225 million 198 million 186 million years ended december 31 2007 2006 2005 respectively interest expense net interest expense net years ended december 31 2007 2006 2005 consisted following millions income taxes income taxes accounted asset liability method prescribed provisions sfas 109 “accounting income taxes” “sfas 109” deferred tax assets liabilities recognized future tax consequences attributable differences financial statement carrying amounts existing assets liabilities respective tax bases operating loss tax credit carryforwards deferred tax assets liabilities measured using enacted tax rates expected apply taxable income years temporary differences expected recovered settled effect deferred tax assets liabilities change tax rates recognized income period includes enactment date net income loss per common share computation presentation disclosure requirements income loss per share presented accordance sfas 128 “earnings per share” basic income loss per common share computed dividing net income loss weighted average number common shares outstanding period diluted income loss per common share assumes exercise outstanding stock options vesting restricted stock appreciation excess conversion value contingently convertible senior subordinated notes using treasury stock method effects assumptions dilutive company’s 2013 million aggregate principal amount 134 convertible senior subordinated notes 2013 million aggregate principal amount 114 convertible senior subordinated notes provide settlement upon conversion cash principal amount converted notes excess conversion value settled shares company’s common stock ii conversion rate increased certain circumstances new notes converted connection certain change control transactions dilution weighted shares outstanding depend company’s stock price excess conversion value using treasury stock method note 7 reconciliation net income loss weighted agco corporation notes consolidated financial statements continued average common shares outstanding purposes calculating basic diluted income loss per share years ended december 31 2007 2006 2005 follows millions except per share data stock options stocksettled stock appreciation rights “ssars” purchase 01 million shares year ended december 31 2006 stock options purchase 05 million year ended december 31 2005 outstanding included calculation weighted average common equivalent shares outstanding antidulitve impact addition weighted average common shares outstanding purposes computing diluted net loss per share year ended december 31 2006 include assumed conversion company’s 134 convertible senior subordinated notes impact dilutive stock options ssars impact would antidilutive weighted average common shares outstanding purposes computing diluted net loss per share year ended december 31 2005 include assumed conversion company’s 134 convertible senior subordinated notes impact would antidilutive number shares excluded weighted average common shares outstanding years ended december 31 2006 2005 approximately 12 million shares 44 million shares respectively agco corporation notes consolidated financial statements continued comprehensive income loss company reports comprehensive income loss defined total net income loss nonowner changes equity components thereof consolidated statements stockholders’ equity components comprehensive income loss related tax effects years ended december 31 2007 2006 2005 follows millions financial instruments carrying amounts reported company’s consolidated balance sheets “cash equivalents” “accounts notes receivable” “accounts payable” approximate fair value due immediate shortterm maturity financial instruments carrying amount longterm debt company’s credit facility note 7 approximates fair value based borrowing rates currently available company loans similar terms average maturities december 31 2007 estimated fair values company’s 678 senior subordinated notes 134 convertible notes note 7 114 convertible notes note 7 based listed market values 2933 million 6244 million 3477 million respectively compared carrying values 2918 million 2013 million 2013 million respectively december 31 2006 estimated fair values company’s 678 senior subordinated notes 134 convertible notes note 7 114 convertible notes note 7 based listed market values 2742 million 3073 million 1995 million respectively compared carrying values 2640 million 2013 million 2013 million respectively agco corporation notes consolidated financial statements continued company enters foreign currency forward contracts hedge foreign currency exposure certain receivables payables committed purchases sales contracts periods consistent exposure hedged generally maturities one year less company also enters foreign currency option contracts designated cash flow hedges expected sales december 31 2007 2006 company foreign currency contracts outstanding gross notional amounts 6571 million 3565 million respectively company unrealized gains approximately 149 million 12 million respectively foreign currency contracts december 31 2007 2006 respectively december 31 2007 2006 approximately 35 million 11 million respectively unrealized gains reflected company’s results operations gains related forward contracts majority company’s foreign currency contracts forward contracts subject company’s results operations significant risk due exchange rate fluctuations gains losses contracts generally offset gains losses exposure hedged remaining 114 million 01 million unrealized gains december 31 2007 2006 respectively reflected comprehensive income loss 2007 2006 company designated certain foreign currency option contracts cash flow hedges expected sales effective portion fair value gains losses cash flow hedges recorded comprehensive income loss subsequently reclassified cost sales recognized amounts offset effect changes foreign exchange rates related sale transactions amount gain recorded comprehensive income loss reclassified cost goods sold years ended december 31 2007 2006 approximately 41 million 40 million respectively aftertax basis amount gain recorded comprehensive income loss related outstanding cash flow hedges december 31 2007 2006 approximately 77 million 01 million respectively aftertax basis outstanding contracts range maturity december 2008 notional amounts foreign exchange forward contracts represent amounts exchanged parties therefore measure company’s risk amounts exchanged calculated basis notional amounts terms contracts credit market risks contracts considered significant company’s hedging policy prohibits entering foreign currency derivative contracts speculative trading purposes accounting changes december 2007 fasb issued sfas 141 revised 2007 “business combinations” “sfas 141r” sfas 160 “noncontrolling interests consolidated financial statements” “sfas 160” sfas 141r requires acquirer measure identifiable assets acquired liabilities assumed noncontrolling interest acquiree fair values acquisition date goodwill excess value net identifiable assets acquired sfas 141r also requires fair value measurement certain assets liabilities related acquisition contingencies research development sfas 160 clarifies noncontrolling interest subsidiary reported equity company’s consolidated financial statements consolidated net income include net income parent noncontrolling interest disclosure amounts company’s consolidated statement operations calculation earnings per share continue based income amounts attributable parent company required adopt sfas 141r sfas 160 january 1 2009 currently evaluating impact sfas 141r sfas 160 consolidated financial statements march 2007 eitf reached consensus eitf issue 0610 “accounting collateral assignment splitdollar life insurance arrangements” “eitf 0610” requires employer recognize liability postretirement benefit related collateral assignment splitdollar life insurance agco corporation notes consolidated financial statements continued arrangement accordance either sfas 106 “employers’ accounting postretirement benefits pensions” “sfas 106” substance postretirement benefit plan exists apb opinion 12 arrangement substance individual deferred compensation contract employer agreed maintain life insurance policy employee’s retirement provide employee death benefit based substantive agreement employee addition eitf reached consensus employer recognize measure asset based nature substance collateral assignment splitdollar life insurance arrangement eitf observed determining nature substance arrangement employer assess future cash flows employer entitled well employee’s obligation ability repay employer eitf 0610 effective fiscal years beginning december 15 2007 company certain insurance policies subject provisions new pronouncement believe adoption eitf 0610 material impact consolidated results operations financial position february 2007 fasb issued sfas 159 “the fair value option financial assets financial liabilities” “sfas 159” sfas 159 provides companies option report selected financial assets liabilities fair value provide additional information help investors users financial statements understand easily effect earnings company’s choice use fair value also requires companies display fair value assets liabilities company chosen use fair value face balance sheet company required adopt sfas 159 january 1 2008 believe adoption sfas 159 material impact consolidated financial statements september 2006 fasb issued sfas 157 “fair value measurements” “sfas 157” sfas 157 establishes common definition fair value applied guidance regarding us generally accepted accounting principles requiring use fair value establishes framework measuring fair value expands disclosure fair value measurements sfas 157 effective fair value measures already required permitted standards fiscal years beginning november 15 2007 november 2007 fasb proposed oneyear deferral sfas 157’s fair value measurement requirements nonfinancial assets liabilities required permitted measured fair value recurring basis company believe adoption sfas 157 material impact consolidated financial position results operations september 2006 fasb issued fasb staff position aug air1 “accounting planned major maintenance activities” “fsp aug air1” fsp aug air1 amends guidance accounting planned major maintenance activities specifically precludes use previously acceptable “accrue advance” method fsp aug air1 effective fiscal years beginning december 15 2006 implementation standard material impact company’s consolidated financial position results operations company employ “accrue advance” method june 2006 eitf reached consensus eitf issue 064 “accounting deferred compensation postretirement benefit aspects endorsement splitdollar life insurance arrangements” “eitf 064” requires application provisions sfas 106 endorsement splitdollar life insurance arrangements sfas 106 would require company recognize liability discounted future benefit obligation company pay upon death underlying insured employee endorsementtype arrangement generally exists company owns controls incidents ownership underlying policies eitf 064 effective fiscal years beginning december 15 2007 company certain insurance policies subject provisions new pronouncement believe adoption eitf 064 material impact consolidated results operations financial position june 2006 fasb issued fasb interpretation “fin” 48 “accounting uncertainty income taxes interpretation fasb statement 109” “fin 48” fin 48 clarifies accounting agco corporation notes consolidated financial statements continued uncertainty income taxes prescribing recognition threshold measurement attribute financial statement recognition measurement tax position taken expected taken tax return interpretation also provides guidance derecognition classification interest penalties accounting interim periods disclosure company adopted fin 48 effective january 1 2007 adoption fin 48 material effect company’s consolidated results operations financial position see note 6 adoption fin 48 discussed march 2006 fasb issued sfas 156 “accounting servicing financial assets amendment fasb statement 140” “sfas 156” sfas 156 requires entity recognize servicing asset liability time undertakes obligation service financial asset entering servicing contract specified situations servicing assets liabilities would initially measured fair value practicable subsequently measured amortized value fair value based upon election reporting entity sfas 156 also specifies certain financial statement presentations disclosures connection servicing assets liabilities sfas 156 effective fiscal years beginning september 15 2006 adoption sfas 156 material effect company’s consolidated financial position march 2006 eitf reached consensus eitf issue 063 “how taxes collected customers remitted governmental authorities presented income statement gross versus net presentation” “eitf 063” allows companies adopt policy presenting taxes income statement either gross net basis taxes within scope eitf 063 would include taxes imposed revenue transaction seller customer sales taxes use taxes valueadded taxes types excise taxes eitf 063 effective interim annual reporting periods beginning december 15 2006 adoption eitf 063 company impact method recording reporting taxes company’s consolidated results operations financial position company’s policy exclude taxes net sales present taxes consolidated statements operations net basis 2 acquisitions joint venture september 28 2007 company acquired 50 laverda spa “laverda” approximately 460 million approximately 656 million thereby creating operating joint venture company italian argo group laverda located breganze italy manufactures harvesting equipment addition producing laverda branded combines breganze factory manufacturing midrange combine harvesters agco’s massey ferguson fendt challenger brands distribution europe africa middle east since 2004 joint venture also includes laverda’s ownership fellawerke gmbh “fella” german manufacturer grass hay machinery 50 stake gallignani spa “gallignani” italian manufacturer balers addition fella gallignani product lines enables company provide comprehensive harvesting offering customers investment financed available cash hand company accounted operating joint venture accordance apb opinion 18 “the equity method accounting investments common stock” “apb 18” accordance apb 18 company identified approximately 176 million goodwill 129 million identifiable intangible assets company’s investment greater preliminary estimate fair value underlying equity net assets received goodwill intangible asset balances included recorded balance “investments affiliates” line company’s consolidated balance sheet amortization identifiable intangible assets included company’s share earnings losses investment within “equity net earnings affiliates” line item company’s consolidated statements operations addition company allocated approximately 282 million investment addition joint venture’s property plant equipment reflect land buildings machinery equipment preliminary respective fair values compared historical net book values depreciation expense associated increase agco corporation notes consolidated financial statements continued recorded amounts respect property plant equipment also included company’s share earnings losses investment balance december 31 2007 includes transaction costs related fees incurred 2007 acquired identifiable assets summarized following table millions company determined laverda fella tradenames indefinite useful life laverda tradename existence since 1890 currently sold 35 countries worldwide fella tradename existence since 1918 laverda brand fella brand primary product lines company’s laverda operating joint venture joint venture partners plan use tradenames indefinite period time joint venture partners plan continue make investments product development enhance value brands future legal regulatory contractual competitive economic factors joint venture partners aware believe would limit useful lives tradenames laverda fella tradename registrations renewed nominal cost countries operating joint venture operates september 10 2007 company acquired industria agricola fortaleza limitada “sfil” brazilian company approximately 380 million brazilian reais approximately 200 million accordance purchase agreement cash approximately 52 million brazilian reais approximately 27 million placed escrow date acquisition portion purchase price established fund certain disclosed contingent obligations compensate company potential customer bad debt losses escrowed funds reflected within “other current assets” “other assets” company’s condensed consolidated balance sheet december 31 2007 sfil located ibirubá rio grande sul brazil manufactures distributes line farm implements including drills planters corn headers front loaders acquisition financed available cash hand sfil acquisition accounted accordance sfas 141 “business combinations” accordingly company allocated purchase price assets acquired liabilities assumed based preliminary estimate fair values acquisition date results operations sfil acquisition included company’s condensed consolidated financial statements date acquisition company recorded approximately 75 million goodwill approximately 04 million identifiable intangible asset sfil tradename associated acquisition acquired intangible asset useful life approximately five years net assets acquired include transaction costs related fees incurred 2007 january 5 2004 company acquired valtra tractor diesel engine operations kone corporation finnish company 6046 million net approximately 214 million cash acquired approximately 760 million net valtra global tractor offroad engine manufacturer nordic region europe latin america company recorded approximately 3584 million goodwill associated acquisition date acquisition two components taxdeductible goodwill specifically related operations valtra finland first component tax deductible goodwill approximately 2011 million relates goodwill financial reporting purposes asset generate deferred income taxes future asset amortized income tax purposes second component taxdeductible goodwill approximately 1577 million relates tax deductible goodwill excess goodwill financial reporting purposes tax benefits associated excess agco corporation notes consolidated financial statements continued applied reduce amount goodwill financial reporting purposes future tax benefits realized income tax return purposes 2006 company recorded additional goodwill approximately 177 million approximately 233 million december 31 2006 associated reallocation certain intangible assets goodwill income tax purposes finland well additional preacquisition income tax contingencies identified valtra european sales office 2007 company recorded reduction goodwill approximately 01 million approximately 02 million december 31 2007 associated utilization certain tax losses 2007 certain valtra european sales offices 2007 2006 company realized approximately 77 million 99 million respectively tax benefits associated excess tax basis deductible goodwill thus resulting reductions goodwill financial reporting purposes date acquisition company identified certain income tax contingencies associated operations valtra brazil related preacquisition tax years 2006 determined identified contingencies longer existed company therefore recognized reduction goodwill approximately 31 million associated reversal contingent liabilities 3 restructuring infrequent income expenses company recorded restructuring infrequent income expenses 23 million 10 million 00 million years ended december 31 2007 2006 2005 respectively income 2007 primarily related 32 million gain sale portion buildings land improvements associated company’s randers denmark facility gain partially offset 09 million severance employee relocation facility closure costs associated rationalization company’s valtra sales office located france well rationalization certain parts sales marketing administrative functions germany charges 2006 included severance costs associated rationalization certain parts sales marketing administrative functions united kingdom germany well rationalization certain valtra european sales offices located denmark norway germany united kingdom net charges 2005 included 15 million gain sale property plant equipment related completion auctions machinery equipment associated rationalization randers denmark combine manufacturing operations gain offset 08 million employee retention payments facility closure costs incurred associated randers rationalization well 07 million severance facility closure costs related rationalization company’s finnish tractor manufacturing sales parts operations company record income tax benefit provision associated charges gain relating randers rationalization 2005 also record tax provision associated gain sale randers property 2007 randers denmark rationalization third quarter 2004 company announced initiated plan restructure european combine manufacturing operations located randers denmark order reduce cost complexity randers manufacturing operation simplifying model range eliminating facility’s component manufacturing operations facility’s component manufacturing operations ceased february 2005 company outsources manufacturing majority parts components suppliers retained critical key assembly operations randers facility retaining facility assembly operations company reduced randers workforce 298 employees permanently eliminated 70 square footage utilized plans also included rationalization combine model range assembled randers retaining production high specification high value combines 2004 company recorded 82 million writedown property plant equipment associated component manufacturing operations addition restructuring charges incurred associated rationalization impairment charge based upon estimated fair value assets compared carrying value agco corporation notes consolidated financial statements continued estimated fair value property plant equipment based current conditions market carrying value property plant equipment approximately 116 million 82 million impairment charge impaired property plant equipment associated randers rationalization reported within company’s europeafricamiddle east segment 2005 company completed auctions remaining machinery equipment recorded gain approximately 15 million associated actions gain reflected “restructuring infrequent income expenses” within company’s consolidated statements operations 2007 company sold portion land buildings improvements randers facility proceeds approximately 44 million recorded gain approximately 32 million associated sale gain reflected “restructuring infrequent income expenses” within company’s consolidated statements operations december 31 2005 298 employees terminated components restructuring expenses incurred 2005 summarized following table millions employee retention payments related incentives paid randers employees remained employed certain future termination dates accrued term retention period third quarter 2005 company reversed 01 million previously established provisions related retention payments employee retention claims finalized quarter facility closure costs included certain noncancelable operating lease terminations facility exit costs valtra european sales office rationalizations second quarter 2007 company announced closure valtra sales office located france closure result termination approximately 15 employees company recorded severance facility closure costs approximately 08 million associated closure 2007 approximately 03 million severance costs paid december 31 2007 five employees terminated 05 million severance costs accrued december 31 2007 related terminations expected paid completed 2008 second quarter 2005 company announced changing distribution arrangements valtra fendt products scandinavia entering distribution agreement thirdparty distributor distribute valtra fendt equipment sweden valtra equipment norway denmark result agreement decision close valtra european sales offices company initiated restructuring closure valtra sales offices located united kingdom spain denmark norway resulting termination 24 employees danish norwegian sales offices transferred thirdparty scandinavian equipment distributor october 2005 included transfer certain employees assets lease supplier contracts company recorded severance costs asset writedowns facility closure costs approximately 04 million 01 million 01 million respectively related closures 2005 fourth quarter 2005 company completed sale property plant equipment associated sales offices united kingdom norway recorded gain approximately 02 million reflected within agco corporation notes consolidated financial statements continued “restructuring infrequent income expenses” within company’s consolidated statements operations first quarter 2006 company recorded additional 01 million severance costs related closures december 31 2006 employees terminated severance facility closure costs paid german sales office rationalizations third quarter 2006 company announced closure two sales offices located germany one valtra sales office closures resulted termination seven employees company recorded severance costs approximately 05 million associated closures 2006 2007 company recorded additional severance relocation costs approximately 01 million associated closures paid approximately 06 million severance relocations costs december 31 2007 employees terminated severance costs paid coventry united kingdom sales administrative office rationalization third quarter 2006 company initiated restructuring certain parts sales marketing administrative functions within coventry united kingdom location resulting termination 13 employees company recorded severance costs approximately 04 million associated restructuring 2006 employees terminated severance costs paid december 31 2006 valtra finland administrative european parts rationalizations fourth quarter 2004 company initiated restructuring certain administrative functions within finnish operations resulting termination 58 employees 2004 company recorded severance costs approximately 14 million associated rationalization 2005 company paid approximately 08 million severance costs 2007 company paid additional 03 million severance costs march 31 2006 58 employees terminated 04 million severance payments accrued december 31 2007 expected paid 2008 addition 2005 company incurred expensed approximately 03 million contract termination costs associated rationalization valtra european parts distribution operations coventry rationalization 2002 company announced initiated restructuring plan related closure tractor manufacturing facility coventry england relocation existing production coventry company’s beauvais france canoas brazil manufacturing facilities closure facility consistent company’s strategy reduce excess manufacturing capacity rationalization included termination approximately 1049 employees terminated december 31 2004 company paid 07 million employee retention payments facility closure costs associated rationalization 2005 employee retention payments related incentives paid coventry employees remained employed certain future termination dates accrued term retention period facility closure costs included certain noncancelable operating lease terminations facility exit costs addition january 30 2004 company sold land buildings improvements coventry facility approximately 410 million company received approximately 344 million sale proceeds january 30 2004 remaining 66 million january 28 2005 company leased part facility back buyers november 2006 agco corporation notes consolidated financial statements continued 4 accounts receivable securitization december 31 2007 2006 company accounts receivable securitization facilities united states canada europe totaling approximately 4959 million 4952 million respectively united states canadian securitization facilities expire april 2009 european facility expires october 2011 subject annual renewal outstanding funding facilities totaled approximately 4463 million december 31 2007 4296 million december 31 2006 funded balance effect reducing accounts receivable shortterm liabilities amount 2007 2006 company fully utilize securitization facility united states due company’s efforts reduce dealer inventory levels resulted reduction wholesale accounts receivable available sale facilities wholesale accounts receivable sold revolving basis commercial paper conduits whollyowned special purpose us subsidiary qualifying special purpose entity “qspe” united kingdom company reviewed accounting securitization facilities whollyowned special purpose entity united states qspe united kingdom accordance sfas 140 fin 46r united states due fact receivables sold commercial paper conduits insignificant portion conduits’ total asset portfolios receivables siloed consolidation appropriate fin 46r company absorb majority losses transactions europe commercial paper conduit purchases majority receivables deemed majority beneficial interest holder qspe thus consolidation company appropriate fin 46r company absorb majority losses transactions addition facilities accounted offbalance sheet transactions accordance provisions sfas 140 losses sales receivables primarily securitization facilities 361 million 2007 299 million 2006 224 million 2005 included “other expense net” company’s consolidated statements operations losses determined calculating estimated present value receivables sold compared carrying amount present value based historical collection experience discount rate representing spread libor prescribed terms agreements information related facilities assumptions used loss calculations summarized dollar amounts millions company continues service sold receivables maintains retained interest receivables servicing asset liability recorded estimated fair value servicing receivables approximates servicing income retained interest receivables sold included caption “accounts notes receivable net” accompanying consolidated balance sheets company’s risk loss securitization facilities limited portion unfunded balance receivables sold approximately 15 funded amount company maintains reserves portion residual interest estimates uncollectible december 31 2007 2006 approximately 00 million 05 million respectively unpaid balance receivables sold past due 60 days december 31 2007 2006 fair value retained interest approximately 1088 million agco corporation notes consolidated financial statements continued 593 million respectively compared carrying amount 1105 million 604 million respectively based present value receivables calculated method consistent losses sales receivables discussed assuming 10 20 increase average liquidation period fair value residual interest would decline 02 million 04 million respectively assuming 10 20 increase discount rate fair value residual interest would decline 02 million 04 million respectively 2007 company received approximately 13938 million sales receivables 46 million servicing fees 2006 company received approximately 11624 million sales receivables 52 million servicing fees 2005 company received 12724 million sales receivables 64 million servicing fees may 2005 company completed agreement permit transferring ongoing basis majority wholesale interestbearing receivables north america agco finance llc agco finance canada ltd united states canadian retail finance joint ventures company 49 ownership interest joint ventures transfer receivables without recourse company continues service receivables company maintain direct retained interest receivables servicing asset liability recorded since estimated fair value servicing receivables approximates servicing income initial transfer wholesale interestbearing receivables resulted net proceeds approximately 94 million used redeem company’s 250 million 912 senior notes note 7 december 31 2007 2006 balance interestbearing receivables transferred agco finance llc agco finance canada ltd agreement approximately 733 million 1241 million respectively 5 investments affiliates investments affiliates december 31 2007 2006 follows millions manufacturing joint ventures december 31 2007 consisted joint venture third party manufacturer produce engines south america laverda operating joint venture italian argo group manufactures harvesting equipment note 2 joint ventures represent minority investments farm equipment manufacturers distributors licensees company’s equity net earnings affiliates years ended december 31 2007 2006 2005 follows millions agco corporation notes consolidated financial statements continued summarized combined financial information company’s retail finance joint ventures december 31 2007 2006 years ended december 31 2007 2006 2005 follows millions majority assets company’s retail finance joint ventures represent finance receivables majority liabilities represent notes payable accrued interest various joint venture agreements rabobank affiliates obligated provide financing joint venture companies company guarantee debt obligations retail finance joint ventures note 13 summarized financial information company’s laverda operating joint venture december 31 2007 three months ended december 31 2007 follows millions investment balance laverda december 31 2007 710 million portion company’s retained earnings balance represents undistributed retained earnings equity method investees approximately 1251 million december 31 2007 1054 million december 31 2006 agco corporation notes consolidated financial statements continued 6 income taxes sources income loss income taxes equity net earnings affiliates follows years ended december 31 2007 2006 2005 millions provision income taxes location taxing jurisdiction years ended december 31 2007 2006 2005 consisted following millions december 31 2007 company’s foreign subsidiaries approximately 18 billion undistributed earnings considered indefinitely invested accordingly income taxes provided earnings determination amount unrecognized deferred taxes earnings practical however unrecognized foreign tax credits would available reduce portion tax liability october 22 2004 united states enacted american jobs creation act “ajca” 2004 ajca provides multinational companies election deduct taxable income 85 eligible dividends repatriated foreign subsidiaries ajca generally allowed companies take advantage special deduction november 2004 end calendar year 2005 company propose qualifying plan repatriation 2005 agco corporation notes consolidated financial statements continued reconciliation income taxes computed united states federal statutory income tax rate 35 provision income taxes reflected company’s consolidated statements operations years ended december 31 2007 2006 2005 follows millions significant components deferred tax assets liabilities december 31 2007 2006 follows millions company recorded net deferred tax liabilities 535 million 20 million december 31 2007 2006 respectively reflected preceding table company established valuation allowance 3153 million 2914 million december 31 2007 2006 respectively agco corporation notes consolidated financial statements continued change valuation allowance years ended december 31 2007 2006 2005 increase 239 million 386 million 1099 million respectively fourth quarter 2005 company recognized noncash deferred income tax charge 908 million related increasing valuation allowance united states deferred tax assets sfas 109 requires establishment valuation allowance likely portion deferred tax assets realized accordance sfas 109 company assessed likelihood deferred tax assets would recovered estimated future taxable income available tax planning strategies determined adjustment valuation allowance december 31 2007 2006 2005 appropriate making assessment available evidence considered including current economic climate well reasonable tax planning strategies company believes likely company realize remaining deferred tax assets net valuation allowance future years company net operating loss carryforwards 7302 million december 31 2007 expiration dates follows 2011 15 million thereafter unlimited 7287 million net operating loss carryforwards include united states net loss carryforwards 3923 million foreign net operating loss carryforwards 3379 million company paid income taxes 670 million 436 million 559 million years ended december 31 2007 2006 2005 respectively company adopted provisions fin 48 january 1 2007 result implementation fin 48 company recognized material adjustment respect liabilities unrecognized income tax benefits december 31 2007 company 227 million unrecognized income tax benefits would affect company’s effective tax rate recognized december 31 2007 company approximately 140 million current accrued taxes related uncertain income tax positions connected ongoing income tax audits various jurisdictions expects settle pay next 12 months company accrues interest penalties related unrecognized tax benefits provision income taxes december 31 2007 company accrued interest penalties related unrecognized tax benefits 11 million reconciliation beginning ending balances total amounts gross unrecognized tax benefits year ended december 31 2007 follows millions company subsidiaries file income tax returns us various state local foreign jurisdictions company subsidiaries routinely examined tax authorities jurisdictions december 31 2007 us internal revenue service process examination company’s us federal income tax return calendar year 2005 addition december 31 2007 number foreign examinations currently ongoing possible examinations may resolved within 12 months due potential resolution federal state foreign examinations expiration various statutes limitation reasonably possible company’s gross unrecognized tax benefits balance may materially change within next 12 months due number jurisdictions issues involved uncertainty regarding timing settlements company unable provide reasonable estimate change may occur within next twelve months although ongoing examinations various jurisdictions primarily united kingdom france germany finland brazil agco corporation notes consolidated financial statements continued 2004 2007 tax years generally remain subject examination us federal state authorities company’s significant foreign jurisdictions 2002 2007 tax years generally remain subject examination respective tax authorities 7 indebtedness consisted following december 31 2007 2006 millions company accounts 134 convertible senior subordinated notes due 2033 114 convertible senior subordinated notes due 2036 convertible debt conversion features separately accounted apart notes embedded conversion features would meet conditions equity classification accordance eitf 0019 “accounting derivative financial instruments indexed potentially settled company’s stock” freestanding instruments december 4 2006 company issued 2013 million 114 convertible senior subordinated notes due december 15 2036 received proceeds approximately 1964 million related fees expenses notes unsecured obligations convertible cash shares company’s common stock upon satisfaction certain conditions discussed notes provide settlement upon conversion cash principal amount notes excess conversion value settled shares company’s common stock ii conversion rate increased certain circumstances notes converted connection certain change control transactions occurring prior december 15 2013 interest payable notes 114 per annum payable semiannually arrears cash june 15 december 15 year notes convertible shares company’s common stock effective price 4073 per share subject adjustment reflects initial conversion rate notes 245525 shares common stock per 1000 principal amount notes event stock dividend split company’s common stock certain dilutive events conversion rate adjusted upon conversion notes holders notes would entitled receive number shares common stock would entitled receive converted notes company’s common stock immediately prior events change control transaction qualifies “fundamental change” occurs prior december 15 2013 certain circumstances company increase conversion rate notes converted connection transaction number additional shares used paragraph “make whole shares” fundamental change transaction event connection 50 company’s common stock exchanged converted acquired constitutes solely right receive consideration least 90 common stock listed us national securities exchange approved quotation automated quotation system amount increase conversion rate depend effective date transaction average price per share company’s common agco corporation notes consolidated financial statements continued stock effective date adjustment conversion rate made price per share common stock less 3133 per share 18000 per share number additional make whole shares range 73658 shares per 1000 principal amount 3133 per share 01063 shares per 1000 principal amount 18000 per share year ended december 15 2008 number make whole shares generally declining time acquirer certain affiliates fundamental change transaction publicly traded common stock company may instead increasing conversion rate described cause notes become convertible publicly traded common stock acquirer principal notes repaid cash balance payable shares acquirer common stock time company issue aggregate number shares company’s common stock upon conversion notes excess 319183 shares per 1000 principal amount thereof holders company’s common stock receive cash fundamental change transaction holders notes receive cash well holders may convert notes following circumstances 1 fiscal quarter closing sales price company’s common stock exceeds 120 conversion price least 20 trading days 30 consecutive trading days ending last trading day preceding fiscal quarter 2 five business day period five consecutive trading day period trading price per note day period less 98 product closing sale price company’s common stock conversion rate 3 notes called redemption 4 upon occurrence certain corporate transactions beginning december 15 2013 company may redeem notes redemption price 100 principal amount plus accrued interest holders notes may require company repurchase notes repurchase price 100 principal amount plus accrued interest december 15 2013 2016 2021 2026 2031 holders may also require company repurchase portion notes upon fundamental change defined indenture repurchase price equal 100 principal amount notes repurchased plus accrued unpaid interest notes senior subordinated obligations subordinated company’s existing future senior indebtedness effectively subordinated debt liabilities company’s subsidiaries notes equal right payment company’s 678 senior subordinated notes due 2014 134 convertible senior subordinated notes due 2033 company used net proceeds received issuance 114 convertible senior subordinated notes well available cash repay 1969 million outstanding united states dollar denominated term loan 791 million outstanding euro denominated term loan addition company recorded interest expense approximately 20 million proportionate writeoff deferred debt issuance costs associated term loan balances repaid company’s united states dollar denominated euro denominated term loans discussed june 29 2005 company exchanged 2013 million 134 convertible senior subordinated notes due 2033 new notes provide settlement upon conversion cash principal amount converted new notes excess conversion value settled shares company’s common stock ii conversion rate increased certain circumstances new notes converted connection certain change control transactions occurring prior december 10 2010 otherwise substantially old notes unsecured obligations convertible cash shares company’s common stock upon satisfaction certain conditions discussed interest payable notes 134 per annum payable semiannually arrears cash june 30 december 31 year notes convertible shares company’s common stock effective price 2236 per share subject adjustment reflects initial conversion rate notes 447193 shares common stock per 1000 principal amount notes event stock dividend split company’s common stock certain dilutive events conversion rate adjusted upon conversion notes holders notes would entitled receive number shares common stock would entitled receive converted notes agco corporation notes consolidated financial statements continued company’s common stock immediately prior events change control transaction qualifies “fundamental change” occurs prior december 31 2010 certain circumstances company increase conversion rate notes converted connection transaction number additional shares used paragraph “make whole shares” fundamental change transaction event connection 50 company’s common stock exchanged converted acquired constitutes solely right receive consideration least 90 common stock listed us national securities exchange approved quotation automated quotation system amount increase conversion rate depend effective date transaction average price per share company’s common stock effective date adjustment conversion rate made price per share common stock less 1707 per share 11000 per share number additional make whole shares range 132 shares per 1000 principal amount 1707 per share 01 shares per 1000 principal amount 11000 per share year ended december 31 2008 number make whole shares generally declining time acquirer certain affiliates fundamental change transaction publicly traded common stock company may instead increasing conversion rate described cause notes become convertible publicly traded common stock acquirer principal notes repaid cash balance payable shares acquirer common stock time company issue aggregate number shares company’s common stock upon conversion notes excess 585823 shares per 1000 principal amount thereof holders company’s common stock receive cash fundamental change transaction holders notes receive cash well holders may convert notes following circumstances 1 fiscal quarter closing sales price company’s common stock exceeds 120 conversion price least 20 trading days 30 consecutive trading days ending last trading day preceding fiscal quarter 2 five business day period five consecutive trading day period trading price per note day period less 98 product closing sale price company’s common stock conversion rate 3 notes called redemption 4 upon occurrence certain corporate transactions beginning january 1 2011 company may redeem notes redemption price 100 principal amount plus accrued interest holders notes may require company repurchase notes repurchase price 100 principal amount plus accrued interest december 31 2010 2013 2018 2023 2028 impact exchange completed june 2005 discussed reduced diluted weighted average shares outstanding future periods reduction diluted shares approximately 90 million shares prospective basis vary future based company’s stock price market price trigger specified conversion circumstances met december 31 2007 closing sales price company’s common stock exceeded 120 conversion price 2236 4073 per share respectively company’s 134 convertible senior subordinated notes company’s 114 convertible senior subordinated notes least 20 trading days 30 consecutive trading days ending december 31 2007 therefore company classified notes current liabilities future classification notes current longterm debt dependent closing sales price company’s common stock future quarters company believes unlikely holders notes would convert notes provisions indenture agreement typically convertible securities converted prior expiration unless called redemption thereby requiring company repay principal portion cash event notes converted company believes could repay notes available cash hand funds company’s existing 3000 million multicurrency revolving credit facility combination sources june 23 2005 company redeemed 250 million 912 senior notes due 2008 price approximately 2619 million included premium 475 face amount senior notes premium approximately 119 million writeoff remaining balance deferred debt agco corporation notes consolidated financial statements continued issuance costs approximately 22 million recognized interest expense net second quarter 2005 funding source redemption combination cash generated transfer north american wholesale interestbearing receivables company’s united states canadian retail finance joint ventures agco finance llc agco finance canada ltd well revolving credit facility borrowings available cash hand note 4 company’s credit facility provides 3000 million multicurrency revolving credit facility maturity date revolving credit facility december 2008 company anticipates entering new revolving credit facility 2008 replace current revolving credit facility previously company also 3000 million united states dollar denominated term loan 1200 million euro denominated term loan maturity date term loan facility june 2009 company required make quarterly payments towards united states dollar denominated term loan euro denominated term loan 075 million 03 million respectively amortization one percent per annum maturity date term loan june 29 2007 company repaid remaining balances outstanding united states dollar euro denominated term loans totaling 725 million 286 million respectively available cash hand revolving credit facility secured majority company’s united states canadian finnish uk based assets pledge portion stock domestic material foreign subsidiaries interest accrues amounts outstanding revolving credit facility company’s option either 1 libor plus margin ranging 125 20 based upon company’s senior debt ratio 2 higher administrative agent’s base lending rate onehalf one percent federal funds rate plus margin ranging 00 075 based company’s senior debt ratio interest accrued amounts outstanding term loans libor plus 175 credit facility contains covenants restricting among things incurrence indebtedness making certain payments including dividends company also must fulfill financial covenants including among others total debt ebitda ratio senior debt ebitda ratio fixed charge coverage ratio defined facility december 31 2007 company outstanding borrowings multicurrency revolving credit facility december 31 2007 company availability borrow 2911 million revolving credit facility december 31 2006 company total borrowings 1114 million credit facility included 733 million united states dollar denominated term loan facility 289 million approximately 381 million euro denominated term loan facility amounts outstanding multicurrency revolving credit facility december 31 2006 company availability borrow 2922 million revolving credit facility april 23 2004 company sold 2000 million 678 senior subordinated notes due 2014 received proceeds approximately 2340 million offering related fees expenses 678 senior subordinated notes unsecured obligations subordinated right payment company’s existing future senior indebtedness interest payable notes 678 per annum payable semiannually april 15 october 15 year beginning april 15 2009 company may redeem notes whole part initially 103438 principal amount plus accrued interest declining 100 principal amount plus accrued interest time april 15 2012 addition april 15 2009 company may redeem notes whole part redemption price equal 100 principal amount plus accrued interest makewhole premium notes include certain covenants restricting incurrence indebtedness making certain restrictive payments including dividends agco corporation notes consolidated financial statements continued december 31 2007 aggregate scheduled maturities longterm debt excluding current portion longterm debt follows millions cash payments interest 511 million 705 million 978 million years ended december 31 2007 2006 2005 respectively company arrangements various banks issue standby letters credit similar instruments guarantee company’s obligations purchase sale certain inventories potential claims exposure insurance coverage december 31 2007 outstanding letters credit issued revolving credit facility totaled 89 million 8 employee benefit plans company defined benefit pension plans covering certain employees principally united states united kingdom germany finland norway france australia argentina company also provides certain postretirement health care life insurance benefits certain employees principally united states effective december 31 2006 company adopted recognition disclosure provisions sfas 158 “employers’ accounting defined benefit pension postretirement plans amendment fasb statements 87 88 106 132r” “sfas 158” key changes sfas 158 compared fasb statements 87 88 106 132r follows recognition funded status statement financial position sfas 158 requires employer sponsors one singleemployer defined benefit plans recognize overfunded underfunded status benefit plan measured difference fair value plan assets benefit obligation projected benefit obligation defined benefit pension plans accumulated postretirement benefit obligation postretirement plans statement financial position recognition unamortized amounts accumulated comprehensive income sfas 158 requires companies recognize component comprehensive income net tax gains losses prior service costs credits arise period recognized components net periodic benefit cost pursuant sfas 87 “employers’ accounting pensions” “sfas 87” sfas 106 “employers’ accounting postretirement benefits pensions” “sfas 106” words change funded status plan year change occurs reflected combination net annual pension cost component net income company’s accumulated comprehensive income loss component stockholders’ equity elimination use early measurement date sfas 158 requires companies measure defined benefit plan assets obligations date company’s fiscal yearend measurement provision sfas 158 effective years ending december 15 2008 company adopt measurement provisions sfas 158 year ended december 31 agco corporation notes consolidated financial statements continued 2008 upon adoption change impact measurement company’s uk pension plan company adopt second approach afforded paragraph 19 sfas 158 transition company’s uk pension plan december 31 measurement date additional disclosures sfas 158 requires companies disclose notes financial statements additional information certain effects net periodic benefit cost next fiscal year arise delayed recognition gains losses prior service costs credits transition assets obligations addition companies must disclose current noncurrent components assets liabilities defined benefit pension postretirement plans prior adoption recognition provisions sfas 158 company accounted defined benefit pension plans sfas 87 postretirement health care plans sfas 106 well disclosure provisions sfas 132r “employers disclosures pensions postretirement benefits amendment fasb statements 87 88 106” “sfas 132r” sfas 87 required liability referred statement additional minimum pension liability recorded accumulated benefit obligation exceeded fair value plan assets adjustments recorded noncash charges company’s accumulated comprehensive loss within stockholders’ equity reflected “additional minimum liability adjustments” sfas 106 required liability recorded represent actuarial present value future benefits attributable employee’s service rendered date requirement reflect additional minimum liability difference accumulated benefit obligation plan assets upon adoption recognition provisions sfas 158 company recognized difference projected benefit obligation includes impact future salary increases accumulated benefit obligation related defined pension benefit plans well entire obligation related unfunded postretirement health care life insurance benefit plans united states resulted increase accumulated comprehensive loss approximately 268 million net taxes increase liabilities approximately 375 million increase noncurrent assets approximately 16 million increase noncurrent deferred tax assets approximately 91 million sfas 158 effective periods ending december 15 2006 retroactive application permitted therefore disclosures year ended december 31 2007 2006 reflect provisions sfas 158 disclosures year ended december 31 2005 reflect requirements sfas 132r net annual pension costs years ended december 31 2007 2006 2005 set forth millions agco corporation notes consolidated financial statements continued weighted average assumptions used determine net annual pension costs company’s pension plans years ended december 31 2007 2006 2005 follows net annual postretirement benefit costs years ended december 31 2007 2006 2005 set forth millions except percentages following tables set forth reconciliations changes benefit obligation plan assets funded status december 31 2007 2006 millions agco corporation notes consolidated financial statements continued accrued pension costs approximately 22 million 51 million classified current liabilities within “accrued expenses” company’s consolidated balance sheets december 31 2007 2006 respectively related company’s phased retirement plan obligations germany december 31 2007 company’s accumulated comprehensive income included net actuarial loss approximately 1269 million net prior service credit approximately 27 million related company’s defined benefit pension plans estimated net actuarial loss net prior service credit defined benefit pension plans amortized company’s accumulated comprehensive income year ended december 31 2008 approximately 56 million 02 million respectively december 31 2007 company’s accumulated comprehensive income included net actuarial loss approximately 43 million net prior service credit approximately 16 million related company’s us postretirement health care benefit plans estimated net actuarial loss net prior service credit postretirement health care benefit plans amortized company’s accumulated comprehensive income year ended december 31 2008 approximately 02 million 04 million respectively agco corporation notes consolidated financial statements continued weighted average assumptions used determine benefit obligation company’s pension plans december 31 2007 2006 follows aggregate projected benefit obligation accumulated benefit obligation fair value plan assets pension postretirement plans accumulated benefit obligations excess plan assets 7555 million 6909 million 5996 million respectively december 31 2007 8814 million 8178 million 6093 million respectively december 31 2006 projected benefit obligation accumulated benefit obligation fair value plan assets company’s us based pension plans 467 million 467 million 465 million respectively december 31 2007 497 million 497 million 437 million respectively december 31 2006 company’s accumulated comprehensive income december 31 2007 reflects reduction equity 1269 million net taxes 407 million primarily related company’s uk pension plan projected benefit obligation exceeded plan assets company’s accumulated comprehensive loss december 31 2006 reflected reduction equity 2417 million net taxes 741 million primarily related company’s uk us pension plans projected benefit obligation exceeded plan assets company utilizes september 30 measurement date determine pension benefit measurements company’s uk pension plan company utilizes december 31 measurement date determine pension postretirement benefit measurements company’s plans united states rest world company’s uk pension plan’s measurement date december 31 december 31 2008 years ended december 31 2007 2006 company based discount rate used determine projected benefit obligation us pension plans postretirement health care benefit plans executive nonqualified pension plan “enpp” matching projected cash flows plans citigroup pension discount curve prior december 31 2006 company based discount rate used determine projected benefit obligation us pension plans moody’s investor service aa bond yield december 31 year nonus plans company bases discount rate comparable indices within countries 15year iboxx aa corporate bond yield united kingdom indices used united states united kingdom countries chosen match expected plan obligations related expected cash flows agco corporation notes consolidated financial statements continued weighted average asset allocation company’s us pension benefit plans december 31 2007 2006 follows weighted average asset allocation company’s nonus pension benefit plans december 31 2007 2006 follows tax qualified pension fund investments united states held agco corporation master pension trust company’s global pension fund strategy diversify investments across broad categories equity fixed income securities appropriate use alternative investment categories minimize risk volatility company’s us target allocation retirement fund investments 35 large small cap domestic equity securities 15 international equity securities 20 domestic fixed income securities 30 invested investments company noted long periods mix investments would achieve average return excess 9 arriving choice expected return assumption 8 us based plans company tempered historical indicator lower expectations returns equity investments future well administrative costs plans date company invested pension funds stock intention future company’s nonus target allocation retirement fund investments 50 equity securities 30 fixed income securities 20 invested investments majority company’s nonus pension fund investments related company’s pension plan united kingdom company noted long periods target mix investments would achieve average return excess 75 arriving choice expected return assumption 7 ukbased pension plan company tempered historical indicator slightly lower expectation future returns equity investments well plan expenses weighted average discount rate used determine benefit obligation company’s postretirement benefit plans years ended december 31 2007 2006 625 58 respectively measuring expected postretirement benefit obligation december 31 2007 company assumed 9 health care cost trend rate 2008 decreasing 10 per year 50 remaining level thereafter measuring expected postretirement benefit obligation december 31 2006 9 health care cost trend rate assumed 2007 decreasing 10 per year 50 remaining level thereafter changing assumed health care cost trend rates one percentage point year agco corporation notes consolidated financial statements continued holding assumptions constant would following effect service interest cost 2008 accumulated postretirement benefit obligation december 31 2007 millions december 2003 united states congress enacted medicare prescription drug improvement modernization act 2003 provides prescription drug subsidy beginning 2006 companies sponsor postretirement health care plans provide drug benefits based upon final regulations released january 2005 third quarter 2005 company reviewed provisions postretirement health care plans actuaries determine whether benefits offered plans met statutory definition “actuarially equivalent” prescription drug benefits qualify federal subsidy based upon review company believes two plans qualify subsidy accordance fasb staff position “fsp” 1062 “accounting disclosure requirements related medicare prescription drug improvement modernization act 2003” company began reflecting impact anticipated subsidies july 1 2005 prospective basis revalued projected benefit obligation july 1 2005 company recognized curtailment two postretirement health care plans resulting 19 million decrease net postretirement cost company currently estimates minimum contributions benefit payments 2008 us based defined pension plans postretirement health care life insurance benefit plans aggregate approximately 06 million 21 million respectively company currently estimates minimum contributions underfunded plans benefit payments unfunded plans 2008 nonus based defined pension plans aggregate approximately 332 million approximately 277 million relates uk pension plan 2007 approximately 473 million benefit payments made related company’s pension plans december 31 2007 aggregate expected benefit payments company’s pension plans follows millions agco corporation notes consolidated financial statements continued 2007 approximately 21 million benefit payments made related company’s us postretirement benefit plans december 31 2007 aggregate expected benefit payments company’s us postretirement benefit plans follows millions company’s former supplemental executive retirement plan “serp” unfunded plan provided company executives retirement income period ten years based percentage final base salary reduced executive’s social security benefits 401k employer matching contributions account prior january 1 2007 benefit paid executive equal 3 final base salary times credited years service maximum benefit 60 final base salary benefits serp vested age 65 discretion company’s board directors age 62 reduced factor recognize early commencement benefit payments november 3 2006 company entered executive nonqualified pension plan effective january 1 2007 “2007 enpp” amended restated company’s serp 2007 enpp provides group senior company executives retirement income period 15 years based percentage average final salary bonus reduced executive’s social security benefits 401k employer matching contributions account benefit paid executives ranges 225 3 average last three years base salary plus bonus prior termination employment “final earnings” times credited years service maximum benefit 45 60 final earnings depending level executive benefits 2007 enpp vest participant attained age 50 least ten years service five years include years participation 2007 enpp payable participant reaches age 65 upon termination services death disability adjusted reflect payment prior age 65 net annual enpp serp cost measurement assumptions plans years ended december 31 2007 2006 2005 set forth millions except percentages agco corporation notes consolidated financial statements continued following tables set forth reconciliations changes benefit obligation funded status december 31 2007 2006 millions weighted average discount rate used determine benefit obligation 2007 enpp years ended december 31 2007 2006 625 58 respectively december 31 2007 company’s accumulated comprehensive loss included net actuarial gain approximately 31 million net prior service cost approximately 40 million related 2007 enpp estimated net actuarial gain net prior service cost related 2007 enpp amortized company’s accumulated comprehensive loss year ended december 31 2008 approximately 02 million 05 million respectively accordance sfas 158 december 31 2007 2006 company recorded reduction equity 09 million 27 million respectively related unfunded projected benefit obligation 2007 enpp company benefiting losses tax purposes united states tax impact charges 2007 approximately 04 million benefit payments made related 2007 enpp december 31 2007 aggregate expected benefit payments 2007 enpp follows millions agco corporation notes consolidated financial statements continued company maintains separate defined contribution plans covering certain employees primarily united states united kingdom brazil plans company contributes specified percentage eligible employee’s compensation company contributed approximately 90 million 85 million 83 million years ended december 31 2007 2006 2005 respectively 9 common stock december 31 2007 company 1500 million authorized shares common stock par value 001 per share approximately 916 million shares common stock outstanding approximately 19 million shares reserved issuance company’s option plan note 10 approximately 26 million shares reserved issuance 2006 long term incentive plan “2006 plan” note 10 company stockholder rights plan adopted april 1994 following stockholder approval plan provides share common stock outstanding attached right purchase onehundredth share junior cumulative preferred stock par value 001 per share purchase price per onehundredth share 10000 subject adjustment rights exercisable person group “acquirer” acquires 20 company’s common stock announces tender offer exchange offer would result acquisition 20 company’s common stock circumstances additional conditions met exercisable plan allows stockholders acquirer purchase company’s common stock securities acquirer current market value two times exercise price right rights redeemable 001 per right subject adjustment option company’s board directors rights expire april 26 2014 unless extended redeemed exchanged company date 10 stock incentive plans 2006 company obtained stockholder approval 2006 ltip 5000000 shares agco common stock may issued 2006 plan allows company direction board directors’ compensation committee make grants performance shares stock appreciation rights stock options stock awards employees officers nonemployee directors company’s board directors approved grants awards 2007 2006 effective employee director stock incentive plans described employee plans 2006 plan encompasses two stock incentive plans company executives key managers primary longterm incentive plan performance share plan provides awards shares common stock based achieving financial targets earnings per share return invested capital determined company’s board directors stock awards earned performance period number shares earned determined based cumulative average results period depending measurement performance periods consecutive overlapping threeyear cycles performance targets set beginning cycle order transition 2006 plan company established award targets 2006 oneyear twoyear performance period addition normal threeyear period 2006 plan provides participants earn 33 200 target awards depending actual performance achieved shares earned performance established minimum target awards earned performance share plan paid shares company’s common stock end performance period compensation expense associated awards amortized ratably performance period based company’s projected assessment level performance achieved earned compensation expense recorded associated company’s oneyear performance period transition plan 2006 shares agco corporation notes consolidated financial statements continued earned december 31 2006 2007 company granted 509000 awards 2006 plan threeyear performance period commencing 2007 ending 2009 compensation expense recorded respect awards based upon stock price grant date weighted average grantdate fair value performance awards granted 2006 plan 2007 3739 based level performance achieved december 31 2007 105015 shares earned related twoyear performance period transition plan 2006 plan allows participant option forfeiting portion shares awarded lieu cash payment contributed participant’s tax withholding satisfy participant’s statutory minimum federal state employment taxes would payable time grant approximately 63000 shares issued february 29 2008 net approximately 42015 shares withheld taxes related earned awards performance award transactions 2007 follows presented company achieve target levels performance plan december 31 2007 total compensation cost related unearned performance awards yet recognized assuming company’s current projected assessment level performance achieved earned approximately 325 million weighted average period expected recognized approximately two years december 6 2007 board directors company approved two retentionbased restricted stock awards 2000000 company’s chairman president chief executive officer first award granted december 6 2007 totaled 28839 shares vest fiveyear period rate 25 end third year 25 end fourth year 50 end fifth year second award expected granted december 2008 vest fouryear period rate 25 end second year 25 end third year 50 end fourth year vesting subject continued employment company date vesting except certain circumstances change control company recognizing stock compensation expense ratably vesting period grant addition performance share plan certain executives key managers eligible 2006 plan receive grants stocksettled appreciation rights “ssars” incentive stock options depending participant’s country employment ssars provide participant right receive aggregate appreciation stock price market price company’s common stock date grant payable shares company’s common stock participant may exercise ssar time grant vested later seven years date grant ssars vest ratably fouryear period date grant ssar award grants made certain executives key managers 2006 plan made base price equal price company’s common stock date grant company recorded stock compensation expense approximately 12 million 03 million associated ssar award grants 2007 2006 respectively compensation expense associated awards amortized ratably vesting period company estimated fair value grants using blackscholes option pricing model weighted average agco corporation notes consolidated financial statements continued grantdate fair value ssars granted 2006 plan weighted average assumptions blacksholes option model follows year ended december 31 2007 ssar transactions year ended december 31 2007 follows december 31 2007 weighted average remaining contractual life ssars outstanding six years 23313 ssars currently exercisable prices ranging 2380 2600 weighted average exercise price 2399 aggregate intrinsic value 10 million december 31 2007 total compensation cost related unvested ssars yet recognized approximately 36 million weightedaverage period expected recognized approximately three years following table sets forth exercise price range number shares weighted average exercise price remaining contractual lives groups similar price total intrinsic value ssars exercised 2007 06 million total fair value shares vested period 04 million company realize tax benefit agco corporation notes consolidated financial statements continued exercise ssars 360187 ssars vested december 31 2007 total intrinsic value outstanding ssars december 31 2007 approximately 141 million january 23 2008 company granted 270900 performance award shares subject company achieving future target levels performance 107900 ssars 2006 plan director restricted stock grants 2006 plan provides 25000 annual restricted stock grants nonemployee directors effective first day calendar year shares restricted transferability period three years subject forfeiture event director departs board directors nontransferability period would expire immediately 2006 plan allows director option forfeiting portion shares awarded lieu cash payment contributed participant’s tax withholding satisfy participant’s statutory minimum federal state employment taxes would payable time grant january 1 2006 grant equated 11550 shares common stock 8832 shares common stock issued shares withheld withholding taxes company recorded stock compensation expense approximately 03 million 2006 associated grants january 1 2007 grant equated 8080 shares common stock 6346 shares common stock issued shares withheld withholding taxes company recorded stock compensation expense approximately 03 million 2007 associated grants december 6 2007 board directors approved increase annual restricted stock grant nonemployee directors company 25000 75000 grant made date company’s 2008 annual stockholders’ meeting april 24 2008 december 31 2007 5000000 shares reserved issuance 2006 plan 2643386 shares available grant assuming maximum number shares earned related performance award grants discussed former nonemployee director stock incentive plan longterm incentive plan december 2005 company’s board directors elected terminate ltip director plan outstanding awards plans cancelled awards cancelled prior december 31 2005 result compensation expense provisions apb opinion 25 however awards cancelled january 1 2006 subject provisions sfas 123r therefore company recorded approximately 13 million stock compensation expense first quarter 2006 associated cancellations former nonemployee director stock incentive plan company’s former director plan provided restricted stock awards nonemployee directors based increases price company’s common stock awarded shares earned specified increments 15 increase average market value company’s common stock initial base price established plan increment awarded shares earned shares issued participant form restricted stock vested earlier 12 months specified performance period upon departure company’s board directors restricted shares earned cash bonus equal 40 value shares date restricted stock award earned paid company satisfy portion estimated income tax liability incurred participant december 31 2007 4449 shares earned vested director plan agco corporation notes consolidated financial statements continued former longterm incentive plan company’s former ltip provided restricted stock awards executives based increases price company’s common stock awarded shares earned fiveyear performance period specified increments 20 increase average market value company’s common stock established initial base price restricted stock awards prior 2000 earned shares issued participant form restricted stock generally carried fiveyear vesting period onethird earned award vesting end third fourth fifth years award earned 2000 ltip amended replace vesting schedule nontransferability period future grants accordingly restricted stock awards 2000 2005 earned shares subject nontransferability period expired fiveyear period transfer restrictions lapsing onethird increments end third fourth fifth years award earned nontransferability period participants restricted selling assigning transferring pledging otherwise disposing earned shares earned shares subject forfeiture event participant terminated employment company nontransferability period extended two years earned shares vested longer subject forfeiture company obligated pay cash bonus equal 40 value shares date shares earned order satisfy portion estimated income tax liability incurred participant awards granted 2000 thereafter company recorded entire compensation expense relating market value earned shares related cash bonus period award earned awards granted prior 2000 market value awards earned added common stock additional paidin capital equal amount deducted stockholders’ equity unearned compensation ltip unearned compensation amount cash bonus paid awarded shares became vested amortized expense ratably vesting period company recognized compensation expense associated former ltip director plan 01 million 04 million years ended december 31 2006 2005 respectively consisting compensation expense relating earned shares amortization stock awards earned shares issued prior 2000 related cash bonuses stock option plan company’s option plan provides granting nonqualified incentive stock options officers employees directors others stock option exercise price determined company’s board directors except case incentive stock option purchase price shall less 100 fair market value date grant recipient stock options entitled immediately exercise 20 options issued person remaining 80 options vest ratably fouryear period expire later ten years date grant grants option plan years ended december 31 2007 2006 2005 company estimated fair value grants company’s option plan using blackscholes option pricing model disclosure purposes prior adoption sfas 123r fair value grants amortized applicable vesting period result applying provisions sfas 123r company recognized 02 million stock compensation expense associated stock options vested 2006 agco corporation notes consolidated financial statements continued stock option transactions year ended december 31 2007 follows december 31 2007 outstanding options weighted average remaining contractual life approximately four years 73500 options currently exercisable option prices ranging 1006 2231 weighted average exercise price 1470 aggregate intrinsic value 40 million following table sets forth exercise price range number shares weighted average exercise price remaining contractual lives groups similar price total intrinsic value options exercised years ended december 31 2007 2006 2005 approximately 83 million 70 million 07 million respectively total fair value shares vested periods approximately 00 million 02 million 11 million respectively 2000 stock options vested december 31 2007 cash proceeds received stock option exercises 2007 2006 2005 approximately 82 million 108 million 14 million respectively company realize tax benefit exercise options 11 derivative instruments hedging activities company applies provisions sfas 133 “accounting derivative instruments hedging activities” amended sfas 138 “accounting certain derivative instruments certain hedging activities amendment fasb statement 133” derivatives recognized agco corporation notes consolidated financial statements continued consolidated balance sheets fair value date derivative contract entered company designates derivative either 1 fair value hedge recognized liability 2 cash flow hedge forecasted transaction 3 hedge net investment foreign operation 4 nondesignated derivative instrument company primarily engages derivatives designated nondesignated derivative instruments changes fair value nondesignated derivative contracts reported current earnings company formally documents relationships hedging instruments hedged items well risk management objectives strategy undertaking various hedge transactions company formally assesses hedge’s inception ongoing basis whether derivatives used hedging transactions highly effective offsetting changes fair values cash flow hedged items determined derivative longer highly effective hedge accounting discontinued prospective basis foreign currency risk company significant manufacturing operations united states france germany finland brazil purchases portion tractors combines components thirdparty foreign suppliers primarily various european countries japan company also sells products 140 countries throughout world company’s significant transactional foreign currency exposures euro brazilian real canadian dollar relation united states dollar company attempts manage transactional foreign exchange exposure hedging foreign currency cash flow forecasts commitments arising settlement receivables payables future purchases sales naturally offsetting currency positions occur company hedges certain exposures use foreign currency forward contracts company’s hedging policy prohibits foreign currency forward option contracts speculative trading purposes company uses foreign currency forward contracts economically hedge receivables payables company subsidiaries’ balance sheets denominated foreign currencies functional currency forward contracts classified nondesignated derivatives instruments gains losses contracts historically substantially offset losses gains remeasurement underlying asset liability hedged changes fair value nondesignated derivative contracts reported current earnings years ended december 31 2007 2006 2005 company recorded net gain approximately 15 million 134 million net loss approximately 03 million respectively caption expense net related forward contracts 2007 2006 company designated certain foreign currency option contracts cash flow hedges expected future sales effective portion fair value gains losses cash flow hedges recorded comprehensive income subsequently reclassified cost goods sold period sales recognized amounts offset effect changes foreign exchange rates related sale transactions amount gain recorded comprehensive income loss reclassified cost goods sold years ended december 31 2007 2006 approximately 41 million 40 million respectively aftertax basis amount gain recorded comprehensive income loss related outstanding cash flow hedges december 31 2007 2006 approximately 77 million 01 million respectively aftertax basis outstanding contracts december 31 2007 range maturity december 2008 agco corporation notes consolidated financial statements continued following table summarizes activity accumulated comprehensive income loss related derivatives held company years ended december 31 2007 2006 millions derivatives held company accounted hedges 2005 interest rate risk company may use interest rate swap agreements manage exposure interest rate changes currently company interest rate swap agreements outstanding addition company recorded deferred loss 44 million 20 million net taxes years ended december 31 2007 2006 respectively deferred gain 28 million net taxes year ended december 31 2005 comprehensive income loss related derivatives held affiliates losses gains related interest rate swap contracts company’s retail finance joint ventures swap contracts effect converting floating rate debt fixed rates order secure retail finance joint ventures’ yields fixed rate loan portfolios company’s senior management establishes company’s foreign currency interest rate risk management policies reviewed periodically audit committee company’s board directors policy allows use derivative instruments hedge exposures movements foreign currency interest rates company’s policy prohibits use derivative instruments speculative purposes 12 commitments contingencies future payments required company’s significant commitments december 31 2007 follows millions agco corporation notes consolidated financial statements continued 1 estimated interest payments calculated assuming current interest rates minimum maturity periods specified debt agreements debt may repaid sooner later minimum maturity periods 2 unconditional purchase obligations exclude routine purchase orders entered normal course business result rationalization company’s european combine manufacturing operations 2004 company entered agreement laverda produce certain combine model ranges fiveyear period agreement provides company purchase minimum quantity 200 combines per year cost approximately 162 million per year approximately 236 million may 2009 3 shortterm longterm obligations include estimates future minimum contribution requirements company’s us nonus defined benefit pension postretirement plans estimates based current legislation countries company operates within subject change shortterm longterm obligations also include income tax liabilities related uncertain income tax positions whether connected ongoing income tax audits various jurisdictions accordance fin 48 offbalance sheet arrangements guarantees december 31 2007 company obligated certain circumstances purchase year 2010 50 million equipment upon expiration certain operating leases agco finance llc agco finance canada ltd company’s retail finance joint ventures north america end users company also maintains remarketing agreement joint ventures whereby company obligated repurchase repossessed inventory market values company agreement agco finance llc limits company’s purchase obligations arrangement 60 million aggregate per calendar year company believes losses might incurred resale equipment materially impact company’s financial position results operations december 31 2007 company guaranteed indebtedness owed third parties approximately 1634 million primarily related dealer end user financing equipment company believes credit risk associated guarantees material financial position losses guarantees historically insignificant december 31 2007 company foreign currency contracts buy aggregate approximately 5314 million united states dollar equivalents foreign currency contracts sell aggregate approximately 1202 million united states dollar equivalents contracts maturity less one year note 11 time company sells certain trade receivables factoring arrangements financial institutions throughout world company evaluates sale receivables pursuant guidelines sfas 140 determined facilities accounted offbalance sheet transactions accordance sfas 140 total lease expense noncancelable operating leases 389 million 378 million 376 million years ended december 31 2007 2006 2005 respectively agco corporation notes consolidated financial statements continued contingencies result brazilian tax legislative changes impacting value added taxes “vat” company recorded reserve approximately 219 million 200 million outstanding balance brazilian vat taxes receivable december 31 2007 2006 respectively due uncertainty company’s ability collect amounts outstanding february 2006 company received subpoena sec connection nonpublic factfinding inquiry entitled “in matter certain participants oil food program” subpoena requested documents concerning transactions iraq united nations oil food program company certain subsidiaries subsequently company contacted department justice “doj” regarding transactions although subpoena formal process initiated doj similar inquiries initiated danish french governments regarding two company’s subsidiaries inquiries arose sales approximately 580 million farm equipment iraq ministry agriculture 2000 2002 sec’s staff asserted certain aspects transactions properly recorded company’s books records company cooperating fully inquiries possible predict outcome inquiries impact company although outcomes adverse company could required pay fines make payments well take appropriate remedial actions company party various claims lawsuits arising normal course business opinion management consultation legal counsel claims lawsuits material adverse effect financial position results operations company 13 related party transactions rabobank aaa rated financial institution based netherlands 51 owner company’s retail finance joint ventures located united states canada brazil germany france united kingdom australia ireland austria rabobank also principal agent participant company’s revolving credit facility securitization facilities notes 4 7 majority assets company’s retail finance joint ventures represent finance receivables majority liabilities represent notes payable accrued interest various joint venture agreements rabobank affiliates obligated provide financing joint venture companies primarily lines credit company guarantee debt obligations retail finance joint ventures portion retail portfolio brazil held outside joint venture rabobank brazil prior 2005 company’s joint venture brazil agency relationship rabobank whereby rabobank provided funding february 2005 company made 213 million investment retail finance joint venture rabobank brazil additional investment joint venture’s organizational structure comparable company’s retail finance joint ventures result gradual elimination company’s solvency guarantee rabobank portfolio originally funded rabobank brazil december 31 2007 solvency requirement portfolio held rabobank approximately 75 million company’s retail finance joint ventures provide retail financing wholesale financing dealers terms financing arrangements offered company’s dealers similar arrangements retail finance joint ventures provide unaffiliated third parties december 31 2007 company obligated certain circumstances purchase year 2010 50 million equipment upon expiration certain operating leases agco finance llc agco finance canada ltd retail joint ventures north america end users company also maintains remarketing agreement joint ventures note 12 addition part sales incentives provided end users company may time subsidize interest rates retail financing provided retail joint ventures cost programs recognized time sale company’s dealers agco corporation notes consolidated financial statements continued may 2005 company completed agreement permit transferring ongoing basis majority wholesale interestbearing receivables north america agco finance llc agco finance canada ltd company 49 ownership interest joint ventures transfer receivables without recourse company continues service receivables company maintain direct retained interest receivables servicing asset liability recorded estimated fair value servicing receivables approximates servicing income initial transfer wholesale interestbearing receivables resulted net proceeds approximately 94 million used redeem company’s 250 million 912 senior notes note 7 december 31 2007 2006 balance interestbearing receivables transferred agco finance llc agco finance canada ltd agreement approximately 733 million 1241 million respectively 2007 2006 2005 company net sales 2754 million 1909 million 1538 million respectively baywa corporation german distributor ordinary course business president ceo baywa corporation also member board directors company 2007 2006 company paid license fees purchased raw materials including engines totaling approximately 1919 million 2113 million respectively caterpillar inc ordinary course business one members company’s board directors group president caterpillar inc retirement position february 2008 agco corporation notes consolidated financial statements continued 14 segment reporting company four reportable segments north america south america europeafricamiddle east asiapacific regional segment distributes full range agricultural equipment related replacement parts company evaluates segment performance primarily based income operations sales regional segment based location thirdparty customer intercompany transactions segments eliminated company’s selling general administrative expenses engineering expenses excluding corporate expense charged segment based region division expenses incurred result components operating income one segment may comparable another segment results years ended december 31 2007 2006 2005 follows millions agco corporation notes consolidated financial statements continued reconciliation segment information consolidated balances income operations total assets set forth millions net sales customer location years ended december 31 2007 2006 2005 follows millions agco corporation notes consolidated financial statements continued net sales product years ended december 31 2007 2006 2005 follows millions property plant equipment amortizable intangible assets country december 31 2007 2006 follows millions item 9item 8 financial statements supplementary data following consolidated financial statements agco subsidiaries years threeyear period ended december 31 2008 included item information heading “quarterly results” item 7 page 30 form 10k incorporated herein reference report independent registered public accounting firm board directors stockholders agco corporation audited accompanying consolidated balance sheets agco corporation subsidiaries december 31 2008 2007 related consolidated statements operations stockholders’ equity cash flows years threeyear period ended december 31 2008 connection audits consolidated financial statements also audited financial statement schedule listed item 15a2 consolidated financial statements financial statement schedule responsibility company’s management responsibility express opinion consolidated financial statements financial statement schedule based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements referred present fairly material respects financial position agco corporation subsidiaries december 31 2008 2007 results operations cash flows years threeyear period ended december 31 2008 conformity us generally accepted accounting principles also opinion related financial statement schedule considered relation basic consolidated financial statements taken whole presents fairly material respects information set forth therein also audited accordance standards public company accounting oversight board united states agco corporation’s internal control financial reporting december 31 2008 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission coso report dated february 27 2009 expressed unqualified opinion effectiveness company’s internal control financial reporting kpmg llp atlanta georgia february 27 2009 agco corporation consolidated statements operations millions except per share data see accompanying notes consolidated financial statements agco corporation consolidated balance sheets millions except share amounts see accompanying notes consolidated financial statements agco corporation consolidated statements stockholders’ equity millions except share amounts see accompanying notes consolidated financial statements agco corporation consolidated statements cash flows millions see accompanying notes consolidated financial statements agco corporation notes consolidated financial statements 1 operations summary significant accounting policies business agco corporation “agco” “company” leading manufacturer distributor agricultural equipment related replacement parts throughout world company sells full range agricultural equipment including tractors combines hay tools sprayers forage equipment implements company’s products widely recognized agricultural equipment industry marketed number wellknown brand names including challenger® fendt® massey ferguson® valtra® company distributes products combination approximately 2800 independent dealers distributors addition company provides retail financing united states canada brazil germany france united kingdom australia ireland austria retail finance joint ventures coöperative centrale raiffeisenboerenleenbank ba “rabobank” basis presentation consolidated financial statements represent consolidation whollyowned companies majorityowned companies joint ventures company determined primary beneficiary financial accounting standards board “fasb” interpretation 46r “consolidation variable interest entities” “fin 46r” company records investments affiliate companies using equity method accounting investments representing ownership less 20 recorded cost significant intercompany balances transactions eliminated consolidated financial statements joint ventures company analyzed provisions fin 46r relate accounting investments joint ventures determined primary beneficiary one joint ventures gima joint venture agco claas tractor sas “claas” cooperate field purchasing design manufacturing components agricultural tractors party 50 ownership joint venture investment approximately 42 million joint venture parties purchase production output joint venture purchases made company gima 2008 approximately 3402 million addition company charges gima respect lease portion facility france related utilities certain administrative back office support services amount paid gima company lease costs support services 2008 approximately 105 million gima overdraft facilities two third party financial institutions 30 million amounts outstanding respect overdraft facilities december 31 2008 facilities secured gima’s assets neither joint venture partner provides guarantee respect facilities joint venture partners provide operating cash requirements joint venture 5050 basis cash flow requirements generally structurally financed purchases product parties cost plus basis based upon level purchases partners capital expenditures additional operating cash flow requirements joint venture funded 5050 basis joint venture partners additional capital infusions joint venture since inception per joint venture agreement partners would provide additional capital infusions joint venture’s retained losses exceed half share capital balance circumstance would unlikely given structural setup joint venture financing joint venture purchases product partners cost plus basis analyzing provisions fin 46r company determined primary beneficiary joint venture due fact company purchases majority production output thus absorbs majority gains losses associated joint venture equity interest claas reported minority interest included “other noncurrent liabilities” accompanying consolidated balance sheets december 31 2008 2007 agco corporation notes consolidated financial statements continued rabobank 51 owner company’s retail finance joint ventures located united states canada brazil germany france united kingdom australia ireland austria majority assets company’s retail finance joint ventures represent finance receivables majority liabilities represent notes payable accrued interest various joint venture agreements rabobank affiliates provide financing joint venture companies primarily lines credit company guarantee debt obligations retail finance joint ventures insignificant portion retail portfolio brazil held outside joint venture rabobank brazil note 13 company’s retail finance joint ventures provide retail financing wholesale financing dealers terms financing arrangements offered company’s dealers similar arrangements retail finance joint ventures provide unaffiliated third parties december 31 2008 company obligated certain circumstances purchase year 2010 30 million equipment upon expiration certain operating leases agco finance llc agco finance canada ltd retail joint ventures north america end users company also maintains remarketing agreement joint ventures note 12 addition part sales incentives provided end users company may time subsidize interest rates retail financing provided retail joint ventures addition company agreement permit transferring ongoing basis majority wholesale interestbearing receivables north america agco finance llc agco finance canada ltd transfer receivables without recourse company continues service receivables company maintain direct retained interest receivables analyzing provisions fin 46r company determined retail finance joint ventures meet consolidation requirements accounted voting interest model making determination company evaluated sufficiency equity risk retail finance joint venture ability joint venture investors make decisions joint ventures’ activities significant effect success entities obligations absorb expected losses joint ventures rights receive expected residual returns revenue recognition sales equipment replacement parts recorded company title risks ownership transferred independent dealer distributor customer payment terms vary market product fixed payment schedules sales terms sale generally require purchase order confirmation accompany shipments title generally passes dealer distributor upon shipment risk loss upon damage theft destruction equipment responsibility dealer distributor thirdparty carrier certain foreign countries company retains form title goods delivered dealers dealer makes payment company recover goods event customer default payment occurs laws foreign countries provide seller’s retention security interest goods manner established united states uniform commercial code right company retains respect title enabling recovery goods event customer default payment dealer distributor may return equipment replacement parts contract company force replacement parts may returned promotional annual return programs provisions returns programs made time sale based terms program historical returns experience company may provide certain sales incentives dealers distributors provisions sales incentives made time sale existing incentive programs provisions revised event subsequent modification incentive program see “accounts notes receivable” discussion united states canada equipment sales dealers immediately due upon retail sale equipment dealer previously paid dealer united states canada installment payments required generally beginning seven 13 months shipment remaining outstanding equipment balance generally due within 12 18 months shipment interest generally charged agco corporation notes consolidated financial statements continued outstanding balance six 18 months shipment sales terms highly seasonal products provide payment due dates based specified date year regardless shipment date equipment sold dealers united states canada paid full average within 12 months shipment sales replacement parts generally payable within 30 days shipment terms larger seasonal stock orders generally requiring payment within six months shipment international markets equipment sales generally payable full within 30 180 days shipment payment terms highly seasonal products specified due date year regardless shipment date sales replacement parts generally payable within 30 90 days shipment terms larger seasonal stock orders generally payable within six months shipment certain markets particularly north america time lag varies based timing level retail demand date company records sale dealer sells equipment retail customer foreign currency translation financial statements company’s foreign subsidiaries translated united states currency accordance statement financial accounting standards “sfas” 52 “foreign currency translation” assets liabilities translated united states dollars periodend exchange rates income expense items translated average rates exchange prevailing period translation adjustments included “accumulated comprehensive income loss” stockholders’ equity gains losses result foreign currency transactions included accompanying consolidated statements operations use estimates preparation financial statements conformity us generally accepted accounting principles “gaap” requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ estimates made management primarily relate accounts notes receivable inventories deferred income tax valuation allowances intangible assets certain accrued liabilities principally relating reserves volume discounts sales incentives warranty obligations product liability workers’ compensation obligations pensions postretirement benefits adoption sec staff accounting bulletin 108 september 2006 securities exchange commission “sec” staff issued staff accounting bulletin 108 “considering effects prior year misstatements quantifying misstatements current year financial statements” “sab 108” sab 108 requires public companies utilize “dualapproach” assessing quantitative effects financial misstatements dual approach includes income statement focused assessment sometimes referred “rollover” method balance sheet focused assessment sometimes referred “iron curtain” method guidance sab 108 adopted company’s year ended december 31 2006 transition provisions sab 108 permitted company adjust opening retained earnings cumulative effect immaterial errors related prior years deemed material corrected current year prior 2006 company evaluated uncorrected misstatements utilizing “rollover” method connection implementation sab 108 applying “iron curtain” method company identified two types uncorrected misstatements previously determined material prior years rollover method iron curtain method items deemed material agco corporation notes consolidated financial statements continued company’s financial statements year ended december 31 2006 therefore company recorded adjustment increase opening retained earnings balance january 1 2006 approximately 136 million net taxes accordance implementation sab 108 misstatements consisted millions cash equivalents company considers investments original maturity three months less cash equivalents cash equivalents december 31 2008 2007 4199 million 4662 million respectively consisted primarily overnight repurchase agreements financial institutions restricted cash 2008 company deposited cash financial institution security outstanding foreign exchange contracts mature throughout 2009 december 31 2008 amount deposited approximately 338 million classified “restricted cash” company’s consolidated balance sheets amount posted security either increase decrease future depending value outstanding amount contracts secured arrangement relative impact gains losses outstanding contracts refer note 11 discussion related company’s foreign exchange contracts accounts notes receivable accounts notes receivable arise sale equipment replacement parts independent dealers distributors customers payments due company’s terms sale generally range one 12 months contingent upon sale equipment dealer distributor retail customer normal circumstances payment terms extended equipment may returned certain regions including united states canada company obligated repurchase equipment replacement parts upon cancellation dealer distributor contract obligations required national state provincial laws require company repurchase dealer distributor’s unsold inventory including inventory receivable already paid agco corporation notes consolidated financial statements continued sales markets outside united states canada company normally charge interest outstanding receivables dealers distributors sales certain dealers distributors united states canada approximately 20 company’s net sales generated 2008 interest charged prime lending rates outstanding receivable balances interestfree periods interestfree periods vary product generally range one 12 months exception certain seasonal products bear interest various periods 23 months depending time year sale dealer’s distributor’s sales volume preceding year ended december 31 2008 162 47 company’s net sales maximum interestfree periods ranging one six months seven 12 months respectively net sales maximum interestfree periods ranging 13 23 months approximately 04 company’s net sales 2008 actual interestfree periods shorter equipment receivable dealers distributors united states canada due immediately upon sale equipment retail customer normal circumstances interest forgiven interestfree periods extended company agreement permit transferring ongoing basis majority interestbearing receivables north america united states canadian retail finance joint ventures upon transfer receivables maintain standard payment terms including required regular principal payments amounts outstanding interest charges market rates arrangement qualified dealers may obtain additional financing united states canadian retail finance joint ventures company provides various incentive programs respect products incentive programs include reductions invoice prices reductions retail financing rates dealer commissions dealer incentive allowances volume discounts cases incentive programs established communicated company’s dealers quarterly basis incentives paid either time invoice reduction invoice price time settlement receivable time retail financing time warranty registration subsequent time based dealer purchases incentive programs product line specific generally vary dealer cost sales incentives associated dealer commissions dealer incentive allowances estimated based upon terms programs historical experience based percentage sales price recorded later date related revenue recognized b date sales incentive offered related provisions accruals made product line basis monitored adequacy revised least quarterly event subsequent modifications programs volume discounts estimated recognized based historical experience related reserves monitored adjusted based actual dealer purchases dealers’ progress towards achieving specified cumulative target levels company records cost interest subsidy payments reduction retail financing rates later date related revenue recognized b date sales incentive offered estimates incentives based terms programs historical experience incentive programs recorded presented reduction revenue accordance emerging issues task force “eitf” 0109 “accounting consideration given vendor customer including reseller vendor’s products” due fact company receive identifiable benefit exchange consideration provided reserves incentive programs paid either reduction future invoices credit memos recorded “accounts receivable allowances” within company’s consolidated balance sheet reserves incentive programs paid cash case company’s volume discount programs recorded within “accrued expenses” within company’s consolidated balance sheet accounts notes receivable shown net allowances sales incentive discounts available dealers doubtful accounts cash flows related collection receivables reported within “cash agco corporation notes consolidated financial statements continued flows operating activities” within company’s consolidated statements cash flows accounts notes receivable allowances december 31 2008 2007 follows millions company transfers certain accounts receivable various financial institutions primarily accounts receivable securitization facilities note 4 company records transfers sales accounts receivable considered surrendered control receivables provisions sfas 140 “accounting transfers servicing financial assets extinguishments liabilities replacement sfas 125” “sfas 140” inventories valued lower cost market using firstin firstout method market current replacement cost purchase reproduction dependent type inventory cases market exceeds net realizable value ie estimated selling price less reasonably predictable costs completion disposal inventories stated net realizable value market considered less net realizable value reduced allowance approximately normal profit margin december 31 2008 2007 company recorded 1060 million 967 million respectively adjustment surplus obsolete inventories adjustments reflected within “inventories net” inventories net december 31 2008 2007 follows millions cash flows related sale inventories reported within “cash flows operating activities” within company’s consolidated statements cash flows property plant equipment property plant equipment recorded cost less accumulated depreciation amortization depreciation provided straightline basis estimated useful lives ten 40 years buildings improvements three 15 years machinery equipment three ten years furniture fixtures expenditures maintenance repairs charged expense incurred agco corporation notes consolidated financial statements continued property plant equipment net december 31 2008 2007 consisted following millions goodwill intangible assets sfas 142 “goodwill intangible assets” “sfas 142” establishes method testing goodwill indefinitelived intangible assets impairment annual basis interim basis event occurs circumstances change would reduce fair value reporting unit carrying value company’s annual assessments involve determining estimate fair value company’s reporting units order evaluate whether impairment current carrying amount goodwill indefinitelived intangible assets exists first step goodwill impairment test used identify potential impairment compares fair value reporting unit carrying amount including goodwill fair value reporting unit exceeds carrying amount goodwill reporting unit considered impaired thus second step impairment test unnecessary carrying amount reporting unit exceeds fair value second step goodwill impairment test performed measure amount impairment loss fair values derived based evaluation past expected future performance company’s reporting units reporting unit operating segment one level operating segment example component operating segment reporting unit component constitutes business discrete financial information available company’s executive management team regularly reviews operating results component addition company combines aggregates two components operating segment single reporting unit components similar economic characteristics company’s reportable segments reported guidance sfas 131 “disclosures segments enterprise related information” reporting units exception asiapacific geographical segment second step goodwill impairment test used measure amount impairment loss compares implied fair value reporting unit goodwill carrying amount goodwill carrying amount reporting unit goodwill exceeds implied fair value goodwill impairment loss recognized amount equal excess loss recognized cannot exceed carrying amount goodwill implied fair value goodwill determined manner amount goodwill recognized business combination determined company allocates fair value reporting unit assets liabilities unit including unrecognized intangible assets reporting unit acquired business combination fair value reporting unit price paid acquire reporting unit excess fair value reporting unit amounts assigned assets liabilities implied fair value goodwill company utilizes combination valuation techniques including discounted cash flow approach market multiple approach making annual interim assessments stated goodwill tested impairment annual basis often indications impairment exist results company’s analyses conducted october 1 2008 2007 indicated reduction carrying agco corporation notes consolidated financial statements continued amount goodwill required 2006 sales operating income company’s sprayer operations declined significantly compared prior years primarily due increased competition resulting updated product offerings company’s major competitors shift industry demand away strength commercial application segment farmerowned segment addition company’s projections sprayer operations result valuation sufficient support carrying amount goodwill balance company’s consolidated balance sheet excess fair value reporting unit amounts assigned assets liabilities could allocated implied fair value goodwill result company concluded goodwill associated sprayer operations impaired recognized writedown total amount recorded goodwill approximately 1714 million fourth quarter 2006 results company’s analyses conducted october 1 2006 associated reporting units indicated reduction carrying amounts goodwill required changes carrying amount acquired intangible assets 2008 2007 summarized follows millions agco corporation notes consolidated financial statements continued company amortizes certain acquired intangible assets primarily straightline basis estimated useful lives range three 30 years acquired intangible assets weighted average useful life follows years ended december 31 2008 2007 2006 acquired intangible asset amortization 191 million 179 million 169 million respectively company estimates amortization existing intangible assets 170 million 2009 170 million 2010 98 million 2011 98 million 2012 97 million 2013 accordance sfas 142 company determined two trademarks indefinite useful life massey ferguson trademark existence since 1952 formed merger masseyharris established 1890’s ferguson established 1930’s massey ferguson brand currently sold 140 countries worldwide making one widely sold tractor brands world company also identified valtra trademark indefinitelived asset valtra trademark existence since late 1990’s derivative valmet trademark existence since 1951 valtra valmet used interchangeably marketplace today valtra recognized tractor line valmet name valtra brand currently sold approximately 50 countries around world massey ferguson brand valtra brand primary product lines company’s business company plans use trademarks indefinite period time company plans continue make investments product development enhance value brands future legal regulatory contractual competitive economic factors company aware company believes would limit useful lives trademarks massey ferguson valtra trademark registrations renewed nominal cost countries company operates changes carrying amount goodwill years ended december 31 2008 2007 2006 summarized follows millions see note 2 information regarding adjustments related income taxes agco corporation notes consolidated financial statements continued longlived assets 2008 2007 2006 company reviewed longlived assets impairment whenever events changes circumstances indicated carrying amount asset may recoverable accordance provisions sfas 144 “accounting impairment disposal longlived assets” “sfas 144” sfas 144 impairment loss recognized undiscounted future cash flows estimated generated asset held used sufficient recover unamortized balance asset impairment loss would recognized based difference carrying values estimated fair value estimated fair value determined based either discounted future cash flows appropriate fair value methods amount deficiency charged income current year asset tested recoverability acquired business combination intangible assets resulting acquisition related asset included assessment estimates future cash flows based many factors including current operating results expected market trends competitive influences company also evaluates amortization periods assigned intangible assets determine whether events changes circumstances warrant revised estimates useful lives assets disposed sale reported lower carrying amount fair value less estimated costs sell accrued expenses accrued expenses december 31 2008 2007 consisted following millions warranty reserves warranty reserve activity years ended december 31 2008 2007 2006 consisted following millions company’s agricultural equipment products generally warranty defects material workmanship period one four years company accrues future warranty costs time sale based historical warranty experience approximately 191 million 146 million warranty reserves included “other noncurrent liabilities” company’s consolidated balance sheet december 31 2008 2007 respectively agco corporation notes consolidated financial statements continued insurance reserves company’s insurance programs coverage obtained significant liability limits well risks required insured law contract policy company selfinsure portion certain expected losses related primarily workers’ compensation comprehensive general product vehicle liability provisions losses expected programs recorded based company’s estimates aggregate liabilities claims incurred stock incentive plans stock compensation expense first quarter 2006 company adopted sfas 123r revised 2004 “sharebased payment” “sfas 123r” revision sfas 123 “accounting stockbased compensation” 2008 2007 2006 company recorded approximately 335 million 260 million 36 million respectively stock compensation expense accordance sfas 123r refer note 10 additional information regarding company’s stock incentive plans place 2008 2007 2006 stock compensation expense recorded follows millions research development expenses research development expenses expensed incurred included engineering expenses company’s consolidated statements operations advertising costs company expenses advertising costs incurred cooperative advertising costs normally expensed time revenue earned advertising expenses years ended december 31 2008 2007 2006 totaled approximately 656 million 525 million 398 million respectively shipping handling expenses shipping handling fees charged customers included component net sales shipping handling costs included part cost goods sold exception certain handling costs included selling general administrative expenses amount 257 million 225 million 198 million years ended december 31 2008 2007 2006 respectively agco corporation notes consolidated financial statements continued interest expense net interest expense net years ended december 31 2008 2007 2006 consisted following millions income taxes income taxes accounted asset liability method prescribed provisions sfas 109 “accounting income taxes” “sfas 109” deferred tax assets liabilities recognized future tax consequences attributable differences financial statement carrying amounts existing assets liabilities respective tax bases operating loss tax credit carryforwards deferred tax assets liabilities measured using enacted tax rates expected apply taxable income years temporary differences expected recovered settled effect deferred tax assets liabilities change tax rates recognized income period includes enactment date net income loss per common share computation presentation disclosure requirements income loss per share presented accordance sfas 128 “earnings per share” basic income loss per common share computed dividing net income loss weighted average number common shares outstanding period diluted income loss per common share assumes exercise outstanding stock options vesting restricted stock performance share awards appreciation excess conversion value contingently convertible senior subordinated notes using treasury stock method effects assumptions dilutive company’s 2013 million aggregate principal amount 134 convertible senior subordinated notes 2013 million aggregate principal amount 114 convertible senior subordinated notes provide settlement upon conversion cash principal amount converted notes excess conversion value settled shares company’s common stock ii conversion rate increased certain circumstances new notes converted connection certain change control transactions dilution weighted shares outstanding depend company’s stock price excess conversion value using treasury stock method note 7 reconciliation net income loss weighted agco corporation notes consolidated financial statements continued average common shares outstanding purposes calculating basic diluted income loss per share years ended december 31 2008 2007 2006 follows millions except per share data stock options stocksettled stock appreciation rights “ssars” purchase 04 million 01 million shares years ended december 31 2008 2006 respectively outstanding included calculation weighted average common equivalent shares outstanding antidilutive impact addition weighted average common shares outstanding purposes computing diluted net loss per share year ended december 31 2006 include assumed conversion company’s 134 convertible senior subordinated notes impact dilutive stock options ssars impact would antidilutive number shares excluded weighted average common shares outstanding purposes computing diluted net loss per share year ended december 31 2006 approximately 12 million shares comprehensive income loss company reports comprehensive income loss defined total net income loss nonowner changes equity components thereof consolidated statements stockholders’ equity components comprehensive income loss related tax effects years ended december 31 2008 2007 2006 follows millions agco corporation notes consolidated financial statements continued financial instruments carrying amounts reported company’s consolidated balance sheets “cash equivalents” “accounts notes receivable” “accounts payable” approximate fair value due immediate shortterm maturity financial instruments carrying amount longterm debt company’s credit facility note 7 approximates fair value based borrowing rates currently available company loans similar terms average maturities december 31 2008 estimated fair values company’s 678 senior subordinated notes 134 convertible notes note 7 114 convertible notes note 7 based listed market values 1715 million 2304 million 1454 million respectively compared carrying values 2794 million 2013 million 2013 million respectively december 31 2007 estimated fair values company’s 678 senior subordinated notes 134 convertible notes note 7 114 convertible notes note 7 based listed market values 2933 million 6244 million 3477 million respectively compared carrying values 2918 million 2013 million 2013 million respectively company enters foreign currency forward contracts hedge foreign currency exposure certain receivables payables committed purchases sales contracts periods consistent exposure hedged generally maturities one year less company also enters foreign currency option forward contracts designated cash flow hedges expected sales december 31 2008 2007 company foreign currency contracts outstanding gross notional amounts 8075 million 6571 million respectively company unrealized losses approximately 272 million unrealized gains approximately 149 million respectively foreign currency contracts december 31 2008 2007 respectively december 31 2008 2007 approximately 207 million 35 million respectively unrealized gains reflected company’s results operations gains related forward contracts company’s foreign currency contracts mitigate risk due exchange rate fluctuations gains losses contracts generally offset gains losses exposure hedged company 541 million unrealized losses 114 million unrealized gains december 31 2008 2007 respectively reflected comprehensive income loss agco corporation notes consolidated financial statements continued 2008 2007 2006 company designated certain foreign currency option forward contracts cash flow hedges expected sales effective portion fair value gains losses cash flow hedges recorded comprehensive income subsequently reclassified cost sales period sales recognized amounts offset effect changes foreign exchange rates related sale transactions amount gain included comprehensive income loss reclassified cost goods sold years ended december 31 2008 2007 2006 approximately 141 million 41 million 40 million respectively aftertax basis amount loss gain recorded comprehensive income loss related outstanding cash flow hedges december 31 2008 2007 2006 approximately 367 million 77 million 01 million respectively aftertax basis outstanding contracts range maturity december 2009 notional amounts foreign exchange option forward contracts represent amounts exchanged parties therefore measure company’s risk amounts exchanged calculated basis notional amounts terms contracts credit market risks contracts considered significant company’s hedging policy prohibits entering foreign currency derivative contracts speculative trading purposes recent accounting pronouncements december 2008 fasb affirmed fasb staff position “fsp” fas 132r1 “employers’ disclosures postretirement benefit plan assets” “fsp fas 132r1” fsp fas 132r1 requires additional disclosures assets held employer’s defined benefit pension postretirement plan primarily related categories fair value measurements plan assets fsp fas 132r1 effective fiscal years ending december 15 2009 company therefore adopt disclosure requirements fiscal year ended december 31 2009 september 2008 fasb issued fsp fin 454 “an amendment fin 45 guarantor’s accounting disclosure requirements guarantees including indirect guarantees indebtedness others” fsp requires additional disclosure current status paymentperformance risk guarantee fsp effective financial statements issued fiscal years interim periods ending november 15 2008 early adoption encouraged company adopted provisions fsp year ended december 31 2008 may 2008 fasb issued fsp accounting principles board “apb” 141 “accounting convertible debt instruments may settled cash upon conversion including partial cash settlement” fsp requires liability equity components convertible debt instruments may settled cash upon conversion including partial cash settlement commonly referred instrument c eitf issue 9019 “convertible bonds issuer options settle cash upon conversion” “eitf issue 9019” separated account fair value debt equity components date issuance reflect issuer’s nonconvertible debt borrowing rate fsp effective financial statements issued fiscal years beginning december 15 2008 applied retrospectively periods presented retroactive restatement pursuant guidance sfas 154 “accounting changes error corrections” “sfas 154” fsp impact accounting treatment company’s 134 convertible senior subordinated notes due 2033 114 convertible senior subordinated notes due 2036 reclassifying portion convertible notes balances additional paidin capital representing estimated fair value conversion feature date issuance creating discount convertible notes amortized interest expense life convertible notes fsp result significant increase interest expense therefore reduce net income basic diluted earnings per share within company’s consolidated statements operations company adopt requirements fsp january 1 2009 estimates upon adoption “retained earnings” balance reduced approximately 37 million “convertible agco corporation notes consolidated financial statements continued senior subordinated notes” balance reduced approximately 57 million “additional paidin capital” balance increase approximately 57 million including deferred tax impact approximately 37 million “interest expense net” attributable convertible senior subordinated notes fiscal year ended december 31 2009 expected increase approximately 15 million compared 2008 result adoption march 2008 fasb issued sfas 161 “disclosures derivative instruments hedging activitiesan amendment fasb statement 133” “sfas 161” sfas 161 intended improve financial reporting derivative instruments hedging activities requiring enhanced disclosures enable investors better understand effects entity’s financial position financial performance cash flows sfas 161 effective financial statements issued fiscal years interim periods beginning november 15 2008 early adoption encouraged company adopt sfas 161 january 1 2009 december 2007 fasb issued sfas 141 revised 2007 “business combinations” “sfas 141r” sfas 160 “noncontrolling interests consolidated financial statements” “sfas 160” sfas 141r requires acquirer measure identifiable assets acquired liabilities assumed noncontrolling interest acquiree fair values acquisition date goodwill excess value net identifiable assets acquired sfas 141r also requires fair value measurement certain assets liabilities related acquisition contingencies research development sfas 160 clarifies noncontrolling interest subsidiary reported equity company’s consolidated financial statements consolidated net income include net income parent noncontrolling interest disclosure amounts company’s consolidated statement operations calculation earnings per share continue based income amounts attributable parent company required adopt sfas 141r sfas 160 january 1 2009 march 2007 eitf reached consensus eitf issue 0610 “accounting collateral assignment splitdollar life insurance arrangements” “eitf 0610” requires employer recognize liability postretirement benefit related collateral assignment splitdollar life insurance arrangement accordance either sfas 106 “employers’ accounting postretirement benefits pensions” “sfas 106” substance postretirement benefit plan exists accounting principles board opinion 12 arrangement substance individual deferred compensation contract employer agreed maintain life insurance policy employee’s retirement provide employee death benefit based substantive agreement employee addition eitf reached consensus employer recognize measure asset based nature substance collateral assignment splitdollar life insurance arrangement eitf observed determining nature substance arrangement employer assess future cash flows employer entitled well employee’s obligation ability repay employer eitf 0610 effective fiscal years beginning december 15 2007 adoption eitf 0610 january 1 2008 material effect company’s consolidated results operations financial position february 2007 fasb issued sfas 159 “the fair value option financial assets financial liabilities” “sfas 159” sfas 159 provides companies option report selected financial assets liabilities fair value provide additional information help investors users financial statements understand easily effect earnings company’s choice use fair value also requires companies display fair value assets liabilities chosen use fair value face balance sheets adoption sfas 159 january 1 2008 material effect company’s consolidated results operations financial position agco corporation notes consolidated financial statements continued september 2006 fasb issued sfas 157 “fair value measurements” “sfas 157” sfas 157 establishes common definition fair value applied guidance regarding us generally accepted accounting principles requiring use fair value establishes framework measuring fair value expands disclosure fair value measurements sfas 157 effective fair value measures already required permitted standards fiscal years beginning november 15 2007 november 2007 fasb proposed oneyear deferral sfas 157’s fair value measurement requirements nonfinancial assets liabilities required permitted measured fair value recurring basis adoption sfas 157 january 1 2008 material effect company’s consolidated results operations financial position june 2006 eitf reached consensus eitf issue 064 “accounting deferred compensation postretirement benefit aspects endorsement splitdollar life insurance arrangements” “eitf 064” requires application provisions sfas 106 endorsement splitdollar life insurance arrangements sfas 106 would require company recognize liability discounted future benefit obligation company would pay upon death underlying insured employee endorsementtype arrangement generally exists company owns controls incidents ownership underlying policies eitf 064 effective fiscal years beginning december 15 2007 adoption eitf 064 january 1 2008 material effect company’s consolidated results operations financial position 2 acquisitions joint venture september 28 2007 company acquired 50 laverda spa “laverda” approximately 460 million approximately 656 million thereby creating operating joint venture company italian argo group laverda located breganze italy manufactures harvesting equipment addition producing laverda branded combines breganze factory manufacturing midrange combine harvesters agco’s massey ferguson fendt challenger brands distribution europe africa middle east since 2004 joint venture also includes laverda’s ownership fellawerke gmbh “fella” german manufacturer grass hay machinery 30 stake gallignani spa “gallignani” italian manufacturer balers addition fella gallignani product lines enables company provide comprehensive harvesting offering customers investment financed available cash hand company accounted operating joint venture accordance apb opinion 18 “the equity method accounting investments common stock” “apb 18” accordance apb 18 company identified approximately 176 million goodwill 129 million identifiable intangible assets company’s investment greater preliminary estimate fair value underlying equity net assets received goodwill intangible asset balances included recorded balance “investments affiliates” line company’s consolidated balance sheet amortization identifiable intangible assets included company’s share earnings losses investment within “equity net earnings affiliates” line item company’s consolidated statements operations addition company allocated approximately 282 million investment addition joint venture’s property plant equipment reflect land buildings machinery equipment preliminary respective fair values compared historical net book values depreciation expense associated increase recorded amounts respect property plant equipment also included company’s share earnings losses investment balance december 31 2008 2007 includes agco corporation notes consolidated financial statements continued transaction costs related fees incurred 2008 2007 acquired identifiable assets summarized following table millions company determined laverda fella tradenames indefinite useful life laverda tradename existence since 1890 currently sold 35 countries worldwide fella tradename existence since 1918 laverda brand fella brand primary product lines company’s laverda operating joint venture joint venture partners plan use tradenames indefinite period time joint venture partners plan continue make investments product development enhance value brands future legal regulatory contractual competitive economic factors joint venture partners aware believe would limit useful lives tradenames laverda fella tradename registrations renewed nominal cost countries operating joint venture operates company performed annual impairment test investment laverda october 1 2008 pursuant guidance provided apb 18 concluded indication impairment exists september 10 2007 company acquired industria agricola fortaleza limitada “sfil” brazilian company approximately 380 million brazilian reais approximately 200 million accordance purchase agreement cash approximately 52 million brazilian reais approximately 27 million placed escrow date acquisition portion purchase price established fund certain disclosed contingent obligations compensate company potential customer bad debt losses 2008 portion escrowed funds released sellers due resolution certain contingencies collection outstanding accounts receivable balance escrowed funds december 31 2008 approximately 18 million escrowed funds reflected within “other current assets” “other assets” company’s consolidated balance sheet december 31 2008 2007 sfil located ibirubá rio grande sul brazil manufactures distributes line farm implements including drills planters corn headers front loaders acquisition financed available cash hand sfil acquisition accounted accordance sfas 141 “business combinations” accordingly company allocated purchase price assets acquired liabilities assumed based preliminary estimate fair values acquisition date results operations sfil acquisition included company’s consolidated financial statements date acquisition company recorded approximately 75 million goodwill approximately 04 million identifiable intangible asset sfil tradename associated acquisition acquired intangible asset useful life approximately five years net assets acquired include transaction costs related fees incurred 2007 company acquired valtra tractor diesel engine operations kone corporation finnish company january 2004 date acquisition two components taxdeductible goodwill specifically related operations valtra finland first component tax deductible goodwill approximately 2011 million related goodwill financial reporting purposes asset generate deferred income taxes future asset amortized income tax purposes second component taxdeductible goodwill approximately 1577 million related tax deductible goodwill excess goodwill financial reporting purposes tax benefits associated excess applied reduce amount goodwill financial reporting purposes future tax benefits agco corporation notes consolidated financial statements continued realized income tax return purposes 2006 company recorded additional goodwill approximately 177 million approximately 233 million december 31 2006 associated reallocation certain intangible assets goodwill income tax purposes finland well additional preacquisition income tax contingencies identified valtra european sales office 2007 company recorded reduction goodwill approximately 01 million approximately 02 million december 31 2007 associated utilization certain tax losses 2007 certain valtra european sales offices 2008 2007 2006 company reduced goodwill financial reporting purposes approximately 168 million 77 million 99 million respectively related realization tax benefits associated excess tax basis deductible goodwill date acquisition company identified certain income tax contingencies associated operations valtra brazil related preacquisition tax years 2006 determined identified contingencies longer existed company therefore recognized reduction goodwill approximately 31 million associated reversal contingent liabilities 3 restructuring infrequent expenses income company recorded restructuring infrequent expenses income 02 million 23 million 10 million years ended december 31 2008 2007 2006 respectively charges 2008 primarily related severance employee relocation costs associated company’s rationalization valtra sales office located france income 2007 primarily related 32 million gain sale portion buildings land improvements associated company’s randers denmark facility gain partially offset 09 million severance employee relocation facility closure costs associated rationalization company’s valtra sales office located france well rationalization certain parts sales marketing administrative functions germany company record tax provision associated gain sale randers property 2007 charges 2006 included severance costs associated rationalization certain parts sales marketing administrative functions united kingdom germany well rationalization certain valtra european sales offices located denmark norway germany united kingdom randers denmark rationalization 2004 company announced initiated plan restructure european combine manufacturing operations located randers denmark order reduce cost complexity randers manufacturing operation simplifying model range eliminating facility’s component manufacturing operations retaining facility assembly operations company reduced randers workforce 298 employees permanently eliminated 70 square footage utilized facility’s component manufacturing operations ceased february 2005 december 31 2005 affected employees terminated severance employee retention facility closure costs paid company outsources manufacturing majority parts components suppliers retained critical key assembly operations randers facility plans also included rationalization combine model range assembled randers retaining production high specification high value combines 2004 company recorded 82 million writedown property plant equipment associated component manufacturing operations addition restructuring charges incurred associated rationalization impairment charge based upon estimated fair value assets compared carrying value estimated fair value property plant equipment based current conditions market carrying value property plant equipment approximately 116 million 82 million impairment charge impaired property plant equipment associated randers rationalization reported within company’s europeafricamiddle east segment 2007 company sold portion land buildings improvements randers facility proceeds approximately 44 million recorded gain agco corporation notes consolidated financial statements continued approximately 32 million associated sale gain reflected “restructuring infrequent expenses income” within company’s consolidated statements operations valtra european sales office rationalizations 2007 company announced closure valtra sales office located france closure resulted termination approximately 15 employees company recorded severance facility closure costs approximately 08 million 02 million associated closure 2007 2008 respectively company paid approximately 03 million severance costs 2007 paid approximately 07 million severance facility closure costs 2008 december 31 2008 employees terminated 2005 company announced changing distribution arrangements valtra fendt products scandinavia entering distribution agreement thirdparty distributor distribute valtra fendt equipment sweden valtra equipment norway denmark result agreement decision close valtra european sales offices company initiated restructuring closure valtra sales offices located united kingdom spain denmark norway resulting termination 24 employees danish norwegian sales offices transferred thirdparty scandinavian equipment distributor october 2005 included transfer certain employees assets lease supplier contracts 2006 company recorded 01 million severance costs related closures december 31 2006 employees terminated severance facility closure costs paid german sales office rationalizations 2006 company announced closure two sales offices located germany one valtra sales office closures resulted termination seven employees company recorded severance costs approximately 05 million associated closures 2006 2007 company recorded additional severance relocation costs approximately 01 million associated closures paid approximately 06 million severance relocation costs december 31 2007 employees terminated primarily severance relocation costs paid coventry united kingdom sales administrative office rationalization 2006 company initiated restructuring certain parts sales marketing administrative functions within coventry united kingdom location resulting termination 13 employees company recorded severance costs approximately 04 million associated restructuring 2006 employees terminated severance costs paid december 31 2006 valtra finland administrative european parts rationalizations 2004 company initiated restructuring certain administrative functions within finnish operations resulting termination 58 employees recorded severance costs approximately 14 million associated rationalization 2005 2007 company paid approximately 10 million severance costs 58 employees terminated 2006 first quarter 2008 company notified could offset remaining 04 million accrued severance payments future pensionrelated refunds finnish government thus reversed accrual agco corporation notes consolidated financial statements continued 4 accounts receivable securitization december 31 2008 2007 company accounts receivable securitization facilities united states canada europe totaling approximately 4897 million 4959 million respectively united states canadian securitization facilities expire december 2013 european facility expires october 2011 subject annual renewal december 2008 company renewed amended united states canadian securitization facilities extending expiration date april 2009 december 2013 outstanding funding facilities totaled approximately 4832 million december 31 2008 4463 million december 31 2007 funded balance effect reducing accounts receivable shortterm liabilities amount facilities wholesale accounts receivable sold revolving basis commercial paper conduits whollyowned special purpose us subsidiary qualifying special purpose entity “qspe” united kingdom company reviewed accounting securitization facilities whollyowned special purpose entity united states qspe united kingdom accordance sfas 140 fin 46r united states due fact receivables sold commercial paper conduits insignificant portion conduits’ total asset portfolios receivables siloed consolidation appropriate fin 46r company absorb majority losses transactions europe commercial paper conduit purchases majority receivables deemed majority beneficial interest holder qspe thus consolidation company appropriate fin 46r company absorb majority losses transactions addition facilities accounted offbalance sheet transactions accordance provisions sfas 140 losses sales receivables primarily securitization facilities 273 million 2008 361 million 2007 299 million 2006 included “other expense net” company’s consolidated statements operations losses determined calculating estimated present value receivables sold compared carrying amount present value based historical collection experience discount rate representing spread libor prescribed terms agreements information related facilities assumptions used loss calculations summarized dollar amounts millions company continues service sold receivables maintains retained interest receivables servicing asset liability recorded estimated fair value servicing receivables approximates servicing income retained interest receivables sold included caption “accounts notes receivable net” accompanying consolidated balance sheets company’s risk loss securitization facilities limited portion unfunded balance receivables sold approximately 15 funded amount company maintains reserves portion residual interest estimates uncollectible december 31 2008 2007 approximately 01 million 00 million respectively unpaid balance receivables sold past due 60 days december 31 2008 2007 fair value retained interest recorded approximately 814 million 1088 million respectively compared carrying amount 820 million agco corporation notes consolidated financial statements continued 1105 million respectively based present value receivables calculated method consistent losses sales receivables discussed retained interest fair value measurement falls within level 3 fair value hierarchy sfas 157 level 3 measurements modelderived valuations one significant inputs significant valuedrivers unobservable assuming 10 20 increase average liquidation period fair value residual interest would decline 01 million 01 million respectively assuming 10 20 increase discount rate fair value residual interest would decline 01 million 01 million respectively 2008 company received approximately 17456 million sales receivables approximately 47 million servicing fees 2007 company received approximately 13938 million sales receivables 46 million servicing fees 2006 company received approximately 11624 million sales receivables 52 million servicing fees following table summarizes activity respect fair value company’s retained interest receivables sold year ended december 31 2008 millions company agreement permit transferring ongoing basis majority wholesale interestbearing receivables north america agco finance llc agco finance canada ltd united states canadian retail finance joint ventures company 49 ownership interest joint ventures transfer receivables without recourse company continues service receivables company maintain direct retained interest receivables servicing asset liability recorded since estimated fair value servicing receivables approximates servicing income december 31 2008 2007 balance interestbearing receivables transferred agco finance llc agco finance canada ltd agreement approximately 590 million 733 million respectively 5 investments affiliates investments affiliates december 31 2008 2007 follows millions manufacturing joint ventures december 31 2008 consisted joint venture third party manufacturer produce engines south america laverda operating joint venture italian argo group manufactures harvesting equipment note 2 joint ventures represent minority investments farm equipment manufacturers distributors licensees agco corporation notes consolidated financial statements continued company’s equity net earnings affiliates years ended december 31 2008 2007 2006 follows millions summarized combined financial information company’s retail finance joint ventures december 31 2008 2007 years ended december 31 2008 2007 2006 follows millions majority assets company’s retail finance joint ventures represent finance receivables majority liabilities represent notes payable accrued interest various joint venture agreements rabobank affiliates provide financing joint venture companies company guarantee debt obligations retail finance joint ventures portion retail portfolio brazil held outside joint venture rabobank brazil note 13 summarized financial information company’s laverda operating joint venture december 31 2008 2007 year ended december 31 2008 three months ended december 31 2007 follows millions agco corporation notes consolidated financial statements continued investment balance laverda december 31 2008 2007 711 million 710 million respectively portion company’s retained earnings balance represents undistributed retained earnings equity method investees approximately 1382 million december 31 2008 1251 million december 31 2007 6 income taxes sources income loss income taxes equity net earnings affiliates follows years ended december 31 2008 2007 2006 millions provision income taxes location taxing jurisdiction years ended december 31 2008 2007 2006 consisted following millions december 31 2008 company’s foreign subsidiaries approximately 19 billion undistributed earnings considered indefinitely invested accordingly income taxes provided earnings determination amount unrecognized deferred taxes earnings practical however unrecognized foreign tax credits would available reduce portion tax liability agco corporation notes consolidated financial statements continued reconciliation income taxes computed united states federal statutory income tax rate 35 provision income taxes reflected company’s consolidated statements operations years ended december 31 2008 2007 2006 follows millions significant components deferred tax assets liabilities december 31 2008 2007 follows millions company recorded net deferred tax liabilities 233 million 535 million december 31 2008 2007 respectively reflected preceding table company established valuation allowance 3166 million 3153 million december 31 2008 2007 respectively agco corporation notes consolidated financial statements continued change valuation allowance years ended december 31 2008 2007 2006 increase 13 million 239 million 386 million respectively sfas 109 requires establishment valuation allowance likely portion deferred tax assets realized accordance sfas 109 company assessed likelihood deferred tax assets would recovered estimated future taxable income available tax planning strategies determined adjustment valuation allowance december 31 2008 2007 2006 appropriate making assessment available evidence considered including current economic climate well reasonable tax planning strategies company believes likely company realize remaining deferred tax assets net valuation allowance future years company net operating loss carryforwards 6604 million december 31 2008 expiration dates follows 2011 24 million thereafter unlimited 6580 million net operating loss carryforwards include united states net loss carryforwards 3320 million foreign net operating loss carryforwards 3284 million company paid income taxes 1522 million 670 million 436 million years ended december 31 2008 2007 2006 respectively company adopted provisions fasb interpretation “fin” 48 “accounting uncertainty income taxes interpretation fasb statement 109” “fin 48” january 1 2007 december 31 2008 december 31 2007 company 201 million 227 million respectively unrecognized income tax benefits would affect company’s effective tax rate recognized december 31 2008 december 31 2007 company approximately 76 million 140 million respectively accrued deferred taxes related uncertain income tax positions connected ongoing income tax audits various jurisdictions expects settle pay next 12 months company accrues interest penalties related unrecognized tax benefits provision income taxes december 31 2008 december 31 2007 company accrued interest penalties related unrecognized tax benefits 18 million 11 million respectively reconciliation beginning ending balances total amounts gross unrecognized tax benefits year ended december 31 2008 follows millions company subsidiaries file income tax returns united states various state local foreign jurisdictions company subsidiaries routinely examined tax authorities jurisdictions 2008 tax authorities united states france germany completed examinations various open tax years required settlement payments approximately 106 million addition december 31 2008 number foreign examinations currently ongoing possible certain ongoing examinations may resolved within 12 months due potential resolution federal state foreign examinations expiration various statutes limitation reasonably possible company’s gross unrecognized tax benefits balance may materially change within next 12 months due number jurisdictions issues involved uncertainty regarding timing settlements company unable provide reasonable estimate change may occur within next 12 months although ongoing examinations various jurisdictions 2006 2008 tax agco corporation notes consolidated financial statements continued years generally remain subject examination united states federal state authorities company’s significant foreign jurisdictions primarily united kingdom france germany finland brazil 2003 2008 tax years generally remain subject examination respective tax authorities 7 indebtedness consisted following december 31 2008 2007 millions company accounts 134 convertible senior subordinated notes due 2033 114 convertible senior subordinated notes due 2036 convertible debt conversion features separately accounted apart notes embedded conversion features would meet conditions equity classification accordance eitf 0019 “accounting derivative financial instruments indexed potentially settled company’s stock” freestanding instruments company issued 2013 million 114 convertible senior subordinated notes due december 15 2036 december 2006 received proceeds approximately 1964 million related fees expenses notes unsecured obligations convertible cash shares company’s common stock upon satisfaction certain conditions discussed notes provide settlement upon conversion cash principal amount notes excess conversion value settled shares company’s common stock ii conversion rate increased certain circumstances notes converted connection certain change control transactions occurring prior december 15 2013 interest payable notes 114 per annum payable semiannually arrears cash june 15 december 15 year notes convertible shares company’s common stock effective price 4073 per share subject adjustment reflects initial conversion rate notes 245525 shares common stock per 1000 principal amount notes contain certain antidilution provisions designed protect holders’ interests change control transaction qualifies “fundamental change” occurs prior december 15 2013 certain circumstances company increase conversion rate notes converted connection transaction number additional shares used paragraph “make whole shares” fundamental change transaction event connection 50 company’s common stock exchanged converted acquired constitutes solely right receive consideration least 90 common stock listed us national securities exchange approved quotation automated quotation system amount increase conversion rate depend effective date transaction average price per share company’s common stock effective date adjustment conversion rate made price per share common stock less 3133 per share 18000 per share number additional make whole shares range 73658 shares per 1000 principal amount 3133 per share 00483 shares per agco corporation notes consolidated financial statements continued 1000 principal amount 18000 per share year ended december 15 2009 number make whole shares generally declining time acquirer certain affiliates fundamental change transaction publicly traded common stock company may instead increasing conversion rate described cause notes become convertible publicly traded common stock acquirer principal notes repaid cash balance payable shares acquirer common stock time company issue aggregate number shares company’s common stock upon conversion notes excess 319183 shares per 1000 principal amount thereof holders company’s common stock receive cash fundamental change transaction holders notes receive cash well holders may convert notes following circumstances 1 fiscal quarter closing sales price company’s common stock exceeds 120 conversion price least 20 trading days 30 consecutive trading days ending last trading day preceding fiscal quarter 2 five business day period five consecutive trading day period trading price per note day period less 98 product closing sale price company’s common stock conversion rate 3 notes called redemption 4 upon occurrence certain corporate transactions beginning december 15 2013 company may redeem notes redemption price 100 principal amount plus accrued interest holders notes may require company repurchase notes repurchase price 100 principal amount plus accrued interest december 15 2013 2016 2021 2026 2031 holders may also require company repurchase portion notes upon fundamental change defined indenture repurchase price equal 100 principal amount notes repurchased plus accrued unpaid interest notes senior subordinated obligations subordinated company’s existing future senior indebtedness effectively subordinated debt liabilities company’s subsidiaries notes equal right payment company’s 678 senior subordinated notes due 2014 134 convertible senior subordinated notes due 2033 company used net proceeds received issuance 114 convertible senior subordinated notes well available cash repay 1969 million former outstanding united states dollar denominated term loan 791 million former outstanding euro denominated term loan addition company recorded interest expense approximately 20 million proportionate writeoff deferred debt issuance costs associated term loan balances repaid company’s former united states dollar denominated euro denominated term loans discussed company’s 2013 million 134 convertible senior subordinated notes due december 31 2033 exchanged issued june 2005 provide settlement upon conversion cash principal amount converted new notes excess conversion value settled shares company’s common stock ii conversion rate increased certain circumstances new notes converted connection certain change control transactions occurring prior december 10 2010 otherwise substantially old notes unsecured obligations convertible cash shares company’s common stock upon satisfaction certain conditions discussed interest payable notes 134 per annum payable semiannually arrears cash june 30 december 31 year notes convertible shares company’s common stock effective price 2236 per share subject adjustment reflects initial conversion rate notes 447193 shares common stock per 1000 principal amount notes contain certain antidilution provisions designed protect holders’ interests change control transaction qualifies “fundamental change” occurs prior december 31 2010 certain circumstances company increase conversion rate notes converted connection transaction number additional shares used paragraph “make whole shares” fundamental change transaction event connection 50 company’s common stock exchanged converted acquired constitutes solely right receive consideration least 90 agco corporation notes consolidated financial statements continued common stock listed us national securities exchange approved quotation automated quotation system amount increase conversion rate depend effective date transaction average price per share company’s common stock effective date adjustment conversion rate made price per share common stock less 1707 per share 11000 per share number additional make whole shares range 130 shares per 1000 principal amount 1707 per share 00 shares per 1000 principal amount 11000 per share year ended december 31 2009 number make whole shares generally declining time acquirer certain affiliates fundamental change transaction publicly traded common stock company may instead increasing conversion rate described cause notes become convertible publicly traded common stock acquirer principal notes repaid cash balance payable shares acquirer common stock time company issue aggregate number shares company’s common stock upon conversion notes excess 585823 shares per 1000 principal amount thereof holders company’s common stock receive cash fundamental change transaction holders notes receive cash well holders may convert notes following circumstances 1 fiscal quarter closing sales price company’s common stock exceeds 120 conversion price least 20 trading days 30 consecutive trading days ending last trading day preceding fiscal quarter 2 five business day period five consecutive trading day period trading price per note day period less 98 product closing sale price company’s common stock conversion rate 3 notes called redemption 4 upon occurrence certain corporate transactions beginning january 1 2011 company may redeem notes redemption price 100 principal amount plus accrued interest holders notes may require company repurchase notes repurchase price 100 principal amount plus accrued interest december 31 2010 2013 2018 2023 2028 impact exchange completed june 2005 discussed reduced diluted weighted average shares outstanding future periods reduction diluted shares approximately 90 million shares prospective basis vary future based company’s stock price market price trigger specified conversion circumstances met december 31 2008 closing sales price company’s common stock exceed 120 conversion price 2236 4073 per share respectively company’s 134 convertible senior subordinated notes company’s 114 convertible senior subordinated notes least 20 trading days 30 consecutive trading days ending december 31 2008 therefore company classified notes longterm debt december 31 2007 closing sales price company’s common stock exceeded 120 conversion price 2236 4073 per share respectively company’s 134 convertible senior subordinated notes company’s 114 convertible senior subordinated notes least 20 trading days 30 consecutive trading days ending december 31 2007 therefore company classified notes current liabilities future classification notes current longterm debt dependent closing sales price company’s common stock future quarters may 2008 fasb issued fsp apb 141 fsp requires liability equity components convertible debt instruments may settled cash upon conversion including partial cash settlement commonly referred instrument c eitf issue 9019 separated account fair value debt equity components date issuance reflect issuer’s nonconvertible debt borrowing rate fsp effective financial statements issued fiscal years beginning december 15 2008 applied retrospectively periods presented retroactive restatement pursuant guidance sfas 154 fsp impact accounting treatment company’s 134 convertible senior subordinated notes due 2033 114 convertible senior subordinated notes due 2036 reclassifying portion convertible notes balances additional paidin capital representing agco corporation notes consolidated financial statements continued estimated fair value conversion feature date issuance creating discount convertible notes amortized interest expense life convertible notes fsp result significant increase interest expense therefore reduce net income basic diluted earnings per share within company’s consolidated statements operations company adopt requirements fsp january 1 2009 estimates upon adoption “retained earnings” balance reduced approximately 37 million “convertible senior subordinated notes” balance reduced approximately 57 million “additional paidin capital” balance increase approximately 57 million including deferred tax impact approximately 37 million may 16 2008 company entered new 3000 million unsecured multicurrency revolving credit facility new credit facility replaced company’s former 3000 million secured multicurrency revolving credit facility maturity date new facility may 16 2013 interest accrues amounts outstanding new facility company’s option either 1 libor plus margin ranging 100 175 based upon company’s total debt ratio 2 higher administrative agent’s base lending rate onehalf one percent federal funds rate plus margin ranging 00 050 based upon company’s total debt ratio new facility contains covenants restricting among things incurrence indebtedness making certain payments including dividends subject acceleration event default defined new facility company also must fulfill financial covenants respect total debt ebitda ratio interest coverage ratio defined facility december 31 2008 company outstanding borrowings new facility december 31 2008 company availability borrow 2913 million new facility company’s former credit facility provided 3000 million multicurrency revolving credit facility 3000 million united states dollar denominated term loan 1200 million euro denominated term loan maturity date revolving credit facility december 2008 maturity date term loan facility june 2009 company required make quarterly payments towards united states dollar denominated term loan euro denominated term loan 075 million 03 million respectively amortization one percent per annum maturity date term loan previously discussed december 2006 company used net proceeds received issuance 114 convertible senior subordinated notes well available cash repay 1969 million united states dollar denominated term loan 791 million euro denominated term loan addition june 29 2007 company repaid remaining balances united states dollar euro denominated term loans totaling 725 million 286 million respectively available cash hand revolving credit facility secured majority company’s us canadian finnish uk based assets pledge portion stock company’s domestic material foreign subsidiaries interest accrued amounts outstanding revolving credit facility company’s option either 1 libor plus margin ranging 125 20 based upon company’s senior debt ratio 2 higher administrative agent’s base lending rate onehalf one percent federal funds rate plus margin ranging 00 075 based company’s senior debt ratio interest accrued amounts outstanding term loans libor plus 175 credit facility contained covenants restricting among things incurrence indebtedness making certain payments including dividends company also fulfill financial covenants including among others total debt ebitda ratio senior debt ebitda ratio fixed charge coverage ratio defined facility december 31 2007 company outstanding borrowings former credit facility december 31 2007 company availability borrow 2911 million former revolving credit facility company’s 2000 million 678 senior subordinated notes due april 15 2014 issued april 2004 company received proceeds approximately 2340 million offering related fees expenses 678 senior subordinated notes unsecured obligations subordinated right payment company’s existing future senior indebtedness interest payable notes 678 per agco corporation notes consolidated financial statements continued annum payable semiannually april 15 october 15 year beginning april 15 2009 company may redeem notes whole part initially 103438 principal amount plus accrued interest declining 100 principal amount plus accrued interest time april 15 2012 addition april 15 2009 company may redeem notes whole part redemption price equal 100 principal amount plus accrued interest makewhole premium notes include certain covenants restricting incurrence indebtedness making certain restrictive payments including dividends december 31 2008 aggregate scheduled maturities longterm debt excluding current portion longterm debt follows millions cash payments interest 504 million 511 million 705 million years ended december 31 2008 2007 2006 respectively company arrangements various banks issue standby letters credit similar instruments guarantee company’s obligations purchase sale certain inventories potential claims exposure insurance coverage december 31 2008 2007 outstanding letters credit issued revolving credit facility totaled 87 million 89 million respectively 8 employee benefit plans company defined benefit pension plans covering certain employees principally united states united kingdom germany finland norway france switzerland australia argentina company also provides certain postretirement health care life insurance benefits certain employees principally united states brazil effective december 31 2006 company adopted recognition disclosure provisions sfas 158 “employers’ accounting defined benefit pension postretirement plans amendment fasb statements 87 88 106 132r” “sfas 158” key changes sfas 158 compared fasb statements 87 88 106 132r follows recognition funded status statement financial position measured difference fair value plan assets benefit obligation projected benefit obligation defined benefit pension plans accumulated postretirement benefit obligation postretirement plans b recognition unamortized amounts accumulated comprehensive income loss c elimination use early measurement date additional disclosures certain effects net periodic benefit cost next fiscal year arise delayed recognition gains losses prior service costs credits transition assets obligations well disclosure current noncurrent components assets liabilities company’s defined benefit pension postretirement plans discussed sfas 158 requires companies measure defined benefit plan assets obligations date company’s fiscal yearend measurement provision sfas 158 effective years ending december 15 2008 company adopted measurement provisions sfas 158 year ended december 31 2008 change impacted measurement agco corporation notes consolidated financial statements continued company’s uk pension plan prior 2008 measurement date september 30 company adopted second approach afforded paragraph 19 sfas 158 transition company’s uk pension plan december 31 measurement date impact adoption resulted reduction company’s opening retained earnings balance january 1 2008 approximately 11 million net taxes prior adoption recognition provisions sfas 158 company accounted defined benefit pension plans sfas 87 “employers’ accounting pensions” “sfas 87” postretirement health care plans sfas 106 “employers’ accounting postretirement benefits pensions” “sfas 106” well disclosure provisions sfas 132r “employers disclosures pensions postretirement benefits amendment fasb statements 87 88 106” sfas 87 required liability referred statement additional minimum pension liability recorded accumulated benefit obligation exceeded fair value plan assets adjustments recorded noncash charges company’s accumulated comprehensive loss within stockholders’ equity reflected “additional minimum liability adjustments” sfas 106 required liability recorded represent actuarial present value future benefits attributable employee’s service rendered date requirement reflect additional minimum liability difference accumulated benefit obligation plan assets upon adoption recognition provisions sfas 158 company recognized difference projected benefit obligation includes impact future salary increases accumulated benefit obligation related defined pension benefit plans well entire obligation related unfunded postretirement health care life insurance benefit plans united states resulted increase accumulated comprehensive loss approximately 268 million net taxes increase liabilities approximately 375 million increase noncurrent assets approximately 16 million increase noncurrent deferred tax assets approximately 91 million net annual pension costs years ended december 31 2008 2007 2006 set forth millions agco corporation notes consolidated financial statements continued weighted average assumptions used determine net annual pension costs company’s pension plans years ended december 31 2008 2007 2006 follows net annual postretirement benefit costs years ended december 31 2008 2007 2006 set forth millions except percentages following tables set forth reconciliations changes benefit obligation plan assets funded status december 31 2008 2007 millions pursuant measurement date provision sfas 158 change company’s benefit obligation 2008 reflects 15 months activity related company’s uk pension plan agco corporation notes consolidated financial statements continued accrued pension costs approximately 26 million 22 million classified current liabilities within “accrued expenses” company’s consolidated balance sheets december 31 2008 2007 respectively related company’s phased retirement plan obligations germany december 31 2008 company’s accumulated comprehensive loss included net actuarial loss approximately 1861 million net prior service credit approximately 25 million related company’s defined benefit pension plans estimated net actuarial loss net prior service credit defined benefit pension plans amortized company’s accumulated comprehensive loss year ended december 31 2009 approximately 91 million 02 million respectively december 31 2008 company’s accumulated comprehensive loss included net actuarial loss approximately 71 million net prior service credit approximately 08 million related company’s us brazilian postretirement health care benefit plans estimated net actuarial loss net prior service credit postretirement health care benefit plans amortized company’s accumulated comprehensive loss year ended december 31 2009 approximately 03 million 03 million respectively agco corporation notes consolidated financial statements continued weighted average assumptions used determine benefit obligation company’s pension plans december 31 2008 2007 follows aggregate projected benefit obligation accumulated benefit obligation fair value plan assets pension postretirement plans accumulated benefit obligations excess plan assets 5611 million 5095 million 3938 million respectively december 31 2008 7555 million 6909 million 5996 million respectively december 31 2007 projected benefit obligation accumulated benefit obligation fair value plan assets company’s usbased pension plans 462 million 462 million 308 million respectively december 31 2008 467 million 467 million 465 million respectively december 31 2007 company’s accumulated comprehensive loss december 31 2008 reflects reduction equity 1899 million net taxes 529 million primarily related company’s uk pension plan projected benefit obligation exceeded plan assets company’s accumulated comprehensive income december 31 2007 reflects reduction equity 1269 million net taxes 407 million primarily related company’s uk pension plan projected benefit obligation exceeded plan assets years ended december 31 2008 2007 company based discount rate used determine projected benefit obligation us pension plans postretirement health care benefit plans executive nonqualified pension plan “enpp” matching projected cash flows plans citigroup pension discount curve nonus plans company based discount rate comparable indices within countries merrill lynch aarated corporate bond index united kingdom 10year iboxx aa euro corporate bond yield euro zone countries indices used united states united kingdom countries chosen match expected plan obligations related expected cash flows weighted average asset allocation company’s us pension benefit plans december 31 2008 2007 follows agco corporation notes consolidated financial statements continued weighted average asset allocation company’s nonus pension benefit plans december 31 2008 2007 follows taxqualified pension fund investments united states held agco corporation master pension trust company’s global pension fund strategy diversify investments across broad categories equity fixed income securities appropriate use alternative investment categories minimize risk volatility company’s us target allocation retirement fund investments 35 large small cap domestic equity securities 15 international equity securities 20 domestic fixed income securities 30 invested investments company noted long periods mix investments would achieve average return excess 85 arriving choice expected return assumption 8 usbased plans company tempered historical indicator lower expectations returns equity investments future well administrative costs plans date company invested pension funds stock intention future company’s nonus target allocation retirement fund investments 42 equity securities 28 fixed income securities 30 invested investments majority company’s nonus pension fund investments related company’s pension plan united kingdom company noted long periods target mix investments would achieve average return excess 75 arriving choice expected return assumption 7 ukbased pension plan company tempered historical indicator slightly lower expectation future returns equity investments well plan expenses weighted average discount rate used determine benefit obligation company’s postretirement benefit plans years ended december 31 2008 2007 633 625 respectively measuring expected us postretirement benefit obligation december 31 2008 company assumed 85 health care cost trend rate 2009 decreasing 49 2060 measuring expected postretirement benefit obligation december 31 2007 9 health care cost trend rate assumed 2007 decreasing 10 per year 50 remaining level thereafter changing assumed health care cost trend rates one percentage point year holding assumptions constant would following effect service interest cost 2009 accumulated postretirement benefit obligation december 31 2008 millions company currently estimates minimum contributions usbased defined pension plans 2009 aggregate approximately 02 million company currently estimates benefit payments 2009 usbased postretirement health care life insurance benefit plans aggregate approximately 20 million company currently estimates minimum contributions underfunded plans benefit payments unfunded plans 2009 nonus based defined pension plans aggregate approximately 263 million approximately 192 million relates uk pension plan agco corporation notes consolidated financial statements continued 2008 approximately 535 million benefit payments made related company’s pension plans december 31 2008 aggregate expected benefit payments company’s pension plans follows millions 2008 approximately 20 million benefit payments made related company’s us brazilian postretirement benefit plans december 31 2008 aggregate expected benefit payments company’s us brazilian postretirement benefit plans follows millions company’s former supplemental executive retirement plan “serp” unfunded plan provided company executives retirement income period ten years based percentage final base salary reduced executive’s social security benefits 401k employer matching contributions account prior january 1 2007 benefit paid executive equal 3 final base salary times credited years service maximum benefit 60 final base salary benefits serp vested age 65 discretion company’s board directors age 62 reduced factor recognize early commencement benefit payments november 3 2006 company entered executive nonqualified pension plan effective january 1 2007 “2007 enpp” amended restated company’s serp 2007 enpp provides group senior company executives retirement income period 15 years based percentage average final salary bonus reduced executive’s social security benefits 401k employer matching contributions account benefit paid executives ranges 225 3 average last three years base salary plus bonus prior termination employment “final earnings” times credited years service maximum benefit 45 60 final earnings depending level executive benefits 2007 enpp vest participant attained age 50 least ten years service five years include years participation 2007 enpp payable participant reaches age 65 upon termination services death disability adjusted reflect payment prior age 65 agco corporation notes consolidated financial statements continued net annual 2007 enpp serp cost measurement assumptions plans years ended december 31 2008 2007 2006 set forth millions except percentages following tables set forth reconciliations changes benefit obligation funded status december 31 2008 2007 millions weighted average discount rate used determine benefit obligation 2007 enpp years ended december 31 2008 2007 625 respectively december 31 2008 company’s accumulated comprehensive loss included net actuarial gain approximately 20 million net prior service cost approximately 34 million related 2007 enpp estimated net actuarial gain net prior service cost related 2007 enpp amortized company’s accumulated comprehensive loss year ended december 31 2009 approximately 01 million 05 million respectively accordance sfas 158 december 31 2008 2007 company recorded reduction equity 14 million 09 million respectively related unfunded projected benefit obligation 2007 enpp company benefiting losses tax purposes united states tax impact charges agco corporation notes consolidated financial statements continued 2008 approximately 04 million benefit payments made related 2007 enpp december 31 2008 aggregate expected benefit payments 2007 enpp follows millions company maintains separate defined contribution plans covering certain employees primarily united states united kingdom brazil plans company contributes specified percentage eligible employee’s compensation company contributed approximately 92 million 90 million 85 million years ended december 31 2008 2007 2006 respectively 9 common stock december 31 2008 company 1500 million authorized shares common stock par value 001 per share approximately 918 million shares common stock outstanding approximately 19 million shares reserved issuance company’s option plan note 10 approximately 20 million shares reserved issuance 2006 longterm incentive plan “2006 plan” note 10 company stockholder rights plan adopted april 1994 following stockholder approval plan provides share common stock outstanding attached right purchase onehundredth share junior cumulative preferred stock par value 001 per share purchase price per onehundredth share 10000 subject adjustment rights exercisable person group “acquirer” acquires 20 company’s common stock announces tender offer exchange offer would result acquisition 20 company’s common stock circumstances additional conditions met exercisable plan allows stockholders acquirer purchase company’s common stock securities acquirer current market value two times exercise price right rights redeemable 001 per right subject adjustment option company’s board directors rights expire april 26 2014 unless extended redeemed exchanged company date 10 stock incentive plans 2006 plan 5000000 shares agco common stock may issued 2006 plan allows company direction board directors’ compensation committee make grants performance shares stock appreciation rights stock options restricted stock awards employees officers nonemployee directors company’s board directors approved grants awards 2008 2007 2006 effective employee director stock incentive plans described employee plans 2006 plan encompasses two stock incentive plans company executives key managers primary longterm incentive plan performance share plan provides awards shares company’s common stock based achieving financial targets earnings per share agco corporation notes consolidated financial statements continued return invested capital determined company’s board directors stock awards earned performance period number shares earned determined based cumulative average results period depending measurement performance periods consecutive overlapping threeyear cycles performance targets set beginning cycle order transition 2006 plan company established award targets 2006 oneyear twoyear performance period addition normal threeyear period 2006 plan provides participants earn 33 200 target awards depending actual performance achieved shares earned performance established minimum target awards earned performance share plan paid shares common stock end performance period compensation expense associated awards amortized ratably vesting performance period based company’s projected assessment level performance achieved earned compensation expense recorded 2008 2007 2006 respect awards granted based upon stock price grant date weighted average grantdate fair value performance awards granted 2006 plan 2008 2007 2006 5712 3739 2386 respectively company achieved maximum level performance 20062008 performance period grant december 31 2008 thus 887124 shares earned 2006 plan allows participant option forfeiting portion shares awarded lieu cash payment contributed participant’s tax withholding satisfy participant’s statutory minimum federal state employment taxes would payable time grant approximately 580162 shares issued march 2 2009 net approximately 306962 shares withheld taxes related earned awards based level performance achieved december 31 2007 102492 shares earned relating twoyear performance period transition plan 62387 shares issued february 29 2008 net 40105 shares withheld taxes related earned awards shares earned related oneyear performance period transition plan december 31 2006 2008 company granted 545400 awards threeyear performance period commencing 2008 ending 2010 assuming maximum target level performance achieved performance award transactions 2008 follows presented company achieve maximum levels performance plan december 31 2008 total compensation cost related unearned performance awards yet recognized assuming company’s current projected assessment level performance achieved earned approximately 324 million weighted average period expected recognized approximately one year december 6 2007 board directors company approved two retentionbased restricted stock awards 2000000 company’s chairman president chief executive officer first award granted december 6 2007 totaled 28839 shares vest fiveyear period rate 25 end third year 25 end fourth year 50 end fifth year second award granted december 5 2008 totaled 99010 shares vest fouryear period rate 25 end second year 25 end third year 50 end fourth year vesting subject continued employment company date vesting except certain circumstances change control company recognizing stock compensation expense ratably vesting period grant agco corporation notes consolidated financial statements continued addition performance share plan certain executives key managers eligible receive grants ssars incentive stock options depending participant’s country employment ssars provide participant right receive aggregate appreciation stock price market price company’s common stock date grant payable shares company’s common stock participant may exercise ssar time grant vested later seven years date grant ssars vest ratably fouryear period date grant ssar award grants made certain executives key managers 2006 plan made base price equal price company’s common stock date grant company recorded stock compensation expense approximately 17 million 12 million 03 million associated ssar award grants 2008 2007 2006 respectively compensation expense associated awards amortized ratably vesting period company estimated fair value grants using blackscholes option pricing model company utilized “simplified” method estimating expected term granted ssars year ended december 31 2008 afforded sec staff accounting bulletin “sab” 107 “sharebased payment sab topic 14” sab 110 “sharebased payment sab topic 14d2” expected term used value grant simplified method midpoint vesting date contractual term option ssar company granting ssars 2006 plan since april 2006 believe sufficient relevant experience regarding employee exercise behavior weighted average grantdate fair value ssars granted 2006 plan weighted average assumptions blackscholes option model follows year ended december 31 2008 2007 agco corporation notes consolidated financial statements continued december 31 2008 weighted average remaining contractual life ssars outstanding five years 68313 ssars currently exercisable prices ranging 2380 3738 weighted average exercise price 2937 aggregate intrinsic value 00 million december 31 2008 total compensation cost related unvested ssars yet recognized approximately 38 million weightedaverage period expected recognized approximately two years following table sets forth exercise price range number shares weighted average exercise price remaining contractual lives groups similar price total intrinsic value ssars exercised 2008 17 million total fair value shares vested period 11 million company realized tax benefit less 01 million exercise ssars 347478 ssars vested december 31 2008 total intrinsic value outstanding ssars december 31 2008 00 million january 21 2009 company granted 615000 performance award shares subject company achieving future target levels performance 298000 ssars 2006 plan director restricted stock grants 2006 plan provided annual restricted stock grants company’s common stock nonemployee directors shares restricted transferability period three years subject forfeiture event director departs board directors nontransferability period would expire immediately plan allows director option forfeiting portion shares awarded lieu cash payment contributed participant’s tax withholding satisfy statutory minimum federal state employment taxes would payable time grant january 1 2006 grant equated 11550 shares common stock 8832 shares common stock issued shares withheld withholding taxes company recorded stock compensation expense approximately 03 million 2006 associated grants january 1 2007 grant equated 8080 shares common stock 6346 shares common stock issued shares withheld withholding taxes company recorded stock compensation expense approximately 03 million 2007 associated grants april 24 2008 grant equated 11320 shares common stock 8608 shares common stock issued shares withheld withholding taxes company recorded stock compensation expense approximately 08 million 2008 associated grants 2009 annual restricted stock grant made date company’s 2009 annual stockholders’ meeting april 23 2009 december 31 2008 5000000 shares reserved issuance 2006 plan 2007404 shares available grant assuming maximum number shares earned related performance award grants discussed agco corporation notes consolidated financial statements continued former nonemployee director stock incentive plan longterm incentive plan december 2005 company’s board directors elected terminate company’s former longterm incentive plan nonemployee director stock incentive plan “director plan” outstanding awards plans cancelled awards cancelled prior december 31 2005 result compensation expense provisions apb opinion 25 “accounting stock issued employees” however awards cancelled january 1 2006 subject provisions sfas 123r therefore company recorded approximately 13 million stock compensation expense first quarter 2006 associated cancellations former nonemployee director stock incentive plan company’s former director plan provided restricted stock awards nonemployee directors based increases price company’s common stock awarded shares earned specified increments 15 increase average market value company’s common stock initial base price established plan increment awarded shares earned shares issued participant form restricted stock vested earlier 12 months specified performance period upon departure company’s board directors restricted shares earned cash bonus equal 40 value shares date restricted stock award earned paid company satisfy portion estimated income tax liability incurred participant december 31 2008 4449 shares earned vested former director plan stock option plan company’s 2001 stock option plan “the option plan” provides granting nonqualified incentive stock options officers employees directors others stock option exercise price determined company’s board directors except case incentive stock option purchase price shall less 100 fair market value date grant recipient stock options entitled immediately exercise 20 options issued person remaining 80 options vest ratably fouryear period expire later ten years date grant grants option plan years ended december 31 2008 2007 2006 company estimated fair value grants company’s option plan using blackscholes option pricing model disclosure purposes prior adoption sfas 123r fair value grants amortized applicable vesting period result applying provisions sfas 123r company recognized 02 million stock compensation expense associated stock options vested 2006 agco corporation notes consolidated financial statements continued stock option transactions year ended december 31 2008 follows december 31 2008 outstanding options weighted average remaining contractual life approximately three years 53600 options currently exercisable option prices ranging 1006 2085 weighted average exercise price 1475 aggregate intrinsic value 05 million following table sets forth exercise price range number shares weighted average exercise price remaining contractual lives groups similar price total intrinsic value options exercised years ended december 31 2008 2007 2006 approximately 08 million 83 million 70 million respectively total fair value shares vested periods approximately 00 million 00 million 02 million respectively cash proceeds received stock option exercises 2008 2007 2006 approximately 03 million 82 million 108 million respectively company realized insignificant tax benefit exercise options 11 derivative instruments hedging activities company applies provisions sfas 133 “accounting derivative instruments hedging activities” amended sfas 138 “accounting certain derivative instruments certain hedging activitiesan amendment fasb statement 133” derivatives recognized agco corporation notes consolidated financial statements continued company’s consolidated balance sheets fair value date derivative contract entered company designates derivative either 1 fair value hedge recognized liability 2 cash flow hedge forecasted transaction 3 hedge net investment foreign operation 4 nondesignated derivative instrument company formally documents relationships hedging instruments hedged items well risk management objectives strategy undertaking various hedge transactions company formally assesses hedge’s inception ongoing basis whether derivatives used hedging transactions highly effective offsetting changes fair values cash flow hedged items determined derivative longer highly effective hedge accounting discontinued prospective basis foreign currency risk company significant manufacturing operations united states france germany finland brazil purchases portion tractors combines components thirdparty foreign suppliers primarily various european countries japan company also sells products 140 countries throughout world company’s significant transactional foreign currency exposures euro brazilian real canadian dollar russian rouble relation united states dollar company attempts manage transactional foreign exchange exposure hedging foreign currency cash flow forecasts commitments arising anticipated settlement receivables payables future purchases sales naturally offsetting currency positions occur company hedges certain exposures use foreign currency forward contracts company’s hedging policy prohibits use foreign currency forward option contracts speculative trading purposes company uses foreign currency forward contracts hedge receivables payables company subsidiaries’ balance sheets denominated foreign currencies functional currency forward contracts classified nondesignated derivatives instruments changes fair value nondesignated derivative contracts reported current earnings years ended december 31 2008 2007 2006 company recorded net loss approximately 852 million net gain approximately 15 million 134 million respectively caption expense net related forward contracts gains losses contracts historically substantially offset losses gains remeasurement underlying asset liability hedged 2008 2007 2006 company designated certain foreign currency option forward contracts cash flow hedges expected future sales effective portion fair value gains losses cash flow hedges recorded comprehensive income subsequently reclassified cost goods sold period sales recognized amounts offset effect changes foreign exchange rates related sale transactions amount gain recorded comprehensive income loss reclassified cost goods sold years ended december 31 2008 2007 2006 approximately 141 million 41 million 40 million respectively aftertax basis amount loss gain recorded comprehensive income loss related outstanding cash flow hedges december 31 2008 2007 2006 approximately 367 million 77 million 01 million respectively aftertax basis outstanding contracts december 31 2008 range maturity december 2009 agco corporation notes consolidated financial statements continued following table summarizes activity accumulated comprehensive loss income related derivatives held company years ended december 31 2008 2007 2006 millions foreign currency option forward contracts’ fair value measurements fall within level 2 fair value hierarchy sfas 157 level 2 fair value measurements generally based upon quoted market prices similar instruments active markets quoted prices identical similar instruments markets active modelderived valuations significant inputs significant valuedrivers observable active markets fair value foreign currency forward contracts based valuation model discounts cash flows resulting differential contract price marketbased forward option rate 2008 company deposited cash financial institution brazil security outstanding foreign exchange contracts mature throughout 2009 december 31 2008 amount deposited approximately 338 million classified “restricted cash” company’s consolidated balance sheets amount posted security either increase decrease future depending value outstanding amount contracts secured arrangement relative impact gains losses outstanding contracts interest rate risk company may use interest rate swap agreements manage exposure interest rate changes currently company interest rate swap agreements outstanding addition company recorded deferred loss 10 million 44 million 20 million net taxes years ended december 31 2008 2007 2006 respectively comprehensive income loss related derivatives held affiliates losses related interest rate swap contracts company’s retail finance joint ventures swap contracts effect converting floating rate debt fixed rates order secure retail finance joint ventures’ yields fixed rate loan portfolios company’s senior management establishes company’s foreign currency interest rate risk management policies reviewed periodically audit committee company’s board directors policy allows use derivative instruments hedge exposures movements agco corporation notes consolidated financial statements continued foreign currency interest rates company’s policy prohibits use derivative instruments speculative purposes 12 commitments contingencies future payments required company’s significant commitments december 31 2008 follows millions 1 estimated interest payments calculated assuming current interest rates minimum maturity periods specified debt agreements debt may repaid sooner later minimum maturity periods 2 unconditional purchase obligations exclude routine purchase orders entered normal course business result rationalization company’s european combine manufacturing operations 2004 company entered agreement laverda produce certain combine model ranges fiveyear period agreement provides company purchase minimum quantity approximately 83 combines may 2009 cost approximately 67 million approximately 94 million 3 shortterm longterm obligations include estimates future minimum contribution requirements company’s us nonus defined benefit pension postretirement plans estimates based current legislation countries company operates within subject change shortterm longterm obligations also include income tax liabilities related uncertain income tax positions connected ongoing income tax audits various jurisdictions accordance fin 48 addition shortterm obligations include amounts due financial institutions related sales certain receivables meet offbalance sheet criteria sfas 140 offbalance sheet arrangements guarantees december 31 2008 company obligated certain circumstances purchase year 2010 30 million equipment upon expiration certain operating leases agco finance llc agco finance canada ltd company’s retail finance joint ventures north america end users company also maintains remarketing agreement joint ventures whereby company obligated repurchase repossessed inventory market values company agreement agco finance llc limits company’s purchase obligations arrangement 60 million aggregate per calendar year company believes losses might incurred resale equipment materially impact company’s financial position results operations due fair value underlying equipment agco corporation notes consolidated financial statements continued december 31 2008 company guaranteed indebtedness owed third parties approximately 1239 million primarily related dealer end user financing equipment guarantees generally obligate company repay outstanding finance obligations owed financial institutions dealers end users default loans 2012 company believes credit risk associated guarantees material financial position losses guarantees historically insignificant addition company would able recover amounts paid guarantees sale underlying financed farm equipment fair value equipment would sufficient offset substantial portion amounts paid december 31 2008 company foreign currency contracts buy aggregate approximately 4190 million united states dollar equivalents foreign currency contracts sell aggregate approximately 3260 million united states dollar equivalents outstanding contracts december 31 2008 range maturity december 2009 note 11 time company sells certain trade receivables factoring arrangements financial institutions throughout world company evaluates sale receivables pursuant guidelines sfas 140 determined facilities accounted offbalance sheet transactions accordance sfas 140 total lease expense noncancelable operating leases 453 million 389 million 378 million years ended december 31 2008 2007 2006 respectively contingencies result brazilian tax legislative changes impacting value added taxes “vat” company recorded reserve approximately 139 million 219 million outstanding balance brazilian vat taxes receivable december 31 2008 2007 respectively due uncertainty company’s ability collect amounts outstanding february 2006 company received subpoena sec connection nonpublic factfinding inquiry entitled “in matter certain participants oil food program” subpoena requested documents concerning transactions iraq company certain subsidiaries united nations oil food program subsequently company contacted department justice “doj” regarding transactions although subpoena formal process initiated doj inquiries initiated brazilian danish french uk governments regarding subsidiaries company inquiries arose sales approximately 580 million farm equipment iraq ministry agriculture 2000 2002 sec’s staff asserted certain aspects transactions properly recorded company’s books records company cooperating fully inquiries including discussions regarding settlement possible time predict outcome inquiries impact company although outcomes adverse company could required pay fines make payments well take appropriate remedial actions june 27 2008 republic iraq filed civil action federal court new york case 08 civ 59617 naming defendants three company’s foreign subsidiaries participated united nations oil food program ninetyone entities companies also named defendants civil action due participation united nations oil food program complaint purports assert claims defendants seeking damages unspecified amount although company’s subsidiaries intend vigorously defend action possible time predict agco corporation notes consolidated financial statements continued outcome action impact company although outcome adverse company could required pay damages august 2008 part routine audit brazilian taxing authorities disallowed deductions relating amortization certain goodwill recognized connection reorganization company’s brazilian operations related transfer certain assets company’s brazilian subsidiaries amount tax disallowance december 31 2008 including interest penalties approximately 775 million brazilian reias approximately 337 million amount ultimately dispute greater interest penalties future deductions company advised legal tax advisors position respect deductions allowable tax laws brazil company contesting disallowance believes likely assessment interest penalties required paid however ultimate outcome determined brazilian tax appeal process complete could take several years company party various claims lawsuits arising normal course business opinion management consultation legal counsel claims lawsuits material adverse effect financial position results operations company 13 related party transactions rabobank aaa rated financial institution based netherlands 51 owner company’s retail finance joint ventures located united states canada brazil germany france united kingdom australia ireland austria rabobank also principal agent participant company’s revolving credit facility securitization facilities notes 4 7 majority assets company’s retail finance joint ventures represent finance receivables majority liabilities represent notes payable accrued interest various joint venture agreements rabobank affiliates provide financing joint venture companies primarily lines credit company guarantee debt obligations retail finance joint ventures portion retail portfolio brazil held outside joint venture rabobank brazil note 12 prior 2005 company’s joint venture brazil agency relationship rabobank whereby rabobank provided funding february 2005 company made 213 million investment retail finance joint venture rabobank brazil additional investment joint venture’s organizational structure comparable company’s retail finance joint ventures result gradual elimination company’s solvency guarantee rabobank portfolio originally funded rabobank brazil december 31 2008 solvency requirement portfolio held rabobank approximately 39 million company’s retail finance joint ventures provide retail financing wholesale financing dealers terms financing arrangements offered company’s dealers similar arrangements retail finance joint ventures provide unaffiliated third parties december 31 2008 company obligated certain circumstances purchase year 2010 30 million equipment upon expiration certain operating leases agco finance llc agco finance canada ltd retail joint ventures north america end users company also maintains remarketing agreement joint ventures note 12 addition part sales incentives provided end users company may time subsidize interest rates retail financing provided retail joint ventures cost programs recognized time sale company’s dealers company agreement permit transferring ongoing basis majority wholesale interestbearing receivables north america agco finance llc agco finance canada ltd company 49 ownership interest joint ventures transfer receivables without recourse company continues service receivables company maintain direct retained interest receivables servicing asset liability recorded agco corporation notes consolidated financial statements continued estimated fair value servicing receivables approximates servicing income december 31 2008 2007 balance interestbearing receivables transferred agco finance llc agco finance canada ltd agreement approximately 590 million 733 million respectively 14 segment reporting company four reportable segments north america south america europeafricamiddle east asiapacific regional segment distributes full range agricultural equipment related replacement parts company evaluates segment performance primarily based income operations sales regional segment based location thirdparty customer intercompany transactions segments eliminated company’s selling general administrative expenses engineering expenses excluding corporate expense charged segment based region division expenses incurred result components operating income one segment may comparable another segment results years ended december 31 2008 2007 2006 follows millions agco corporation notes consolidated financial statements continued reconciliation segment information consolidated balances income operations total assets set forth millions net sales customer location years ended december 31 2008 2007 2006 follows millions agco corporation notes consolidated financial statements continued net sales product years ended december 31 2008 2007 2006 follows millions property plant equipment amortizable intangible assets country december 31 2008 2007 follows millions item 9item 8 financial statements supplementary data following consolidated financial statements agco subsidiaries years threeyear period ended december 31 2009 included item information heading “quarterly results” item 7 page 26 form 10k incorporated herein reference report independent registered public accounting firm board directors stockholders agco corporation audited accompanying consolidated balance sheets agco corporation subsidiaries december 31 2009 2008 related consolidated statements operations stockholders’ equity cash flows years threeyear period ended december 31 2009 connection audits consolidated financial statements also audited financial statement schedule listed item 15a2 consolidated financial statements financial statement schedule responsibility company’s management responsibility express opinion consolidated financial statements financial statement schedule based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements referred present fairly material respects financial position agco corporation subsidiaries december 31 2009 2008 results operations cash flows years threeyear period ended december 31 2009 conformity us generally accepted accounting principles also opinion related financial statement schedule considered relation basic consolidated financial statements taken whole presents fairly material respects information set forth therein discussed notes 1 7 company changed methods accounting noncontrolling interests convertible debt instruments 2009 due adoption sfas 160 “noncontrolling interests consolidated financial statements amendment arb 51 ‘consolidated financial statements’ ’’ incorporated asc topic 810 “consolidation” fsp apb 141 “accounting convertible instruments may settled cash upon conversion including partial cash settlement” incorporated asc topic 470 “debt” also audited accordance standards public company accounting oversight board united states agco corporation’s internal control financial reporting december 31 2009 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission coso report dated february 26 2010 expressed unqualified opinion effectiveness company’s internal control financial reporting kpmg llp atlanta georgia february 26 2010 agco corporation consolidated statements operations millions except per share data see accompanying notes consolidated financial statements agco corporation consolidated balance sheets millions except share amounts see accompanying notes consolidated financial statements agco corporation consolidated statements stockholders’ equity millions except share amounts see accompanying notes consolidated financial statements agco corporation consolidated statements cash flows millions see accompanying notes consolidated financial statements agco corporation notes consolidated financial statements 1 operations summary significant accounting policies business agco corporation “agco” “company” leading manufacturer distributor agricultural equipment related replacement parts throughout world company sells full range agricultural equipment including tractors combines hay tools sprayers forage equipment implements company’s products widely recognized agricultural equipment industry marketed number wellknown brand names including challenger® fendt® massey ferguson® valtra® company distributes products combination approximately 2700 independent dealers distributors addition company provides retail financing united states canada brazil germany france united kingdom australia ireland austria retail finance joint ventures coöperative centrale raiffeisenboerenleenbank ba “rabobank” basis presentation consolidated financial statements represent consolidation whollyowned companies majorityowned companies joint ventures company determined primary beneficiary accounting standard codification “asc” 810 “consolidation” “asc 810” company records investments affiliate companies using equity method accounting significant influence investments including representing ownership less 20 recorded cost significant intercompany balances transactions eliminated consolidated financial statements joint ventures company analyzed provisions asc 810 relate accounting investments joint ventures determined primary beneficiary one joint ventures gima joint venture agco claas tractor sas “claas” cooperate field purchasing design manufacturing components agricultural tractors party 50 ownership joint venture investment approximately 42 million joint venture parties purchase production output joint venture purchases made company gima 2009 approximately 2110 million addition company charges gima respect lease portion facility france related utilities certain administrative back office support services amount paid gima company lease costs support services 2009 approximately 199 million gima overdraft facilities two thirdparty financial institutions 60 million amounts outstanding respect overdraft facilities december 31 2009 facilities secured gima’s assets neither joint venture partner provides guarantee respect facilities joint venture partners provide operating cash requirements joint venture 5050 basis cash flow requirements generally structurally financed purchases product parties cost plus basis based upon level purchases partners capital expenditures additional operating cash flow requirements joint venture funded 5050 basis joint venture partners additional capital infusions joint venture since inception per joint venture agreement partners would provide additional capital infusions joint venture’s retained losses exceed half share capital balance circumstance would unlikely given structural setup joint venture financing joint venture purchases product partners cost plus basis analyzing provisions financial accounting standards board “fasb” interpretation 46r “consolidation variable interest entities” “fin 46r” company determined primary beneficiary joint venture due fact company purchases majority production output thus absorbs majority gains losses associated joint venture equity interest claas reported noncontrolling interest included agco corporation notes consolidated financial statements continued component equity accompanying consolidated balance sheets december 31 2009 2008 refer “recent accounting pronouncements” regarding impact company’s consolidation gima year ended december 31 2010 pursuant adoption statement financial accounting standards “sfas” 167 “amendments fasb interpretation 46r” “sfas 167” subsequently codified asc 810 rabobank 51 owner company’s retail finance joint ventures located united states canada brazil germany france united kingdom australia ireland austria majority assets company’s retail finance joint ventures represent finance receivables majority liabilities represent notes payable accrued interest various joint venture agreements rabobank affiliates provide financing joint venture companies primarily lines credit company guarantee debt obligations retail finance joint ventures insignificant portion retail portfolio brazil held outside joint venture rabobank brazil note 13 company’s retail finance joint ventures provide retail financing wholesale financing dealers terms financing arrangements offered company’s dealers similar arrangements retail finance joint ventures provide unaffiliated third parties company maintains remarketing agreement us retail finance joint venture agco finance llc note 12 addition part sales incentives provided end users company may time subsidize interest rates retail financing provided retail joint ventures addition company transfers substantially wholesale interestbearing noninterest bearing receivables north america agco finance llc agco finance canada ltd ongoing basis transfer receivables without recourse company service receivables company maintain direct retained interest receivables note 4 analyzing provisions asc 810 company determined retail finance joint ventures meet consolidation requirements accounted voting interest model making determination company evaluated sufficiency equity risk retail finance joint venture ability joint venture investors make decisions joint ventures’ activities significant effect success entities economic performance obligations absorb expected losses joint ventures rights receive expected residual returns revenue recognition sales equipment replacement parts recorded company title risks ownership transferred independent dealer distributor customer payment terms vary market product fixed payment schedules sales terms sale generally require purchase order confirmation accompany shipments title generally passes dealer distributor upon shipment risk loss upon damage theft destruction equipment responsibility dealer distributor thirdparty carrier certain foreign countries company retains form title goods delivered dealers dealer makes payment company recover goods event customer default payment occurs laws foreign countries provide seller’s retention security interest goods manner established united states uniform commercial code right company retains respect title enabling recovery goods event customer default payment dealer distributor may return equipment replacement parts contract company force replacement parts may returned promotional annual return programs provisions returns programs made time sale based terms program historical returns experience company may provide certain sales incentives dealers distributors provisions sales incentives made time sale existing incentive programs provisions revised event subsequent modification incentive program see “accounts notes receivable” discussion agco corporation notes consolidated financial statements continued united states canada equipment sales dealers immediately due upon retail sale equipment dealer previously paid dealer united states canada installment payments required generally beginning interestfree period remaining outstanding equipment balance generally due within 12 months shipment interest generally charged outstanding balance six 18 months shipment sales terms highly seasonal products provide payment due dates based specified date year regardless shipment date equipment sold dealers united states canada paid full average within 12 months shipment sales replacement parts generally payable within 30 days shipment terms larger seasonal stock orders generally requiring payment within six months shipment international markets equipment sales generally payable full within 30 180 days shipment payment terms highly seasonal products specified due date year regardless shipment date sales replacement parts generally payable within 30 90 days shipment terms larger seasonal stock orders generally payable within six months shipment certain markets particularly north america time lag varies based timing level retail demand date company records sale dealer sells equipment retail customer foreign currency translation financial statements company’s foreign subsidiaries translated united states currency accordance asc 830 “foreign currency matters” assets liabilities translated united states dollars periodend exchange rates income expense items translated average rates exchange prevailing period translation adjustments included “accumulated comprehensive loss” stockholders’ equity gains losses result foreign currency transactions included accompanying consolidated statements operations use estimates preparation financial statements conformity us generally accepted accounting principles “gaap” requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ estimates made management primarily relate accounts notes receivable inventories deferred income tax valuation allowances intangible assets certain accrued liabilities principally relating reserves volume discounts sales incentives warranty obligations product liability workers’ compensation obligations pensions postretirement benefits cash equivalents cash december 31 2009 2008 3286 million 923 million respectively consisted primarily cash hand bank deposits company considers investments original maturity three months less cash equivalents cash equivalents december 31 2009 2008 3241 million 4199 million respectively consisted primarily money market deposits certificates deposits overnight investments restricted cash 2009 2008 company deposited cash financial institution security outstanding foreign currency contracts matured throughout 2009 december 31 2008 amount deposited approximately 338 million classified “restricted cash” company’s agco corporation notes consolidated financial statements continued consolidated balance sheets amount recovered 2009 contracts matured december 31 2009 collateral requirements hedge transactions accounts notes receivable accounts notes receivable arise sale equipment replacement parts independent dealers distributors customers payments due company’s terms sale generally range one 12 months contingent upon sale equipment dealer distributor retail customer normal circumstances payment terms extended equipment may returned certain regions including united states canada company obligated repurchase equipment replacement parts upon cancellation dealer distributor contract obligations required national state provincial laws require company repurchase dealer distributor’s unsold inventory including inventory receivable already paid sales markets outside united states canada majority markets south america company normally charge interest outstanding receivables dealers distributors sales certain dealers distributors united states canada majority markets south america approximately 379 company’s net sales generated 2009 interest charged prime lending rates outstanding receivable balances interestfree periods interestfree periods vary product generally range one 12 months exception certain seasonal products bear interest various periods 23 months depending time year sale dealer’s distributor’s sales volume preceding year ended december 31 2009 185 29 company’s net sales maximum interestfree periods ranging one six months seven 12 months respectively net sales maximum interestfree periods ranging 13 23 months approximately 03 company’s net sales 2009 actual interestfree periods shorter equipment receivable dealers distributors united states canada due immediately upon sale equipment retail customer normal circumstances interest forgiven interestfree periods extended company agreement permit transferring ongoing basis substantially wholesale interestbearing noninterest bearing accounts receivable north america us canadian retail finance joint ventures upon transfer receivables maintain standard payment terms including required regular principal payments amounts outstanding interest charges market rates qualified dealers may obtain additional financing company’s us canadian retail finance joint ventures joint ventures’ discretion company provides various incentive programs respect products incentive programs include reductions invoice prices reductions retail financing rates dealer commissions dealer incentive allowances volume discounts cases incentive programs established communicated company’s dealers quarterly basis incentives paid either time invoice reduction invoice price time settlement receivable time retail financing time warranty registration subsequent time based dealer purchases incentive programs product line specific generally vary dealer cost sales incentives associated dealer commissions dealer incentive allowances estimated based upon terms programs historical experience based percentage sales price recorded later date related revenue recognized b date sales incentive offered related provisions accruals made product line basis monitored adequacy revised least quarterly event subsequent modifications programs volume discounts estimated recognized based historical experience related reserves monitored adjusted based actual dealer purchases dealers’ progress towards achieving specified cumulative target levels company records cost interest subsidy payments reduction retail financing rates later date related revenue recognized b date sales incentive offered agco corporation notes consolidated financial statements continued estimates incentives based terms programs historical experience incentive programs recorded presented reduction revenue due fact company receive identifiable benefit exchange consideration provided reserves incentive programs paid either reduction future invoices credit memos recorded “accounts receivable allowances” within company’s consolidated balance sheet reserves incentive programs paid cash case company’s volume discount programs well sales incentives associated accounts receivable sold us canadian retail finance joint ventures recorded within “accrued expenses” within company’s consolidated balance sheet result company’s new accounts receivable sales agreements us canada agco finance llc agco finance canada ltd entered december 2009 cash payments made us canadian retail finance joint ventures related outstanding accounts receivable sold company therefore reclassified sales inventive discount reserves associated accounts receivable sold december 2009 “accounts receivable allowances” “accrued expenses” within company’s consolidated balance sheets balance sales discounts reserves classified “accrued expenses” approximately 945 million december 31 2009 refer note 4 information accounts notes receivable shown net allowances sales incentive discounts available dealers doubtful accounts cash flows related collection receivables reported within “cash flows operating activities” within company’s consolidated statements cash flows accounts notes receivable allowances december 31 2009 2008 follows millions company transfers certain accounts receivable various financial institutions primarily accounts receivable securitization facility europe accounts receivable agreements retail finance joint ventures note 4 company records transfers sales accounts receivable considered surrendered control receivables provisions asc 860 “transfers servicing” “asc 860” inventories valued lower cost market using firstin firstout method market current replacement cost purchase reproduction dependent type inventory cases market exceeds net realizable value ie estimated selling price less reasonably predictable costs completion disposal inventories stated net realizable value market considered less net realizable value reduced allowance approximately normal profit margin december 31 2009 2008 company recorded 905 million 1060 million respectively adjustment surplus obsolete inventories adjustments reflected within “inventories net” inventories net december 31 2009 2008 follows millions agco corporation notes consolidated financial statements continued cash flows related sale inventories reported within “cash flows operating activities” within company’s consolidated statements cash flows property plant equipment property plant equipment recorded cost less accumulated depreciation amortization depreciation provided straightline basis estimated useful lives ten 40 years buildings improvements three 15 years machinery equipment three ten years furniture fixtures expenditures maintenance repairs charged expense incurred property plant equipment net december 31 2009 2008 consisted following millions goodwill intangible assets asc 350 “intangibles goodwill other” establishes method testing goodwill indefinitelived intangible assets impairment annual basis interim basis event occurs circumstances change would reduce fair value reporting unit carrying value company’s annual assessments involve determining estimate fair value company’s reporting units order evaluate whether impairment current carrying amount goodwill indefinitelived intangible assets exists first step goodwill impairment test used identify potential impairment compares fair value reporting unit carrying amount including goodwill fair value reporting unit exceeds carrying amount goodwill reporting unit considered impaired thus second step impairment test unnecessary carrying amount reporting unit exceeds fair value second step goodwill impairment test performed measure amount impairment loss fair values derived based evaluation past expected future performance company’s reporting units reporting unit operating segment one level operating segment example component operating segment reporting unit component constitutes business discrete financial information available company’s executive management team regularly reviews operating results component addition company combines aggregates two components operating segment single reporting unit components similar economic characteristics company’s reportable segments reporting units exception asiapacific geographical segment second step goodwill impairment test used measure amount impairment loss compares implied fair value reporting unit goodwill carrying amount goodwill carrying amount reporting unit goodwill exceeds implied fair value goodwill impairment loss recognized amount equal excess loss recognized cannot exceed carrying amount goodwill implied fair value goodwill determined manner amount goodwill recognized business combination company allocates fair value reporting unit assets liabilities unit including unrecognized intangible assets agco corporation notes consolidated financial statements continued reporting unit acquired business combination fair value reporting unit price paid acquire reporting unit excess fair value reporting unit amounts assigned assets liabilities implied fair value goodwill company utilizes combination valuation techniques including discounted cash flow approach market multiple approach making annual interim assessments stated goodwill tested impairment annual basis often indications impairment exist results company’s analyses conducted october 1 2009 2008 2007 indicated reduction carrying amount goodwill required changes carrying amount goodwill years ended december 31 2009 2008 2007 summarized follows millions 2009 2008 2007 company reduced goodwill financial reporting purposes approximately 92 million 168 million 77 million respectively related realization tax benefits associated excess tax basis deductible goodwill resulting company’s acquisition valtra company amortizes certain acquired intangible assets primarily straightline basis estimated useful lives range three 30 years acquired intangible assets weighted average useful life follows years ended december 31 2009 2008 2007 acquired intangible asset amortization 180 million 191 million 179 million respectively company estimates amortization existing intangible assets 187 million 2010 113 million 2011 113 million 2012 112 million 2013 11 million 2014 company previously determined two trademarks indefinite useful life massey ferguson trademark existence since 1952 formed merger masseyharris established 1890’s ferguson established 1930’s massey ferguson brand currently sold 140 countries worldwide making one widely sold tractor brands agco corporation notes consolidated financial statements continued world company also identified valtra trademark indefinitelived asset valtra trademark existence since late 1990’s derivative valmet trademark existence since 1951 valtra valmet used interchangeably marketplace today valtra recognized tractor line valmet name valtra brand currently sold approximately 50 countries around world massey ferguson brand valtra brand primary product lines company’s business company plans use trademarks indefinite period time company plans continue make investments product development enhance value brands future legal regulatory contractual competitive economic factors company aware company believes would limit useful lives trademarks massey ferguson valtra trademark registrations renewed nominal cost countries company operates changes carrying amount acquired intangible assets 2009 2008 summarized follows millions agco corporation notes consolidated financial statements continued longlived assets 2009 2008 2007 company reviewed longlived assets impairment whenever events changes circumstances indicated carrying amount asset may recoverable asc 360 impairment loss recognized undiscounted future cash flows estimated generated asset held used sufficient recover unamortized balance asset impairment loss would recognized based difference carrying values estimated fair value estimated fair value determined based either discounted future cash flows appropriate fair value methods amount deficiency charged income current year asset tested recoverability acquired business combination intangible assets resulting acquisition related asset included assessment estimates future cash flows based many factors including current operating results expected market trends competitive influences company also evaluates amortization periods assigned intangible assets determine whether events changes circumstances warrant revised estimates useful lives assets disposed sale reported lower carrying amount fair value less estimated costs sell accrued expenses accrued expenses december 31 2009 2008 consisted following millions warranty reserves warranty reserve activity years ended december 31 2009 2008 2007 consisted following millions company’s agricultural equipment products generally warranty defects material workmanship period one four years company accrues future warranty costs time sale based historical warranty experience approximately 198 million 191 million warranty reserves included “other noncurrent liabilities” company’s consolidated balance sheet december 31 2009 2008 respectively insurance reserves company’s insurance programs coverage obtained significant liability limits well risks required insured law contract policy company selfinsure portion agco corporation notes consolidated financial statements continued certain expected losses related primarily workers’ compensation comprehensive general product vehicle liability provisions losses expected programs recorded based company’s estimates aggregate liabilities claims incurred stock incentive plans stock compensation expense recorded follows millions refer note 10 additional information regarding company’s stock incentive plans 2009 2008 2007 research development expenses research development expenses expensed incurred included engineering expenses company’s consolidated statements operations advertising costs company expenses advertising costs incurred cooperative advertising costs normally expensed time revenue earned advertising expenses years ended december 31 2009 2008 2007 totaled approximately 515 million 656 million 525 million respectively shipping handling expenses shipping handling fees charged customers included component net sales shipping handling costs included part cost goods sold exception certain handling costs included selling general administrative expenses amount 263 million 257 million 225 million years ended december 31 2009 2008 2007 respectively interest expense net interest expense net years ended december 31 2009 2008 2007 consisted following millions income taxes income taxes accounted asset liability method deferred tax assets liabilities recognized future tax consequences attributable differences financial statement carrying amounts existing assets liabilities respective tax bases operating loss tax credit carryforwards deferred tax assets liabilities measured using enacted tax rates expected apply taxable income years temporary differences expected recovered settled agco corporation notes consolidated financial statements continued effect deferred tax assets liabilities change tax rates recognized income period includes enactment date net income per common share basic income per common share computed dividing net income weighted average number common shares outstanding period diluted income per common share assumes exercise outstanding stock options vesting restricted stock performance share awards appreciation excess conversion value contingently convertible senior subordinated notes using treasury stock method effects assumptions dilutive company’s 2013 million aggregate principal amount 134 convertible senior subordinated notes 2013 million aggregate principal amount 114 convertible senior subordinated notes provide settlement upon conversion cash principal amount converted notes excess conversion value settled shares company’s common stock ii conversion rate increased certain circumstances new notes converted connection certain change control transactions dilution weighted shares outstanding depend company’s stock price excess conversion value using treasury stock method note 7 reconciliation net income attributable agco corporation subsidiaries weighted average common shares outstanding purposes calculating basic diluted income per share years ended december 31 2009 2008 2007 follows millions except per share data stocksettled stock appreciation rights “ssars” purchase 03 million 04 million shares years ended december 31 2009 2008 respectively outstanding included calculation weighted average common equivalent shares outstanding antidilutive impact agco corporation notes consolidated financial statements continued comprehensive income loss company reports comprehensive income loss defined total net income loss nonowner changes equity components thereof consolidated statements stockholders’ equity components comprehensive income loss related tax effects years ended december 31 2009 2008 2007 follows millions financial instruments carrying amounts reported company’s consolidated balance sheets “cash equivalents” “accounts notes receivable” “accounts payable” approximate fair value due immediate shortterm maturity financial instruments carrying amount longterm debt company’s credit facility note 7 approximates fair value based borrowing rates currently available company loans similar terms average maturities december 31 2009 estimated fair values company’s 678 senior subordinated notes 134 convertible notes note 7 114 convertible notes note 7 based listed market values 2722 million 3008 million agco corporation notes consolidated financial statements continued 2113 million respectively compared carrying values 2865 million 1930 million 1675 million respectively december 31 2008 estimated fair values company’s 678 senior subordinated notes 134 convertible notes note 7 114 convertible notes note 7 based listed market values 1715 million 2304 million 1454 million respectively compared carrying values 2794 million 1853 million 1603 million respectively company uses foreign currency contracts hedge foreign currency exposure certain receivables payables contracts periods consistent exposure hedged generally maturities one year less contracts classified nondesignated derivative instruments company also enters foreign currency contracts designated cash flow hedges expected sales december 31 2009 2008 company foreign currency contracts outstanding gross notional amounts 12477 million 8075 million respectively company unrealized gains losses approximately 129 million 272 million foreign currency contracts december 31 2009 2008 respectively december 31 2009 2008 approximately 113 million 207 million respectively unrealized gains reflected company’s results operations gains related nondesignated contracts company’s foreign currency contracts mitigate risk due exchange rate fluctuations gains losses contracts generally offset gains losses exposure hedged company 14 million 541 million unrealized losses december 31 2009 2008 respectively related designated cash flow hedges reflected comprehensive loss refer note 11 information notional amounts foreign currency contracts represent amounts exchanged parties therefore measure company’s risk amounts exchanged calculated basis notional amounts terms contracts credit market risks contracts considered significant company’s hedging policy prohibits entering foreign currency contracts speculative trading purposes recent accounting pronouncements june 2009 fasb issued asc 105 “generally accepted accounting principles” “asc 105” stipulates fasb accounting standards codification source authoritative us gaap recognized fasb applied nongovernmental entities asc 105 effective financial statements issued interim annual periods ending september 15 2009 adoption asc 105 impact company’s consolidated financial position results operations june 2009 fasb issued sfas 167 subsequently codified asc 810 sfas 167 amends fin 46r eliminate quantitative approach previously required determining primary beneficiary variable interest entity requires qualitative analysis determine whether enterprise’s variable interest gives controlling financial interest variable interest entity standard also requires ongoing assessments whether enterprise primary beneficiary variable interest entity sfas 167 effective financial statements issued fiscal years interim periods beginning november 15 2009 earlier adoption sfas 167 prohibited adoption standard impact consolidation joint venture gima company completed qualitative analysis joint ventures including gima joint venture determined company controlling financial interest gima based shared powers joint venture partners direct activities significantly impact gima’s financial performance deconsolidation gima result prospective reclassification “noncontrolling interests” within equity “investments affiliates” company’s consolidated balance sheets approximately 51 million company reflect reclassification first quarter ended march 31 2010 deconsolidation also result reduction company’s “net sales” “income operations” within consolidated statements operations overall impact company’s consolidated net income result agco corporation notes consolidated financial statements continued reduction company’s “total assets” “total liabilities” within consolidated balance sheets net impact company’s “total stockholders’ equity” reclassification previously mentioned june 2009 fasb issued sfas 166 “accounting transfers financial assets amendment sfas 140 ‘accounting transfers servicing financial assets extinguishments liabilities’ ” “sfas 166” subsequently codified asc 860 “transfers servicing” sfas 166 eliminates concept qualifying specialpurpose entity “qspe” changes requirements derecognizing financial assets requires additional disclosures order enhance information reported users financial statements providing greater transparency transfers financial assets including securitization transactions entity’s continuing involvement exposure risks related transferred financial assets sfas 166 effective fiscal years interim periods beginning november 15 2009 earlier adoption prohibited company evaluated impact adoption sfas 166 accounts receivable securitization facility europe new accounts receivable sales agreements us canada well various financing facilities around world fully described note 4 upon adoption sfas 166 company required recognize accounts receivable sold european securitization facility within company’s consolidated balance sheets corresponding liability equivalent funded balance facility accounts receivable securitization facility europe approximately 1400 million approximately 2006 million december 31 2009 may 2009 fasb issued sfas 165 “subsequent events” “sfas 165” included asc 8551050 sfas 165 provides guidance management’s assessment subsequent events incorporates guidance accounting literature standard effective prospectively interim annual periods ending june 15 2009 implementation sfas 165 impact company’s financial position results operations company evaluated subsequent events february 26 2010 april 2009 fasb issued fasb staff position “fsp” sfas 1574 “determining fair value volume level activity asset liability significantly decreased identifying transactions orderly” “fsp sfas 1574” fsp sfas 1574 included asc 820 “fair value measurements disclosures” provides additional guidance estimating fair value volume level activity asset liability significantly decreased relation normal market activity additionally fsp sfas 1574 provides guidance identifying circumstances indicate transaction orderly fsp sfas 1574 requires interim disclosures inputs valuation techniques used measure fair value reflecting changes valuation techniques related inputs fsp sfas 1574 effective interim annual reporting periods ending june 15 2009 applied prospectively adoption fsp sfas 1574 impact company’s results operations financial position april 2009 fasb issued fsp sfas 1071 accounting principles board “apb” 281 “interim disclosures fair value financial instruments” “fsp sfas 1071 apb 281” fsp fas 1071 apb 281 included asc 8251050 “financial instruments” requires disclosures fair value financial instruments measured balance sheet fair value interim annual financial statements prior fsp fair value assets liabilities disclosed annually fsp fas 1071 apb 281 applies financial instruments within scope sfas 107 “disclosures fair value financial instruments” requires entities disclose methods significant assumptions used estimate fair value financial instruments fsp fas 1071 apb 281 effective interim periods ending june 15 2009 periods initial adoption fsp requires comparative disclosures periods ending initial adoption agco corporation notes consolidated financial statements continued fsp fas 1071 apb 281 impact company’s results operations financial position december 2008 fasb affirmed fsp sfas 132r1 “employers’ disclosures postretirement benefit plan assets” “fsp sfas 132r1” fsp fas 132r1 included asc 7152050 “compensationretirement benefits” requires additional disclosures assets held employer’s defined benefit pension postretirement plan primarily related categories fair value measurements plan assets fsp fas 132r1 effective fiscal years ending december 15 2009 company adopted disclosure requirements fiscal year ended december 31 2009 may 2008 fasb issued fsp apb 141 “accounting convertible debt instruments may settled cash upon conversion including partial cash settlement” “fsp apb 141” fsp included asc 47020 “debt” requires liability equity components convertible debt instruments may settled cash upon conversion including partial cash settlement commonly referred instrument c emerging issues task force issue 9019 “convertible bonds issuer options settle cash upon conversion” separated account fair value debt equity components date issuance reflect issuer’s nonconvertible debt borrowing rate fsp effective financial statements issued fiscal years beginning december 15 2008 applied retrospectively periods presented retroactive restatement pursuant guidance asc 250 “accounting changes error corrections” adoption fsp january 1 2009 impacted accounting treatment company’s 134 convertible senior subordinated notes due 2033 114 convertible senior subordinated notes due 2036 reclassifying portion convertible notes balances additional paidin capital representing estimated fair value conversion feature date issuance creating discount convertible notes amortized interest expense lives convertible notes resulting amortization resulted significant increase interest expense therefore reduced net income basic diluted earnings per share within company’s consolidated statements operations january 1 2009 company reduced “retained earnings” convertible senior subordinated notes balance included within “longterm debt” approximately 372 million 570 million respectively increased “additional paidin capital” balance approximately 942 million due tax valuation allowance established united states deferred tax impact upon adoption accordance provisions fsp apb 141 prior periods retroactively restated reflect adoption standard note 7 march 2008 fasb issued sfas 161 “disclosures derivative instruments hedging activitiesan amendment fasb statement 133” “sfas 161” sfas 161 included asc 815 “derivatives hedging” intended improve financial reporting derivative instruments hedging activities requiring enhanced disclosures enable investors better understand effects entity’s financial position financial performance cash flows sfas 161 effective financial statements issued fiscal years interim periods beginning november 15 2008 company adopted sfas 161 january 1 2009 effective january 1 2009 company adopted sfas 160 “noncontrolling interests consolidated financial statements amendment arb 51 ‘consolidated financial statements’ ’’ included asc 810 accordance asc 810 company reports noncontrolling interests “equity” within consolidated balance sheets upon adoption company reclassified approximately 60 million 56 million related gima joint venture “other noncurrent liabilities” component equity within company’s consolidated balance sheets years ended december 31 2008 2007 respectively company disclosed net income agco subsidiaries noncontrolling interests within company’s consolidated statements operations calculation earnings per share based amounts attributable agco corporation subsidiaries agco corporation notes consolidated financial statements continued 2 acquisition september 10 2007 company acquired industria agricola fortaleza limitada “sfil” brazilian company approximately 380 million brazilian reais approximately 200 million accordance purchase agreement cash approximately 52 million brazilian reais approximately 27 million placed escrow date acquisition portion purchase price established fund certain disclosed contingent obligations compensate company potential customer bad debt losses 2009 2008 portion escrowed funds released sellers due resolution certain contingencies collection outstanding accounts receivable balance escrowed funds december 31 2009 2008 approximately 16 million 18 million respectively escrowed funds reflected within “other current assets” “other assets” company’s consolidated balance sheet december 31 2009 2008 sfil located ibirubá rio grande sul brazil manufactures distributes line farm implements including drills planters corn headers front loaders acquisition financed available cash hand 3 restructuring infrequent expenses income company recorded restructuring infrequent expenses income 132 million 02 million 23 million years ended december 31 2009 2008 2007 respectively charges 2009 primarily related severance related costs associated company’s rationalization operations france united kingdom finland germany united states denmark charges 2008 primarily related severance employee relocation costs associated company’s rationalization valtra sales office located france income 2007 primarily related 32 million gain sale portion buildings land improvements associated company’s randers denmark facility gain partially offset 09 million severance employee relocation facility closure costs associated rationalization company’s valtra sales office located france well rationalization certain parts sales marketing administrative functions germany european north american manufacturing administrative headcount reductions 2009 january 2010 company announced initiated several actions rationalize employee headcount various manufacturing facilities located france finland germany united states well various administrative offices located united kingdom united states headcount reductions initiated order reduce costs selling general administrative expenses response softening global market demand reduced production volumes company recorded approximately 128 million severance related costs associated actions 2009 approximately 117 million costs recorded respect company’s europeafricamiddle east geographical segment approximately 11 million costs recorded respect company’s north american geographical segment severance costs recorded related termination approximately 766 employees approximately 50 million severance related costs paid december 31 2009 497 766 employees terminated rationalization actions expected completed 2010 76 million severance related costs accrued december 31 2009 expected paid 2010 total cash restructuring costs associated actions expected approximately 230 million 250 million randers denmark closure november 2009 company announced intention close combine assembly operations located randers denmark company intends cease operations july 2010 transfer assembly harvesting equipment manufacturing joint venture laverda located breganze italy agco corporation notes consolidated financial statements continued land buildings associated randers facility marketed sale assembly operations cease machinery equipment tooling either transferred laverda company’s manufacturing operations closure result termination approximately 90 employees company recorded approximately 04 million severance related costs 2009 associated facility closure none severance costs paid december 31 2009 none employees terminated employee retention payments paid employees remain employed certain future termination dates 2010 accrued term retention period commencing january 2010 expected approximately 23 million 2007 company sold portion land buildings improvements related closed portion randers facility contained company’s former component manufacturing operations company received proceeds approximately 44 million associated sale recorded gain approximately 32 million associated sale gain reflected “restructuring infrequent expenses income” within company’s consolidated statements operations year ended december 31 2007 4 accounts receivable securitization december 31 2009 company accounts receivable securitization facility europe totaling approximately 1400 million approximately 2006 million outstanding funding european facility totaled approximately 1046 million approximately 1499 million december 31 2009 december 31 2008 company accounts receivable securitization facilities united states canada europe totaling approximately 4897 million outstanding funding facilities totaled approximately 4832 million december 31 2008 funded balance effect reducing accounts receivable shortterm liabilities amount european facility expires october 2011 subject annual renewal december 31 2009 company expanded european securitization facility 400 million approximately 573 million december 22 2009 company terminated replaced us canadian accounts receivable securitization facilities 2800 million 700 million respectively new accounts receivable sales agreements agco finance llc agco finance canada ltd wholesale accounts receivable sold revolving basis commercial paper conduits european facility whollyowned qualifying special purpose entity “qspe” united kingdom prior december 22 2009 wholesale accounts receivable sold revolving basis commercial paper conduits us canadian facilities whollyowned special purpose us subsidiary europe commercial paper conduit purchases majority receivables deemed majority beneficial interest holder qspe thus consolidation company appropriate company absorb majority losses transactions addition facilities accounted offbalance sheet transactions see note 1 “recent accounting pronouncements” discussion regarding impact adoption sfas 166 sfas 167 company’s european securitization effective january 1 2010 losses sales receivables primarily securitization facilities 153 million 2009 273 million 2008 361 million 2007 included “other expense net” company’s consolidated statements operations losses determined calculating estimated present value receivables sold compared carrying amount present value based historical collection experience discount rate representing spread libor prescribed terms agreements losses sales receivables related us canadian accounts receivable securitization agco corporation notes consolidated financial statements continued facilities incurred recorded december 21 2009 information related facilities assumptions used loss calculations summarized dollar amounts millions company continues service receivables sold maintains retained interest receivables respect european facility servicing asset liability recorded estimated fair value servicing receivables approximates servicing income retained interest receivables sold included caption “accounts notes receivable net” accompanying consolidated balance sheets company’s risk loss european securitization facility limited portion unfunded balance receivables sold approximately 10 funded amount company maintains reserves portion residual interest estimates uncollectible december 31 2009 2008 fair value retained interest recorded approximately 559 million 814 million respectively compared carrying amount 560 million 820 million respectively based present value receivables calculated method consistent losses sales receivables discussed retained interest fair value measurement falls within level 3 fair value hierarchy asc 820 level 3 measurements modelderived valuations one significant inputs significant valuedrivers unobservable assuming 10 20 increase average liquidation period fair value residual interest would decline less 01 million less 01 million respectively assuming 10 20 increase discount rate fair value residual interest would decline less 01 million less 01 million respectively 2009 company received approximately 14987 million sales receivables approximately 52 million servicing fees amounts include sales receivables us canadian securitization facilities december 21 2009 2008 company received approximately 17456 million sales receivables approximately 47 million servicing fees 2007 company received approximately 13938 million sales receivables 46 million servicing fees following table summarizes activity respect fair value company’s retained interest receivables sold year ended december 31 2009 millions december 22 2009 company terminated replaced us canadian accounts receivable securitization facilities new accounts receivable sales agreements permit transfer ongoing basis substantially wholesale interestbearing noninterest bearing receivables north america agco finance llc agco finance canada ltd us canadian retail finance joint agco corporation notes consolidated financial statements continued ventures company 49 ownership joint ventures agreement also replaced may 2005 agreement whereby company previously sold interestbearing receivables agco finance llc agco finance canada ltd ongoing basis new accounts receivable sales agreements provide sales 6000 million us accounts receivable c2500 million dollars approximately 2347 million december 31 2009 canadian accounts receivable may increased future discretion agco finance llc agco finance canada ltd respectively transfer receivables without recourse company service receivables sale occurs maintain direct retained interest receivables company reviewed accounting new facilities accordance asc 860 determined facilities accounted offbalance sheet transactions december 31 2009 approximately 4004 million outstanding us accounts receivable approximately 1472 million outstanding canadian accounts receivable sold agco finance llc agco finance canada ltd respectively 4446 million proceeds received sale december 31 2008 balance interestbearing receivables transferred agco finance llc agco finance canada ltd company’s former arrangement transfer wholesale interestbearing receivables approximately 590 million terms new agreements company pay agco finance llc agco finance canada ltd annual servicing fee related servicing sold receivables company also pay agco finance llc agco finance canada ltd subsidized interest payment respect new sales agreements calculated based upon libor plus margin noninterest bearing accounts receivable outstanding sold facilities losses sale receivables reflected within “other expense net” company’s consolidated statements operations approximately 03 million 2009 addition result new accounts receivables sales agreements cash payments made agco finance llc agco finance canada ltd sales incentive discounts provided dealers related outstanding accounts receivables sold company therefore reclassified sales incentive discounts reserves “accounts receivable allowances” “accrued expenses” within company’s consolidated balance sheets balance sales discounts reserves classified “accrued expenses” approximately 945 million december 31 2009 company’s agco finance retail finance joint ventures europe brazil australia also provide wholesale financing company’s dealers receivables associated arrangements also without recourse company service receivables sale occurs maintain direct retained interest receivables december 31 2009 retail finance joint ventures approximately 1769 million outstanding accounts receivable associated arrangements company reviewed accounting arrangements determined arrangements accounted offbalance sheet transactions addition company sells certain trade receivables factoring arrangements financial institutions around world company evaluates sale receivables pursuant guidelines asc 860 determined arrangements accounted offbalance sheet transactions agco corporation notes consolidated financial statements continued 5 investments affiliates investments affiliates december 31 2009 2008 follows millions manufacturing joint ventures december 31 2009 consisted joint venture third party manufacturer produce engines south america laverda spa “laverda” operating joint venture italian argo group manufactures harvesting equipment joint ventures represent minority investments farm equipment manufacturers distributors licensees company’s equity net earnings affiliates years ended december 31 2009 2008 2007 follows millions summarized combined financial information company’s retail finance joint ventures december 31 2009 2008 years ended december 31 2009 2008 2007 follows millions majority assets company’s retail finance joint ventures represent finance receivables majority liabilities represent notes payable accrued interest various joint venture agreements rabobank affiliates provide financing joint venture companies company guarantee debt obligations retail finance joint ventures portion retail portfolio brazil held outside joint venture rabobank brazil note 13 september 28 2007 company acquired 50 laverda approximately 460 million approximately 656 million thereby creating operating joint venture company italian argo group laverda located breganze italy manufactures harvesting equipment addition producing laverda branded combines breganze factory manufactures midrange combine harvesters agco’s massey ferguson fendt challenger brands distribution europe africa middle agco corporation notes consolidated financial statements continued east joint venture also includes laverda’s ownership fellawerke gmbh german manufacturer grass hay machinery 30 stake gallignani spa italian manufacturer balers company identified approximately 176 million goodwill 129 million identifiable intangible assets company’s investment greater fair value underlying equity net assets received goodwill intangible asset balances included recorded balance “investments affiliates” line company’s consolidated balance sheet amortization identifiable intangible assets included company’s share earnings losses investment within “equity net earnings affiliates” line item company’s consolidated statements operations addition company allocated approximately 282 million investment addition joint venture’s property plant equipment reflect land buildings machinery equipment respective fair values compared historical net book values depreciation expense associated increase recorded amounts respect property plant equipment also included company’s share earnings losses investment balance december 31 2009 2008 includes transaction costs related fees incurred 2008 acquired identifiable assets summarized following table millions company determined laverda fella tradenames indefinite useful life laverda tradename existence since 1890 currently sold 35 countries worldwide fella tradename existence since 1918 laverda brand fella brand primary product lines company’s laverda operating joint venture joint venture partners plan use tradenames indefinite period time joint venture partners plan continue make investments product development enhance value brands future legal regulatory contractual competitive economic factors joint venture partners aware believe would limit useful lives tradenames laverda fella tradename registrations renewed nominal cost countries operating joint venture operates company performed annual impairment test investment laverda october 1 2009 2008 concluded indication impairment existed summarized financial information company’s laverda operating joint venture december 31 2009 2008 year ended december 31 2009 2008 follows millions agco corporation notes consolidated financial statements continued investment balance laverda december 31 2009 2008 746 million 711 million respectively portion company’s retained earnings balance represents undistributed retained earnings equity method investees approximately 1766 million 1382 million december 31 2009 2008 respectively 6 income taxes sources income loss income taxes equity net earnings affiliates follows years ended december 31 2009 2008 2007 millions provision income taxes location taxing jurisdiction years ended december 31 2009 2008 2007 consisted following millions december 31 2009 company’s foreign subsidiaries approximately 21 billion undistributed earnings considered indefinitely invested accordingly income taxes provided earnings determination amount unrecognized deferred taxes earnings practical however unrecognized foreign tax credits would available reduce portion tax liability agco corporation notes consolidated financial statements continued reconciliation income taxes computed united states federal statutory income tax rate 35 provision income taxes reflected company’s consolidated statements operations years ended december 31 2009 2008 2007 follows millions “change valuation allowance” year ended december 31 2009 includes 395 million favorable adjustment fully offset writeoff certain foreign tax assets reflected “tax effects permanent differences” due fact tax assets expected utilized future years company previously maintained valuation allowance tax assets accordingly writeoff resulted impact income tax provision year ended december 31 2009 significant components deferred tax assets liabilities december 31 2009 2008 follows millions company recorded net deferred tax asset 152 million net deferred tax liability 233 million december 31 2009 2008 respectively reflected preceding table agco corporation notes consolidated financial statements continued company established valuation allowance 2617 million 2944 million december 31 2009 2008 respectively change valuation allowance years ended december 31 2009 2008 2007 decrease 327 million increase 69 million increase 291 million respectively valuation allowance established likely portion deferred tax assets realized company assessed likelihood deferred tax assets would recovered estimated future taxable income available tax planning strategies determined valuation allowance december 31 2009 2008 appropriate making assessment available evidence considered including current economic climate well reasonable tax planning strategies company believes likely company realize remaining deferred tax assets net valuation allowance future years company net operating loss carryforwards 7078 million december 31 2009 expiration dates follows 2014 09 million thereafter unlimited 7069 million net operating loss carryforwards include united states net loss carryforwards 3670 million foreign net operating loss carryforwards 3408 million company paid income taxes 678 million 1522 million 670 million years ended december 31 2009 2008 2007 respectively december 31 2009 december 31 2008 company 218 million 201 million respectively unrecognized income tax benefits would affect company’s effective tax rate recognized december 31 2009 december 31 2008 company approximately 35 million 76 million respectively accrued deferred taxes related uncertain income tax positions connected ongoing income tax audits various jurisdictions expects settle pay next 12 months company accrues interest penalties related unrecognized tax benefits provision income taxes december 31 2009 december 31 2008 company accrued interest penalties related unrecognized tax benefits 19 million 18 million respectively reconciliation beginning ending balances total amounts gross unrecognized tax benefits year ended december 31 2009 follows millions company subsidiaries file income tax returns united states various state local foreign jurisdictions company subsidiaries routinely examined tax authorities jurisdictions 2009 agreements reached previously tax authorities france various open tax years required settlement approximately 30 million also 2009 10 million tax position settled united kingdom december 31 2009 number income tax examinations foreign jurisdictions currently ongoing possible certain ongoing examinations may resolved within 12 months due potential resolution federal state foreign examinations expiration various statutes limitation reasonably possible company’s gross unrecognized tax benefits balance may materially change within next 12 months due number jurisdictions issues involved uncertainty regarding timing settlements company unable provide reasonable estimate change may occur within next 12 months although ongoing agco corporation notes consolidated financial statements continued examinations various jurisdictions 2006 2009 tax years generally remain subject examination united states federal state authorities company’s significant foreign jurisdictions primarily united kingdom france germany switzerland finland brazil 2004 2009 tax years generally remain subject examination respective tax authorities 7 indebtedness consisted following december 31 2009 2008 millions december 31 2009 aggregate scheduled maturities longterm debt excluding current portion longterm debt follows millions agco corporation notes consolidated financial statements continued convertible senior subordinated notes following table sets forth december 31 2009 2008 carrying amount equity component principal amount liability component unamortized discount net carrying amount company’s 134 convertible senior subordinated notes 114 convertible senior subordinated notes millions following table sets forth interest expense recognized relating contractual interest coupon amortization discount liability component 134 convertible senior subordinated notes 114 convertible senior subordinated notes millions effective interest rate liability component 134 convertible senior subordinated notes 114 convertible senior subordinated notes years ended december 31 2009 2008 2007 61 notes unamortized discount 134 convertible senior subordinated notes 114 convertible senior subordinated notes amortized december 2010 december 2013 respectively earliest dates notes holders require company repurchase notes cash payments interest approximately 523 million 504 million 511 million years ended december 31 2009 2008 2007 respectively agco corporation notes consolidated financial statements continued accordance provisions fsp apb 141 prior periods retroactively restated resulted adjustment following amounts millions except per share amounts company’s 2013 million 114 convertible senior subordinated notes due december 15 2036 issued december 2006 provide settlement upon conversion cash principal amount notes excess conversion value settled shares company’s common stock ii conversion rate increased certain circumstances notes converted connection certain change control transactions occurring prior december 15 2013 interest payable notes 114 per annum payable semiannually arrears cash june 15 december 15 year notes convertible shares company’s common stock effective price 4073 per share subject adjustment reflects initial conversion rate notes 245525 shares common stock per 1000 principal amount notes contain certain antidilution provisions designed protect holders’ interests change control transaction qualifies “fundamental change” occurs prior december 15 2013 certain circumstances company increase conversion rate notes converted connection transaction number additional shares used paragraph “make whole shares” fundamental change transaction event connection 50 company’s common stock exchanged converted acquired constitutes solely right receive consideration least 90 common stock listed us national securities exchange approved quotation automated quotation system amount increase conversion rate depend effective date transaction average price per share company’s common stock effective date adjustment conversion rate made price per share common stock less 3133 per share 18000 per share number additional make whole shares range 73658 shares per 1000 principal amount 3133 per share 00314 shares per 1000 principal amount 18000 per share year ended agco corporation notes consolidated financial statements continued december 15 2010 number make whole shares generally declining time acquirer certain affiliates fundamental change transaction publicly traded common stock company may instead increasing conversion rate described cause notes become convertible publicly traded common stock acquirer principal notes repaid cash balance payable shares acquirer common stock time company issue aggregate number shares company’s common stock upon conversion notes excess 319183 shares per 1000 principal amount thereof holders company’s common stock receive cash fundamental change transaction holders notes receive cash well holders may convert notes following circumstances 1 fiscal quarter closing sales price company’s common stock exceeds 120 conversion price least 20 trading days 30 consecutive trading days ending last trading day preceding fiscal quarter 2 five business day period five consecutive trading day period trading price per note day period less 98 product closing sale price company’s common stock conversion rate 3 notes called redemption 4 upon occurrence certain corporate transactions beginning december 15 2013 company may redeem notes redemption price 100 principal amount plus accrued interest holders notes may require company repurchase notes repurchase price 100 principal amount plus accrued interest december 15 2013 2016 2021 2026 2031 holders may also require company repurchase portion notes upon fundamental change defined indenture repurchase price equal 100 principal amount notes repurchased plus accrued unpaid interest notes senior subordinated obligations subordinated company’s existing future senior indebtedness effectively subordinated debt liabilities company’s subsidiaries notes equal right payment company’s 678 senior subordinated notes due 2014 134 convertible senior subordinated notes due 2033 company’s 2013 million 134 convertible senior subordinated notes due december 31 2033 issued june 2005 provide settlement upon conversion cash principal amount notes excess conversion value settled shares company’s common stock ii conversion rate increased certain circumstances notes converted connection certain change control transactions occurring prior december 10 2010 notes unsecured obligations convertible cash shares company’s common stock upon satisfaction certain conditions discussed interest payable notes 134 per annum payable semiannually arrears cash june 30 december 31 year notes convertible shares company’s common stock effective price 2236 per share subject adjustment reflects initial conversion rate notes 447193 shares common stock per 1000 principal amount notes contain certain antidilution provisions designed protect holders’ interests change control transaction qualifies “fundamental change” occurs prior december 31 2010 certain circumstances company increase conversion rate notes converted connection transaction number additional shares used paragraph “make whole shares” fundamental change transaction event connection 50 company’s common stock exchanged converted acquired constitutes solely right receive consideration least 90 common stock listed us national securities exchange approved quotation automated quotation system amount increase conversion rate depend effective date transaction average price per share company’s common stock effective date adjustment conversion rate made price per share common stock less 1707 per share 11000 per share number additional make whole shares range 13863 shares per 1000 principal amount 1707 per share 00 shares per 1000 principal amount 11000 per share year ended december 31 2010 number make whole shares generally declining time acquirer certain affiliates fundamental change transaction publicly traded common stock company may instead increasing conversion agco corporation notes consolidated financial statements continued rate described cause notes become convertible publicly traded common stock acquirer principal notes repaid cash balance payable shares acquirer common stock time company issue aggregate number shares company’s common stock upon conversion notes excess 585823 shares per 1000 principal amount thereof holders company’s common stock receive cash fundamental change transaction holders notes receive cash well holders may convert notes following circumstances 1 fiscal quarter closing sales price company’s common stock exceeds 120 conversion price least 20 trading days 30 consecutive trading days ending last trading day preceding fiscal quarter 2 five business day period five consecutive trading day period trading price per note day period less 98 product closing sale price company’s common stock conversion rate 3 notes called redemption 4 upon occurrence certain corporate transactions beginning january 1 2011 company may redeem notes redemption price 100 principal amount plus accrued interest holders notes may require company repurchase notes repurchase price 100 principal amount plus accrued interest december 31 2010 2013 2018 2023 2028 december 31 2009 closing sales price company’s common stock exceeded 120 conversion price 134 convertible senior subordinated notes least 20 trading days 30 consecutive trading days ending december 31 2009 therefore company classified notes current liability accordance accounting standards update 200904 “accounting redeemable equity instruments” company also classified equity component 134 convertible senior subordinated notes “temporary equity” amount classified “temporary equity” measured excess amount cash would required paid upon conversion ii current carrying amount liabilityclassified component company believes unlikely holders notes would convert notes provisions indenture agreement thereby requiring company repay principal portion cash event notes converted company believes could repay notes available cash hand funds company’s 3000 million multicurrency revolving credit facility combination sources december 31 2008 closing sales price company’s common stock exceed 120 conversion price 2236 4073 per share respectively company’s 134 convertible senior subordinated notes company’s 114 convertible senior subordinated notes least 20 trading days 30 consecutive trading days ending december 31 2008 therefore company classified notes longterm debt future classification notes current longterm debt classification equity component notes “temporary equity” dependent closing sales price company’s common stock future quarters company arrangements various banks issue standby letters credit similar instruments guarantee company’s obligations purchase sale certain inventories potential claims exposure insurance coverage december 31 2009 2008 outstanding letters credit issued revolving credit facility totaled 93 million 87 million respectively multicurrency revolving credit facility company’s 3000 million unsecured multicurrency revolving credit facility matures may 16 2013 interest accrues amounts outstanding facility company’s option either 1 libor plus margin ranging 100 175 based upon company’s total debt ratio 2 higher administrative agent’s base lending rate onehalf one percent federal funds rate plus margin ranging 00 050 based upon company’s total debt ratio facility contains covenants restricting among things incurrence indebtedness making certain payments including dividends subject acceleration event default defined facility agco corporation notes consolidated financial statements continued company also must fulfill financial covenants respect total debt ebitda ratio interest coverage ratio defined facility december 31 2009 2008 company outstanding borrowings facility december 31 2009 2008 company availability borrow 2907 million 2913 million respectively facility 678 senior subordinated notes company’s 2000 million 678 senior subordinated notes due april 15 2014 issued april 2004 unsecured obligations subordinated right payment company’s existing future senior indebtedness interest payable notes 678 per annum payable semiannually april 15 october 15 year subsequent april 15 2009 company may redeem notes whole part initially 103438 principal amount plus accrued interest declining 100 principal amount plus accrued interest time april 15 2012 notes include covenants restricting incurrence indebtedness making certain restricted payments including dividends 8 employee benefit plans company sponsors defined benefit pension plans covering certain employees principally united states united kingdom germany finland norway france switzerland australia argentina company also provides certain postretirement health care life insurance benefits certain employees principally united states brazil asc 715 “compensationretirement benefits” “asc 715” requires companies measure defined benefit plan assets obligations date company’s fiscal yearend measurement provision asc 715 effective years ending december 15 2008 company adopted measurement provisions asc 715 year ended december 31 2008 change impacted measurement company’s uk pension plan prior 2008 measurement date september 30 company adopted second approach afforded asc 715 transition company’s uk pension plan december 31 measurement date impact adoption resulted reduction company’s opening retained earnings balance january 1 2008 approximately 11 million net taxes net annual pension costs years ended december 31 2009 2008 2007 set forth millions agco corporation notes consolidated financial statements continued weighted average assumptions used determine net annual pension costs company’s pension plans years ended december 31 2009 2008 2007 follows net annual postretirement benefit costs years ended december 31 2009 2008 2007 set forth millions except percentages following tables set forth reconciliations changes benefit obligation plan assets funded status december 31 2009 2008 millions agco corporation notes consolidated financial statements continued accrued pension costs approximately 34 million 26 million classified current liabilities within “accrued expenses” company’s consolidated balance sheets december 31 2009 2008 respectively related company’s phased retirement plan obligations germany december 31 2009 company’s accumulated comprehensive loss included net actuarial loss approximately 2821 million net prior service credit approximately 23 million related company’s defined benefit pension plans estimated net actuarial loss net prior service credit defined benefit pension plans amortized company’s accumulated comprehensive loss year ended december 31 2010 approximately 87 million 02 million respectively december 31 2009 company’s accumulated comprehensive loss included net actuarial loss approximately 60 million net prior service credit approximately 05 million related company’s us brazilian postretirement health care benefit plans estimated net actuarial loss net prior service credit postretirement health care benefit plans amortized company’s accumulated comprehensive loss year ended december 31 2010 approximately 02 million 03 million respectively agco corporation notes consolidated financial statements continued weighted average assumptions used determine benefit obligation company’s pension plans december 31 2009 2008 follows weighted average discount rate used determine benefit obligation company’s postretirement benefit plans years ended december 31 2009 2008 565 633 respectively aggregate projected benefit obligation accumulated benefit obligation fair value plan assets pension postretirement plans accumulated benefit obligations excess plan assets 7498 million 6817 million 4795 million respectively december 31 2009 5611 million 5095 million 3938 million respectively december 31 2008 projected benefit obligation accumulated benefit obligation fair value plan assets company’s usbased qualified pension plans 475 million 475 million 330 million respectively december 31 2009 462 million 462 million 308 million respectively december 31 2008 company’s accumulated comprehensive loss december 31 2009 reflects reduction equity 2853 million net taxes 802 million primarily related company’s uk pension plan projected benefit obligation exceeded plan assets approximately 04 million 2853 million reduction equity reflected noncontrolling interests net taxes 01 million related company’s gima joint venture joint venture partner’s 50 portion reduction equity company’s accumulated comprehensive loss december 31 2008 reflects reduction equity 1899 million net taxes 529 million primarily related company’s uk pension plan projected benefit obligation exceeded plan assets approximately 04 million 1899 million reduction equity reflected noncontrolling interests net taxes 01 million related company’s gima joint venture years ended december 31 2009 2008 company based discount rate used determine projected benefit obligation us pension plans postretirement health care benefit plans executive nonqualified pension plan “enpp” matching projected cash flows largest pension plan citigroup pension discount curve uk plan company derived discount rate based yield curve developed constituents merrill lynch aa rated corporate bond index discount rate uk plan single weightedaverage rate based approximate future cash flows plan countries within euro zone company derived aarated corporate bond yield curve selecting bonds included iboxx corporate indices creating discount rate curve based series model cash flows discount rates plan determined based plan’s liability duration indices used united states united kingdom countries chosen match expected plan obligations related expected cash flows agco corporation notes consolidated financial statements continued investment strategy concentration risk weighted average asset allocation company’s us pension benefit plans december 31 2009 2008 follows weighted average asset allocation company’s nonus pension benefit plans december 31 2009 2008 follows fair value assets december 31 2009 follows millions 1 45 fixed income securities government treasuries 25 investmentgrade corporate bonds 20 foreign bonds 10 various fixed income securities 2 27 alternative investments longshort equity funds 16 multistrategy funds 15 eventdriven funds 11 relative value funds 11 credit funds 20 distributed hedged nonhedged funds 3 miscellaneous funds consist pooled funds australia insurance contracts finland norway switzerland agco corporation notes consolidated financial statements continued following reconciliation level 3 assets december 31 2009 millions taxqualified pension fund investments united states held agco corporation master pension trust company’s global pension fund strategy diversify investments across broad categories equity fixed income securities appropriate use alternative investment categories minimize risk volatility primary investment objective company’s pension plans secure participant retirement benefits key objective pension plans’ financial management promote stability extent appropriate growth funded status investment strategy plans’ portfolio assets balances requirement generate returns need control risk asset mix recognized primary mechanism influence reward risk structure pension fund investments effort accomplish plans’ funding objectives overall investment strategy usbased pension plans achieve mix approximately 20 assets nearterm benefit payments 80 longerterm growth overall us pension funds invest broad diversification asset types company’s us target allocation retirement fund investments 35 large smallcap domestic equity securities 15 international equity securities 20 broad fixed income securities 30 alternative investments company noted long periods mix investments would achieve average return excess 85 arriving choice expected return assumption 8 usbased plans company tempered historical indicator lower expectation returns equity investment future well administrative costs plans overall investment strategy nonus based pension plans achieve mix approximately 28 assets nearterm benefit payments 72 longerterm growth overall nonus pension funds invest broad diversification asset types company’s nonus target allocation retirement fund investments 40 equity securities 30 broad fixed income investments 30 alternative investments majority company’s nonus pension fund investments related company’s pension plan united kingdom company noted long periods mix investments would achieve average return excess 75 arriving choice expected return assumption 7 ukbased plans company tempered historical indicator lower expectation returns equity investment future well administrative costs plans equity securities primarily include investments largecap smallcap companies located across globe fixed income securities include corporate bonds companies diversified industries mortgagebacked securities agency mortgages assetbacked securities government securities alternative assets include investments hedge fund funds follow diversified investment strategies date company invested pension funds stock intention future agco corporation notes consolidated financial statements continued within asset class careful consideration given balancing portfolio among industry sectors geographies interest rate sensitivity dependence economic growth currency factors affecting investment returns assets managed professional investment firms bound precise mandates measured specific benchmarks among asset managers consideration given among others balancing security concentration issuer concentration investment style reliance particular active investment strategies measuring expected us postretirement benefit obligation december 31 2009 2008 company assumed 85 health care cost trend rate 2010 2009 respectively decreasing 49 2060 measuring brazilian postretirement benefit plan obligation december 31 2009 2008 company assumed 100 health care cost trend rate 2010 2009 respectively decreasing 55 2019 changing assumed health care cost trend rates one percentage point year holding assumptions constant would following effect service interest cost 2010 accumulated postretirement benefit obligation december 31 2009 millions company currently estimates minimum contributions usbased defined pension plans 2010 aggregate approximately 11 million company currently estimates benefit payments 2010 usbased postretirement health care life insurance benefit plans aggregate approximately 18 million company currently estimates minimum contributions underfunded plans benefit payments unfunded plans 2010 nonus based defined pension plans aggregate approximately 290 million approximately 212 million relates uk pension plan 2009 approximately 409 million benefit payments including settlements made related company’s pension plans december 31 2009 aggregate expected benefit payments company’s pension plans follows millions agco corporation notes consolidated financial statements continued 2009 approximately 17 million benefit payments made related company’s us brazilian postretirement benefit plans december 31 2009 aggregate expected benefit payments company’s us brazilian postretirement benefit plans follows millions enpp provides group senior company executives retirement income period 15 years based percentage average final salary bonus reduced executive’s social security benefits 401k employer matching contributions account benefit paid executives ranges 225 3 average last three years base salary plus bonus prior termination employment “final earnings” times credited years service maximum benefit 45 60 final earnings depending level executive benefits enpp vest participant attained age 50 least ten years service five years include years participation enpp payable participant reaches age 65 upon termination services death disability adjusted reflect payment prior age 65 net annual enpp cost measurement assumptions plans years ended december 31 2009 2008 2007 set forth millions except percentages agco corporation notes consolidated financial statements continued following tables set forth reconciliations changes benefit obligation funded status december 31 2009 2008 millions weighted average discount rate used determine benefit obligation enpp years ended december 31 2009 2008 55 625 respectively december 31 2009 company’s accumulated comprehensive loss included net actuarial loss approximately 07 million net prior service cost approximately 29 million related enpp estimated net actuarial loss net prior service cost related enpp amortized company’s accumulated comprehensive loss year ended december 31 2010 approximately 00 million 05 million respectively december 31 2009 2008 company recorded reduction equity 36 million 14 million respectively related unfunded projected benefit obligation enpp company benefiting losses tax purposes united states tax impact charges 2009 approximately 04 million benefit payments made related enpp december 31 2009 aggregate expected benefit payments enpp follows millions company maintains separate defined contribution plans covering certain employees primarily united states united kingdom brazil plans company contributes specified agco corporation notes consolidated financial statements continued percentage eligible employee’s compensation company contributed approximately 91 million 92 million 90 million years ended december 31 2009 2008 2007 respectively 9 common stock december 31 2009 company 1500 million authorized shares common stock par value 001 per share approximately 925 million shares common stock outstanding approximately 19 million shares reserved issuance company’s option plan note 10 approximately 08 million shares reserved issuance company’s 2006 longterm incentive plan “2006 plan” note 10 company stockholder rights plan adopted april 1994 following stockholder approval plan provides share common stock outstanding attached right purchase onehundredth share junior cumulative preferred stock par value 001 per share purchase price per onehundredth share 10000 subject adjustment rights exercisable person group “acquirer” acquires 20 company’s common stock announces tender offer exchange offer would result acquisition 20 company’s common stock circumstances additional conditions met exercisable plan allows stockholders acquirer purchase company’s common stock securities acquirer current market value two times exercise price right rights redeemable 001 per right subject adjustment option company’s board directors rights expire april 26 2014 unless extended redeemed exchanged company date 10 stock incentive plans 2006 plan 50 million shares agco common stock may issued 2006 plan allows company direction board directors’ compensation committee make grants performance shares stock appreciation rights stock options restricted stock awards employees officers nonemployee directors company employee plans 2006 plan provides participants earn 33 200 target awards depending actual performance achieved shares earned performance established minimum target awards earned performance share plan paid shares common stock end performance period compensation expense associated awards amortized ratably vesting performance period based company’s projected assessment level performance achieved earned compensation expense recorded 2009 2008 2007 respect awards granted based upon stock price grant date weighted average grantdate fair value performance awards granted 2006 plan 2009 2008 2007 2155 5712 3739 respectively based level performance achieved december 31 2009 883188 shares earned 20072009 performance period 2006 plan allows participant option forfeiting portion shares awarded lieu cash payment contributed participant’s tax withholding satisfy participant’s statutory minimum federal state employment taxes would payable time grant approximately 551152 shares issued february 26 2010 net approximately 332036 shares withheld taxes related earned awards based level performance achieved december 31 2008 887124 shares earned 20062008 performance period 581393 shares issued march 2 2009 net 305731 shares withheld taxes related earned awards agco corporation notes consolidated financial statements continued 2009 company granted 1238000 awards threeyear performance period commencing 2009 ending 2011 assuming maximum target level performance achieved performance award transactions 2009 follows presented company achieve maximum levels performance plan december 31 2009 total compensation cost related unearned performance awards yet recognized assuming company’s current projected assessment level performance achieved earned approximately 16 million weighted average period expected recognized approximately one year december 6 2007 board directors company approved two retentionbased restricted stock awards 2000000 company’s chairman president chief executive officer first award granted december 6 2007 totaled 28839 shares vest fiveyear period rate 25 end third year 25 end fourth year 50 end fifth year second award granted december 5 2008 totaled 99010 shares vest fouryear period rate 25 end second year 25 end third year 50 end fourth year vesting subject continued employment company date vesting except certain circumstances change control company recognizing stock compensation expense ratably vesting period grant addition performance share plan certain executives key managers eligible receive grants ssars incentive stock options depending participant’s country employment ssars provide participant right receive aggregate appreciation stock price market price company’s common stock date grant payable shares company’s common stock participant may exercise ssar time grant vested later seven years date grant ssars vest ratably fouryear period date grant ssar award grants made certain executives key managers 2006 plan made base price equal price company’s common stock date grant company recorded stock compensation expense approximately 23 million 17 million 12 million associated ssar award grants 2009 2008 2007 respectively compensation expense associated awards amortized ratably vesting period company estimated fair value grants using blackscholes option pricing model company utilized “simplified” method estimating expected term granted ssars year ended december 31 2009 afforded sec staff accounting bulletin “sab” 107 “sharebased payment sab topic 14” sab 110 “sharebased payment sab topic 14d2” expected term used value grant simplified method midpoint vesting date contractual term option ssar company granting ssars 2006 plan since april 2006 believe sufficient relevant experience regarding employee exercise behavior weighted average grantdate fair value ssars granted agco corporation notes consolidated financial statements continued 2006 plan weighted average assumptions blackscholes option model follows years ended december 31 2009 2008 2007 ssar transactions year ended december 31 2009 follows december 31 2009 weighted average remaining contractual life ssars outstanding approximately five years december 31 2009 total compensation cost related unvested ssars yet recognized approximately 37 million weightedaverage period expected recognized approximately two years following table sets forth exercise price range number shares weighted average exercise price remaining contractual lives groups similar price agco corporation notes consolidated financial statements continued total fair value ssars vested 2009 16 million 514691 ssars vested december 31 2009 total intrinsic value outstanding exercisable ssars december 31 2009 43 million 08 million respectively january 20 2010 company granted 374250 performance award shares subject company achieving future target levels performance 180000 ssars 2006 plan director restricted stock grants 2006 plan provides annual restricted stock grants company’s common stock nonemployee directors shares restricted transferability period three years subject forfeiture event director departs company’s board directors nontransferability period would expire immediately plan allows director option forfeiting portion shares awarded lieu cash payment contributed participant’s tax withholding satisfy statutory minimum federal state employment taxes would payable time grant april 23 2009 grant equated 38130 shares common stock 26388 shares common stock issued shares withheld withholding taxes company recorded stock compensation expense approximately 09 million 2009 associated grants 2010 annual restricted stock grant made date company’s 2010 annual stockholders’ meeting april 22 2010 april 24 2008 grant equated 11320 shares common stock 8608 shares common stock issued shares withheld withholding taxes company recorded stock compensation expense approximately 08 million 2008 associated grants january 1 2007 grant equated 8080 shares common stock 6346 shares common stock issued shares withheld withholding taxes company recorded stock compensation expense approximately 03 million 2007 associated grants december 31 2009 50 million shares reserved issuance 2006 plan approximately 08 million shares available grant assuming maximum number shares earned related performance award grants discussed agco corporation notes consolidated financial statements continued stock option plan grants company’s option plan since 2002 company intend make grants option plan future grants made expire later ten years date grant company’s outstanding stock options fully vested stock option transactions year ended december 31 2009 follows december 31 2009 outstanding exercisable options weighted average remaining contractual life approximately two years aggregate intrinsic value approximately 09 million following table sets forth exercise price range number shares weighted average exercise price remaining contractual lives groups similar price total intrinsic value options exercised years ended december 31 2009 2008 2007 approximately 00 million 08 million 83 million respectively cash proceeds received stock option exercises 2009 2008 2007 approximately 00 million 03 million 82 million respectively company realized insignificant tax benefit exercise options agco corporation notes consolidated financial statements continued 11 derivative instruments hedging activities derivatives recognized company’s consolidated balance sheets fair value date derivative contract entered company designates derivative either 1 fair value hedge recognized liability 2 cash flow hedge forecasted transaction 3 hedge net investment foreign operation 4 nondesignated derivative instrument company formally documents relationships hedging instruments hedged items well risk management objectives strategy undertaking various hedge transactions company formally assesses hedge’s inception ongoing basis whether derivatives used hedging transactions highly effective offsetting changes fair values cash flow hedged items determined derivative longer highly effective hedge accounting discontinued prospective basis foreign currency risk company significant manufacturing operations united states france germany finland brazil purchases portion tractors combines components thirdparty foreign suppliers primarily various european countries japan company also sells products 140 countries throughout world company’s significant transactional foreign currency exposures euro brazilian real canadian dollar relation united states dollar euro relation british pound company attempts manage transactional foreign currency exposure hedging foreign currency cash flow forecasts commitments arising anticipated settlement receivables payables future purchases sales naturally offsetting currency positions occur company hedges certain exposures use foreign currency contracts company’s translation exposure resulting translating financial statements foreign subsidiaries united states dollars hedged practical translation impact reduced financing local operations local borrowings foreign currency contracts primarily forward options contracts’ fair value measurements fall within level 2 fair value hierarchy asc 820 level 2 fair value measurements generally based upon quoted market prices similar instruments active markets quoted prices identical similar instruments markets active modelderived valuations significant inputs significant valuedrivers observable active markets fair value foreign currency forward contracts based valuation model discounts cash flows resulting differential contract price marketbased forward rate fair value foreign currency option contracts based valuation model utilizes spot forward currency rates interest rates currency pair volatility company’s senior management establishes company’s foreign currency interest rate risk management policies reviewed periodically audit committee company’s board directors policy allows use derivative instruments hedge exposures movements foreign currency interest rates company’s policy prohibits use derivative instruments speculative purposes cash flow hedges 2009 2008 2007 company designated certain foreign currency contracts cash flow hedges expected future sales purchases effective portion fair value gains losses cash flow hedges recorded comprehensive income loss subsequently reclassified cost goods sold period sales purchases recognized amounts offset effect agco corporation notes consolidated financial statements continued changes foreign currency rates related sale purchase transactions amount loss gain recorded comprehensive income loss reclassified cost goods sold years ended december 31 2009 2008 2007 approximately 145 million 141 million 41 million respectively aftertax basis amount loss gain recorded comprehensive income loss related outstanding cash flow hedges december 31 2009 2008 2007 approximately 13 million 367 million 77 million respectively aftertax basis outstanding contracts december 31 2009 range maturity december 2010 following table summarizes activity accumulated comprehensive loss income related derivatives held company years ended december 31 2009 2008 2007 millions december 31 2009 company outstanding foreign currency contracts notional amount approximately 1393 million entered hedge forecasted sale purchase transactions derivative transactions designated hedging instruments 2009 2008 2007 company entered foreign currency contracts hedge receivables payables company subsidiaries’ balance sheets denominated foreign currencies functional currency contracts classified nondesignated derivative instruments december 31 2009 company outstanding foreign currency contracts notional amount approximately 11070 million entered hedge receivables payables denominated foreign currencies functional currency contracts classified nondesignated derivative instruments changes fair value contracts reported expense net years ended december 31 2009 2008 2007 company recorded net gain approximately 510 million net loss approximately 852 million net gain approximately 15 million respectively caption expense net related contracts gains losses contracts historically substantially offset losses gains remeasurement underlying asset liability hedged agco corporation notes consolidated financial statements continued table sets forth fair value derivative instruments december 31 2009 millions counterparty risk company generally required collateral counterparties company historically asked post collateral respect hedging transactions except 2009 2008 company deposited cash financial institution security outstanding foreign currency contracts matured throughout 2009 december 31 2008 amount deposited approximately 338 million classified “restricted cash” company’s consolidated balance sheets amount recovered 2009 contracts matured december 31 2009 collateral requirements hedge transactions company agreements contingent features require company post collateral change credit rating company credit rating agencies company monitors counterparty risk credit ratings counterparties regularly company believes exposures appropriately diversified across counterparties creditworthy financial institutions company perceives risk counterparty company would cease business counterparty negative impacts company nonperformance counterparties agco corporation notes consolidated financial statements continued 12 commitments contingencies future payments required company’s significant commitments december 31 2009 follows millions 1 estimated interest payments calculated assuming current interest rates minimum maturity periods specified debt agreements debt may repaid sooner later minimum maturity periods 2 unconditional purchase obligations exclude routine purchase orders entered normal course business 3 shortterm longterm obligations include estimates future minimum contribution requirements company’s us nonus defined benefit pension postretirement plans estimates based current legislation countries company operates within subject change shortterm longterm obligations also include income tax liabilities related uncertain income tax positions connected ongoing income tax audits various jurisdictions addition shortterm obligations include amounts due financial institutions related sales certain receivables meet offbalance sheet criteria asc 860 offbalance sheet arrangements guarantees company maintains remarketing agreement us retail finance joint venture agco finance llc whereby company obligated repurchase repossessed inventory market values company agreement agco finance llc limits company’s purchase obligations arrangement 60 million aggregate per calendar year company believes losses might incurred resale equipment materially impact company’s financial position results operations due fair value underlying equipment december 31 2009 company guaranteed indebtedness owed third parties approximately 741 million primarily related dealer end user financing equipment guarantees generally obligate company repay outstanding finance obligations owed financial institutions dealers end users default loans 2012 company believes credit risk associated guarantees material financial position losses guarantees historically insignificant addition company would able recover amounts paid guarantees sale underlying financed farm equipment fair value equipment would sufficient offset substantial portion amounts paid agco corporation notes consolidated financial statements continued december 31 2009 company foreign currency contracts buy aggregate approximately 1458 million united states dollar equivalents foreign currency contracts sell aggregate approximately 9355 million united states dollar equivalents outstanding contracts december 31 2009 range maturity december 2010 note 11 company sells substantially wholesale accounts receivable north america company’s us canadian retail finance joint ventures company also sells certain accounts receivable european securitization facility time certain accounts receivable factoring arrangements financial institutions around world company evaluates sale receivables pursuant guidelines asc 860 determined facilities accounted offbalance sheet transactions total lease expense noncancelable operating leases 485 million 453 million 389 million years ended december 31 2009 2008 2007 respectively contingencies result brazilian tax legislative changes impacting value added taxes “vat” company recorded reserve approximately 116 million 139 million outstanding balance brazilian vat taxes receivable december 31 2009 2008 respectively due uncertainty company’s ability collect amounts outstanding september 2009 company resolved inquiries securities exchange commission “sec” department justice “doj” relating company’s sales equipment iraq government 2000 2002 united nations oil food program part resolution company entered consent agreement sec deferred prosecution agreement doj paid approximately 199 million government consisting disgorgement profits arising sales together related fines penalties interest company also paid 06 million danish authorities resolve related inquiry governmental inquiries pending relating united nations oil food program june 27 2008 republic iraq filed civil action federal court new york case 08 civ 59617 naming defendants three company’s foreign subsidiaries participated united nations oil food program ninetyone entities companies also named defendants civil action due participation united nations oil food program complaint purports assert claims defendants seeking damages unspecified amount although company’s subsidiaries intend vigorously defend action possible time predict outcome action impact company although outcomes adverse company could required pay damages august 2008 part routine audit brazilian taxing authorities disallowed deductions relating amortization certain goodwill recognized connection reorganization company’s brazilian operations related transfer certain assets company’s brazilian subsidiaries amount tax disallowance december 31 2009 including interest penalties approximately 906 million brazilian reais approximately 519 million amount ultimately dispute greater interest penalties company advised legal tax advisors position respect deductions allowable tax laws brazil company contesting disallowance believes likely assessment interest penalties required paid however ultimate outcome determined brazilian tax appeal process complete could take several years agco corporation notes consolidated financial statements continued company party various legal claims actions incidental business company believes none claims actions either individually aggregate material business financial condition 13 related party transactions rabobank aaa rated financial institution based netherlands 51 owner company’s retail finance joint ventures located united states canada brazil germany france united kingdom australia ireland austria rabobank also principal agent participant company’s revolving credit facility securitization facility europe notes 4 7 majority assets company’s retail finance joint ventures represent finance receivables majority liabilities represent notes payable accrued interest various joint venture agreements rabobank affiliates provide financing joint venture companies primarily lines credit company guarantee debt obligations retail finance joint ventures portion retail portfolio brazil held outside joint venture rabobank brazil note 12 prior 2005 company’s joint venture brazil agency relationship rabobank whereby rabobank provided funding february 2005 company made 213 million investment retail finance joint venture rabobank brazil additional investment joint venture’s organizational structure comparable company’s retail finance joint ventures result gradual elimination company’s solvency guarantee rabobank portfolio originally funded rabobank brazil december 31 2009 solvency requirement portfolio held rabobank approximately 37 million company’s retail finance joint ventures provide retail financing wholesale financing dealers terms financing arrangements offered company’s dealers similar arrangements retail finance joint ventures provide unaffiliated third parties addition company transfers ongoing basis substantially wholesale interestbearing noninterest bearing accounts receivable north america agco finance llc agco finance canada ltd retail finance joint ventures north america note 4 company maintains remarketing agreement us retail finance joint ventures agco finance llc note 12 addition part sales incentives provided end users company may time subsidize interest rates retail financing provided retail finance joint ventures cost programs recognized time sale company’s dealers 14 segment reporting company four reportable segments north america south america europeafricamiddle east asiapacific regional segment distributes full range agricultural equipment related replacement parts company evaluates segment performance primarily based income operations sales regional segment based location thirdparty customer intercompany transactions segments eliminated company’s selling general administrative expenses engineering expenses excluding corporate expense charged segment based region division expenses incurred result components operating income one agco corporation notes consolidated financial statements continued segment may comparable another segment results years ended december 31 2009 2008 2007 follows millions reconciliation segment information consolidated balances income operations total assets set forth millions agco corporation notes consolidated financial statements continued net sales customer location years ended december 31 2009 2008 2007 follows millions net sales product years ended december 31 2009 2008 2007 follows millions property plant equipment amortizable intangible assets country december 31 2009 2008 follows millions item 9item 8 financial statements supplementary data following consolidated financial statements agco subsidiaries years threeyear period ended december 31 2010 included item information heading “quarterly results” item 7 page 28 form 10k incorporated herein reference report independent registered public accounting firm board directors stockholders agco corporation audited accompanying consolidated balance sheets agco corporation subsidiaries december 31 2010 2009 related consolidated statements operations stockholders’ equity cash flows years threeyear period ended december 31 2010 connection audits consolidated financial statements also audited financial statement schedule listed item 15a2 consolidated financial statements financial statement schedule responsibility company’s management responsibility express opinion consolidated financial statements financial statement schedule based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements referred present fairly material respects financial position agco corporation subsidiaries december 31 2010 2009 results operations cash flows years threeyear period ended december 31 2010 conformity us generally accepted accounting principles also opinion related financial statement schedule considered relation basic consolidated financial statements taken whole presents fairly material respects information set forth therein discussed note 1 consolidated financial statements company changed methods accounting transfers financial assets consolidation variable interest entities 2010 due adoption accounting standards updates 200916 “transfers servicing topic 860 accounting transfers financial assets” 200917 “consolidations topic 810 improvements financial reporting enterprises involved variable interest entities” also audited accordance standards public company accounting oversight board united states agco corporation’s internal control financial reporting december 31 2010 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission coso report dated february 25 2011 expressed unqualified opinion effectiveness company’s internal control financial reporting kpmg llp atlanta georgia february 25 2011 agco corporation consolidated statements operations millions except per share data see accompanying notes consolidated financial statements agco corporation consolidated balance sheets millions except share amounts see accompanying notes consolidated financial statements agco corporation consolidated statements stockholders’ equity millions except share amounts see accompanying notes consolidated financial statements agco corporation consolidated statements cash flows millions see accompanying notes consolidated financial statements agco corporation notes consolidated financial statements 1 operations summary significant accounting policies business agco corporation “agco” “company” leading manufacturer distributor agricultural equipment related replacement parts throughout world company sells full range agricultural equipment including tractors combines hay tools sprayers forage equipment implements company’s products widely recognized agricultural equipment industry marketed number wellknown brand names including challenger® fendt® massey ferguson® valtra® company distributes products combination approximately 2650 independent dealers distributors addition company provides retail financing united states canada brazil germany france united kingdom australia ireland austria retail finance joint ventures coöperative centrale raiffeisenboerenleenbank ba “rabobank” basis presentation consolidated financial statements represent consolidation whollyowned companies majorityowned companies joint ventures company determined primary beneficiary accounting standards update “asu” 200917 “consolidations topic 810 improvements financial reporting enterprises involved variable interest entities” “asu 200917” company records investments affiliate companies using equity method accounting significant influence investments including representing ownership less 20 recorded cost significant intercompany balances transactions eliminated consolidated financial statements joint ventures january 1 2010 company adopted provisions asu 200917 performed qualitative analysis joint ventures including gima joint venture determine whether controlling financial interest ventures result analysis company determined gima joint venture longer consolidated company’s results operations financial position company controlling financial interest gima based shared powers joint venture partners direct activities significantly impact gima’s financial performance gima joint venture agco claas tractor sas cooperate field purchasing design manufacturing components agricultural tractors party 50 ownership interest joint venture investment approximately 42 million joint venture parties purchase production output joint venture deconsolidation gima resulted retroactive reduction “noncontrolling interests” within equity increase “investments affiliates” approximately 64 million 57 million company’s consolidated balance sheets december 31 2009 2008 respectively deconsolidation also resulted retroactive reduction company’s “net sales” “income operations” within consolidated statements operations reclassification amounts previously reported “net income attributable noncontrolling interests” “equity net earnings affiliates” otherwise net impact company’s consolidated net income years ended december 31 2009 2008 addition deconsolidation resulted reduction company’s “total assets” “total liabilities” within consolidated balance sheets december 31 2009 net agco corporation notes consolidated financial statements continued impact company’s “total stockholders’ equity” reduction previously mentioned company retroactively restated prior periods recorded following adjustments millions rabobank 51 owner company’s retail finance joint ventures located united states canada brazil germany france united kingdom australia ireland austria majority assets company’s retail finance joint ventures represent finance receivables majority liabilities represent notes payable accrued interest various joint venture agreements rabobank affiliates provide financing joint venture companies primarily lines credit company guarantee debt obligations retail finance joint ventures insignificant portion retail portfolio brazil held outside joint venture rabobank brazil note 13 company’s retail finance joint ventures provide retail financing wholesale financing dealers terms financing arrangements offered company’s dealers similar arrangements retail finance joint ventures provide unaffiliated third parties company maintains remarketing agreement us retail finance joint venture agco finance llc note 12 addition part sales incentives provided end users company may time subsidize interest rates retail financing provided retail joint ventures addition company transfers substantially wholesale interestbearing noninterest bearing receivables north america agco finance llc agco finance canada ltd ongoing basis transfer receivables without recourse company service receivables company maintain direct retained interest receivables note 4 analyzing provisions asu 200917 company determined retail finance joint ventures meet consolidation requirements accounted voting interest model making determination company evaluated sufficiency equity risk retail finance joint venture ability joint venture investors make decisions joint ventures’ activities significant effect success entities economic performance obligations absorb expected losses joint ventures rights receive expected residual returns revenue recognition sales equipment replacement parts recorded company title risks ownership transferred independent dealer distributor customer payment terms vary market product fixed payment schedules sales terms sale generally require purchase order confirmation accompany shipments title generally passes dealer distributor upon shipment risk loss upon damage theft destruction equipment responsibility dealer distributor thirdparty carrier certain foreign countries company retains form title goods delivered dealers dealer makes payment company recover goods agco corporation notes consolidated financial statements continued event customer default payment occurs laws foreign countries provide seller’s retention security interest goods manner established united states uniform commercial code right company retains respect title enabling recovery goods event customer default payment dealer distributor may return equipment replacement parts contract company force replacement parts may returned promotional annual return programs provisions returns programs made time sale based terms program historical returns experience company may provide certain sales incentives dealers distributors provisions sales incentives made time sale existing incentive programs provisions revised event subsequent modification incentive program see “accounts notes receivable” discussion united states canada equipment sales dealers immediately due upon retail sale equipment dealer previously paid dealer united states canada installment payments required generally beginning interestfree period remaining outstanding equipment balance generally due within 12 months shipment interest generally charged outstanding balance six 12 months shipment sales terms highly seasonal products provide payment due dates based specified date year regardless shipment date equipment sold dealers united states canada paid full average within 12 months shipment sales replacement parts generally payable within 30 days shipment terms larger seasonal stock orders generally requiring payment within six months shipment international markets equipment sales generally payable full within 30 180 days shipment payment terms highly seasonal products specified due date year regardless shipment date sales replacement parts generally payable within 30 90 days shipment terms larger seasonal stock orders generally payable within six months shipment certain markets particularly north america time lag varies based timing level retail demand date company records sale dealer sells equipment retail customer foreign currency translation financial statements company’s foreign subsidiaries translated united states currency accordance accounting standard codification “asc” 830 “foreign currency matters” assets liabilities translated united states dollars periodend exchange rates income expense items translated average rates exchange prevailing period translation adjustments included “accumulated comprehensive loss” stockholders’ equity gains losses result foreign currency transactions included accompanying consolidated statements operations use estimates preparation financial statements conformity us generally accepted accounting principles “gaap” requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ estimates made management primarily relate accounts notes receivable inventories deferred income tax valuation allowances intangible assets certain accrued liabilities principally relating reserves volume discounts sales incentives warranty obligations product liability workers’ compensation obligations pensions postretirement benefits agco corporation notes consolidated financial statements continued cash equivalents cash december 31 2010 2009 2282 million 3273 million respectively consisted primarily cash hand bank deposits company considers investments original maturity three months less cash equivalents cash equivalents december 31 2010 2009 4917 million 3241 million respectively consisted primarily money market deposits certificates deposits overnight investments accounts notes receivable accounts notes receivable arise sale equipment replacement parts independent dealers distributors customers payments due company’s terms sale generally range one 12 months contingent upon sale equipment dealer distributor retail customer normal circumstances payment terms extended equipment may returned certain regions including united states canada company obligated repurchase equipment replacement parts upon cancellation dealer distributor contract obligations required national state provincial laws require company repurchase dealer distributor’s unsold inventory including inventory receivable already paid sales markets outside united states canada company normally charge interest outstanding receivables dealers distributors sales certain dealers distributors united states canada interest charged prime lending rates outstanding receivable balances interestfree periods interestfree periods vary product generally range one 12 months exception certain seasonal products bear interest various periods 23 months depending time year sale dealer distributor’s sales volume preceding year ended december 31 2010 161 51 company’s net sales maximum interestfree periods ranging one six months seven 12 months respectively net sales maximum interestfree periods ranging 13 23 months approximately 04 company’s net sales 2010 actual interestfree periods shorter equipment receivable dealers distributors united states canada due immediately upon sale equipment retail customer normal circumstances interest forgiven interestfree periods extended company agreement permit transferring ongoing basis substantially wholesale interestbearing noninterest bearing accounts receivable north america us canadian retail finance joint ventures upon transfer receivables maintain standard payment terms including required regular principal payments amounts outstanding interest charges market rates qualified dealers may obtain additional financing company’s us canadian retail finance joint ventures joint ventures’ discretion company provides various incentive programs respect products incentive programs include reductions invoice prices reductions retail financing rates dealer commissions dealer incentive allowances volume discounts cases incentive programs established communicated company’s dealers quarterly basis incentives paid either time invoice reduction invoice price time settlement receivable time retail financing time warranty registration subsequent time based dealer purchases incentive programs productline specific generally vary dealer cost sales incentives associated dealer commissions dealer incentive allowances estimated based upon terms programs historical experience based percentage sales price recorded later date related revenue recognized b date sales incentive offered related provisions accruals made product productline basis monitored adequacy revised least quarterly event subsequent modifications programs volume discounts estimated recognized based historical experience related reserves monitored adjusted based actual agco corporation notes consolidated financial statements continued dealer purchases dealers’ progress towards achieving specified cumulative target levels company records cost interest subsidy payments reduction retail financing rates later date related revenue recognized b date sales incentive offered estimates incentives based terms programs historical experience incentive programs recorded presented reduction revenue due fact company receive identifiable benefit exchange consideration provided reserves incentive programs paid either reduction future invoices credit memos recorded “accounts receivable allowances” within company’s consolidated balance sheets reserves incentive programs paid cash case company’s volume discount programs well sales incentives associated accounts receivable sold us canadian retail finance joint ventures recorded within “accrued expenses” within company’s consolidated balance sheets accounts notes receivable shown net allowances sales incentive discounts available dealers doubtful accounts cash flows related collection receivables reported within “cash flows operating activities” within company’s consolidated statements cash flows accounts notes receivable allowances december 31 2010 2009 follows millions company transfers certain accounts receivable various financial institutions primarily accounts receivable securitization facility europe accounts receivable sales agreements retail finance joint ventures note 4 company records transfers sales accounts receivable considered surrendered control receivables provisions asu 200916 “transfers servicing topic 860 accounting transfers financial assets” “asu 200916” cash payments made company’s us canadian retail finance joint ventures sales incentive discounts provided dealers related outstanding accounts receivables sold balance sales discount reserves classified “accrued expenses” december 31 2010 2009 approximately 874 million 945 million respectively inventories valued lower cost market using firstin firstout method market current replacement cost purchase reproduction dependent type inventory cases market exceeds net realizable value ie estimated selling price less reasonably predictable costs completion disposal inventories stated net realizable value market considered less net realizable value reduced allowance approximately normal profit margin december 31 2010 2009 company recorded 862 million 870 million respectively adjustment surplus obsolete inventories adjustments reflected within “inventories net” agco corporation notes consolidated financial statements continued inventories net december 31 2010 2009 follows millions cash flows related sale inventories reported within “cash flows operating activities” within company’s consolidated statements cash flows property plant equipment property plant equipment recorded cost less accumulated depreciation amortization depreciation provided straightline basis estimated useful lives ten 40 years buildings improvements three 15 years machinery equipment three ten years furniture fixtures expenditures maintenance repairs charged expense incurred property plant equipment net december 31 2010 2009 consisted following millions goodwill intangible assets asc 350 “intangibles goodwill other” establishes method testing goodwill indefinitelived intangible assets impairment annual basis interim basis event occurs circumstances change would reduce fair value reporting unit carrying value company’s annual assessments involve determining estimate fair value company’s reporting units order evaluate whether impairment current carrying amount goodwill indefinitelived intangible assets exists first step goodwill impairment test used identify potential impairment compares fair value reporting unit carrying amount including goodwill fair value reporting unit exceeds carrying amount goodwill reporting unit considered impaired thus second step impairment test unnecessary carrying amount reporting unit exceeds fair value second step goodwill impairment test performed measure amount impairment loss fair values derived based evaluation past expected future performance company’s reporting units reporting unit operating segment one level operating segment example component operating segment reporting unit component constitutes business discrete financial information available company’s executive management team regularly reviews operating results component agco corporation notes consolidated financial statements continued addition company combines aggregates two components operating segment single reporting unit components similar economic characteristics company’s reportable segments reporting units second step goodwill impairment test used measure amount impairment loss compares implied fair value reporting unit goodwill carrying amount goodwill carrying amount reporting unit goodwill exceeds implied fair value goodwill impairment loss recognized amount equal excess loss recognized cannot exceed carrying amount goodwill implied fair value goodwill determined manner amount goodwill recognized business combination company allocates fair value reporting unit assets liabilities unit including unrecognized intangible assets reporting unit acquired business combination fair value reporting unit price paid acquire reporting unit excess fair value reporting unit amounts assigned assets liabilities implied fair value goodwill company utilizes combination valuation techniques including discounted cash flow approach market multiple approach making annual interim assessments stated goodwill tested impairment annual basis often indications impairment exist results company’s analyses conducted october 1 2010 2009 2008 indicated reduction carrying amount goodwill required changes carrying amount goodwill years ended december 31 2010 2009 2008 summarized follows millions 2010 2009 2008 company reduced goodwill financial reporting purposes approximately 86 million 92 million 168 million respectively related realization tax benefits associated excess tax basis deductible goodwill resulting company’s acquisition valtra agco corporation notes consolidated financial statements continued company amortizes certain acquired intangible assets primarily straightline basis estimated useful lives range three 30 years acquired intangible assets weighted average useful life follows years ended december 31 2010 2009 2008 acquired intangible asset amortization 184 million 180 million 191 million respectively company estimates amortization existing intangible assets 131 million 2011 131 million 2012 130 million 2013 29 million 2014 29 million 2015 company previously determined two trademarks indefinite useful life massey ferguson trademark existence since 1952 formed merger masseyharris established 1890’s ferguson established 1930’s massey ferguson brand currently sold 140 countries worldwide making one widely sold tractor brands world company also identified valtra trademark indefinitelived asset valtra trademark existence since late 1990’s derivative valmet trademark existence since 1951 valtra valmet used interchangeably marketplace today valtra recognized tractor line valmet name valtra brand currently sold approximately 50 countries around world massey ferguson brand valtra brand primary product lines company’s business company plans use trademarks indefinite period time company plans continue make investments product development enhance value brands future legal regulatory contractual competitive economic factors company aware company believes would limit useful lives trademarks massey ferguson valtra trademark registrations renewed nominal cost countries company operates changes carrying amount acquired intangible assets 2010 2009 summarized follows millions agco corporation notes consolidated financial statements continued longlived assets 2010 2009 2008 company reviews longlived assets impairment whenever events changes circumstances indicated carrying amount asset may recoverable asc 360 “property plant equipment” impairment loss recognized undiscounted future cash flows estimated generated asset held used sufficient recover unamortized balance asset impairment loss would recognized based difference carrying values estimated fair value estimated fair value determined based either discounted future cash flows appropriate fair value methods amount deficiency charged income current year asset tested recoverability acquired business combination intangible assets resulting acquisition related asset included assessment estimates future cash flows based many factors including current operating results expected market trends competitive influences company also evaluates amortization periods assigned intangible assets determine whether events changes circumstances warrant revised estimates useful lives assets disposed sale reported lower carrying amount fair value less estimated costs sell agco corporation notes consolidated financial statements continued accrued expenses accrued expenses december 31 2010 2009 consisted following millions warranty reserves warranty reserve activity years ended december 31 2010 2009 2008 consisted following millions company’s agricultural equipment products generally warranty defects material workmanship period one four years company accrues future warranty costs time sale based historical warranty experience approximately 205 million 198 million warranty reserves included “other noncurrent liabilities” company’s consolidated balance sheets december 31 2010 2009 respectively insurance reserves company’s insurance programs coverage obtained significant liability limits well risks required insured law contract policy company selfinsure portion certain expected losses related primarily workers’ compensation comprehensive general product vehicle liability provisions losses expected programs recorded based company’s estimates aggregate liabilities claims incurred stock incentive plans stock compensation expense recorded follows millions refer note 10 additional information regarding company’s stock incentive plans 2010 2009 2008 agco corporation notes consolidated financial statements continued research development expenses research development expenses expensed incurred included engineering expenses company’s consolidated statements operations advertising costs company expenses advertising costs incurred cooperative advertising costs normally expensed time revenue earned advertising expenses years ended december 31 2010 2009 2008 totaled approximately 534 million 515 million 656 million respectively shipping handling expenses shipping handling fees charged customers included component net sales shipping handling costs included part cost goods sold exception certain handling costs included selling general administrative expenses amount 268 million 263 million 257 million years ended december 31 2010 2009 2008 respectively interest expense net interest expense net years ended december 31 2010 2009 2008 consisted following millions income taxes income taxes accounted asset liability method deferred tax assets liabilities recognized future tax consequences attributable differences financial statement carrying amounts existing assets liabilities respective tax bases operating loss tax credit carryforwards deferred tax assets liabilities measured using enacted tax rates expected apply taxable income years temporary differences expected recovered settled effect deferred tax assets liabilities change tax rates recognized income period includes enactment date net income per common share basic income per common share computed dividing net income weighted average number common shares outstanding period diluted income per common share assumes exercise outstanding stock options vesting restricted stock performance share awards appreciation excess conversion value contingently convertible senior subordinated notes using treasury stock method effects assumptions dilutive company’s 1610 million aggregate principal amount 134 convertible senior subordinated notes 2013 million aggregate principal amount 114 convertible senior subordinated notes provide settlement upon conversion cash principal amount converted notes excess conversion value settled shares company’s common stock ii conversion rate increased certain circumstances new notes converted connection certain change control transactions dilution weighted shares outstanding depend company’s stock price agco corporation notes consolidated financial statements continued excess conversion value using treasury stock method note 7 reconciliation net income attributable agco corporation subsidiaries weighted average common shares outstanding purposes calculating basic diluted income per share years ended december 31 2010 2009 2008 follows millions except per share data stocksettled stock appreciation rights “ssars” purchase 03 million 03 million 04 million shares years ended december 31 2010 2009 2008 respectively outstanding included calculation weighted average common equivalent shares outstanding antidilutive impact comprehensive income loss company reports comprehensive income loss defined total net income loss nonowner changes equity components thereof consolidated statements stockholders’ equity components comprehensive income loss related tax effects years ended december 31 2010 2009 2008 follows millions agco corporation notes consolidated financial statements continued financial instruments carrying amounts reported company’s consolidated balance sheets “cash equivalents” “accounts notes receivable” “accounts payable” approximate fair value due immediate shortterm maturity financial instruments carrying amount longterm debt company’s credit facility note 7 approximates fair value based borrowing rates currently available company loans similar terms average maturities december 31 2010 estimated fair values company’s 678 senior subordinated notes 134 convertible notes note 7 114 convertible notes note 7 based listed market values 2717 million 3251 million 2771 million respectively compared carrying values 2677 million 1610 million 1752 million respectively december 31 2009 estimated fair values company’s 678 senior subordinated notes 134 convertible notes note 7 114 convertible notes note 7 based listed market values 2722 million 3008 million 2113 million respectively compared carrying values 2865 million 1930 million 1675 million respectively company uses foreign currency contracts hedge foreign currency exposure certain receivables payables contracts periods consistent exposure hedged generally maturities one year less contracts classified nondesignated derivative instruments company also enters foreign currency contracts designated cash flow hedges expected sales december 31 2010 2009 company foreign currency contracts outstanding gross notional amounts 11134 million 12477 million respectively company unrealized gains approximately 56 million 129 million foreign currency contracts december 31 2010 2009 respectively december 31 2010 2009 approximately 34 million 113 million respectively unrealized gains reflected company’s results operations gains related nondesignated contracts company’s foreign currency contracts mitigate risk due exchange rate fluctuations gains losses contracts generally offset gains losses exposure hedged company 17 million unrealized gains 14 million unrealized agco corporation notes consolidated financial statements continued losses december 31 2010 2009 respectively related designated cash flow hedges reflected comprehensive loss refer note 11 information notional amounts foreign currency contracts represent amounts exchanged parties therefore measure company’s risk amounts exchanged calculated basis notional amounts terms contracts credit market risks contracts considered significant company’s hedging policy prohibits entering foreign currency contracts speculative trading purposes recent accounting pronouncements december 2009 fasb issued asu 200917 asu 200917 eliminated quantitative approach previously required determining primary beneficiary variable interest entity requires qualitative analysis determine whether enterprise’s variable interest gives controlling financial interest variable interest entity standard also requires ongoing assessments whether enterprise controlling financial interest variable interest entity asu 200917 effective financial statements issued fiscal years interim periods beginning november 15 2009 january 1 2010 company adopted provisions asu 200917 performed qualitative analysis joint ventures including gima joint venture determine whether controlling financial interest ventures result analysis company determined gima joint venture longer consolidated company’s results operations financial position company controlling financial interest gima based shared powers joint venture partners direct activities significantly impact gima’s financial performance december 2009 fasb issued asu 200916 asu 200916 eliminated concept qualifying specialpurpose entity “qspe” changed requirements derecognizing financial assets added requirements additional disclosures order enhance information reported users financial statements providing greater transparency transfers financial assets including securitization transactions entity’s continuing involvement exposure risks related transferred financial assets asu 200916 effective fiscal years interim periods beginning november 15 2009 january 1 2010 company adopted provisions asu 200916 accordance standard company recognized approximately 1139 million accounts receivable sold european securitization facilities within company’s condensed consolidated balance sheets september 30 2010 corresponding liability equivalent funded balance facility note 4 2 acquisitions december 15 2010 company acquired sparex holdings ltd “sparex” uk company £516 million net approximately £27 million cash acquired approximately 815 million net sparex headquartered exeter united kingdom global distributor accessories tractor replacement parts serving agricultural aftermarket operations 17 countries acquisition sparex provided company opportunity extend reach agricultural aftermarket provide customers wider range replacement parts accessories well related services acquisition financed available cash hand results operations sparex acquisition included company’s consolidated financial statements date acquisition company allocated purchase price assets acquired liabilities assumed based preliminary estimate fair values acquisition date acquired net assets consist primarily accounts receivable property plant equipment inventories trademarks intangible assets company recorded approximately 268 million goodwill approximately 270 million preliminary estimated trademark customer relationship intangible assets associated acquisition sparex trademark amortized period 30 years customer relationship intangible amortized agco corporation notes consolidated financial statements continued period 12 years goodwill recorded reported within company’s europemiddle eastafrica geographical reportable segment following pro forma data summarizes results operations year ended december 31 2010 sparex acquisition occurred january 1 2010 unaudited pro forma information prepared comparative purposes purport represent results operations company actually would transaction occurred date indicated results operations may future period millions except per share data 3 restructuring infrequent expenses company recorded restructuring infrequent expenses 44 million 132 million 02 million years ended december 31 2010 2009 2008 respectively charges 2010 primarily related severance related costs associated company’s rationalization operations denmark spain finland france charges 2009 primarily related severance related costs associated company’s rationalization operations france united kingdom finland germany united states denmark charges 2008 primarily related severance employee relocation costs associated company’s rationalization valtra sales office located france european north american manufacturing administrative headcount reductions 2009 2010 company announced initiated several actions rationalize employee headcount various manufacturing facilities located france finland germany united states well various administrative offices located united kingdom spain united states headcount reductions initiated order reduce costs selling general administrative expenses response softening global market demand reduced production volumes company recorded approximately 128 million severance related costs associated actions 2009 approximately 117 million costs recorded respect company’s europeafricamiddle east geographical segment approximately 11 million costs recorded respect company’s north american geographical segment approximately 50 million severance related costs paid december 31 2009 2010 company recorded additional restructuring infrequent expenses approximately 22 million associated actions primarily related severance related costs incurred spain finland france costs recorded within company’s europeafricamiddle east geographical segment company paid approximately 85 million severance related costs 2010 associated actions terminated 611 653 employees expected terminated majority remaining 15 million severance related costs accrued december 31 2010 expected paid early 2011 total cash restructuring costs associated actions expected approximately 150 million 160 million agco corporation notes consolidated financial statements continued randers denmark closure november 2009 company announced intention close combine assembly operations located randers denmark company ceased operations july 2010 completed transfer assembly operations harvesting equipment manufacturing joint venture laverda p “laverda” located breganze italy august 2010 land buildings associated randers facility marketed sale machinery equipment tooling either transferred laverda company’s manufacturing operations sold scrapped company recorded approximately 04 million severance related costs 2009 associated facility closure none severance costs paid december 31 2009 none employees terminated 2010 company recorded additional restructuring infrequent expenses approximately 22 million associated closure primarily related employee retention payments accrued term retention period company paid approximately 19 million severance retention related costs 2010 terminated 73 79 employees expected terminated remaining 07 million severance retention related costs accrued december 31 2010 expected paid 2011 4 accounts receivable sales agreements securitization facilities december 31 2010 company accounts receivable securitization facilities europe totaling approximately 1100 million approximately 1472 million outstanding funding approximately 851 million approximately 1139 million facilities expire october 2011 subject annual renewal wholesale accounts receivable sold revolving basis commercial paper conduits facilities whollyowned qualified special purpose entity united kingdom company amended european securitization facilities 2010 decrease total size facilities 300 million previously discussed note 1 january 1 2010 company adopted provisions asu 200916 accordance standard company recognized approximately 1139 million accounts receivable sold european securitization facilities within company’s consolidated balance sheets december 31 2010 corresponding liability equivalent funded balance facility accrued interest owed commercial paper conduits associated outstanding funding european facilities approximately 01 million december 31 2010 losses sales receivables european securitization facilities reflected within “interest expense net” company’s consolidated statements operations december 31 2010 2009 company accounts receivable sales agreements permit sale ongoing basis substantially wholesale interestbearing noninterest bearing receivables north america agco finance llc agco finance canada ltd 49 owned us canadian retail finance joint ventures accounts receivable sales agreements replaced company’s former us canadian accounts receivable securitization facilities terminated december 2009 december 31 2010 2009 funded balance receivables sold us canadian accounts receivable sales agreements approximately 3759 million 4446 million respectively accounts receivable sales agreements provide sales 6000 million us accounts receivable c2500 million dollars approximately 2506 million december 31 2010 canadian accounts receivable may increased future discretion agco finance llc agco finance canada ltd respectively company service receivables sale occurs maintain direct retained interest receivables company reviewed accounting accounts receivable sales agreements accordance asu 200916 determined facilities accounted offbalance sheet transactions agco corporation notes consolidated financial statements continued terms agreements company pays agco finance llc agco finance canada ltd annual servicing fee related servicing receivables sold company also pays agco finance llc agco finance canada ltd subsidized interest payment respect sales agreements calculated based upon libor plus margin noninterest bearing accounts receivable outstanding sold facilities fees reflected within losses sales receivables included within “other expense net” company’s consolidated statements operations losses sales receivables associated accounts receivable financing facilities discussed reflected within “other expense net” “interest expense net” company’s consolidated statements operations approximately 161 million 2010 losses sales receivables primarily company’s european securitization facilities former us canadian securitization facilities approximately 156 million 273 million 2009 2008 respectively reflected within “other expense net” company’s consolidated statements operations losses 2009 2008 determined calculating estimated present value receivables sold compared carrying amount present value based historical collection experience discount rate representing spread libor prescribed terms former securitization agreements company’s agco finance retail finance joint ventures europe brazil australia also provide wholesale financing company’s dealers receivables associated arrangements without recourse company service receivables sale occurs maintain direct retained interest receivables december 31 2010 2009 retail finance joint ventures approximately 2218 million 1769 million respectively outstanding accounts receivable associated arrangements company reviewed accounting arrangements accordance asu 200916 determined arrangements accounted offbalance sheet transactions addition company sells certain trade receivables factoring arrangements financial institutions around world company reviewed sale receivables pursuant guidelines asu 200916 determined arrangements accounted offbalance sheet transactions 5 investments affiliates investments affiliates december 31 2010 2009 follows millions manufacturing joint ventures december 31 2010 consisted gima laverda operating joint venture italian argo group manufactures harvesting equipment joint venture third party manufacturer produce engines south america joint ventures represent minority investments farm equipment manufacturers distributors licensees agco corporation notes consolidated financial statements continued company’s equity net earnings affiliates years ended december 31 2010 2009 2008 follows millions summarized combined financial information company’s retail finance joint ventures december 31 2010 2009 years ended december 31 2010 2009 2008 follows millions majority assets company’s retail finance joint ventures represent finance receivables majority liabilities represent notes payable accrued interest various joint venture agreements rabobank affiliates provide financing joint venture companies company guarantee debt obligations retail finance joint ventures portion retail portfolio brazil held outside joint venture rabobank brazil note 13 laverda company’s operating joint venture argo located breganze italy manufactures harvesting equipment addition producing laverda branded combines breganze factory manufactures midrange combine harvesters agco’s massey ferguson fendt challenger brands distribution europe africa middle east joint venture also includes laverda’s ownership fellawerke gmbh “fella” german manufacturer grass hay machinery company identified goodwill identifiable intangible assets formation joint venture 2007 company’s investment greater fair value underlying equity net assets received goodwill intangible asset balances included recorded balance “investments affiliates” line company’s consolidated balance sheets amortization identifiable intangible assets included company’s share earnings losses investment within “equity net earnings affiliates” line item company’s consolidated statements operations acquired identifiable intangible assets laverda summarized following table millions agco corporation notes consolidated financial statements continued joint venture partners determined laverda fella tradenames indefinite useful life laverda tradename existence since 1890 currently sold 35 countries worldwide fella tradename existence since 1918 laverda brand fella brand primary product lines company’s laverda operating joint venture joint venture partners plan use tradenames indefinite period time joint venture partners plan continue make investments product development enhance value brands future legal regulatory contractual competitive economic factors joint venture partners aware believe would limit useful lives tradenames laverda fella tradename registrations renewed nominal cost countries operating joint venture operates company performed annual impairment test investment laverda october 1 2010 2009 concluded indication impairment existed summarized financial information company’s laverda operating joint venture december 31 2010 2009 years ended december 31 2010 2009 2008 follows millions investment balance laverda december 31 2010 2009 706 million 746 million respectively portion company’s retained earnings balance represents undistributed retained earnings equity method investees approximately 1849 million 1769 million december 31 2010 2009 respectively 6 income taxes sources income loss income taxes equity net earnings affiliates follows years ended december 31 2010 2009 2008 millions agco corporation notes consolidated financial statements continued provision income taxes location taxing jurisdiction years ended december 31 2010 2009 2008 consisted following millions december 31 2010 company’s foreign subsidiaries approximately 26 billion undistributed earnings considered indefinitely invested accordingly income taxes provided earnings determination amount unrecognized deferred taxes earnings practical however unrecognized foreign tax credits would available reduce portion tax liability reconciliation income taxes computed united states federal statutory income tax rate 35 provision income taxes reflected company’s consolidated statements operations years ended december 31 2010 2009 2008 follows millions “change valuation allowance” year ended december 31 2009 includes 395 million favorable adjustment fully offset writeoff certain foreign tax assets reflected “tax effects permanent differences” due fact tax assets expected utilized future years company previously maintained valuation allowance tax assets accordingly writeoff resulted impact income tax provision year ended december 31 2009 agco corporation notes consolidated financial statements continued significant components deferred tax assets liabilities december 31 2010 2009 follows millions company recorded net deferred tax liability 64 million net deferred tax asset 149 million december 31 2010 2009 respectively reflected preceding table company established valuation allowance 2625 million 2617 million december 31 2010 2009 respectively change valuation allowance years ended december 31 2010 2009 2008 increase 08 million decrease 327 million increase 69 million respectively valuation allowance established likely portion deferred tax assets realized company assessed likelihood deferred tax assets would recovered estimated future taxable income available tax planning strategies determined valuation allowance december 31 2010 2009 appropriate making assessment available evidence considered including current economic climate well reasonable tax planning strategies company believes likely company realize remaining deferred tax assets net valuation allowance future years company net operating loss carryforwards 7471 million december 31 2010 expiration dates follows 2011 16 million 2013 01 million 2015 571 million thereafter unlimited 6883 million net operating loss carryforwards include united states net loss carryforwards 3778 million foreign net operating loss carryforwards 3693 million company agco corporation notes consolidated financial statements continued paid income taxes 883 million 678 million 1522 million years ended december 31 2010 2009 2008 respectively december 31 2010 december 31 2009 company 482 million 218 million respectively unrecognized income tax benefits would affect company’s effective tax rate recognized december 31 2010 december 31 2009 company approximately 142 million 35 million respectively accrued deferred taxes related uncertain income tax positions connected ongoing income tax audits various jurisdictions expects settle pay next 12 months company accrues interest penalties related unrecognized tax benefits provision income taxes december 31 2010 december 31 2009 company accrued interest penalties related unrecognized tax benefits 52 million 19 million respectively reconciliation beginning ending balances total amounts gross unrecognized tax benefits year ended december 31 2010 2009 follows millions company subsidiaries file income tax returns united states various state local foreign jurisdictions company subsidiaries routinely examined tax authorities jurisdictions 2009 agreements reached previously tax authorities france various open tax years required settlement approximately 30 million also 2009 10 million tax position settled united kingdom december 31 2010 number income tax examinations foreign jurisdictions currently ongoing possible certain ongoing examinations may resolved within 12 months due potential resolution federal state foreign examinations expiration various statutes limitation reasonably possible company’s gross unrecognized tax benefits balance may materially change within next 12 months due number jurisdictions issues involved uncertainty regarding timing settlements company unable provide reasonable estimate change may occur within next 12 months although ongoing examinations various jurisdictions 2007 2010 tax years generally remain subject examination united states federal state authorities company’s significant foreign jurisdictions primarily united kingdom france germany switzerland finland brazil 2005 2010 tax years generally remain subject examination respective tax authorities 2010 changes uk tax legislation affected taxation certain distributable profits subsidiary companies yet repatriated united kingdom result legislative changes approximately 50 million tax contingency reserves reclassified gross unrecognized tax benefits reserves net impact movements gross unrecognized tax benefits reserves income statement 2010 217 million agco corporation notes consolidated financial statements continued 7 indebtedness consisted following december 31 2010 2009 millions december 31 2010 aggregate scheduled maturities longterm debt excluding current portion longterm debt follows millions agco corporation notes consolidated financial statements continued convertible senior subordinated notes following table sets forth december 31 2010 2009 carrying amount equity component principal amount liability component unamortized discount net carrying amount company’s 134 convertible senior subordinated notes 114 convertible senior subordinated notes millions following table sets forth interest expense recognized relating contractual interest coupon amortization discount liability component 134 convertible senior subordinated notes 114 convertible senior subordinated notes millions effective interest rate liability component 134 convertible senior subordinated notes 114 convertible senior subordinated notes years ended december 31 2010 2009 2008 61 notes unamortized discount 134 convertible senior subordinated notes amortized december 2010 unamortized discount 114 convertible senior subordinated notes amortized december 2013 earliest date notes holders require company repurchase notes cash payments interest approximately 470 million 511 million 493 million years ended december 31 2010 2009 2008 respectively company’s 2013 million 114 convertible senior subordinated notes due december 15 2036 issued december 2006 provide settlement upon conversion cash principal amount notes excess conversion value settled shares company’s common stock ii conversion rate increased certain circumstances notes converted connection certain change control transactions occurring prior december 15 2013 interest payable notes 114 per annum payable semiannually arrears cash june 15 december 15 year notes convertible shares company’s common stock effective price 4073 per share agco corporation notes consolidated financial statements continued subject adjustment reflects initial conversion rate notes 245525 shares common stock per 1000 principal amount notes contain certain antidilution provisions designed protect holders’ interests change control transaction qualifies “fundamental change” occurs prior december 15 2013 certain circumstances company increase conversion rate notes converted connection transaction number additional shares used paragraph “make whole shares” fundamental change transaction event connection 50 company’s common stock exchanged converted acquired constitutes solely right receive consideration least 90 common stock listed us national securities exchange approved quotation automated quotation system amount increase conversion rate depend effective date transaction average price per share company’s common stock effective date adjustment conversion rate made price per share common stock less 3133 per share 18000 per share number additional make whole shares range 73658 shares per 1000 principal amount 3133 per share 00182 shares per 1000 principal amount 18000 per share year ended december 15 2011 number make whole shares generally declining time acquirer certain affiliates fundamental change transaction publicly traded common stock company may instead increasing conversion rate described cause notes become convertible publicly traded common stock acquirer principal notes repaid cash balance payable shares acquirer common stock time company issue aggregate number shares company’s common stock upon conversion notes excess 319183 shares per 1000 principal amount thereof holders company’s common stock receive cash fundamental change transaction holders notes receive cash well holders may convert notes following circumstances 1 fiscal quarter closing sales price company’s common stock exceeds 120 conversion price least 20 trading days 30 consecutive trading days ending last trading day preceding fiscal quarter 2 five business day period five consecutive trading day period trading price per note day period less 98 product closing sale price company’s common stock conversion rate 3 notes called redemption 4 upon occurrence certain corporate transactions beginning december 15 2013 company may redeem notes redemption price 100 principal amount plus accrued interest well settle excess conversion value shares company’s common stock holders notes may require company repurchase notes repurchase price 100 principal amount plus accrued interest december 15 2013 2016 2021 2026 2031 well settle excess conversion value shares company’s common stock holders may also require company repurchase portion notes upon fundamental change defined indenture repurchase price equal 100 principal amount notes repurchased plus accrued unpaid interest notes senior subordinated obligations subordinated company’s existing future senior indebtedness effectively subordinated debt liabilities company’s subsidiaries notes equal right payment company’s 678 senior subordinated notes due 2014 134 convertible senior subordinated notes due 2033 company’s 1610 million 134 convertible senior subordinated notes due december 31 2033 issued june 2005 provide settlement upon conversion cash principal amount notes excess conversion value settled shares company’s common stock ii conversion rate increased certain circumstances notes converted connection certain change control transactions occurring prior december 10 2010 notes unsecured obligations convertible cash shares company’s common stock upon satisfaction certain conditions discussed interest payable notes 134 per annum payable semiannually arrears cash june 30 december 31 year notes convertible shares company’s common stock effective price 2236 per share subject adjustment reflects agco corporation notes consolidated financial statements continued initial conversion rate notes 447193 shares common stock per 1000 principal amount notes contain certain antidilution provisions designed protect holders’ interests holders may convert notes following circumstances 1 fiscal quarter closing sales price company’s common stock exceeds 120 conversion price least 20 trading days 30 consecutive trading days ending last trading day preceding fiscal quarter 2 five business day period five consecutive trading day period trading price per note day period less 98 product closing sale price company’s common stock conversion rate 3 notes called redemption 4 upon occurrence certain corporate transactions december 31 2010 company may redeem notes redemption price 100 principal amount plus accrued interest well settle excess conversion value shares company’s common stock holders notes may also require company repurchase notes repurchase price 100 principal amount plus accrued interest december 31 2010 well settle excess conversion value shares company’s common stock december 31 2010 2009 closing sales price company’s common stock exceeded 120 conversion price 134 convertible senior subordinated notes least 20 trading days 30 consecutive trading days ending december 31 2010 2009 respectively therefore company classified notes current liability accordance asu 200904 “accounting redeemable equity instruments” company also classified equity component 134 convertible senior subordinated notes “temporary equity” december 31 2009 amount classified “temporary equity” measured excess amount cash would required paid upon conversion b current carrying amount liabilityclassified component december 31 2010 amount principal cash required repaid upon conversion 134 convertible senior subordinated notes equivalent carrying amount liabilityclassified component future classification series notes current longterm debt classification equity component 114 convertible senior subordinated notes “temporary equity” dependent closing sales price company’s common stock future quarters 2010 company repurchased approximately 375 million principal amount 134 convertible senior subordinated notes plus accrued interest approximately 581 million repurchase included approximately 211 million associated excess conversion value notes resulted loss extinguishment approximately 02 million reflected “interest expense net” company reflected repurchase principal excess conversion value notes totaling 581 million within “repurchase conversion convertible senior subordinated notes” company’s consolidated statements cash flows year ended december 31 2010 addition 2010 holders company’s 134 convertible senior subordinated notes converted 27 million principal amount notes company issued 60986 shares associated 27 million excess conversion value notes loss extinguishment associated conversions notes less 01 million reflected “interest expense net” company reflected repayment principal notes totaling 27 million within “repurchase conversion convertible senior subordinated notes” within company’s consolidated statements cash flows year ended december 31 2010 company arrangements various banks issue standby letters credit similar instruments guarantee company’s obligations purchase sale certain inventories potential claims exposure insurance coverage december 31 2010 2009 outstanding letters credit issued revolving credit facility totaled 98 million 93 million respectively agco corporation notes consolidated financial statements continued multicurrency revolving credit facility company’s 3000 million unsecured multicurrency revolving credit facility matures may 16 2013 interest accrues amounts outstanding facility company’s option either 1 libor plus margin ranging 100 175 based upon company’s total debt ratio 2 higher administrative agent’s base lending rate onehalf one percent federal funds rate plus margin ranging 00 050 based upon company’s total debt ratio facility contains covenants restricting among things incurrence indebtedness making certain payments including dividends subject acceleration event default defined facility company also must fulfill financial covenants respect total debt ebitda ratio interest coverage ratio defined facility december 31 2010 2009 company outstanding borrowings facility december 31 2010 2009 company availability borrow 2902 million 2907 million respectively facility 678 senior subordinated notes company’s 2000 million 678 senior subordinated notes due april 15 2014 issued april 2004 unsecured obligations subordinated right payment company’s existing future senior indebtedness interest payable notes 678 per annum payable semiannually april 15 october 15 year subsequent april 15 2009 company may redeem notes whole part initially 103438 principal amount plus accrued interest declining 100 principal amount plus accrued interest time april 15 2012 notes include covenants restricting incurrence indebtedness making certain restricted payments including dividends 8 employee benefit plans company sponsors defined benefit pension plans covering certain employees principally united states united kingdom germany finland norway france switzerland australia argentina company also provides certain postretirement health care life insurance benefits certain employees principally united states brazil asc 715 “compensationretirement benefits” “asc 715” requires companies measure defined benefit plan assets obligations date company’s fiscal yearend measurement provision asc 715 effective years ending december 15 2008 company adopted measurement provisions asc 715 year ended december 31 2008 change impacted measurement company’s uk pension plan prior 2008 measurement date september 30 company adopted second approach afforded asc 715 transition company’s uk pension plan december 31 measurement date impact adoption resulted reduction company’s opening retained earnings balance january 1 2008 approximately 11 million net taxes discussed note 1 result adoption asu 200917 company determined gima joint venture longer consolidated company’s results operations financial position company controlling financial interest gima amounts disclosed years ended december 31 2009 2008 retroactively restated reflect deconsolidation gima agco corporation notes consolidated financial statements continued net annual pension costs years ended december 31 2010 2009 2008 set forth millions weighted average assumptions used determine net annual pension costs company’s pension plans years ended december 31 2010 2009 2008 follows net annual postretirement benefit costs years ended december 31 2010 2009 2008 set forth millions except percentages agco corporation notes consolidated financial statements continued following tables set forth reconciliations changes benefit obligation plan assets funded status december 31 2010 2009 millions agco corporation notes consolidated financial statements continued accrued pension costs approximately 32 million 34 million classified current liabilities within “accrued expenses” company’s consolidated balance sheets december 31 2010 2009 respectively related company’s phased retirement plan obligations germany december 31 2010 company’s accumulated comprehensive loss included net actuarial loss approximately 2349 million net prior service credit approximately 12 million related company’s defined benefit pension plans estimated net actuarial loss net prior service credit defined benefit pension plans amortized company’s accumulated comprehensive loss year ended december 31 2011 approximately 67 million 02 million respectively december 31 2010 company’s accumulated comprehensive loss included net actuarial loss approximately 67 million net prior service credit approximately 02 million related company’s us brazilian postretirement health care benefit plans estimated net actuarial loss net prior service credit postretirement health care benefit plans amortized company’s accumulated comprehensive loss year ended december 31 2011 approximately 03 million 02 million respectively weighted average assumptions used determine benefit obligation company’s pension plans december 31 2010 2009 follows weighted average discount rate used determine benefit obligation company’s postretirement benefit plans years ended december 31 2010 2009 56 565 respectively aggregate projected benefit obligation accumulated benefit obligation fair value plan assets pension postretirement plans accumulated benefit obligations excess plan assets 7354 million 6695 million 5219 million respectively december 31 2010 7467 million 6793 million 4795 million respectively december 31 2009 projected benefit obligation accumulated benefit obligation fair value plan assets company’s us based qualified pension plans 475 million 475 million 359 million respectively december 31 2010 475 million 475 million 330 million respectively december 31 2009 company’s accumulated comprehensive loss december 31 2010 reflects reduction equity 2402 million net taxes 673 million primarily related company’s uk pension plan projected benefit obligation exceeded plan assets addition company’s accumulated comprehensive loss december 31 2010 reflects reduction equity approximately 09 million net taxes 03 million related company’s gima fella joint ventures amount represents 50 gima’s unrecognized net actuarial losses unrecognized prior service cost associated pension plan 50 fella’s unrecognized net actuarial losses associated pension plan company’s accumulated comprehensive loss december 31 2009 reflects reduction equity 2845 million net taxes 801 million primarily related company’s uk pension plan projected benefit obligation exceeded plan assets addition company’s accumulated comprehensive loss december 31 2009 reflects reduction equity approximately 04 million net taxes 01 million related agco corporation notes consolidated financial statements continued company’s gima joint venture amount represents 50 gima’s unrecognized net actuarial losses associated pension plan year ended december 31 2010 company changed discount rate setting methodology countries largest benefit obligations exist take advantage globally consistent methodology united states united kingdom euro zone company constructed hypothetical bond portfolio high quality corporate bonds applied cash flows company’s benefit plans bond yields derive discount rate bond portfolio planspecific cash flows vary country methodology yield curve constructed consistent united states bond portfolio sufficiently large enough result taking “settlement approach” derive discount rate high quality corporate bonds assumed purchased resulting coupon payments maturities used satisfy company’s largest us pension plan’s projected benefit payments united kingdom euro zone discount rate derived using “yield curve approach” individual spot rate zero coupon bond yield future annual period developed discount future benefit payment thereby determines present value future payments year ended december 31 2009 company based discount rate used determine projected benefit obligation us pension plans postretirement health care benefit plans executive nonqualified pension plan “enpp” matching projected cash flows largest pension plan citigroup pension discount curve uk plan company derived discount rate based yield curve developed constituents merrill lynch aa rated corporate bond index discount rate uk plan year ended december 31 2009 single weightedaverage rate based approximate future cash flows plan countries within euro zone company derived aarated corporate bond yield curve selecting bonds included iboxx corporate indices creating discount rate curve based series model cash flows discount rates plan determined based plan’s liability duration indices used united states united kingdom countries chosen match expected plan obligations related expected cash flows investment strategy concentration risk weighted average asset allocation company’s us pension benefit plans december 31 2010 2009 follows weighted average asset allocation company’s nonus pension benefit plans december 31 2010 2009 follows agco corporation notes consolidated financial statements continued fair value company’s pension assets december 31 2010 follows millions 1 42 “fixed income” securities government treasuries 23 investmentgrade corporate bonds 10 foreign bonds 25 various fixed income securities 2 29 “alternative investments” longshort equity funds 14 multistrategy funds 14 eventdriven funds 12 relative value funds 8 credit funds 23 distributed hedged nonhedged funds 3 “miscellaneous funds” consist pooled funds australia insurance contracts finland norway switzerland following reconciliation level 3 assets december 31 2010 millions agco corporation notes consolidated financial statements continued fair value company’s pension assets december 31 2009 follows millions 1 45 “fixed income” securities government treasuries 25 investmentgrade corporate bonds 20 foreign bonds 10 various fixed income securities 2 27 “alternative investments” longshort equity funds 16 multistrategy funds 15 eventdriven funds 11 relative value funds 11 credit funds 20 distributed hedged nonhedged funds 3 “miscellaneous funds” consist pooled funds australia insurance contracts finland norway switzerland following reconciliation level 3 assets december 31 2009 millions taxqualified pension fund investments united states held agco corporation master pension trust company’s global pension fund strategy diversify investments across broad categories equity fixed income securities appropriate use alternative investment categories minimize risk volatility primary investment objective company’s pension plans secure participant agco corporation notes consolidated financial statements continued retirement benefits key objective pension plans’ financial management promote stability extent appropriate growth funded status investment strategy plans’ portfolio assets balances requirement generate returns need control risk asset mix recognized primary mechanism influence reward risk structure pension fund investments effort accomplish plans’ funding objectives overall investment strategy usbased pension plans achieve mix approximately 20 assets nearterm benefit payments 80 longerterm growth overall us pension funds invest broad diversification asset types company’s us target allocation retirement fund investments 31 large smallcap domestic equity securities 15 international equity securities 24 broad fixed income securities 30 alternative investments company noted long periods mix investments would achieve average return excess 85 arriving choice expected return assumption 8 usbased plans company tempered historical indicator lower expectation returns equity investment future well administrative costs plans overall investment strategy nonus based pension plans achieve mix approximately 28 assets nearterm benefit payments 72 longerterm growth overall nonus pension funds invest broad diversification asset types company’s nonus target allocation retirement fund investments 40 equity securities 30 broad fixed income investments 30 alternative investments majority company’s nonus pension fund investments related company’s pension plan united kingdom company noted long periods mix investments would achieve average return excess 75 arriving choice expected return assumption 7 ukbased plans company tempered historical indicator lower expectation returns equity investment future well administrative costs plans equity securities primarily include investments largecap smallcap companies located across globe fixed income securities include corporate bonds companies diversified industries mortgagebacked securities agency mortgages assetbacked securities government securities alternative assets include investments hedge fund funds follow diversified investment strategies date company invested pension funds stock intention future within asset class careful consideration given balancing portfolio among industry sectors geographies interest rate sensitivity dependence economic growth currency factors affecting investment returns assets managed professional investment firms bound precise mandates measured specific benchmarks among asset managers consideration given among others balancing security concentration issuer concentration investment style reliance particular active investment strategies measuring expected us postretirement benefit obligation december 31 2010 company assumed 85 health care cost trend rate 2011 decreasing 50 2018 measuring expected us postretirement benefit obligation december 31 2009 company assumed 85 health care cost trend rate 2010 decreasing 49 2060 measuring brazilian postretirement benefit plan obligation december 31 2010 2009 company assumed 100 health care cost trend rate 2011 2010 respectively decreasing 55 2020 2019 respectively changing assumed health care cost trend rates one percentage point year holding assumptions constant would following effect service interest cost 2011 accumulated postretirement benefit obligation december 31 2010 millions agco corporation notes consolidated financial statements continued company currently estimates minimum contributions usbased defined pension plans 2011 aggregate approximately 21 million company currently estimates benefit payments 2011 usbased postretirement health care life insurance benefit plans aggregate approximately 17 million company currently estimates minimum contributions underfunded plans benefit payments unfunded plans 2011 nonus based defined pension plans aggregate approximately 283 million approximately 207 million relates uk pension plan 2010 approximately 447 million benefit payments made related company’s pension plans december 31 2010 aggregate expected benefit payments company’s pension plans follows millions 2010 approximately 19 million benefit payments made related company’s us brazilian postretirement benefit plans december 31 2010 aggregate expected benefit payments company’s us brazilian postretirement benefit plans follows millions enpp provides group senior company executives retirement income period 15 years based percentage average final salary bonus reduced executive’s social security benefits 401k employer matching contributions account benefit paid executives ranges 225 3 average last three years base salary plus bonus prior termination employment “final earnings” times credited years service maximum benefit 45 60 final earnings depending level executive nearly participants benefits enpp vest participant attained age 50 least ten years service five years include years participation enpp payable participant reaches age 65 upon termination services death disability adjusted reflect payment prior age 65 agco corporation notes consolidated financial statements continued net annual enpp cost measurement assumptions plans years ended december 31 2010 2009 2008 set forth millions except percentages following tables set forth reconciliations changes benefit obligation funded status december 31 2010 2009 millions weighted average discount rate used determine benefit obligation enpp years ended december 31 2010 2009 54 55 respectively december 31 2010 company’s accumulated comprehensive loss included net actuarial loss approximately 30 million net prior service cost approximately 26 million related enpp estimated net actuarial loss net prior service cost related enpp amortized company’s accumulated comprehensive loss year ended december 31 2011 approximately 01 million 06 million respectively december 31 2010 2009 company recorded reduction equity 56 million 36 million respectively related unfunded projected benefit obligation enpp company benefiting losses tax purposes united states tax impact charges agco corporation notes consolidated financial statements continued 2010 approximately 08 million benefit payments made related enpp december 31 2010 aggregate expected benefit payments enpp follows millions company maintains separate defined contribution plans covering certain employees primarily united states united kingdom brazil plans company contributes specified percentage eligible employee’s compensation company contributed approximately 90 million 91 million 92 million years ended december 31 2010 2009 2008 respectively 9 common stock december 31 2010 company 1500 million authorized shares common stock par value 001 per share approximately 931 million shares common stock outstanding approximately 19 million shares reserved issuance company’s option plan note 10 approximately 08 million shares reserved issuance company’s 2006 long term incentive plan “2006 plan” note 10 company stockholder rights plan adopted april 1994 following stockholder approval plan provides share common stock outstanding attached right purchase onehundredth share junior cumulative preferred stock par value 001 per share purchase price per onehundredth share 10000 subject adjustment rights exercisable person group “acquirer” acquires 20 company’s common stock announces tender offer exchange offer would result acquisition 20 company’s common stock circumstances additional conditions met exercisable plan allows stockholders acquirer purchase company’s common stock securities acquirer current market value two times exercise price right rights redeemable 001 per right subject adjustment option company’s board directors rights expire april 26 2014 unless extended redeemed exchanged company date 10 stock incentive plans 2006 plan 50 million shares agco common stock may issued 2006 plan allows company direction board directors’ compensation committee make grants performance shares stock appreciation rights stock options restricted stock awards employees officers nonemployee directors company employee plans 2006 plan encompasses two stock incentive plans company executives key managers primary longterm incentive plan performance share plan provides awards shares company’s common stock based achieving financial targets earnings per share return invested capital determined company’s board directors stock awards earned performance period number shares earned determined based cumulative average agco corporation notes consolidated financial statements continued results period depending measurement performance periods consecutive overlapping threeyear cycles performance targets set beginning cycle order transition 2006 plan company established award targets 2006 oneyear twoyear performance period addition normal threeyear period 2006 plan provides participants earn 33 200 target awards depending actual performance achieved shares earned performance established minimum target awards earned performance share plan paid shares common stock end performance period compensation expense associated awards amortized ratably vesting performance period based company’s projected assessment level performance achieved earned compensation expense recorded 2010 2009 2008 respect awards granted based upon stock price grant date weighted average grantdate fair value performance awards granted 2006 plan 2010 2009 2008 3362 2155 5712 respectively based level performance achieved december 31 2010 77685 shares earned 20082010 performance period 2006 plan allows participant option forfeiting portion shares awarded lieu cash payment contributed participant’s tax withholding satisfy participant’s statutory minimum federal state employment taxes would payable time grant approximately 50332 shares issued february 23 2011 net approximately 27353 shares withheld taxes related earned awards based level performance achieved december 31 2009 883188 shares earned 20072009 performance period 551152 shares issued february 26 2010 net 332036 shares withheld taxes related earned awards 2010 company granted 767000 awards threeyear performance period commencing 2010 ending 2012 assuming maximum target level performance achieved performance award transactions 2010 follows presented company achieve maximum levels performance plan december 31 2010 total compensation cost related unearned performance awards yet recognized assuming company’s current projected assessment level performance achieved earned approximately 172 million weighted average period expected recognized approximately two years december 6 2007 board directors company approved two retentionbased restricted stock awards 2000000 company’s chairman president chief executive officer first award granted december 6 2007 totaled 28839 shares vest fiveyear period rate 25 end third year 25 end fourth year 50 end fifth year second award granted december 5 2008 totaled 99010 shares vest fouryear period rate 25 end second year 25 end third year 50 end fourth year vesting subject continued employment company date vesting except certain circumstances change control company recognizes stock compensation expense ratably vesting period grant addition performance share plan certain executives key managers eligible receive grants stocksettled appreciation rights “ssars” incentive stock options depending participant’s agco corporation notes consolidated financial statements continued country employment ssars provide participant right receive aggregate appreciation stock price market price company’s common stock date grant payable shares company’s common stock participant may exercise ssar time grant vested later seven years date grant ssars vest ratably fouryear period date grant ssar award grants made certain executives key managers 2006 plan made base price equal price company’s common stock date grant company recorded stock compensation expense approximately 25 million 23 million 17 million associated ssar award grants 2010 2009 2008 respectively compensation expense associated awards amortized ratably vesting period company estimated fair value grants using blackscholes option pricing model company utilized “simplified” method estimating expected term granted ssars year ended december 31 2010 afforded sec staff accounting bulletin “sab” 107 “sharebased payment sab topic 14” sab 110 “sharebased payment sab topic 14d2” expected term used value grant simplified method midpoint vesting date contractual term ssar company granting ssars since april 2006 believe sufficient relevant experience regarding employee exercise behavior weighted average grantdate fair value ssars granted 2006 plan weighted average assumptions blackscholes option model follows years ended december 31 2010 2009 2008 ssar transactions year ended december 31 2010 follows december 31 2010 weighted average remaining contractual life ssars outstanding approximately five years december 31 2010 total compensation cost related unvested ssars agco corporation notes consolidated financial statements continued yet recognized approximately 39 million weightedaverage period expected recognized approximately three years following table sets forth exercise price range number shares weighted average exercise price remaining contractual lives groups similar price total fair value ssars vested 2010 approximately 19 million 489106 ssars vested december 31 2010 total intrinsic value outstanding exercisable ssars december 31 2010 153 million 55 million respectively total intrinsic value ssars exercised 2010 approximately 14 million company realized insignificant tax benefit exercise ssars january 26 2011 company granted 305100 performance award shares subject company achieving future target levels performance 146700 ssars 2006 plan director restricted stock grants 2006 plan provides annual restricted stock grants company’s common stock nonemployee directors shares restricted transferability period three years subject forfeiture event director departs company’s board directors nontransferability period expires immediately plan allows director option forfeiting portion shares awarded lieu cash payment contributed participant’s tax withholding satisfy statutory minimum federal state employment taxes would payable time grant 2010 grant made april 22 2010 equated 23380 shares common stock 17303 shares common stock issued shares withheld taxes company recorded stock compensation expense approximately 09 million 2010 associated grants december 31 2010 50 million shares reserved issuance 2006 plan approximately 08 million shares available grant assuming maximum number shares earned related performance award grants discussed agco corporation notes consolidated financial statements continued stock option plan grants company’s option plan since 2002 company intend make grants option plan future company’s outstanding stock options fully vested stock option transactions 2010 follows december 31 2010 outstanding exercisable options weighted average remaining contractual life approximately one year aggregate intrinsic value approximately 07 million following table sets forth exercise price range number shares weighted average exercise price remaining contractual lives groups similar price total intrinsic value options exercised years ended december 31 2010 2009 2008 approximately 09 million 00 million 08 million respectively cash proceeds received stock option exercises 2010 2009 2008 approximately 05 million 00 million 03 million respectively company realized insignificant tax benefit exercise options 11 derivative instruments hedging activities derivatives recognized company’s consolidated balance sheets fair value date derivative contract entered company designates derivative either 1 fair value hedge recognized liability 2 cash flow hedge forecasted transaction 3 hedge net investment foreign operation 4 nondesignated derivative instrument company formally documents relationships hedging instruments hedged items well risk management objectives strategy undertaking various hedge transactions company agco corporation notes consolidated financial statements continued formally assesses hedge’s inception ongoing basis whether derivatives used hedging transactions highly effective offsetting changes fair values cash flow hedged items determined derivative longer highly effective hedge accounting discontinued prospective basis foreign currency risk company significant manufacturing operations united states france germany finland brazil purchases portion tractors combines components thirdparty foreign suppliers primarily various european countries japan company also sells products 140 countries throughout world company’s significant transactional foreign currency exposures euro brazilian real canadian dollar relation united states dollar euro relation british pound company attempts manage transactional foreign exchange exposure hedging foreign currency cash flow forecasts commitments arising anticipated settlement receivables payables future purchases sales naturally offsetting currency positions occur company hedges certain exposures use foreign currency contracts company’s translation exposure resulting translating financial statements foreign subsidiaries united states dollars hedged practical translation impact reduced financing local operations local borrowings foreign currency contracts primarily forward options contracts’ fair value measurements fall within level 2 fair value hierarchy asu 201006 “fair value measurements disclosures topic 820 improving disclosures fair value measurements” level 2 fair value measurements generally based upon quoted market prices similar instruments active markets quoted prices identical similar instruments markets active modelderived valuations significant inputs significant valuedrivers observable active markets fair value foreign currency forward contracts based valuation model discounts cash flows resulting differential contract price marketbased forward rate fair value foreign currency option contracts based valuation model utilizes spot forward exchange rates interest rates currency pair volatility company’s senior management establishes company’s foreign currency interest rate risk management policies reviewed periodically audit committee company’s board directors policy allows use derivative instruments hedge exposures movements foreign currency interest rates company’s policy prohibits use derivative instruments speculative purposes cash flow hedges 2010 2009 2008 company designated certain foreign currency contracts cash flow hedges expected future sales purchases effective portion fair value gains losses cash flow hedges recorded comprehensive income loss subsequently reclassified cost goods sold period sales purchases recognized amounts offset effect changes foreign currency rates related sale purchase transactions amount loss gain recorded comprehensive income loss reclassified cost goods sold years ended december 31 2010 2009 2008 approximately 31 million 145 million 141 million respectively aftertax basis amount loss gain recorded comprehensive income loss related outstanding cash flow hedges december 31 2010 2009 2008 approximately 12 million 13 million 367 million respectively aftertax basis outstanding contracts december 31 2010 range maturity december 2011 agco corporation notes consolidated financial statements continued following table summarizes activity accumulated comprehensive income loss related derivatives held company years ended december 31 2010 2009 2008 millions december 31 2010 2009 company outstanding foreign currency contracts notional amount approximately 1111 million 1393 million respectively entered hedge forecasted sale purchase transactions derivative transactions designated hedging instruments 2010 2009 2008 company entered foreign currency contracts hedge receivables payables company subsidiaries’ balance sheets denominated foreign currencies functional currency contracts classified nondesignated derivative instruments december 31 2010 2009 company outstanding foreign currency contracts notional amount approximately 10023 million 11070 million respectively entered hedge receivables payables denominated foreign currencies functional currency changes fair value contracts reported expense net years ended december 31 2010 2009 2008 company recorded net gain approximately 373 million 510 million net loss approximately 852 million respectively caption expense net related contracts gains losses contracts substantially offset losses gains remeasurement underlying asset liability hedged agco corporation notes consolidated financial statements continued table sets forth fair value derivative instruments december 31 2010 millions table sets forth fair value derivative instruments december 31 2009 millions counterparty risk company regularly monitors counterparty risk credit ratings counterparties derivative instruments company believes exposures appropriately diversified across counterparties creditworthy financial institutions company perceives risk counterparty company would cease business counterparty negative impacts company nonperformance counterparties agco corporation notes consolidated financial statements continued 12 commitments contingencies future payments required company’s significant commitments december 31 2010 follows millions 1 estimated interest payments calculated assuming current interest rates minimum maturity periods specified debt agreements debt may repaid sooner later minimum maturity periods 2 unconditional purchase obligations exclude routine purchase orders entered normal course business 3 shortterm longterm obligations include estimates future minimum contribution requirements company’s us nonus defined benefit pension postretirement plans estimates based current legislation countries company operates within subject change shortterm longterm obligations also include income tax liabilities related uncertain income tax positions connected ongoing income tax audits various jurisdictions addition shortterm obligations include amounts due financial institutions related sales certain receivables meet offbalance sheet criteria asu 200916 offbalance sheet arrangements guarantees company maintains remarketing agreement us retail finance joint venture agco finance llc whereby company obligated repurchase repossessed inventory market values company agreement agco finance llc limits company’s purchase obligations arrangement 60 million aggregate per calendar year company believes losses might incurred resale equipment materially impact company’s financial position results operations due fair value underlying equipment december 31 2010 company guaranteed indebtedness owed third parties approximately 1284 million primarily related dealer end user financing equipment guarantees generally obligate company repay outstanding finance obligations owed financial institutions dealers end users default loans 2015 company believes credit risk associated guarantees material financial position losses guarantees historically insignificant addition company would able recover amounts paid guarantees sale underlying financed farm equipment fair value equipment would sufficient offset substantial portion amounts paid agco corporation notes consolidated financial statements continued december 31 2010 company outstanding designated nondesignated foreign exchange contracts gross notional amount approximately 11134 million outstanding contracts december 31 2010 range maturity december 2011 note 11 company sells substantially wholesale accounts receivable north america company’s us canadian retail finance joint ventures company also sells certain accounts receivable european securitization facility time certain accounts receivable factoring arrangements financial institutions around world company evaluates sale receivables pursuant guidelines asu 200916 determined facilities accounted offbalance sheet transactions total lease expense noncancelable operating leases 502 million 485 million 453 million years ended december 31 2010 2009 2008 respectively contingencies result brazilian tax legislative changes impacting value added taxes “vat” company recorded reserve approximately 223 million 116 million outstanding balance brazilian vat taxes receivable december 31 2010 2009 respectively due uncertainty company’s ability collect amounts outstanding june 27 2008 republic iraq filed civil action federal court new york case 08 civ 59617 naming defendants company’s french subsidiary two foreign subsidiaries participated united nations oil food program “program” ninetyone entities companies also named defendants civil action due participation program complaint purports assert claims defendants seeking damages unspecified amount although company’s subsidiaries intend vigorously defend action possible time predict outcome action impact company although outcome adverse company could required pay damages addition french government also investigating company’s french subsidiary connection participation program august 2008 part routine audit brazilian taxing authorities disallowed deductions relating amortization certain goodwill recognized connection reorganization company’s brazilian operations related transfer certain assets company’s brazilian subsidiaries amount tax disallowance december 31 2010 including interest penalties approximately 906 million brazilian reais approximately 546 million amount ultimately dispute greater interest penalties company advised legal tax advisors position respect deductions allowable tax laws brazil company contesting disallowance believes likely assessment interest penalties required paid however ultimate outcome determined brazilian tax appeal process complete could take several years company party various legal claims actions incidental business company believes none claims actions either individually aggregate material business financial condition 13 related party transactions rabobank aaa rated financial institution based netherlands 51 owner company’s retail finance joint ventures located united states canada brazil germany france united kingdom australia ireland austria rabobank also principal agent participant agco corporation notes consolidated financial statements continued company’s revolving credit facility securitization facility europe notes 4 7 majority assets company’s retail finance joint ventures represent finance receivables majority liabilities represent notes payable accrued interest various joint venture agreements rabobank affiliates provide financing joint venture companies primarily lines credit company guarantee debt obligations retail finance joint ventures portion retail portfolio brazil held outside joint venture rabobank brazil note 12 prior 2005 company’s joint venture brazil agency relationship rabobank whereby rabobank provided funding february 2005 company made 213 million investment retail finance joint venture rabobank brazil additional investment joint venture’s organizational structure comparable company’s retail finance joint ventures company expects solvency guarantee rabobank portfolio originally funded rabobank brazil gradually eliminated december 31 2010 solvency requirement portfolio held rabobank approximately 28 million addition 2010 company made 254 million investment retail finance joint venture brazil due increase capital required local brazilian solvency requirements result increased retail finance portfolio joint venture 2010 company’s retail finance joint ventures provide retail financing wholesale financing dealers terms financing arrangements offered company’s dealers similar arrangements retail finance joint ventures provide unaffiliated third parties addition company transfers ongoing basis substantially wholesale interestbearing noninterest bearing accounts receivable north america agco finance llc agco finance canada ltd retail finance joint ventures north america note 4 company maintains remarketing agreement us retail finance joint ventures agco finance llc note 12 addition part sales incentives provided end users company may time subsidize interest rates retail financing provided retail finance joint ventures cost programs recognized time sale company’s dealers 14 segment reporting effective january 1 2010 company modified system reporting resulting changes internal management organizational structure past year changed reportable segments north america south america europeafricamiddle east asiapacific north america south america europeafricamiddle east rest world rest world reportable segment includes regions eastern europe asia australia new zealand europeafrica middle east segment longer includes certain markets eastern europe effective january 1 2010 reportable segments reflective company’s chief operating decision maker reviews operating results purposes allocating resources assessing performance disclosures years ended december 31 2010 2009 adjusted reflect change reportable segments disclosures year ended december 31 2008 adjusted reflect change reportable segments impracticable disclosures years ended december 31 2009 2008 retroactively restated reflect deconsolidation gima note 1 company’s four reportable segments distribute full range agricultural equipment related replacement parts company evaluates segment performance primarily based income operations sales segment based location thirdparty customer company’s selling general administrative expenses engineering expenses charged segment based region division expenses incurred result components income operations one agco corporation notes consolidated financial statements continued segment may comparable another segment results years ended december 31 2010 2009 based company’s current modified reportable segments follows millions segment results years ended december 31 2009 2008 based company’s previous reportable segments follows millions agco corporation notes consolidated financial statements continued reconciliation segment information consolidated balances income operations total assets set forth millions net sales customer location years ended december 31 2010 2009 2008 follows millions agco corporation notes consolidated financial statements continued net sales product years ended december 31 2010 2009 2008 follows millions property plant equipment amortizable intangible assets country december 31 2010 2009 follows millions 15 subsequent event january 3 2011 company acquired 50 agcoamity jv llc “agcoamity jv” approximately 300 million thereby creating joint venture company amity technology llc agcoamity jv located north dakota manufactures airseeding tillage equipment investment funded available cash hand company analyzed provision asu 200917 relates joint venture determined controlling financial interest joint venture power direct activities significantly impact joint venture therefore company intends consolidate joint venture’s operations company’s results operations financial position commencing date formation joint venture company estimates result transaction approximately 197 million goodwill approximately 229 million trademark technology distribution network intangible assets recorded representing 100 value assets within joint venture’s financial position goodwill reported within company’s north american geographical reportable segment item 9item 8 financial statements supplementary data following consolidated financial statements agco subsidiaries years threeyear period ended december 31 2011 included item information heading “quarterly results” item 7 page 27 form 10k incorporated herein reference report independent registered public accounting firm board directors stockholders agco corporation audited accompanying consolidated balance sheets agco corporation subsidiaries december 31 2011 2010 related consolidated statements operations stockholders’ equity cash flows years threeyear period ended december 31 2011 connection audits consolidated financial statements also audited financial statement schedule listed item 15a2 consolidated financial statements financial statement schedule responsibility company’s management responsibility express opinion consolidated financial statements financial statement schedule based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements referred present fairly material respects financial position agco corporation subsidiaries december 31 2011 2010 results operations cash flows years threeyear period ended december 31 2011 conformity us generally accepted accounting principles also opinion related financial statement schedule considered relation basic consolidated financial statements taken whole presents fairly material respects information set forth therein also audited accordance standards public company accounting oversight board united states agco corporation’s internal control financial reporting december 31 2011 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission coso report dated february 27 2012 expressed unqualified opinion effectiveness company’s internal control financial reporting kpmg llp atlanta georgia february 27 2012 agco corporation consolidated statements operations millions except per share data see accompanying notes consolidated financial statements agco corporation consolidated balance sheets millions except share amounts see accompanying notes consolidated financial statements agco corporation consolidated statements stockholders’ equity millions except share amounts see accompanying notes consolidated financial statements agco corporation consolidated statements cash flows millions see accompanying notes consolidated financial statements agco corporation notes consolidated financial statements 1 operations summary significant accounting policies business agco corporation “agco” “company” leading manufacturer distributor agricultural equipment related replacement parts throughout world company sells full range agricultural equipment including tractors combines hay tools sprayers forage equipment implements company’s products widely recognized agricultural equipment industry marketed number wellknown brand names including challenger® fendt® massey ferguson® valtra® company distributes products combination approximately 3100 independent dealers distributors addition company provides retail financing united states canada germany france united kingdom austria ireland netherlands denmark italy sweden norway brazil argentina australia retail finance joint ventures coöperatieve centrale raiffeisenboerenleenbank ba “rabobank” basis presentation company’s consolidated financial statements represent consolidation whollyowned companies majorityowned companies joint ventures company determined primary beneficiary company records investments affiliate companies using equity method accounting significant influence investments including representing ownership less 20 recorded cost significant intercompany balances transactions eliminated consolidated financial statements certain prior period amounts reclassified conform current period presentation basis consolidation joint ventures variable interest entities gima joint venture agco claas tractor sas cooperate field purchasing design manufacturing components agricultural tractors party 50 ownership interest joint venture investment approximately €42 million joint venture parties purchase production output joint venture company consolidate gima joint venture company’s results operations financial position company controlling financial interest gima based shared powers joint venture partners direct activities significantly impact gima’s financial performance rabobank 51 owner company’s retail finance joint ventures located united states canada germany france united kingdom austria ireland netherlands denmark italy sweden norway brazil argentina australia majority assets company’s retail finance joint ventures represents finance receivables majority liabilities represents notes payable accrued interest various joint venture agreements rabobank affiliates provide financing joint venture companies primarily lines credit company guarantee debt obligations retail finance joint ventures company’s retail finance joint ventures provide retail financing wholesale financing dealers notes 4 13 company determined retail finance joint ventures meet consolidation requirements accounted voting interest model making determination company evaluated sufficiency equity risk retail finance joint venture ability joint venture investors make decisions joint ventures’ activities significant effect success entities economic performance obligations absorb expected losses joint ventures rights receive expected residual returns january 3 2011 company acquired 50 agcoamity jv llc “agcoamity jv” thereby creating joint venture company amity technology llc agcoamity jv located north dakota manufactures airseeding tillage equipment company controlling voting interest direct activities significantly impact joint venture company consolidated joint venture’s operations company’s results operations financial position commencing date formation joint venture november 30 2011 company acquired 80 shandong dafeng machinery co ltd “dafeng” approximately 1720 million yuan approximately 270 million dafeng located yanzhou china manufactures complete range corn grain rice soybean harvesting machines chinese domestic markets company controlling voting interest direct activities significantly impact dafeng company consolidated dafengs agco corporation notes consolidated financial statements continued operations company’s results operations financial position commencing date acquisition revenue recognition sales equipment replacement parts recorded company title risks ownership transferred independent dealer distributor customer payment terms vary market product fixed payment schedules sales terms sale generally require purchase order confirmation accompany shipments title generally passes dealer distributor upon shipment risk loss upon damage theft destruction equipment responsibility dealer distributor thirdparty carrier certain foreign countries company retains form title goods delivered dealers dealer makes payment company recover goods event customer default payment occurs laws foreign countries provide seller’s retention security interest goods manner established united states uniform commercial code right company retains respect title enabling recovery goods event customer default payment dealer distributor may return equipment replacement parts contract company force replacement parts may returned promotional annual return programs provisions returns programs made time sale based terms program historical returns experience company may provide certain sales incentives dealers distributors provisions sales incentives made time sale existing incentive programs provisions revised event subsequent modification incentive program see “accounts notes receivable” discussion united states canada equipment sales dealers immediately due upon retail sale equipment dealer exception sales grain storage protein production systems previously paid dealer united states canada installment payments required generally beginning interestfree period remaining outstanding equipment balance generally due within 12 months shipment interest generally charged outstanding balance six 12 months shipment sales terms highly seasonal products provide payment due dates based specified date year regardless shipment date equipment sold dealers united states canada paid full average within 12 months shipment sales replacement parts generally payable within 30 days shipment terms larger seasonal stock orders generally requiring payment within six months shipment sales grain storage protein production systems generally payable within 30 days shipment international markets equipment sales generally payable full within 30 180 days shipment payment terms highly seasonal products specified due date year regardless shipment date sales replacement parts generally payable within 30 90 days shipment terms larger seasonal stock orders generally payable within six months shipment certain markets particularly north america time lag varies based timing level retail demand date company records sale dealer sells equipment retail customer foreign currency translation financial statements company’s foreign subsidiaries translated united states currency accordance accounting standard codification “asc” 830 “foreign currency matters” assets liabilities translated united states dollars periodend exchange rates income expense items translated average rates exchange prevailing period translation adjustments included “accumulated comprehensive loss” stockholders’ equity within company’s consolidated balance sheets gains losses result foreign currency transactions included accompanying consolidated statements operations use estimates preparation financial statements conformity us generally accepted accounting principles “gaap” requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ estimates made management primarily relate accounts notes receivable inventories deferred income tax valuation allowances intangible assets certain accrued liabilities principally relating reserves volume discounts sales incentives warranty obligations product liability workers’ compensation obligations pensions postretirement benefits agco corporation notes consolidated financial statements continued cash equivalents cash december 31 2011 2010 3204 million 2282 million respectively consisted primarily cash hand bank deposits company considers investments original maturity three months less cash equivalents cash equivalents december 31 2011 2010 4040 million 4917 million respectively consisted primarily money market deposits certificates deposits overnight investments accounts notes receivable accounts notes receivable arise sale equipment replacement parts independent dealers distributors customers payments due company’s terms sale generally range one 12 months contingent upon sale equipment dealer distributor retail customer normal circumstances payment terms extended equipment may returned certain regionswith respect equipment sales including united states canada company obligated repurchase equipment replacement parts upon cancellation dealer distributor contract obligations required national state provincial laws require company repurchase dealer distributor’s unsold inventory including inventory receivable already paid sales markets outside united states canada company normally charge interest outstanding receivables dealers distributors sales certain dealers distributors united states canada interest charged prime lending rates outstanding receivable balances interestfree periods interestfree periods vary product generally range one 12 months exception certain seasonal products bear interest various periods 23 months depending time year sale dealer distributor’s sales volume preceding year ended december 31 2011 169 32 company’s net sales maximum interestfree periods ranging one six months seven 12 months respectively net sales maximum interestfree periods ranging 13 23 months approximately 02 company’s net sales 2011 actual interestfree periods shorter equipment receivable dealers distributors united states canada due immediately upon sale equipment retail customer normal circumstances interest forgiven interestfree periods extended company agreement permit transferring ongoing basis substantially wholesale interestbearing noninterest bearing accounts receivable north america us canadian retail finance joint ventures upon transfer receivables maintain standard payment terms including required regular principal payments amounts outstanding interest charges market rates company also accounts receivable sales agreements permit sale ongoing basis majority accounts receivables germany france austria norway sweden relevant agco finance entities countries upon transfer receivables maintain standard payment terms qualified dealers may obtain additional financing company’s us canadian european retail finance joint ventures joint ventures’ discretion company provides various volume bonus sales incentive programs respect products sales incentive programs include reductions invoice prices reductions retail financing rates dealer commissions dealer incentive allowances cases incentive programs established communicated company’s dealers quarterly basis incentives paid either time invoice reduction invoice price time settlement receivable time retail financing time warranty registration subsequent time based dealer purchases incentive programs productline specific generally vary dealer cost sales incentives associated dealer commissions dealer incentive allowances estimated based upon terms programs historical experience based percentage sales price recorded later date related revenue recognized b date sales incentive offered related provisions accruals made product productline basis monitored adequacy revised least quarterly event subsequent modifications programs volume discounts estimated recognized based historical experience related reserves monitored adjusted based actual dealer purchases dealers’ progress towards achieving specified cumulative target levels company records cost interest subsidy payments reduction retail financing rates later date related revenue recognized b date sales incentive offered estimates incentives based terms programs historical experience incentive programs recorded presented reduction revenue due fact company receive identifiable benefit exchange consideration provided reserves incentive programs paid either reduction future invoices credit memos recorded “accounts receivable allowances” within company’s consolidated balance sheets reserves incentive programs paid cash case company’s volume discount programs well sales incentives associated accounts receivable sold us agco corporation notes consolidated financial statements continued canadian retail finance joint ventures recorded within “accrued expenses” within company’s consolidated balance sheets accounts notes receivable shown net allowances sales incentive discounts available dealers doubtful accounts cash flows related collection receivables reported within “cash flows operating activities” within company’s consolidated statements cash flows accounts notes receivable allowances december 31 2011 2010 follows millions company transfers certain accounts receivable accounts receivable sales agreements retail finance joint ventures note 4 company records transfers sales accounts receivable considered surrendered control receivables provisions accounting standards update “asu” 200916 “transfers servicing topic 860 accounting transfers financial assets” cash payments made company’s us canadian retail finance joint ventures sales incentive discounts provided dealers related outstanding accounts receivables sold balance sales discount reserves recorded within “accrued expenses” december 31 2011 2010 approximately 911 million 874 million respectively inventories valued lower cost market using firstin firstout method market current replacement cost purchase reproduction dependent type inventory cases market exceeds net realizable value ie estimated selling price less reasonably predictable costs completion disposal inventories stated net realizable value market considered less net realizable value reduced allowance approximately normal profit margin december 31 2011 2010 company recorded 1068 million 862 million respectively adjustment surplus obsolete inventories adjustments reflected within “inventories net” within company’s consolidated balance sheets inventories net december 31 2011 2010 follows millions cash flows related sale inventories reported within “cash flows operating activities” within company’s consolidated statements cash flows property plant equipment property plant equipment recorded cost less accumulated depreciation amortization depreciation provided straightline basis estimated useful lives ten 40 years buildings improvements three 15 years machinery equipment three ten years furniture fixtures expenditures maintenance repairs charged expense incurred agco corporation notes consolidated financial statements continued property plant equipment net december 31 2011 2010 consisted following millions goodwill intangible assets asc 350 “intangibles goodwill other” establishes method testing goodwill indefinitelived intangible assets impairment annual basis interim basis event occurs circumstances change would reduce fair value reporting unit carrying value company’s annual qualitative quantitative assessments involve determining estimate fair value company’s reporting units order evaluate whether impairment current carrying amount goodwill indefinitelived intangible assets exists qualitative assessment evaluates whether likely reporting unit’s fair value less carrying amount applying twostep quantitative goodwill impairment test first step quantitative goodwill impairment test used identify potential impairment compares fair value reporting unit carrying amount including goodwill fair value reporting unit exceeds carrying amount goodwill reporting unit considered impaired thus second step quantitative impairment test unnecessary carrying amount reporting unit exceeds fair value second step quantitative goodwill impairment test performed measure amount impairment loss fair values derived based evaluation past expected future performance company’s reporting units reporting unit operating segment one level operating segment example component operating segment reporting unit component constitutes business discrete financial information available company’s executive management team regularly reviews operating results component addition company combines aggregates two components operating segment single reporting unit components similar economic characteristics company’s reportable segments reporting units second step quantitative goodwill impairment test used measure amount impairment loss compares implied fair value reporting unit goodwill carrying amount goodwill carrying amount reporting unit goodwill exceeds implied fair value goodwill impairment loss recognized amount equal excess loss recognized cannot exceed carrying amount goodwill implied fair value goodwill determined manner amount goodwill recognized business combination company allocates fair value reporting unit assets liabilities unit including unrecognized intangible assets reporting unit acquired business combination fair value reporting unit price paid acquire reporting unit excess fair value reporting unit amounts assigned assets liabilities implied fair value goodwill company utilizes combination valuation techniques including discounted cash flow approach market multiple approach making annual interim quantitative assessments results company’s analyses conducted october 1 2011 2010 2009 indicated reduction carrying amount goodwill required agco corporation notes consolidated financial statements continued changes carrying amount goodwill years ended december 31 2011 2010 2009 summarized follows millions 2011 2010 2009 company reduced goodwill financial reporting purposes approximately 91 million 86 million 92 million respectively related realization tax benefits associated excess tax basis deductible goodwill resulting company’s acquisition valtra company amortizes certain acquired identifiable intangible assets primarily straightline basis estimated useful lives range five 45 years acquired intangible assets weighted average useful life follows years ended december 31 2011 2010 2009 acquired intangible asset amortization 216 million 184 million 180 million respectively company estimates amortization existing intangible assets 487 million 2012 487 million 2013 402 million 2014 402 million 2015 390 million 2016 company previously determined two trademarks indefinite useful life massey ferguson trademark existence since 1952 formed merger masseyharris established 1890’s ferguson established 1930’s massey ferguson brand currently sold 140 countries worldwide making one widely sold tractor brands world company also identified valtra trademark indefinitelived asset valtra trademark existence since late 1990’s derivative valmet trademark existence since 1951 valtra valmet used interchangeably marketplace today valtra recognized tractor line valmet name valtra brand currently sold approximately 50 countries around world massey ferguson brand valtra brand primary product lines company’s business company plans use trademarks indefinite period time company plans continue make investments product development enhance value brands future legal regulatory contractual competitive economic factors company aware company believes would limit useful lives trademarks massey ferguson valtra trademark registrations renewed nominal cost countries company operates agco corporation notes consolidated financial statements continued changes carrying amount acquired intangible assets 2011 2010 summarized follows millions longlived assets company reviewed longlived assets impairment whenever events changes circumstances indicated carrying amount asset may recoverable impairment loss recognized undiscounted future cash flows estimated generated asset held used sufficient recover unamortized balance asset impairment loss would recognized based difference carrying values estimated fair value estimated fair value determined based either discounted future cash flows appropriate fair value methods amount deficiency charged income current year asset tested recoverability acquired business combination intangible assets resulting acquisition related asset included assessment estimates future cash flows based many factors including current operating results expected market trends competitive influences company also evaluates amortization periods assigned intangible assets determine whether events changes circumstances warrant revised estimates useful lives assets disposed sale reported lower carrying amount fair value less estimated costs sell agco corporation notes consolidated financial statements continued accrued expenses accrued expenses december 31 2011 2010 consisted following millions warranty reserves warranty reserve activity years ended december 31 2011 2010 2009 consisted following millions company’s agricultural equipment products generally warranty defects materials workmanship period one four years company accrues future warranty costs time sale based historical warranty experience approximately 278 million 205 million warranty reserves included “other noncurrent liabilities” company’s consolidated balance sheets december 31 2011 2010 respectively insurance reserves company’s insurance programs coverage obtained significant liability limits well risks required insured law contract policy company selfinsure portion certain expected losses related primarily workers’ compensation comprehensive general product vehicle liability provisions losses expected programs recorded based company’s estimates aggregate liabilities claims incurred stock incentive plans stock compensation expense recorded follows millions refer note 10 additional information regarding company’s stock incentive plans 2011 2010 2009 research development expenses research development expenses expensed incurred included engineering expenses company’s consolidated statements operations agco corporation notes consolidated financial statements continued advertising costs company expenses advertising costs incurred cooperative advertising costs normally expensed time revenue earned advertising expenses years ended december 31 2011 2010 2009 totaled approximately 663 million 534 million 515 million respectively shipping handling expenses shipping handling fees charged customers included component net sales shipping handling costs included part cost goods sold exception certain handling costs included selling general administrative expenses amount 299 million 268 million 263 million years ended december 31 2011 2010 2009 respectively interest expense net interest expense net years ended december 31 2011 2010 2009 consisted following millions income taxes income taxes accounted asset liability method deferred tax assets liabilities recognized future tax consequences attributable differences financial statement carrying amounts existing assets liabilities respective tax bases operating loss tax credit carryforwards deferred tax assets liabilities measured using enacted tax rates expected apply taxable income years temporary differences expected recovered settled effect deferred tax assets liabilities change tax rates recognized income period includes enactment date net income per common share basic income per common share computed dividing net income weighted average number common shares outstanding period diluted income per common share assumes exercise outstanding stock options vesting restricted stock performance share awards appreciation excess conversion value contingently convertible senior subordinated notes using treasury stock method effects assumptions dilutive agco corporation notes consolidated financial statements continued company’s 2013 million aggregate principal amount 114 convertible senior subordinated notes provides settlement upon conversion cash principal amount converted notes excess conversion value settled shares company’s common stock ii conversion rate increased certain circumstances new notes converted connection certain change control transactions dilution weighted shares outstanding depend company’s stock price excess conversion value using treasury stock method note 7 reconciliation net income attributable agco corporation subsidiaries weighted average common shares outstanding purposes calculating basic diluted income per share years ended december 31 2011 2010 2009 follows millions except per share data stocksettled stock appreciation rights “ssars” purchase 03 million shares years ended december 31 2011 2010 2009 outstanding included calculation weighted average common equivalent shares outstanding antidilutive impact comprehensive income loss company reports comprehensive income loss defined total net income loss nonowner changes equity components thereof consolidated statements stockholders’ equity components comprehensive income loss related tax effects years ended december 31 2011 2010 2009 follows millions 1 rounding may impact summation amounts agco corporation notes consolidated financial statements continued financial instruments carrying amounts reported company’s consolidated balance sheets “cash equivalents” “accounts notes receivable” “accounts payable” approximate fair value due immediate shortterm maturity financial instruments carrying amounts longterm debt company’s 4½ senior term loan credit facility note 7 approximate fair value based borrowing rates currently available company loans similar terms average maturities december 31 2011 estimated fair values company’s 578 senior notes 114 convertible notes note 7 based listed market values 2989 million 2524 million respectively compared carrying values 3000 million 1834 million respectively december 31 2010 estimated fair values company’s 678 senior subordinated notes 134 convertible notes 114 convertible notes note 7 based listed market values 2717 million 3251 million 2771 million respectively compared carrying values 2677 million 1610 million 1752 million respectively company uses foreign currency contracts hedge foreign currency exposure certain receivables payables contracts periods consistent exposure hedged generally maturities one year less contracts classified nondesignated derivative instruments company also enters foreign currency contracts designated cash flow hedges expected sales december 31 2011 2010 company foreign currency contracts outstanding gross notional amounts 12327 million 11134 million respectively company unrealized losses gains approximately 49 million 56 million foreign currency contracts december 31 2011 2010 respectively december 31 2011 2010 approximately 11 million 34 million respectively unrealized loss gains reflected company’s results operations gains related nondesignated contracts company’s foreign currency contracts mitigate risk due exchange rate fluctuations gains losses contracts generally offset gains losses exposure hedged company 54 million unrealized losses 17 million unrealized gains december 31 2011 2010 respectively related designated cash flow hedges reflected comprehensive loss note 11 notional amounts foreign currency contracts represent amounts exchanged parties therefore measure company’s risk amounts exchanged calculated basis notional amounts terms contracts credit market risks contracts considered significant company’s hedging policy prohibits entering foreign currency contracts speculative trading purposes agco corporation notes consolidated financial statements continued recent accounting pronouncements september 2011 financial accounting standards board “fasb” issued asu 201109 “compensationretirement benefitsmultiemployer plans subtopic 71580 disclosures employers participation multiemployer plan” “asu 201109” asu 201109 requires additional disclosures employers’ participation multiemployer pension plans including information plan’s funded status readily available asu effective annual periods fiscal years ending december 15 2011 applied retrospectively company adopted guidance year ended december 31 2011 note 8 september 2011 fasb issued asu 201108 “intangiblesgoodwill topic 350 testing goodwill impairment” “asu 201108” asu 201108 permits entity make qualitative assessment whether likely reporting unit’s fair value less carrying amount applying twostep goodwill impairment test entity concludes likely fair value reporting unit less carrying amount need perform twostep impairment test standard effective annual interim goodwill impairment tests performed fiscal years beginning december 15 2011 early adoption permitted adoption asu material impact company’s results operations financial condition june 2011 fasb issued asu 201105 “comprehensive income topic 220 presentation comprehensive income” “asu 201105” asu 201105 eliminates option present comprehensive income components statement stockholders’ equity accordingly standard increases prominence comprehensive income financial statements requiring comprehensive income presented either single continuous statement two consecutive statements reporting net income comprehensive income asu 201105 change items must reported comprehensive income item comprehensive income must reclassified net income standard initially required reclassification adjustments comprehensive income measured presented income statement line item face income statement december 2011 however fasb issued asc 201112 “comprehensive income topic 220 deferral effective date amendments presentation reclassifications items accumulated comprehensive income asu 201105” standard defers requirement present components reclassifications comprehensive income face statement operations deferral become effective time asu 201105 adopted asu 201105 effective fiscal years interim periods beginning december 15 2011 applied retrospectively early adoption permitted company adopt standards first quarter 2012 company present two separate consecutive statements reporting net income comprehensive income first quarter ended march 31 2012 may 2011 fasb issued asu 201104 “fair value measurement topic 820 amendments achieve common fair value measurement disclosure requirements us gaap ifrss” “asu 201104” asu 201104 clarifies existing fair value measurement concepts continues convergence towards uniform framework applying fair value measurement principles standard requires additional disclosures fair value measurements primarily level 3 measurements asu 201104 effective fiscal years interim periods beginning december 15 2011 applied prospectively early adoption prohibited company expect adoption guidance january 1 2012 material impact consolidated financial statements footnote disclosures december 2010 fasb issued asu 201029 “business combinations topic 805 disclosure supplementary pro forma information business combinations” “asu 201029” asu 201029 amends pro forma disclosure requirements business combinations specifies public companies presenting comparative financial statements disclose revenue earnings combined entity though business combinations occurring year occurred beginning comparable prior annual reporting period guidance also expands pro forma disclosure requirements include description nature amount material nonrecurring pro forma adjustments directly attributable business combinations included reported pro forma revenue earnings company adopted guidance year ended december 31 2011 note 2 acquisitions november 30 2011 company acquired gsi holdings corp “gsi” 9322 million net approximately 279 million cash acquired gsi headquartered assumption illinois leading manufacturer grain storage protein production systems gsi sells products globally independent dealers acquisition gsi provides company strong positions grain storage protein production opportunity benefit increases global grain production protein demand acquisition financed issuance 3000 million 578 senior notes agco corporation notes consolidated financial statements continued companys new credit facility note 7 company paid 9297 million purchase price december 2011 result acquisition company recorded tax benefit approximately 1493 million within “income tax benefit provision” companys consolidated statement operations year ended december 31 2011 resulting reversal portion previously established deferred tax valuation allowance reversal required offset deferred tax liabilities established part acquisition accounting gsi relating acquired amortizable intangible assets note 6 preliminary fair values assets acquired liabilities assumed acquisition date presented following table millions november 30 2011 company acquired 80 dafeng approximately 1720 million yuan approximately 270 million company acquired approximately 171 million cash assumed approximately 411 million current indebtedness associated transaction dafeng located yanzhou china manufactures complete range corn grain rice soybean harvesting machines chinese domestic markets acquisition funded available cash hand fair value noncontrolling interest dafeng 46 million recorded within “noncontrolling interests” company’s consolidated balance sheet december 31 2011 march 3 2011 company acquired remaining 50 interest laverda spa “laverda” approximately €638 million net approximately €12 million cash acquired approximately 883 million net laverda previously operating joint venture agco italian argo group located breganze italy manufactures harvesting equipment addition producing laverdabranded combines breganze factory manufactures midrange combine harvesters company’s massey ferguson fendt challenger brands distribution europe africa middle east company’s 100 ownership laverda includes ownership fellawerke gmbh german manufacturer grass hay machinery acquisition funded available cash hand addition result acquisition company recorded gain approximately 07 million remeasurement previously held equity interest within company’s consolidated statement operations year ended december 31 2011 fair value 50 previously held equity interest acquisition date approximately €536 million approximately 742 million fair value assessment determined based various valuation techniques including market multiples discounted cash flow projections january 3 2011 company acquired 50 agcoamity jv approximately 250 million net approximately 50 million cash acquired thereby creating joint venture company amity technology llc joint venture approximately 62 million indebtedness date acquisition agcoamity jv located north dakota manufactures airseeding tillage equipment investment funded available cash hand agco corporation notes consolidated financial statements continued company controlling voting interest direct activities significantly impact joint venture company consolidated joint venture’s operations company’s consolidated financial statements commencing date formation joint venture goodwill identifiable intangible assets recorded represent 100 value assets within joint venture’s financial position fair value noncontrolling interest agcoamity jv 300 million recorded within “noncontrolling interests” company’s consolidated balance sheet december 31 2011 results operations gsi dafeng laverda agcoamity jv acquisitions included company’s consolidated financial statements dates respective acquisitions company allocated purchase price acquisition assets acquired liabilities assumed based preliminary estimates fair values respective acquisition dates general acquired assets dafeng laverda agcoamity jv acquisitions consisted primarily accounts receivable property plant equipment inventories identifiable intangible assets liabilities assumed generally consisted accounts payable current indebtedness acquired identifiable intangible assets associated gsi dafeng laverda agcoamity jv acquisitions summarized collectively following table millions company recorded approximately 6066 million goodwill associated acquisitions gsi dafeng laverda agcoamity jv goodwill generally results value cash flows expected generated future compared asset intensity business none goodwill recognized expected deductible income tax purposes goodwill recorded reported follows company’s geographical reportable segments december 15 2010 company acquired sparex approximately £516 million net approximately £27 million cash acquired approximately 815 million net sparex headquartered exeter united kingdom global distributor accessories tractor replacement parts serving agricultural aftermarket operations 17 countries acquisition financed available cash hand company allocated purchase price assets acquired liabilities assumed based fair values acquisition date acquired net assets consisted primarily accounts receivable property plant equipment inventories tradenames trademarks identifiable intangible assets company recorded approximately 286 million tradename trademark customer relationship intangible assets 259 million goodwill associated acquisition sparex goodwill recorded reported within company’s europeafricamiddle east geographical reportable segment agco corporation notes consolidated financial statements continued acquired identifiable intangible assets sparex summarized following table millions following unaudited pro forma data summarizes results operations years ended december 31 2011 2010 respectively gsi dafeng laverda agcoamity jv sparex acquisitions occurred january 1 2010 unaudited pro forma information reflect impact future events may occur acquisition including limited anticipated cost savings operating synergies unaudited pro forma financial information adjusted give effect adjustments directly related business combination factually supportable expected continuing impact adjustments include application company’s accounting policies depreciation amortization related fair value adjustments property plant equipment intangible assets inventory taxrelated adjustments impact company’s issuance 3000 million 578 senior notes new credit facility used finance acquisition gsi unaudited pro forma information prepared comparative purposes purport represent results operations company actually would transactions occurred date indicated results operations may future period millions except per share data company recorded approximately 2494 million net sales approximately 25 million net income gsi dafeng laverda agcoamity jv since respective acquisition dates consolidated statement operations year ended december 31 2011 3 restructuring infrequent income expenses company recorded restructuring infrequent income expense 07 million 44 million 132 million years ended december 31 2011 2010 2009 respectively income 2011 primarily related companys reversal previously accrued legally required severance payments associated rationalization french operations charges 2010 primarily related severance related costs associated company’s rationalization operations denmark spain finland france charges 2009 primarily related severance related costs associated company’s rationalization operations france united kingdom finland germany united states denmark european north american manufacturing administrative headcount reductions 2009 2010 company announced initiated several actions rationalize employee headcount various manufacturing facilities including located france finland germany united states well various administrative offices located united kingdom spain united states 2009 2010 company recorded severance related costs approximately 129 million 22 million respectively associated actions december 31 2010 approximately 15 million severance related costs accrued associated actions 611 653 employees expected terminated 2011 company recorded reversal approximately 09 million previously accrued legally required severance payments agco corporation notes consolidated financial statements continued associated rationalization french operations due improvement european market conditions 2011 certain employees previously identified terminated france terminated planned company also recorded approximately 02 million additional severance related costs 2011 associated french rationalization net restructuring infrequent income recorded within company’s europeafricamiddle east geographical segment 2011 company paid approximately 06 million severance related costs majority remaining 03 million severance related costs accrued december 31 2011 expected paid remaining two original 653 employees identified termination expected terminated first quarter 2012 randers denmark closure november 2009 company announced closure assembly operations located randers denmark company ceased operations july 2010 completed transfer assembly operations harvesting equipment manufacturing operations laverda located breganze italy august 2010 company recorded approximately 04 million 22 million expenses 2009 2010 respectively associated facility closure primarily related employee retention payments accrued term retention period 2010 2011 company paid approximately 19 million 08 million respectively severance retention related costs associated closure december 31 2011 79 employees terminated 4 accounts receivable sales agreements securitization facilities december 31 2011 2010 company accounts receivable sales agreements permit sale ongoing basis substantially wholesale interestbearing noninterest bearing receivables north america us canadian retail finance joint ventures december 31 2011 2010 cash received receivables sold us canadian accounts receivable sales agreements approximately 5175 million 5312 million respectively december 31 2011 2010 company also accounts receivable sales agreements permit sale ongoing basis majority wholesale receivables germany france austria norway sweden relevant retail finance joint ventures countries december 31 2011 2010 cash received receivables sold accounts receivable sales agreements europe approximately 3100 million 1692 million respectively terms accounts receivable agreements north america europe company pays annual servicing fee related servicing receivables sold company also pays respective agco finance entities subsidized interest payment respect sales agreements calculated based upon libor plus margin noninterest bearing accounts receivable outstanding sold sales agreements fees reflected within losses sales receivables included within “other expense net” companys consolidated statements operations company service receivables sale occurs maintain direct retained interest receivables company reviewed accounting accounts receivable sales agreements determined facilities accounted offbalance sheet transactions company’s former european accounts receivable securitization facilities expired october 2011 wholesale accounts receivable sold revolving basis commercial paper conduits european facility whollyowned qualified special purpose entity united kingdom losses sales receivables european securitization facilities reflected within “interest expense net” company’s consolidated statements operations 2011 2010 2009 losses sales receivables associated accounts receivable financing facilities discussed reflected within “other expense net” “interest expense net” company’s consolidated statements operations approximately 220 million 161 million 2011 2010 respectively losses sales receivables primarily company’s former european us canadian securitization facilities approximately 156 million 2009 reflected within “other expense net” company’s consolidated statements operations company’s retail finance joint ventures brazil australia also provide wholesale financing company’s dealers receivables associated arrangements without recourse company service receivables sale occurs maintain direct retained interest receivables december 31 2011 2010 retail finance joint ventures approximately 620 million 502 million respectively outstanding accounts receivable associated arrangements company reviewed accounting agco corporation notes consolidated financial statements continued arrangements determined arrangements accounted offbalance sheet transactions addition company sells certain trade receivables factoring arrangements financial institutions around world company reviewed sale receivables determined arrangements accounted offbalance sheet transactions 5 investments affiliates investments affiliates december 31 2011 2010 follows millions company’s manufacturing joint ventures december 31 2011 consisted gima joint venture thirdparty manufacturer produce engines south america manufacturing joint ventures december 31 2010 also included laverda previously operating joint venture company italian argo group march 3 2011 company acquired remaining 50 interest laverda note 2 joint ventures represent minority investments farm equipment manufacturers distributors licensees company’s equity net earnings affiliates years ended december 31 2011 2010 2009 follows millions summarized combined financial information company’s retail finance joint ventures december 31 2011 2010 years ended december 31 2011 2010 2009 follows millions majority assets company’s retail finance joint ventures represents finance receivables majority liabilities represents notes payable accrued interest various joint venture agreements rabobank affiliates provide financing joint venture companies note 13 december 31 2011 2010 companys receivables affiliates approximately 1229 million 1063 million respectively receivables affiliates reflected within accounts notes receivable net within companys consolidated balance sheets agco corporation notes consolidated financial statements continued portion company’s retained earnings balance represents undistributed retained earnings equity method investees approximately 2082 million 1849 million december 31 2011 2010 respectively 6 income taxes sources income loss income taxes equity net earnings affiliates follows years ended december 31 2011 2010 2009 millions provision income taxes location taxing jurisdiction years ended december 31 2011 2010 2009 consisted following millions december 31 2011 company’s foreign subsidiaries approximately 27 billion undistributed earnings considered indefinitely invested accordingly income taxes provided earnings determination amount unrecognized deferred taxes earnings practical however unrecognized foreign tax credits would available reduce portion tax liability reconciliation income taxes computed united states federal statutory income tax rate 35 provision income taxes reflected company’s consolidated statements operations years ended december 31 2011 2010 2009 follows millions agco corporation notes consolidated financial statements continued “change valuation allowance” year ended december 31 2011 includes reversal approximately 1493 million valuation allowance previously established company’s deferred tax assets united states reversal required offset deferred tax liabilities established part acquisition accounting gsi primarily related acquired amortizable intangible assets well valuation adjustments carryover tax attributes “change valuation allowance” year ended december 31 2009 includes 395 million favorable adjustment fully offset writeoff certain foreign tax assets reflected “tax effects permanent differences” due fact tax assets expected utilized future years company previously maintained valuation allowance tax assets accordingly writeoff resulted impact company’s income tax provision year ended december 31 2009 significant components deferred tax assets liabilities december 31 2011 2010 follows millions company recorded net deferred tax liability 134 million 64 million december 31 2011 2010 respectively reflected preceding table company established valuation allowance 1458 million 2625 million december 31 2011 2010 respectively change valuation allowance years ended december 31 2011 2010 2009 decrease 1167 million increase 08 million decrease 327 million respectively valuation allowance established likely portion deferred tax assets realized company assessed likelihood deferred tax assets would recovered estimated future taxable income available tax planning strategies determined valuation allowance december 31 2011 2010 appropriate making assessment available evidence considered including current economic climate well reasonable tax planning strategies company believes likely company realize remaining deferred tax assets net valuation allowance future years company net operating loss carryforwards 6855 million december 31 2011 expiration dates follows 2012 11 million 2013 04 million 2015 690 million 2016 1328 million thereafter unlimited 4822 million net operating loss carryforwards included united states net loss carryforwards agco corporation notes consolidated financial statements continued 3354 million foreign net operating loss carryforwards 3501 million company paid income taxes 1164 million 883 million 678 million years ended december 31 2011 2010 2009 respectively december 31 2011 2010 company 711 million 482 million respectively unrecognized income tax benefits would affect company’s effective tax rate recognized december 31 2011 2010 company approximately 230 million 142 million respectively accrued deferred taxes related uncertain income tax positions connected ongoing income tax audits various jurisdictions expects settle pay next 12 months company accrues interest penalties related unrecognized tax benefits provision income taxes december 31 2011 2010 company accrued interest penalties related unrecognized tax benefits 76 million 52 million respectively reconciliation beginning ending balances total amounts gross unrecognized tax benefits year ended december 31 2011 2010 follows millions company subsidiaries file income tax returns united states various state local foreign jurisdictions company subsidiaries routinely examined tax authorities jurisdictions december 31 2011 number income tax examinations foreign jurisdictions currently ongoing possible certain ongoing examinations may resolved within 12 months due potential resolution federal state foreign examinations expiration various statutes limitation reasonably possible company’s gross unrecognized income tax benefits balance may materially change within next 12 months due number jurisdictions issues involved uncertainty regarding timing settlements company unable time provide reasonable estimate change may occur within next 12 months although ongoing examinations various jurisdictions 2008 2011 tax years generally remain subject examination united states federal state authorities company’s significant foreign jurisdictions primarily united kingdom france germany switzerland finland brazil 2006 2011 tax years generally remain subject examination respective tax authorities 2010 changes uk tax legislation affected taxation certain distributable profits subsidiary companies yet repatriated united kingdom result legislative changes approximately 50 million tax contingency reserves reclassified gross unrecognized income tax benefits reserves net impact changes gross unrecognized tax benefits reserves income statement 2010 increase 217 million agco corporation notes consolidated financial statements continued 7 indebtedness consisted following december 31 2011 2010 millions december 31 2011 aggregate scheduled maturities longterm debt excluding current portion longterm debt follows millions convertible senior subordinated notes following table sets forth december 31 2011 2010 carrying amount equity component principal amount liability component unamortized discount net carrying amount company’s former 134 convertible senior subordinated notes 114 convertible senior subordinated notes millions agco corporation notes consolidated financial statements continued following table sets forth interest expense recognized years ended december 31 2011 2010 2009 relating contractual interest coupon amortization discount liability component former 134 convertible senior subordinated notes 114 convertible senior subordinated notes millions effective interest rate liability component former 134 convertible senior subordinated notes 114 convertible senior subordinated notes years ended december 31 2011 2010 2009 61 notes unamortized discount former 134 convertible senior subordinated notes amortized december 2010 unamortized discount 114 convertible senior subordinated notes amortized december 2013 earliest dates notes’ holders could require company repurchase notes cash payments interest approximately 471 million 470 million 511 million years ended december 31 2011 2010 2009 respectively company’s 2013 million 114 convertible senior subordinated notes due december 15 2036 issued december 2006 provide settlement upon conversion cash principal amount notes excess conversion value settled shares company’s common stock ii conversion rate increased certain circumstances notes converted connection certain change control transactions occurring prior december 15 2013 interest payable notes 114 per annum payable semiannually arrears cash june 15 december 15 year notes convertible shares company’s common stock effective price 4073 per share subject adjustment reflects initial conversion rate notes 245525 shares common stock per 1000 principal amount notes contain certain antidilution provisions designed protect holders’ interests change control transaction qualifies “fundamental change” occurs prior december 15 2013 certain circumstances company increase conversion rate notes converted connection transaction number additional shares used paragraph “make whole shares” fundamental change transaction event connection 50 company’s common stock exchanged converted acquired constitutes solely right receive consideration least 90 common stock listed us national securities exchange approved quotation automated quotation system amount increase conversion rate depend effective date transaction average price per share company’s common stock effective date adjustment conversion rate made price per share common stock less 3133 per share 18000 per share number additional make whole shares range 73658 shares per 1000 principal amount 3133 per share 00083 shares per 1000 principal amount 18000 per share year ended december 15 2012 number make whole shares generally declining time acquirer certain affiliates fundamental change transaction publicly traded common stock company may instead increasing conversion rate described cause notes become convertible publicly traded common stock acquirer principal notes repaid cash balance payable shares acquirer common stock time company issue aggregate number shares company’s common stock upon conversion notes excess 319183 shares per 1000 principal amount thereof holders company’s common stock receive cash fundamental change transaction holders notes receive cash well holders may convert notes following circumstances 1 fiscal quarter closing sales price company’s common stock exceeds 120 conversion price least 20 trading days 30 consecutive trading days ending last trading day preceding fiscal quarter 2 five business day period five consecutive trading day period trading price per note day period less 98 product closing sale price company’s common stock conversion rate 3 notes called redemption 4 upon occurrence certain corporate transactions beginning december 15 2013 company may redeem notes redemption price 100 principal amount plus accrued interest well settle excess conversion value shares company’s common stock holders notes may require company repurchase notes repurchase price 100 principal amount plus accrued interest december 15 2013 2016 2021 2026 2031 well settle excess conversion value shares company’s common stock holders agco corporation notes consolidated financial statements continued may also require company repurchase portion notes upon fundamental change defined indenture repurchase price equal 100 principal amount notes repurchased plus accrued unpaid interest notes senior subordinated obligations subordinated company’s existing future senior indebtedness effectively subordinated debt liabilities company’s subsidiaries company’s former 134 convertible senior subordinated notes due december 31 2033 issued june 2005 provided settlement upon conversion cash principal amount notes excess conversion value settled shares company’s common stock notes unsecured obligations convertible cash shares company’s common stock upon satisfaction certain conditions interest payable semiannually arrears june 30 december 31 year notes convertible shares company’s common stock effective price 2236 per share subject adjustment reflected initial conversion rate notes 447193 shares common stock per 1000 principal amount notes contained certain antidilution provisions designed protect holders’ interests holders able convert notes following circumstances 1 fiscal quarter closing sales price company’s common stock exceeded 120 conversion price least 20 trading days 30 consecutive trading days ending last trading day preceding fiscal quarter 2 five business day period five consecutive trading day period trading price per note day period less 98 product closing sale price company’s common stock conversion rate 3 notes called redemption 4 upon occurrence certain corporate transactions december 31 2010 closing sales price company’s common stock exceeded 120 conversion price 1¾ convertible senior subordinated notes least 20 trading days 30 consecutive trading days ending december 31 2010 therefore company classified notes current liability future classification 1¼ convertible senior subordinated notes current longterm debt dependent closing sales price company’s common stock future quarters 2011 holders company’s 1¾ convertible senior subordinated notes converted approximately 1610 million principal amount notes company issued 3926574 shares associated 1959 million excess conversion value notes company reflected repayment principal notes totaling 1610 million within “repurchase conversion convertible senior subordinated notes” within company’s consolidated statement cash flows year ended december 31 2011 2010 company repurchased approximately 375 million principal amount 1¾ convertible senior subordinated notes plus accrued interest approximately 581 million repurchase included approximately 211 million associated excess conversion value notes resulted loss extinguishment approximately 02 million reflected “interest expense net” company reflected repurchase principal excess conversion value notes totaling 581 million within “repurchase conversion convertible senior subordinated notes” company’s consolidated statement cash flows year ended december 31 2010 addition 2010 holders company’s 134 convertible senior subordinated notes converted 27 million principal amount notes company issued 60986 shares associated 27 million excess conversion value notes loss extinguishment associated conversions notes less 01 million reflected “interest expense net” company reflected repayment principal notes totaling 27 million within “repurchase conversion convertible senior subordinated notes” within company’s consolidated statement cash flows year ended december 31 2010 5 78 senior notes december 5 2011 company completed offering 3000 million 578 senior notes due 2021 received proceeds approximately 2966 million offering related fees expenses company used net proceeds fund portion acquisition gsi notes constitute senior unsecured unsubordinated indebtedness interest payable notes semiannually arrears june 1 december 1 year time prior september 1 2021 company may redeem notes whole part time option redemption price equal greater 100of principal amount plus accrued unpaid interest including additional interest excluding redemption date ii sum present values remaining scheduled payments principal interest exclusive interest accrued date redemption discounted redemption date treasury rate plus 05 plus accrued unpaid interest including additional interest beginning september 1 2021 company may redeem notes whole part time option redemption price equal 100 principal amount plus accrued unpaid interest including additional interest agco corporation notes consolidated financial statements continued 4 12 senior term loan company’s former €2000 million 6 78 senior subordinated notes due april 15 2014 issued april 2004 redeemed price 101146 principal amount may 2 2011 company recorded loss approximately 31 million associated premium paid holders companys former 6 78 senior subordinated notes writeoff approximately 12 million unamortized deferred debt issuance costs associated redemption within “interest expense net” company’s consolidated statements operations company funded redemption notes new €2000 million term loan rabobank new term loan due may 2 2016 company ability prepay term loan maturity date interest payable notes 4 12 per annum payable quarterly arrears march 31 june 30 september 30 december 31 year term loan contains covenants restricting among things incurrence indebtedness making certain payments including dividends subject acceleration event default company also fulfill financial covenants respect total debt ebitda ratio interest coverage ratio credit facility december 1 2011 company entered new credit facility agreement providing 10 billion revolving credit term loan facility consisting 6000 million multicurrency revolving credit facility 4000 million term loan facility company used credit facility together 3000 million 578 senior notes previously discussed fund acquisition gsi new credit facility replaced company’s former 3000 million revolving credit facility discussed maturity date new credit facility december 1 2016 company required make quarterly payments towards term loan 50 million commencing march 2012 increasing 100 million commencing march 2015 interest accrues amounts outstanding credit facility company’s option either 1 libor plus margin ranging 10 20 based company’s leverage ratio 2 base rate equal higher administrative agent’s base lending rate applicable currency ii federal funds rate plus 05 iii onemonth libor loans denominated us dollars plus 10 plus margin ranging 00 05 based company’s leverage ratio credit facility contains covenants restricting among things incurrence indebtedness making certain payments including dividends subject acceleration event default company also fulfill financial covenants respect total debt ebitda ratio interest coverage ratio december 31 2011 company 6650 million outstanding borrowings credit facility availability borrow approximately 3350 million company recorded 148 million deferred costs associated issuance 3000 million 578 senior notes establishment new credit facility within “other assets” company’s consolidated balance sheet former multicurrency revolving credit facility company’s former credit facility provided 3000 million unsecured multicurrency revolving credit facility interest accrued amounts outstanding facility company’s option either 1 libor plus margin ranging 100 175 based upon company’s total debt ratio 2 higher administrative agent’s base lending rate onehalf one percent federal funds rate plus margin ranging 00 05 based upon company’s total debt ratio facility contained covenants restricting among things incurrence indebtedness making certain payments including dividends subject acceleration event default defined facility company also fulfill financial covenants respect total debt ebitda ratio interest coverage ratio defined former credit facility december 31 2010 company outstanding borrowings former credit facility availability borrow 2902 million standby letters credit similar instruments company arrangements various banks issue standby letters credit similar instruments guarantee company’s obligations purchase sale certain inventories potential claims exposure insurance coverage december 31 2011 2010 outstanding letters credit totaled 156 million 98 million respectively agco corporation notes consolidated financial statements continued 8 employee benefit plans company sponsors defined benefit pension plans covering certain employees principally united states united kingdom germany finland norway france switzerland australia argentina company also provides certain postretirement health care life insurance benefits certain employees principally united states brazil 2010 company determined gima joint venture longer consolidated company’s results operations financial position company controlling financial interest gima amounts disclosed year ended december 31 2009 retroactively restated reflect deconsolidation gima net annual pension costs years ended december 31 2011 2010 2009 set forth millions weighted average assumptions used determine net annual pension costs company’s pension plans years ended december 31 2011 2010 2009 follows net annual postretirement benefit costs years ended december 31 2011 2010 2009 set forth millions except percentages agco corporation notes consolidated financial statements continued following tables set forth reconciliations changes benefit obligation plan assets funded status december 31 2011 2010 millions agco corporation notes consolidated financial statements continued accrued pension costs approximately 41 million 32 million classified current liabilities within “accrued expenses” company’s consolidated balance sheets december 31 2011 2010 respectively related company’s phased retirement plan obligations germany december 31 2011 company’s accumulated comprehensive loss included net actuarial loss approximately 2993 million net prior service credit approximately 03 million related company’s defined benefit pension plans estimated net actuarial loss net prior service credit defined benefit pension plans expected amortized company’s accumulated comprehensive loss year ended december 31 2012 approximately 94 million 01 million respectively december 31 2011 company’s accumulated comprehensive loss included net actuarial loss approximately 94 million net prior service cost approximately 01 million related company’s us brazilian postretirement health care benefit plans estimated net actuarial loss net prior service credit postretirement health care benefit plans expected amortized company’s accumulated comprehensive loss year ended december 31 2012 approximately 04 million 02 million respectively weighted average assumptions used determine benefit obligation company’s pension plans december 31 2011 2010 follows weighted average discount rate used determine benefit obligation company’s postretirement benefit plans years ended december 31 2011 2010 48 56 respectively aggregate projected benefit obligation accumulated benefit obligation fair value plan assets pension postretirement plans accumulated benefit obligations excess plan assets 7908 million 7149 million 5141 million respectively december 31 2011 7354 million 6695 million 5219 million respectively december 31 2010 projected benefit obligation accumulated benefit obligation fair value plan assets company’s usbased qualified pension plans accumulated benefit obligations excess plan assets 497 million 497 million 335 million respectively december 31 2011 475 million 475 million 359 million respectively december 31 2010 company’s accumulated comprehensive loss december 31 2011 reflects reduction equity 3085 million net taxes 823 million primarily related company’s uk pension plan projected benefit obligation exceeded plan assets addition company’s accumulated comprehensive loss december 31 2011 reflects reduction equity approximately 08 million net taxes 02 million related company’s gima joint venture amount represents 50 gima’s unrecognized net actuarial losses unrecognized prior service cost associated pension plan company’s accumulated comprehensive loss december 31 2010 reflected reduction equity 2402 million net taxes 673 million primarily related company’s uk pension plan projected benefit obligation exceeded plan assets addition company’s accumulated comprehensive loss december 31 2010 reflected reduction equity approximately 09 million net taxes 03 million related company’s gima fella joint ventures amount represented 50 gima’s unrecognized net actuarial losses unrecognized prior service cost associated pension plan 50 fella’s unrecognized net actuarial losses associated pension plan march 2011 company acquired remaining 50 laverda fella previously operating joint ventures note 2 therefore 100 fella’s unrecognized net actuarial losses associated pension plan included company’s accumulated comprehensive loss december 31 2011 years ended december 31 2011 2010 company used discount rate setting methodology countries largest benefit obligations exist take advantage globally consistent methodology united states united kingdom euro zone company constructed hypothetical bond portfolio high quality agco corporation notes consolidated financial statements continued corporate bonds applied cash flows company’s benefit plans bond yields derive discount rate bond portfolio planspecific cash flows vary country methodology yield curve constructed consistent united states bond portfolio large enough result taking “settlement approach” derive discount rate high quality corporate bonds assumed purchased resulting coupon payments maturities used satisfy company’s largest us pension plan’s projected benefit payments united kingdom euro zone discount rate derived using “yield curve approach” individual spot rate zero coupon bond yield future annual period developed discount future benefit payment thereby determine present value future payments year ended december 31 2009 company based discount rate used determine projected benefit obligation us pension plans postretirement health care benefit plans executive nonqualified pension plan “enpp” matching projected cash flows largest pension plan citigroup pension discount curve uk plan company derived discount rate based yield curve developed constituents merrill lynch aa rated corporate bond index discount rate uk plan year ended december 31 2009 single weightedaverage rate based approximate future cash flows plan countries within euro zone company derived aarated corporate bond yield curve selecting bonds included iboxx corporate indices creating discount rate curve based series model cash flows discount rates plan determined based plan’s liability duration indices used united states united kingdom countries chosen match expected plan obligations related expected cash flows time investment strategy concentration risk weighted average asset allocation company’s us pension benefit plans december 31 2011 2010 follows weighted average asset allocation company’s nonus pension benefit plans december 31 2011 2010 follows asc 820 “fair value measurements” “asc 820” establishes framework measuring fair value framework provides fair value hierarchy prioritizes inputs valuation techniques used measure fair value hierarchy gives highest priority unadjusted quoted prices active markets identical assets liabilities level 1 measurements lowest priority unobservable inputs level 3 measurements three levels fair value hierarchy asc 820 described follows level 1 inputs valuation methodology unadjusted quoted prices identical assets liabilities active markets company ability access level 2 inputs valuation methodology include • quoted prices similar assets liabilities active markets • quoted prices identical similar assets liabilities inactive markets • inputs quoted prices observable asset liability • inputs derived principally corroborated observable market data correlation means agco corporation notes consolidated financial statements continued asset liability specified contractual term level 2 input must observable substantially full term asset liability level 3 inputs valuation methodology unobservable significant fair value measurement asset’s liability’s fair value measurement level within fair value hierarchy based lowest level input significant fair value measurement company’s valuation techniques designed maximize use observable inputs minimize use unobservable inputs company uses following valuation methodologies measure fair value plan assets equity securities equity securities valued basis closing price per unit business day reported applicable exchange fixed income fixed income securities valued using closing prices active market fixed income investment trades fixed income funds valued using nav fund based fair value underlying securities cash investments primarily consist short term investment funds valued using net asset value alternative investments pooled funds investments reported fair value determined general partner alternative investment pooled fund “market approach” valuation technique used value investments funds typically openend funds generally offer subscription redemption options investors frequency subscriptions redemptions dictated funds governing documents amount liquidity provided investors particular fund generally consistent liquidity risk associated underlying portfolio ie liquid investments portfolio greater liquidity provided investors liquidity individual funds varies based various factors may include “gates” “holdbacks” “side pockets” imposed manager fund well redemption fees may also apply investments funds typically valued utilizing net asset valuations provided underlying investment managers general partners administrators funds consider subscription redemption rights including restrictions disposition interest determination fair value insurance contracts insurance contracts valued using current prevailing interest rates agco corporation notes consolidated financial statements continued fair value company’s pension assets december 31 2011 follows millions 1 75 fixed income securities investmentgrade corporate bonds 21 government treasuries 4 various fixed income securities 2 23 alternative investments multistrategy funds 17 longshort equity funds 15 eventdriven funds 15 relative value funds 13 credit funds 17 distributed hedged nonhedged funds 3 “miscellaneous funds” comprised pooled funds australia insurance contracts finland norway switzerland following reconciliation level 3 assets december 31 2011 millions agco corporation notes consolidated financial statements continued fair value company’s pension assets december 31 2010 follows millions 1 42 “fixed income” securities government treasuries 23 investmentgrade corporate bonds 10 foreign bonds 25 various fixed income securities 2 29 “alternative investments” longshort equity funds 14 multistrategy funds 14 eventdriven funds 12 relative value funds 8 credit funds 23 distributed hedged nonhedged funds 3 “miscellaneous funds” comprised pooled funds australia various contracts finland norway switzerland following reconciliation level 3 assets december 31 2010 millions taxqualified pension fund investments united states held agco corporation master pension trust company’s global pension fund strategy diversify investments across broad categories equity fixed income securities appropriate use alternative investment categories minimize risk volatility primary investment objective company’s pension plans secure participant retirement benefits key objective pension plans’ financial management promote stability extent appropriate growth funded status investment strategy plans’ portfolio assets balances requirement generate returns need control risk asset mix recognized primary mechanism influence reward risk structure pension fund investments effort accomplish plans’ funding objectives overall investment strategy usbased pension plans achieve mix approximately 20 assets nearterm benefit payments 80 longerterm growth overall us pension funds invest broad diversification asset types company’s us target allocation agco corporation notes consolidated financial statements continued retirement fund investments 40 large smallcap domestic equity securities 15 international equity securities 20 broad fixed income securities 25 alternative investments company noted long periods mix investments would achieve average return excess 785 arriving choice expected return assumption 775 december 31 2011 usbased plans company tempered historical indicator lower expectations returns equity investment future well administrative costs plans overall investment strategy nonus based pension plans achieve mix approximately 32 assets nearterm benefit payments 68 longerterm growth overall nonus pension funds invest broad diversification asset types company’s nonus target allocation retirement fund investments 40 equity securities 30 broad fixed income investments 30 alternative investments majority company’s nonus pension fund investments related company’s pension plan united kingdom company noted long periods mix investments would achieve average return excess 75 arriving choice expected return assumption 7 ukbased plans company tempered historical indicator lower expectations returns equity investment future well administrative costs plans equity securities primarily include investments largecap smallcap companies located across globe fixed income securities include corporate bonds companies diversified industries mortgagebacked securities agency mortgages assetbacked securities government securities alternative assets include investments hedge fund funds follow diversified investment strategies date company invested pension funds stock intention future within asset class careful consideration given balancing portfolio among industry sectors geographies interest rate sensitivity dependence economic growth currency factors affecting investment returns assets managed professional investment firms bound precise mandates measured specific benchmarks among asset managers consideration given among others balancing security concentration issuer concentration investment style reliance particular active investment strategies measuring expected us postretirement benefit obligation december 31 2011 company assumed 80 health care cost trend rate 2012 decreasing 50 2018 measuring expected us postretirement benefit obligation december 31 2010 company assumed 85 health care cost trend rate 2010 decreasing 50 2018 measuring brazilian postretirement benefit plan obligation december 31 2011 2010 company assumed 100 health care cost trend rate 2011 2010 respectively decreasing 55 2021 2020 respectively changing assumed health care cost trend rates one percentage point year holding assumptions constant would following effect service interest cost 2011 accumulated postretirement benefit obligation december 31 2011 millions company currently estimates minimum contributions usbased defined pension plans 2012 aggregate approximately 43 million company currently estimates benefit payments 2012 usbased postretirement health care life insurance benefit plans aggregate approximately 18 million benefits 2012 brazilian postretirement health care benefit plans aggregate approximately 01 million company currently estimates minimum contributions underfunded plans benefit payments unfunded plans 2012 nonus based defined pension plans aggregate approximately 313 million approximately 207 million relates uk pension plan agco corporation notes consolidated financial statements continued 2011 approximately 473 million benefit payments made related company’s pension plans december 31 2011 aggregate expected benefit payments company’s pension plans follows millions 2011 approximately 16 million benefit payments made related company’s us brazilian postretirement benefit plans december 31 2011 aggregate expected benefit payments company’s us brazilian postretirement benefit plans follows millions company participates small number multiemployer plans netherlands sweden company assessed determined none multiemployer plans participates individually aggregate significant companys financial statements company expect incur withdrawal liability expect significantly increase contributions remainder multiemployer plans contract periods enpp provides group senior company executives retirement income period 15 years based percentage average final salary bonus reduced executive’s social security benefits 401k employer matching contributions account executive made maximum contribution benefit paid executives ranges 225 300 highest three nonconsecutive years respective base salaries plus bonus final ten years employment prior termination “final earnings” multiplied credited years service maximum benefit 60 final earnings depending level executive nearly participants benefits enpp vest participant attained age 50 least ten years service five years include years participation enpp payable participant reaches age 65 upon termination services death disability adjusted reflect payment prior age 65 net annual enpp cost measurement assumptions plans years ended december 31 2011 2010 2009 set forth millions except percentages agco corporation notes consolidated financial statements continued following tables set forth reconciliations changes benefit obligation funded status december 31 2011 2010 millions weighted average discount rate used determine benefit obligation enpp years ended december 31 2011 2010 46 54 respectively december 31 2011 company’s accumulated comprehensive loss included net actuarial loss approximately 69 million net prior service cost approximately 65 million related enpp estimated net actuarial loss net prior service cost related enpp expected amortized company’s accumulated comprehensive loss year ended december 31 2012 approximately 03 million 09 million respectively december 31 2011 2010 company recorded reduction equity 134 million 56 million respectively related unfunded projected benefit obligation enpp company benefiting losses tax purposes united states tax impact charges 2011 approximately 08 million benefit payments made related enpp december 31 2011 aggregate expected benefit payments enpp follows millions company maintains separate defined contribution plans covering certain employees primarily united states united kingdom brazil plans company contributes specified percentage eligible employee’s compensation company contributed approximately 96 million 90 million 91 million years ended december 31 2011 2010 2009 respectively company participates small number multiemployer plans netherlands sweden company assessed determined none multiemployer plans participates individually aggregate significant company’s consolidated financial statements company expect incur withdrawal liability expect significantly increase contributions remainder contract period agco corporation notes consolidated financial statements continued 9 common stock december 31 2011 company 1500 million authorized shares common stock par value 001 per share approximately 972 million shares common stock outstanding approximately 54 million shares reserved issuance company’s 2006 longterm incentive plan “2006 plan” note 10 company stockholder rights plan adopted april 1994 following stockholder approval plan provides share common stock outstanding attached right purchase onehundredth share junior cumulative preferred stock par value 001 per share purchase price per onehundredth share 11000 subject adjustment rights exercisable person group “acquirer” acquires 20 company’s common stock announces tender offer exchange offer would result acquisition 20 company’s common stock circumstances additional conditions met exercisable plan allows stockholders acquirer purchase company’s common stock securities acquirer current market value two times exercise price right rights redeemable 001 per right subject adjustment option company’s board directors rights expire april 26 2014 unless extended redeemed exchanged company date 10 stock incentive plans 2006 plan 100 million shares agco common stock may issued 2006 plan allows company direction board directors’ compensation committee make grants performance shares stock appreciation rights stock options restricted stock awards employees officers nonemployee directors company employee plans 2006 plan encompasses stock incentive plans company executives key managers primary longterm incentive plan performance share plan provides awards shares company’s common stock based achieving financial targets earnings per share return invested capital determined company’s board directors company’s incentive plan includes margin growth incentive plan provides awards shares company’s common stock based achieving operating margin targets determined company’s board directors stock awards 2006 plan earned performance period number shares earned determined based cumulative average results period depending measurement performance periods longterm incentive plan consecutive overlapping threeyear cycles performance targets set beginning cycle longterm incentive plan provides participants earn 33 200 target awards depending actual performance achieved shares earned performance established minimum target performance period margin growth incentive plan three fiveyear cycle commencing january 2011 performance targets set beginning cycle margin incentive plan provides participants earn 33 300 target awards depending actual performance achieved shares earned performance established minimum target awards earned 2006 plan paid shares common stock end performance period compensation expense associated awards amortized ratably vesting performance period based company’s projected assessment level performance achieved earned april 21 2011 company’s shareholders approved amendment restatement 2006 plan including increase number shares available issuance 2006 plan 50 million shares total 100 million shares available grant compensation expense recorded 2011 2010 2009 respect awards granted based upon stock price grant date weighted average grantdate fair value performance awards granted 2006 plan 2011 2010 2009 5273 3362 2155 respectively based level performance achieved december 31 2011 shares earned issued 20092011 performance period based level performance achieved december 31 2010 77685 shares earned 20082010 performance period 51590 shares issued 2011 net 26095 shares withheld taxes related earned awards 2006 plan allows participant option forfeiting portion shares awarded lieu cash payment contributed participant’s tax withholding satisfy participant’s statutory minimum federal state employment taxes would payable time grant agco corporation notes consolidated financial statements continued 2011 company granted 672492 awards threeyear performance period commencing 2011 ending 2013 assuming maximum target level performance achieved company also granted 818361 awards margin growth incentive plan performance period commencing 2011 ending 2016 assuming maximum target level performance achieved operating margin improvement performance award transactions 2011 follows presented company achieve maximum levels performance plan december 31 2011 total compensation cost related unearned performance awards yet recognized assuming company’s current projected assessment level performance achieved earned approximately 438 million weighted average period expected recognized approximately three years december 6 2007 board directors company approved two retentionbased restricted stock awards 2000000 company’s chairman president chief executive officer first award granted december 6 2007 totaled 28839 shares vest fiveyear period rate 25 end third year 25 end fourth year 50 end fifth year second award granted december 5 2008 totaled 99010 shares vest fouryear period rate 25 end second year 25 end third year 50 end fourth year vesting subject continued employment company date vesting except certain circumstances change control company recognizes stock compensation expense ratably vesting period grant addition performance share plans certain executives key managers eligible receive grants stocksettled appreciation rights “ssars” incentive stock options depending participant’s country employment ssars provide participant right receive aggregate appreciation stock price market price company’s common stock date grant payable shares company’s common stock participant may exercise ssar time grant vested later seven years date grant ssars vest ratably fouryear period date grant ssar award grants made certain executives key managers 2006 plan made base price equal price company’s common stock date grant company recorded stock compensation expense approximately 26 million 25 million 23 million associated ssar award grants 2011 2010 2009 respectively compensation expense associated awards amortized ratably vesting period company estimated fair value grants using blackscholes option pricing model company utilized “simplified” method estimating expected term granted ssars year ended december 31 2011 afforded sec staff accounting bulletin “sab” 107 “sharebased payment sab topic 14” sab 110 “sharebased payment sab topic 14d2” expected term used value grant simplified method midpoint vesting date contractual term ssar company granting ssars since april 2006 believe sufficient relevant experience regarding employee exercise behavior agco corporation notes consolidated financial statements continued weighted average grantdate fair value ssars granted 2006 plan weighted average assumptions blackscholes option model follows years ended december 31 2011 2010 2009 ssar transactions year ended december 31 2011 follows december 31 2011 weighted average remaining contractual life ssars outstanding approximately four years december 31 2011 total compensation cost related unvested ssars yet recognized approximately 50 million weightedaverage period expected recognized approximately three years following table sets forth exercise price range number shares weighted average exercise price remaining contractual lives groups similar price total fair value ssars vested 2011 approximately 22 million 458244 ssars vested december 31 2011 total intrinsic value outstanding exercisable ssars december 31 2011 80 million 38 million respectively total intrinsic value ssars exercised 2011 approximately 35 million company realized insignificant tax benefit exercise ssars agco corporation notes consolidated financial statements continued january 25 2012 company granted 496400 performance award shares subject company achieving future target levels performance 295400 ssars 2006 plan director restricted stock grants pursuant 2006 plan nonemployee directors receive annual restricted stock grants company’s common stock shares restricted transferability period three years subject forfeiture event director departs company’s board directors nontransferability period expires immediately plan allows director option forfeiting portion shares awarded lieu cash payment contributed participant’s tax withholding satisfy statutory minimum federal state employment taxes would payable time grant 2011 grant made april 21 2011 equated 16560 shares common stock 12034 shares common stock issued shares withheld taxes company recorded stock compensation expense approximately 09 million 2011 associated grants december 31 2011 100 million shares reserved issuance 2006 plan approximately 54 million shares available grant assuming maximum number shares earned related performance award grants discussed stock option plan grants company’s option plan since 2002 company intend make grants option plan future company’s outstanding stock options fully vested stock option transactions 2011 follows december 31 2011 2000 outstanding exercisable stock options exercise price 2085 remaining contractual life less one year intrinsic value less 01 million total intrinsic value options exercised years ended december 31 2011 2010 2009 approximately 05 million 09 million 00 million respectively cash proceeds received stock option exercises 2011 2010 2009 approximately 03 million 05 million 00 million respectively company realized insignificant tax benefit exercise options 11 derivative instruments hedging activities derivatives recognized company’s consolidated balance sheets fair value date derivative contract entered company designates derivative either 1 fair value hedge recognized liability 2 cash flow hedge forecasted transaction 3 hedge net investment foreign operation 4 nondesignated derivative instrument agco corporation notes consolidated financial statements continued company formally documents relationships hedging instruments hedged items well risk management objectives strategy undertaking various hedge transactions company formally assesses hedge’s inception ongoing basis whether derivatives used hedging transactions highly effective offsetting changes fair values cash flow hedged items determined derivative longer highly effective hedge accounting discontinued prospective basis foreign currency risk company significant manufacturing operations united states france germany finland brazil purchases portion tractors combines components thirdparty foreign suppliers primarily various european countries japan company also sells products 140 countries throughout world company’s significant transactional foreign currency exposures euro brazilian real canadian dollar relation united states dollar euro relation british pound company attempts manage transactional foreign exchange exposure hedging foreign currency cash flow forecasts commitments arising anticipated settlement receivables payables future purchases sales naturally offsetting currency positions occur company hedges certain exposures use foreign currency contracts company’s translation exposure resulting translating financial statements foreign subsidiaries united states dollars hedged practical translation impact reduced financing local operations local borrowings foreign currency contracts primarily forward options contracts’ fair value measurements fall within level 2 fair value hierarchy asu 201006 “fair value measurements disclosures topic 820 improving disclosures fair value measurements” level 2 fair value measurements generally based upon quoted market prices similar instruments active markets quoted prices identical similar instruments markets active modelderived valuations significant inputs significant valuedrivers observable active markets fair value foreign currency forward contracts based valuation model discounts cash flows resulting differential contract price marketbased forward rate fair value foreign currency option contracts based valuation model utilizes spot forward exchange rates interest rates currency pair volatility company’s senior management establishes company’s foreign currency interest rate risk management policies reviewed periodically audit committee company’s board directors policies allow use derivative instruments hedge exposures movements foreign currency interest rates company’s policies prohibit use derivative instruments speculative purposes cash flow hedges 2011 2010 2009 company designated certain foreign currency contracts cash flow hedges expected future sales purchases effective portion fair value gains losses cash flow hedges recorded comprehensive income loss subsequently reclassified cost goods sold period sales purchases recognized amounts offset effect changes foreign currency rates related sale purchase transactions amount gain loss recorded comprehensive income loss reclassified cost goods sold years ended december 31 2011 2010 2009 approximately 52 million 31 million 145 million respectively aftertax basis amount loss gain recorded comprehensive income loss related outstanding cash flow hedges december 31 2011 2010 2009 approximately 43 million 12 million 13 million respectively aftertax basis outstanding contracts december 31 2011 range maturity december 2012 agco corporation notes consolidated financial statements continued following table summarizes activity accumulated comprehensive income loss related derivatives held company years ended december 31 2011 2010 2009 millions 1 rounding may impact summation amounts december 31 2011 2010 company outstanding foreign currency contracts notional amount approximately 2759 million 1111 million respectively entered hedge forecasted sale purchase transactions derivative transactions designated hedging instruments 2011 2010 2009 company entered foreign currency contracts hedge receivables payables company subsidiaries’ balance sheets denominated foreign currencies functional currency contracts classified nondesignated derivative instruments december 31 2011 2010 company outstanding foreign currency contracts notional amount approximately 9568 million 10023 million respectively entered hedge receivables payables denominated foreign currencies functional currency changes fair value contracts reported “other expense net” years ended december 31 2011 2010 2009 company recorded net loss approximately 136 million net gain approximately 373 million 510 million respectively caption “other expense net” related contracts gains losses contracts substantially offset losses gains remeasurement underlying asset liability hedged table sets forth fair value derivative instruments december 31 2011 millions agco corporation notes consolidated financial statements continued table sets forth fair value derivative instruments december 31 2010 millions counterparty risk company regularly monitors counterparty risk credit ratings counterparties derivative instruments company believes exposures appropriately diversified across counterparties creditworthy financial institutions company perceives risk counterparty company would cease business counterparty negative impacts company nonperformance counterparties agco corporation notes consolidated financial statements continued 12 commitments contingencies future payments required company’s significant commitments december 31 2011 follows millions 1 estimated interest payments calculated assuming current interest rates minimum maturity periods specified debt agreements debt may repaid sooner later minimum maturity periods unaudited 2 unconditional purchase obligations exclude routine purchase orders entered normal course business 3 shortterm longterm obligations include estimates future minimum contribution requirements company’s us nonus defined benefit pension postretirement plans estimates based current legislation countries company operates within subject change shortterm longterm obligations also include income tax liabilities related uncertain income tax positions connected ongoing income tax audits various jurisdictions unaudited offbalance sheet arrangements guarantees company maintains remarketing agreement us retail finance joint venture whereby company obligated repurchase repossessed inventory market values company agreement us retail finance joint venture limits company’s purchase obligations arrangement 60 million aggregate per calendar year company believes losses might incurred resale equipment materially impact company’s financial position results operations due fair value underlying equipment december 31 2011 company guaranteed indebtedness owed third parties approximately 1346 million primarily related dealer enduser financing equipment guarantees generally obligate company repay outstanding finance obligations owed financial institutions dealers end users default loans 2016 company believes credit risk associated guarantees material financial position results operations losses guarantees historically insignificant addition company generally would expect able recover significant portion amounts paid guarantees sale underlying financed farm equipment fair value equipment expected sufficient offset substantial portion amounts paid december 31 2011 company outstanding designated nondesignated foreign exchange contracts gross notional amount approximately 12327 million outstanding contracts december 31 2011 range maturity december 2012 note 11 company sells substantially wholesale accounts receivable north america company’s us canadian retail finance joint ventures large portion wholesale accounts receivable retail finance joint ventures europe company also sells certain accounts receivable factoring arrangements financial institutions around agco corporation notes consolidated financial statements continued world company reviewed sale receivables determined facilities accounted offbalance sheet transactions total lease expense noncancelable operating leases 572 million 502 million 485 million years ended december 31 2011 2010 2009 respectively contingencies result brazilian tax legislative changes impacting value added taxes “vat” company recorded reserve approximately 374 million 223 million outstanding balance brazilian vat taxes receivable december 31 2011 2010 respectively due uncertainty company’s ability collect amounts outstanding june 27 2008 republic iraq filed civil action federal court new york case 08 civ 59617 naming defendants company’s french subsidiary two foreign subsidiaries participated united nations oil food program “program” ninetyone entities companies also named defendants civil action due participation program complaint purports assert claims defendants seeking damages unspecified amount although company’s subsidiaries intend vigorously defend action possible time predict outcome action impact company although outcome adverse company could required pay damages addition french government also investigating company’s french subsidiary connection participation program august 2008 part routine audit brazilian taxing authorities disallowed deductions relating amortization certain goodwill recognized connection reorganization company’s brazilian operations related transfer certain assets company’s brazilian subsidiaries amount tax disallowance december 31 2011 including interest penalties approximately 906 million brazilian reais approximately 486 million amount ultimately dispute greater interest penalties company advised legal tax advisors position respect deductions allowable tax laws brazil company contesting disallowance believes likely assessment interest penalties required paid however ultimate outcome determined brazilian tax appeal process complete could take several years company party various legal claims actions incidental business company believes none claims actions either individually aggregate material business financial statements whole including results operations financial condition 13 related party transactions rabobank financial institution based netherlands 51 owner company’s retail finance joint ventures located united states canada germany france united kingdom austria ireland netherlands denmark italy sweden brazil argentina australia rabobank also principal agent participant company’s revolving credit facility note 7 majority assets company’s retail finance joint ventures represents finance receivables majority liabilities represents notes payable accrued interest various joint venture agreements rabobank affiliates provide financing joint venture companies primarily lines credit 2011 2010 company made total approximately 83 million 254 million respectively investments retail finance joint ventures germany netherlands brazil primarily related additional capital required result increased retail finance portfolios 2011 2010 company’s retail finance joint ventures provide retail financing wholesale financing dealers terms financing arrangements offered company’s dealers similar arrangements retail finance joint ventures provide unaffiliated third parties addition company transfers ongoing basis substantially wholesale interestbearing noninterest bearing accounts receivable north america retail finance joint ventures united states canada company also transfers ongoing basis majority wholesale receivables germany france austria norway sweden relevant retail finance joint ventures countries note 4 company maintains remarketing agreement us retail finance joint venture note 12 addition part sales incentives provided end users company may time subsidize interest rates retail financing provided retail finance joint ventures cost programs recognized time sale company’s dealers agco corporation notes consolidated financial statements continued 2011 2010 2009 company paid approximately 52 million 36 million 34 million respectively ppg industries inc painting materials used company’s manufacturing processes company’s chairman president chief executive officer currently member board directors ppg industries inc 14 segment reporting company’s four reportable segments distribute full range agricultural equipment related replacement parts company evaluates segment performance primarily based income operations sales segment based location thirdparty customer company’s selling general administrative expenses engineering expenses charged segment based region division expenses incurred result components income operations one segment may comparable another segment results years ended december 31 2011 2010 2009 based company’s reportable segments follows millions agco corporation notes consolidated financial statements continued reconciliation segment information consolidated balances income operations total assets set forth millions net sales customer location years ended december 31 2011 2010 2009 follows millions net sales product years ended december 31 2011 2010 2009 follows millions agco corporation notes consolidated financial statements continued property plant equipment amortizable intangible assets country december 31 2011 2010 follows millions item 9item 8 financial statements supplementary data following consolidated financial statements agco subsidiaries years threeyear period ended december 31 2012 included item information heading “quarterly results” item 7 page 27 form 10k incorporated herein reference report independent registered public accounting firm board directors stockholders agco corporation audited accompanying consolidated balance sheets agco corporation subsidiaries december 31 2012 2011 related consolidated statements operations comprehensive income stockholders’ equity cash flows years threeyear period ended december 31 2012 connection audits consolidated financial statements also audited financial statement schedule listed item 15a2 consolidated financial statements financial statement schedule responsibility company’s management responsibility express opinion consolidated financial statements financial statement schedule based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements referred present fairly material respects financial position agco corporation subsidiaries december 31 2012 2011 results operations cash flows years threeyear period ended december 31 2012 conformity us generally accepted accounting principles also opinion related financial statement schedule considered relation basic consolidated financial statements taken whole presents fairly material respects information set forth therein also audited accordance standards public company accounting oversight board united states agco corporation’s internal control financial reporting december 31 2012 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission coso report dated february 27 2013 expressed unqualified opinion effectiveness company’s internal control financial reporting kpmg llp atlanta georgia february 27 2013 agco corporation consolidated statements operations millions except per share data see accompanying notes consolidated financial statements agco corporation consolidated statements comprehensive income millions see accompanying notes consolidated financial statements agco corporation consolidated balance sheets millions except share amounts see accompanying notes consolidated financial statements agco corporation consolidated statements stockholders’ equity millions except share amounts see accompanying notes consolidated financial statements agco corporation consolidated statements cash flows millions see accompanying notes consolidated financial statements agco corporation notes consolidated financial statements 1 operations summary significant accounting policies business agco corporation subsidiaries “agco” “company” leading manufacturer distributor agricultural equipment related replacement parts throughout world company sells full range agricultural equipment including tractors combines hay tools sprayers forage equipment tillage implements grain storage protein production systems company’s products widely recognized agricultural equipment industry marketed number wellknown brand names including challenger® fendt® massey ferguson® valtra® gsi® company distributes products combination approximately 3150 independent dealers distributors addition company provides retail financing united states canada germany france united kingdom austria ireland netherlands denmark italy sweden norway brazil argentina australia retail finance joint ventures coöperatieve centrale raiffeisenboerenleenbank ba “rabobank” basis presentation company’s consolidated financial statements represent consolidation whollyowned companies majorityowned companies joint ventures company determined primary beneficiary company records investments affiliate companies using equity method accounting significant influence investments including representing ownership less 20 recorded cost significant intercompany balances transactions eliminated consolidated financial statements certain prior period amounts reclassified conform current period presentation basis consolidation joint ventures variable interest entities gima joint venture agco claas tractor sas cooperate field purchasing design manufacturing components agricultural tractors party 50 ownership interest joint venture investment approximately €42 million joint venture parties purchase production output joint venture company consolidate gima joint venture company’s results operations financial position company controlling financial interest gima based shared powers joint venture partners direct activities significantly impact gima’s financial performance rabobank 51 owner company’s retail finance joint ventures located united states canada germany france united kingdom austria ireland netherlands denmark italy sweden norway brazil argentina australia majority assets company’s retail finance joint ventures represents finance receivables majority liabilities represents notes payable accrued interest various joint venture agreements rabobank affiliates provide financing joint venture companies primarily lines credit company guarantee debt obligations retail finance joint ventures company’s retail finance joint ventures provide retail financing wholesale financing dealers notes 4 13 company determined retail finance joint ventures meet consolidation requirements accounted voting interest model making determination company evaluated sufficiency equity risk retail finance joint venture ability joint venture investors make decisions joint ventures’ activities significant effect success entities economic performance obligations absorb expected losses joint ventures rights receive expected residual returns january 3 2011 company acquired 50 agcoamity jv llc “agcoamity jv” thereby creating joint venture company amity technology llc agcoamity jv located north dakota manufactures airseeding tillage equipment company controlling voting interest direct activities significantly impact joint venture company consolidated joint venture’s operations company’s results operations financial position commencing date formation joint venture 2012 company acquired 61 santal equipamentos sa comércio e indústria “santal” manufacturer distributor sugar cane planting harvesting handling transportation equipment well replacement parts across brazil company controlling voting interest direct activities significantly impact agco corporation notes consolidated financial statements continued santal company consolidated santal’s operations company’s results operations financial position commencing date acquisition revenue recognition sales equipment replacement parts recorded company title risks ownership transferred independent dealer distributor customer certain countries sales certain grain storage protein production systems company responsible construction installation recorded completion project payment terms vary market product fixed payment schedules sales terms sale generally require purchase order confirmation accompany shipments title generally passes dealer distributor upon shipment risk loss upon damage theft destruction equipment responsibility dealer distributor thirdparty carrier certain foreign countries company retains form title goods delivered dealers dealer makes payment company recover goods event customer default payment occurs laws foreign countries provide seller’s retention security interest goods manner established united states uniform commercial code right company retains respect title enabling recovery goods event customer default payment dealer distributor may return equipment replacement parts contract company force replacement parts may returned promotional annual return programs provisions returns programs made time sale based terms program historical returns experience company may provide certain sales incentives dealers distributors provisions sales incentives made time sale existing incentive programs provisions revised event subsequent modification incentive program see “accounts notes receivable” discussion united states canada equipment sales dealers immediately due upon retail sale equipment dealer exception sales grain storage protein production systems previously paid dealer united states canada installment payments required generally beginning interestfree period remaining outstanding equipment balance generally due within 12 months shipment interest generally charged outstanding balance six 12 months shipment sales terms highly seasonal products provide payment due dates based specified date year regardless shipment date equipment sold dealers united states canada paid full average within 12 months shipment sales replacement parts generally payable within 30 days shipment terms larger seasonal stock orders generally requiring payment within six months shipment sales grain storage protein production systems generally payable within 30 days shipment international markets equipment sales generally payable full within 30 180 days shipment payment terms highly seasonal products specified due date year regardless shipment date sales replacement parts generally payable within 30 90 days shipment terms larger seasonal stock orders generally payable within six months shipment certain markets particularly north america time lag varies based timing level retail demand date company records sale dealer sells equipment retail customer foreign currency translation financial statements company’s foreign subsidiaries translated united states currency accordance accounting standard codification “asc” 830 “foreign currency matters” assets liabilities translated united states dollars periodend exchange rates income expense items translated average rates exchange prevailing period translation adjustments included “accumulated comprehensive loss” stockholders’ equity within company’s consolidated balance sheets gains losses result foreign currency transactions included accompanying consolidated statements operations use estimates preparation financial statements conformity us generally accepted accounting principles “gaap” requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ estimates made management primarily relate accounts notes receivable inventories deferred income tax valuation allowances goodwill identifiable agco corporation notes consolidated financial statements continued intangible assets certain accrued liabilities principally relating reserves volume discounts sales incentives warranty obligations product liability workers’ compensation obligations pensions postretirement benefits cash equivalents cash december 31 2012 2011 4036 million 3204 million respectively consisted primarily cash hand bank deposits company considers investments original maturity three months less cash equivalents cash equivalents december 31 2012 2011 3777 million 4040 million respectively consisted primarily money market deposits certificates deposits overnight investments accounts notes receivable accounts notes receivable arise sale equipment replacement parts independent dealers distributors customers payments due company’s terms sale generally range one 12 months contingent upon sale equipment dealer distributor retail customer normal circumstances payment terms extended equipment may returned certain regions respect equipment sales including united states canada company obligated repurchase equipment replacement parts upon cancellation dealer distributor contract obligations required national state provincial laws require company repurchase dealer distributor’s unsold inventory including inventories receivable already paid company offers various sales terms respect products sales markets outside united states canada company normally charge interest outstanding receivables dealers distributors sales certain dealers distributors united states canada interest charged prime lending rates outstanding receivable balances interestfree periods interestfree periods vary product generally range one 12 months exception certain seasonal products bear interest various periods 23 months depending time year sale dealer distributor’s sales volume preceding year company’s north american geographical reportable segment comprises approximately 259 company’s total net sales 2012 year ended december 31 2012 225 30 company’s net sales maximum interestfree periods ranging one six months seven 12 months respectively related north american geographical reporting segment net sales maximum interestfree periods ranging 13 23 months approximately 04 company’s net sales 2012 actual interestfree periods shorter equipment receivable dealers distributors united states canada due immediately upon sale equipment retail customer normal circumstances interest forgiven interestfree periods extended company agreement permit transferring ongoing basis substantially wholesale interestbearing noninterest bearing accounts receivable north america us canadian retail finance joint ventures upon transfer receivables maintain standard payment terms including required regular principal payments amounts outstanding interest charges market rates company also accounts receivable sales agreements permit sale ongoing basis majority accounts receivables germany france austria norway sweden relevant agco finance entities countries upon transfer receivables maintain standard payment terms qualified dealers may obtain additional financing company’s us canadian european retail finance joint ventures joint ventures’ discretion company provides various volume bonus sales incentive programs respect products sales incentive programs include reductions invoice prices reductions retail financing rates dealer commissions dealer incentive allowances cases incentive programs established communicated company’s dealers quarterly basis incentives paid either time invoice reduction invoice price time settlement receivable time retail financing time warranty registration subsequent time based dealer purchases incentive programs productline specific generally vary dealer cost sales incentives associated dealer commissions dealer incentive allowances estimated based upon terms programs historical experience based percentage sales price recorded later date related revenue recognized b date sales incentive offered related provisions accruals made product productline basis monitored adequacy revised least quarterly event subsequent modifications programs volume discounts estimated recognized based historical experience related reserves monitored adjusted based actual dealer purchases dealers’ progress towards achieving specified cumulative target levels company records cost interest subsidy payments reduction retail financing rates later date related revenue recognized b date sales incentive offered estimates incentives based terms programs historical experience incentive agco corporation notes consolidated financial statements continued programs recorded presented reduction revenue due fact company receive identifiable benefit exchange consideration provided reserves incentive programs paid either reduction future invoices credit memos recorded “accounts receivable allowances” within company’s consolidated balance sheets reserves incentive programs paid cash case company’s volume discount programs well sales incentives associated accounts receivable sold us canadian retail finance joint ventures recorded within “accrued expenses” within company’s consolidated balance sheets accounts notes receivable shown net allowances sales incentive discounts available dealers doubtful accounts cash flows related collection receivables reported within “cash flows operating activities” within company’s consolidated statements cash flows accounts notes receivable allowances december 31 2012 2011 follows millions company transfers certain accounts receivable accounts receivable sales agreements retail finance joint ventures note 4 company records transfers sales accounts receivable considered surrendered control receivables provisions accounting standards update “asu” 200916 “transfers servicing topic 860 accounting transfers financial assets” cash payments made company’s us canadian retail finance joint ventures sales incentive discounts provided dealers related outstanding accounts receivables sold balances sales discount reserves recorded within “accrued expenses” december 31 2012 2011 approximately 1437 million 911 million respectively inventories valued lower cost market using firstin firstout method market current replacement cost purchase reproduction dependent type inventory cases market exceeds net realizable value ie estimated selling price less reasonably predictable costs completion disposal inventories stated net realizable value market considered less net realizable value reduced allowance approximately normal profit margin december 31 2012 2011 company recorded 992 million 1068 million respectively adjustment surplus obsolete inventories adjustments reflected within “inventories net” within company’s consolidated balance sheets inventories net december 31 2012 2011 follows millions cash flows related sale inventories reported within “cash flows operating activities” within company’s consolidated statements cash flows property plant equipment property plant equipment recorded cost less accumulated depreciation amortization depreciation provided straightline basis estimated useful lives 10 40 years buildings improvements 3 15 years machinery equipment 3 10 years furniture fixtures expenditures maintenance repairs charged expense incurred agco corporation notes consolidated financial statements continued property plant equipment net december 31 2012 2011 consisted following millions goodwill intangible assets longlived assets asc 350 “intangibles goodwill other” establishes method testing goodwill indefinitelived intangible assets impairment annual basis interim basis event occurs circumstances change would reduce fair value reporting unit carrying value company’s annual qualitative quantitative assessments involve determining estimate fair value company’s reporting units order evaluate whether impairment current carrying amount goodwill indefinitelived intangible assets exists qualitative assessment evaluates whether likely reporting unit’s fair value less carrying amount applying twostep quantitative goodwill impairment test first step quantitative goodwill impairment test used identify potential impairment compares fair value reporting unit carrying amount including goodwill fair value reporting unit exceeds carrying amount goodwill reporting unit considered impaired thus second step quantitative impairment test unnecessary carrying amount reporting unit exceeds fair value second step quantitative goodwill impairment test performed measure amount impairment loss fair values derived based evaluation past expected future performance company’s reporting units reporting unit operating segment one level operating segment example component operating segment reporting unit component constitutes business discrete financial information available company’s executive management team regularly reviews operating results component addition company combines aggregates two components operating segment single reporting unit components similar economic characteristics company’s reportable segments reporting units second step quantitative goodwill impairment test used measure amount impairment loss compares implied fair value reporting unit goodwill carrying amount goodwill carrying amount reporting unit goodwill exceeds implied fair value goodwill impairment loss recognized amount equal excess loss recognized cannot exceed carrying amount goodwill implied fair value goodwill determined manner amount goodwill recognized business combination company allocates fair value reporting unit assets liabilities unit including unrecognized intangible assets reporting unit acquired business combination fair value reporting unit price paid acquire reporting unit excess fair value reporting unit amounts assigned assets liabilities implied fair value goodwill company utilizes combination valuation techniques including discounted cash flow approach market multiple approach making quantitative goodwill assessments company reviews longlived assets include intangible assets subject amortization impairment whenever events changes circumstances indicate carrying amount asset may recoverable impairment loss recognized undiscounted future cash flows estimated generated asset held used sufficient recover unamortized balance asset impairment loss would recognized based difference carrying values estimated fair value estimated fair value determined based either discounted future cash flows appropriate fair value methods amount deficiency charged income current year asset tested recoverability acquired business combination intangible assets resulting acquisition related asset included assessment estimates future cash flows based many factors including current operating results expected market trends competitive influences company also evaluates amortization periods assigned intangible assets determine whether events changes circumstances warrant revised estimates useful lives assets disposed sale reported lower carrying amount fair value less estimated costs sell agco corporation notes consolidated financial statements continued operating results company’s chinese harvesting business since date acquisition november 2011 combined recently completed forecasts resulted company’s conclusion fourth quarter 2012 likely fair value chinese harvesting reporting unit less carrying amount therefore company conducted quantitative goodwill impairment analysis october 1 2012 chinese harvesting business also reviewed longlived assets impairment october 1 2012 including trademark distribution network land use right identifiable intangible assets goodwill longlived asset impairment analyses indicated reduction carrying amount chinese harvesting business’s goodwill certain identifiable intangible assets required accordingly company recorded impairment charge approximately 224 million within “impairment charge” company’s consolidated statement operations year ended december 31 2012 chinese harvesting business operates within asiapacific geographical reportable segment company’s accumulated goodwill impairment approximately 1805 million comprised approximately 91 million recorded 2012 related chinese harvesting reporting unit approximately 1714 million recorded 2006 related company’s sprayer reporting unit sprayer reporting unit operates within north american geographical reportable segment results company’s goodwill impairment analysis conducted october 1 2012 indicated reduction carrying amount goodwill required results company’s goodwill impairment analysis conducted october 1 2011 2010 indicated reduction carrying amount company’s goodwill required changes carrying amount goodwill years ended december 31 2012 2011 2010 summarized follows millions 2012 2011 2010 company reduced goodwill financial reporting purposes approximately 78 million 91 million 86 million respectively related realization tax benefits associated excess tax basis deductible goodwill resulting company’s acquisition valtra agco corporation notes consolidated financial statements continued company amortizes certain acquired identifiable intangible assets primarily straightline basis estimated useful lives range 5 45 years acquired intangible assets weighted average useful life follows years ended december 31 2012 2011 2010 acquired intangible asset amortization 493 million 216 million 184 million respectively company estimates amortization existing intangible assets 480 million 2013 400 million 2014 399 million 2015 388 million 2016 384 million 2017 company previously determined two trademarks indefinite useful life massey ferguson trademark existence since 1952 formed merger masseyharris established 1890’s ferguson established 1930’s massey ferguson brand currently sold 140 countries worldwide making one widely sold tractor brands world company also identified valtra trademark indefinitelived asset valtra trademark existence since late 1990’s derivative valmet trademark existence since 1951 valtra valmet used interchangeably marketplace today valtra recognized tractor line valmet name valtra brand currently sold approximately 50 countries around world massey ferguson brand valtra brand primary product lines company’s business company plans use trademarks indefinite period time company plans continue make investments product development enhance value brands future legal regulatory contractual competitive economic factors company aware company believes would limit useful lives trademarks massey ferguson valtra trademark registrations renewed nominal cost countries company operates changes carrying amount acquired intangible assets 2012 2011 summarized follows millions agco corporation notes consolidated financial statements continued accrued expenses accrued expenses december 31 2012 2011 consisted following millions warranty reserves warranty reserve activity years ended december 31 2012 2011 2010 consisted following millions company’s agricultural equipment products generally warranty defects materials workmanship period one four years company accrues future warranty costs time sale based agco corporation notes consolidated financial statements continued historical warranty experience approximately 330 million 278 million warranty reserves included “other noncurrent liabilities” company’s consolidated balance sheets december 31 2012 2011 respectively insurance reserves company’s insurance programs coverage obtained significant liability limits well risks required insured law contract policy company selfinsure portion certain expected losses related primarily workers’ compensation comprehensive general product vehicle liability provisions losses expected programs recorded based company’s estimates aggregate liabilities claims incurred stock incentive plans stock compensation expense recorded follows millions refer note 10 additional information regarding company’s stock incentive plans 2012 2011 2010 research development expenses research development expenses expensed incurred included engineering expenses company’s consolidated statements operations advertising costs company expenses advertising costs incurred cooperative advertising costs normally expensed time revenue earned advertising expenses years ended december 31 2012 2011 2010 totaled approximately 650 million 563 million 446 million respectively shipping handling expenses shipping handling fees charged customers included component net sales shipping handling costs included part cost goods sold exception certain handling costs included selling general administrative expenses amount 310 million 299 million 268 million years ended december 31 2012 2011 2010 respectively interest expense net interest expense net years ended december 31 2012 2011 2010 consisted following millions income taxes income taxes accounted asset liability method deferred tax assets liabilities recognized future tax consequences attributable differences financial statement carrying amounts existing assets liabilities respective tax bases operating loss tax credit carryforwards deferred tax assets liabilities agco corporation notes consolidated financial statements continued measured using enacted tax rates expected apply taxable income years temporary differences expected recovered settled effect deferred tax assets liabilities change tax rates recognized income period includes enactment date refer note 6 additional information regarding company’s income taxes net income per common share basic income per common share computed dividing net income weighted average number common shares outstanding period diluted income per common share assumes exercise outstanding stock options stocksettled stock appreciation rights “ssars” vesting restricted stock performance share awards appreciation excess conversion value contingently convertible senior subordinated notes using treasury stock method effects assumptions dilutive company’s 2013 million aggregate principal amount 114 convertible senior subordinated notes provides settlement upon conversion cash principal amount converted notes excess conversion value settled shares company’s common stock ii conversion rate increased certain circumstances new notes converted connection certain change control transactions dilution weighted shares outstanding depend company’s stock price excess conversion value using treasury stock method note 7 reconciliation net income attributable agco corporation subsidiaries weighted average common shares outstanding purposes calculating basic diluted income per share years ended december 31 2012 2011 2010 follows millions except per share data ssars purchase 06 million shares year ended december 31 2012 03 million shares years ended 2011 2010 outstanding included calculation weighted average common equivalent shares outstanding antidilutive impact agco corporation notes consolidated financial statements continued comprehensive income loss company reports comprehensive income loss defined total net income loss nonowner changes equity components thereof consolidated statements stockholders’ equity consolidated statements comprehensive income components comprehensive income loss related tax effects years ended december 31 2012 2011 2010 follows millions financial instruments carrying amounts reported company’s consolidated balance sheets “cash equivalents” “accounts notes receivable” “accounts payable” approximate fair value due immediate shortterm maturity financial instruments carrying amounts longterm debt company’s 4½ senior term loan credit facility note 7 approximate fair value based borrowing rates currently available company loans similar terms average maturities december 31 2012 estimated fair values company’s 578 senior notes 114 convertible notes note 7 based listed market values 3272 million 2506 million respectively compared carrying values 3000 million 1921 million respectively december 31 2011 estimated fair values company’s 578 senior notes 114 convertible notes note 7 based listed market values 2989 million 2524 million respectively compared carrying values 3000 million 1834 million respectively agco corporation notes consolidated financial statements continued company uses foreign currency contracts hedge foreign currency exposure certain receivables payables contracts periods consistent exposure hedged generally maturities one year less contracts classified nondesignated derivative instruments company also enters foreign currency contracts designated cash flow hedges expected sales company’s foreign currency contracts mitigate risk due exchange rate fluctuations gains losses contracts generally offset gains losses exposure hedged notional amounts foreign currency contracts represent amounts exchanged parties therefore measure company’s risk amounts exchanged calculated basis notional amounts terms contracts credit market risks contracts considered significant company’s hedging policy prohibits entering foreign currency contracts speculative trading purposes refer note 11 additional information regarding companys derivative instruments hedging activities recent accounting pronouncements february 2013 financial accounting standards board “fasb” issued asu 201302 “comprehensive income topic 220 reporting amounts reclassified accumulated comprehensive income” “asu 201302” asu 201302 change current requirements reporting net income comprehensive income financial statements standard requires entity present one place either face statement net income presented footnotes effect significant reclassifications accumulated comprehensive income respective line items net income amount reclassified required us gaap reclassified entirety net income amounts required us gaap reclassified entirety net income reporting period standard requires entity crossreference disclosures required us gaap provide additional detail amounts standard effective reporting periods beginning december 15 2012 early adoption permitted company adopted guidance january 1 2013 july 2012 fasb issued asu 201202 “intangiblesgoodwill topic 350 testing indefinitelived intangible assets impairment” “asu 201202” asu 201202 permits entity make qualitative assessment whether likely indefinitelived intangible asset impaired entity concludes likely fair value asset exceeds carrying amount need calculate fair value asset year standard effective annual interim impairment tests performed fiscal years beginning september 15 2012 early adoption permitted adoption asu material impact company’s results operations financial condition september 2011 fasb issued asu 201108 “intangiblesgoodwill topic 350 testing goodwill impairment” “asu 201108” asu 201108 permits entity make qualitative assessment whether likely reporting unit’s fair value less carrying amount applying twostep goodwill impairment test entity concludes likely fair value reporting unit less carrying amount need perform twostep impairment test standard effective annual interim goodwill impairment tests performed fiscal years beginning december 15 2011 early adoption permitted adoption asu material impact company’s results operations financial condition june 2011 fasb issued asu 201105 “comprehensive income topic 220 presentation comprehensive income” “asu 201105” asu 201105 increases prominence comprehensive income financial statements asu 201105 change items must reported comprehensive income item comprehensive income must reclassified net income standard initially required reclassification adjustments comprehensive income measured presented income statement line item face statement operations december 2011 however fasb issued asu 201112 “comprehensive income topic 220 deferral effective date amendments presentation reclassifications items accumulated comprehensive income asu 201105” standard defers requirement present components reclassifications comprehensive income face statement operations company adopted standards consecutively presenting consolidated statements operations consolidated statements comprehensive income years ended december 31 2012 2011 2010 may 2011 fasb issued asu 201104 “fair value measurement topic 820 amendments achieve common fair value measurement disclosure requirements us gaap ifrss” “asu 201104” asu 201104 clarifies existing fair value measurement concepts continues convergence towards uniform framework applying agco corporation notes consolidated financial statements continued fair value measurement principles standard requires additional disclosures fair value measurements primarily level 3 measurements asu 201104 effective fiscal years interim periods beginning december 15 2011 applied prospectively adoption standard material impact company’s consolidated financial statements footnote disclosures 2 acquisitions january 2012 company acquired 61 santal approximately r367 million net approximately r119 million cash acquired approximately 201 million net santal headquartered ribeirão preto brazil manufactures distributes sugar cane planting harvesting handling transportation equipment well replacement parts across brazil acquisition santal provide company’s customers brazil wider range agricultural products services acquisition funded available cash hand company recorded approximately 280 million goodwill approximately 26 million trade name trademark patent identifiable intangible assets associated acquisition goodwill generally results value cash flows expected generated future compared asset intensity business goodwill reported within company’s south american geographical reportable segment company seller call option put option respectively varying dates respect remaining 39 interest santal fair value redeemable noncontrolling interest santal recorded within “temporary equity” company’s condensed consolidated balance sheet acquisition date acquired identifiable intangible assets santal summarized following table millions november 30 2011 company acquired gsi holdings corp “gsi” 9322 million net approximately 279 million cash acquired gsi headquartered assumption illinois leading manufacturer grain storage protein production systems gsi sells products globally independent dealers acquisition financed issuance 3000 million 578 senior notes company’s credit facility note 7 result acquisition company recorded tax benefit approximately 1493 million within “income tax benefit provision” company’s consolidated statement operations year ended december 31 2011 resulting reversal portion previously established deferred tax valuation allowance reversal required offset deferred tax liabilities established part acquisition accounting gsi relating acquired amortizable intangible assets note 6 final fair values assets acquired liabilities assumed acquisition date presented following table millions november 30 2011 company acquired 98 shandong dafeng machinery co ltd “dafeng” approximately 1717 million yuan approximately 269 million company acquired approximately 171 million cash assumed approximately 411 million indebtedness associated transaction dafeng located yanzhou china manufactures complete range corn grain rice soybean harvesting machines chinese domestic markets acquisition funded available cash hand fair value noncontrolling interest dafeng recorded agco corporation notes consolidated financial statements continued within “noncontrolling interests” company’s consolidated balance sheet acquisition date fourth quarter 2012 company recorded impairment charge approximately 224 million within “impairment charge” company’s consolidated statement operations associated writedown chinese harvesting reporting unit’s goodwill certain identifiable intangible assets refer note 1 additional information march 3 2011 company acquired remaining 50 interest laverda spa “laverda” approximately €638 million net approximately €12 million cash acquired approximately 883 million net laverda previously operating joint venture agco italian argo group located breganze italy manufactures harvesting equipment addition producing laverdabranded combines breganze factory manufactures midrange combine harvesters company’s massey ferguson fendt challenger brands distribution europe africa middle east company’s 100 ownership laverda includes ownership fellawerke gmbh german manufacturer grass hay machinery acquisition funded available cash hand january 3 2011 company acquired 50 agcoamity jv approximately 250 million net approximately 50 million cash acquired thereby creating joint venture company amity technology llc joint venture approximately 62 million indebtedness date acquisition agcoamity jv located north dakota manufactures airseeding tillage equipment investment funded available cash hand company controlling voting interest direct activities significantly impact joint venture company consolidated joint venture’s operations company’s consolidated financial statements commencing date formation joint venture goodwill identifiable intangible assets recorded represent 100 value assets within joint venture’s financial position fair value noncontrolling interest agcoamity jv recorded within “noncontrolling interests” company’s consolidated balance sheet acquisition date december 15 2010 company acquired sparex approximately £516 million net approximately £27 million cash acquired approximately 815 million net sparex headquartered exeter united kingdom global distributor accessories tractor replacement parts serving agricultural aftermarket operations 17 countries acquisition financed available cash hand results operations santal gsi dafeng laverda agcoamity jv sparex acquisitions included company’s consolidated financial statements dates respective acquisitions company allocated purchase price acquisition assets acquired liabilities assumed based fair values respective acquisition dates general acquired assets acquisitions consisted primarily accounts receivable inventories property plant equipment identifiable intangible assets liabilities assumed generally consisted accounts payable indebtedness agco corporation notes consolidated financial statements continued following unaudited pro forma data summarizes results operations years ended december 31 2011 2010 respectively prior years’ acquisitions occurred january 1 2010 unaudited pro forma information reflect impact future events may occur acquisition including limited anticipated cost savings operating synergies unaudited pro forma financial information adjusted give effect adjustments directly related business combination factually supportable expected continuing impact adjustments include application company’s accounting policies depreciation amortization related fair value adjustments property plant equipment intangible assets inventory taxrelated adjustments impact company’s issuance 3000 million 578 senior notes new credit facility used finance acquisition gsi unaudited pro forma information prepared comparative purposes purport represent results operations company actually would transactions occurred date indicated results operations may future period millions except per share data 3 restructuring infrequent income expenses company recorded restructuring infrequent income expense approximately 00 million 07 million 44 million years ended december 31 2012 2011 2010 respectively income 2011 primarily related company’s reversal previously accrued legally required severance payments associated rationalization french operations charges 2010 primarily related severance related costs associated company’s rationalization operations denmark spain finland france european north american manufacturing administrative headcount reductions 2009 2010 company announced initiated several actions rationalize employee headcount various manufacturing facilities including located france finland germany united states well various administrative offices located united kingdom spain united states 2010 company recorded severance related costs approximately 22 million associated actions 2011 company recorded reversal approximately 09 million previously accrued legally required severance payments associated rationalization french operations company also recorded approximately 02 million additional restructuringrelated costs 2011 associated french rationalization net restructuring infrequent costs income recorded within company’s europeafricamiddle east geographical segment 2010 2011 2012 remaining 03 million severance related costs associated rationalizations accrued december 31 2011 paid remaining employees identified termination terminated randers denmark closure july 2010 company ceased assembly operations located randers denmark august 2010 company completed transfer assembly operations harvesting equipment manufacturing operations laverda located breganze italy company recorded approximately 22 million expenses 2010 associated facility closure primarily related employee retention payments accrued term retention period december 31 2011 severance retention related costs associated closure paid employees identified termination terminated agco corporation notes consolidated financial statements continued 4 accounts receivable sales agreements december 31 2012 2011 company accounts receivable sales agreements permit sale ongoing basis majority wholesale receivables north america europe 49 owned us canadian european retail finance joint ventures december 31 2012 2011 cash received receivables sold us canadian european accounts receivable sales agreements approximately 11 billion 8275 million respectively terms accounts receivable sales agreements north america europe company pays annual servicing fee related servicing receivables sold company also pays respective agco finance entities subsidized interest payment respect sales agreements calculated based upon libor plus margin noninterest bearing accounts receivable outstanding sold sales agreements fees reflected within losses sales receivables included within “other expense net” company’s consolidated statements operations company service receivables sale occurs maintain direct retained interest receivables company reviewed accounting accounts receivable sales agreements determined facilities accounted offbalance sheet transactions company’s former european accounts receivable securitization facilities expired october 2011 wholesale accounts receivable sold revolving basis commercial paper conduits european facilities whollyowned qualified special purpose entity united kingdom losses sales receivables company’s former european securitization facilities reflected within “interest expense net” company’s consolidated statements operations 2011 2010 losses sales receivables associated accounts receivable financing facilities discussed reflected within “other expense net” “interest expense net” company’s consolidated statements operations approximately 218 million 220 million 161 million 2012 2011 2010 respectively company’s retail finance joint ventures brazil australia also provide wholesale financing company’s dealers receivables associated arrangements without recourse company service receivables sale occurs maintain direct retained interest receivables december 31 2012 2011 retail finance joint ventures approximately 1006 million 620 million respectively outstanding accounts receivable associated arrangements company reviewed accounting arrangements determined arrangements accounted offbalance sheet transactions addition company sells certain trade receivables factoring arrangements financial institutions around world company reviewed sale receivables determined arrangements accounted offbalance sheet transactions 5 investments affiliates investments affiliates december 31 2012 2011 follows millions company’s manufacturing joint ventures december 31 2012 consisted gima joint ventures thirdparty manufacturers assemble tractors algeria engines south america joint ventures represent minority investments farm equipment manufacturers distributors licensees agco corporation notes consolidated financial statements continued company’s equity net earnings affiliates years ended december 31 2012 2011 2010 follows millions summarized combined financial information company’s retail finance joint ventures december 31 2012 2011 years ended december 31 2012 2011 2010 follows millions majority assets company’s retail finance joint ventures represents finance receivables majority liabilities represents notes payable accrued interest various joint venture agreements rabobank affiliates provide financing joint venture companies note 13 december 31 2012 2011 company’s receivables affiliates approximately 415 million 1229 million respectively receivables affiliates reflected within accounts notes receivable net within company’s consolidated balance sheets portion company’s retained earnings balance represents undistributed retained earnings equity method investees approximately 2460 million 2082 million december 31 2012 2011 respectively 6 income taxes sources income loss income taxes equity net earnings affiliates follows years ended december 31 2012 2011 2010 millions agco corporation notes consolidated financial statements continued provision income taxes location taxing jurisdiction years ended december 31 2012 2011 2010 consisted following millions december 31 2012 company’s foreign subsidiaries approximately 29 billion undistributed earnings considered indefinitely invested accordingly income taxes provided earnings determination amount unrecognized deferred taxes earnings practical however unrecognized foreign tax credits would available reduce portion tax liability reconciliation income taxes computed united states federal statutory income tax rate 35 provision income taxes reflected company’s consolidated statements operations years ended december 31 2012 2011 2010 follows millions “change valuation allowance” year ended december 31 2012 primarily relates usage approximately 547 million valuation allowance due income generated united states 2012 income tax provision also includes reversal approximately 138 million remaining valuation allowance previously established company’s us deferred tax assets reflected “change valuation allowance” well recognition certain us research development tax credits approximately 131 million company assessed likelihood remaining us deferred tax assets would recovered estimable future taxable income determined reversal appropriate fourth quarter 2012 result improved profitability 2012 company’s core equipment business inclusion gsi business acquired end 2011 recently completed forecasts projecting future profitability combined businesses “change valuation allowance” year ended december 31 2011 includes reversal approximately 1493 million valuation allowance previously established company’s deferred tax assets united states reversal required offset deferred tax liabilities established part acquisition accounting gsi primarily related acquired amortizable intangible assets well valuation adjustments carryover tax attributes agco corporation notes consolidated financial statements continued significant components deferred tax assets liabilities december 31 2012 2011 follows millions company recorded net deferred tax asset 412 million net deferred tax liability 134 million december 31 2012 2011 respectively reflected preceding table company valuation allowance 745 million 1458 million december 31 2012 2011 respectively change valuation allowance years ended december 31 2012 2011 2010 decrease 713 million increase 1167 million decrease 08 million respectively valuation allowance established likely portion deferred tax assets realized company assessed likelihood deferred tax assets would recovered estimated future taxable income available tax planning strategies determined valuation allowance december 31 2012 2011 appropriate making assessment available evidence considered including current economic climate well reasonable tax planning strategies company believes likely company realize remaining deferred tax assets net valuation allowance future years company net operating loss carryforwards 4751 million december 31 2012 expiration dates follows 2013 11 million 2014 02 million 2016 648 million thereafter unlimited 4090 million net operating loss carryforwards included united states net loss carryforwards 1070 million foreign net operating loss carryforwards 3681 million company paid income taxes 1477 million 1164 million 883 million years ended december 31 2012 2011 2010 respectively december 31 2012 2011 company 945 million 711 million respectively unrecognized income tax benefits would affect company’s effective tax rate recognized december 31 2012 2011 company approximately 235 million 230 million respectively accrued deferred taxes related uncertain income tax positions connected ongoing income tax audits various jurisdictions expects settle pay next 12 months company accrued approximately 38 million 26 million interest penalties related unrecognized agco corporation notes consolidated financial statements continued tax benefits provision income taxes 2012 2011 respectively december 31 2012 2011 company accrued interest penalties related unrecognized tax benefits 119 million 76 million respectively reconciliation beginning ending balances total amounts gross unrecognized tax benefits years ended december 31 2012 2011 follows millions company subsidiaries file income tax returns united states various state local foreign jurisdictions company subsidiaries routinely examined tax authorities jurisdictions december 31 2012 number income tax examinations foreign jurisdictions currently ongoing possible certain ongoing examinations may resolved within 12 months due potential resolution federal state foreign examinations expiration various statutes limitation reasonably possible company’s gross unrecognized income tax benefits balance may materially change within next 12 months due number jurisdictions issues involved uncertainty regarding timing settlements company unable time provide reasonable estimate change may occur within next 12 months although ongoing examinations various jurisdictions 2009 2012 tax years generally remain subject examination united states federal state authorities company’s significant foreign jurisdictions primarily united kingdom france germany switzerland finland brazil 2007 2012 tax years generally remain subject examination respective tax authorities brazil company contesting disallowed deductions related amortization certain goodwill amounts note 12 7 indebtedness consisted following december 31 2012 2011 millions agco corporation notes consolidated financial statements continued december 31 2012 aggregate scheduled maturities longterm debt excluding current portion longterm debt follows millions convertible senior subordinated notes following table sets forth december 31 2012 2011 carrying amount equity component principal amount liability component unamortized discount net carrying amount company’s 114 convertible senior subordinated notes millions following table sets forth interest expense recognized years ended december 31 2012 2011 2010 relating contractual interest coupon amortization discount liability component company’s former 134 convertible senior subordinated notes 114 convertible senior subordinated notes millions effective interest rate liability component former 134 convertible senior subordinated notes year ended december 31 2010 114 convertible senior subordinated notes years ended december 31 2012 2011 2010 61 unamortized discount former 134 convertible senior subordinated notes amortized december 2010 unamortized discount 114 convertible senior subordinated notes amortized december 2013 earliest dates notes’ holders could require company repurchase notes cash payments interest approximately 700 million 471 million 470 million years ended december 31 2012 2011 2010 respectively company’s 114 convertible senior subordinated notes due december 15 2036 issued december 2006 provide settlement upon conversion cash principal amount notes excess conversion value settled shares company’s common stock ii conversion rate increased certain circumstances notes converted connection certain change control transactions occurring prior december 15 2013 interest payable notes 114 per annum payable semiannually arrears cash june 15 december 15 agco corporation notes consolidated financial statements continued year notes convertible shares company’s common stock effective price 4073 per share subject adjustment reflects initial conversion rate notes 245525 shares common stock per 1000 principal amount notes contain certain antidilution provisions designed protect holders’ interests change control transaction qualifies “fundamental change” occurs prior december 15 2013 certain circumstances company increase conversion rate notes converted connection transaction number additional shares used paragraph “make whole shares” fundamental change transaction event connection 50 company’s common stock exchanged converted acquired constitutes solely right receive consideration least 90 common stock listed us national securities exchange approved quotation automated quotation system amount increase conversion rate depend effective date transaction average price per share company’s common stock effective date adjustment conversion rate made price per share common stock less 3133 per share 18000 per share number additional make whole shares range 73658 shares per 1000 principal amount 3133 per share 00000 shares per 1000 principal amount 18000 per share year ended december 15 2013 acquirer certain affiliates fundamental change transaction publicly traded common stock company may instead increasing conversion rate described cause notes become convertible publicly traded common stock acquirer principal notes repaid cash balance payable shares acquirer common stock time company issue aggregate number shares company’s common stock upon conversion notes excess 319183 shares per 1000 principal amount thereof holders company’s common stock receive cash fundamental change transaction holders notes receive cash well holders may convert notes following circumstances 1 fiscal quarter closing sales price company’s common stock exceeds 120 conversion price least 20 trading days 30 consecutive trading days ending last trading day preceding fiscal quarter 2 five business day period five consecutive trading day period trading price per note day period less 98 product closing sale price company’s common stock conversion rate 3 notes called redemption 4 upon occurrence certain corporate transactions beginning december 19 2013 company may redeem notes redemption price 100 principal amount plus accrued interest well settle excess conversion value shares company’s common stock holders notes may require company repurchase notes repurchase price 100 principal amount plus accrued interest december 15 2013 2016 2021 2026 2031 well settle excess conversion value shares company’s common stock holders may also require company repurchase portion notes upon fundamental change defined indenture repurchase price equal 100 principal amount notes repurchased plus accrued unpaid interest notes senior subordinated obligations subordinated company’s existing future senior indebtedness effectively subordinated debt liabilities company’s subsidiaries holders company’s 1¼ convertible senior subordinated notes may require company repurchase notes repurchase price 100 principal amount plus interest december 15 2013 therefore company classified notes current liability company also classified approximately 92 million equity component 1¼ convertible senior subordinated notes “temporary equity” amount classified “temporary equity” measured excess amount cash would required paid upon conversion ii current carrying amount liabilityclassified component due redemption feature notes unless converted prior date notes required classified current liability least december 15 2013 future classification notes current liabilities longterm debt beyond december 15 2013 dependent closing sales price company’s common stock future quarters fourth quarter 2015 unless company chooses redeem notes beginning december 19 2013 holders notes may convert notes earlier december 15 2013 dependent closing sales price company’s common stock future quarters 2013 previously discussed december 31 2011 closing sales price company’s common stock exceeded 120 conversion price 1¼ convertible senior subordinated notes least 20 trading days 30 consecutive trading days ending december 31 2011 therefore company classified notes longterm debt 2011 holders company’s former 1¾ convertible senior subordinated notes converted approximately 1610 million principal amount notes company issued 3926574 shares common stock associated 1959 million excess conversion value notes company reflected repayment principal notes totaling 1610 million within “repurchase conversion convertible senior subordinated notes” within company’s consolidated statement cash flows year ended december 31 2011 2010 company repurchased approximately 375 million principal amount 1¾ convertible senior subordinated notes plus accrued interest approximately 581 million repurchase included approximately 211 million associated excess conversion value notes addition 2010 holders company’s 134 convertible senior subordinated notes converted 27 million agco corporation notes consolidated financial statements continued principal amount notes company issued 60986 shares common stock associated 27 million excess conversion value notes company reflected transactions totaling 608 million within “repurchase conversion convertible senior subordinated notes” within company’s consolidated statement cash flows year ended december 31 2010 4 12 senior term loan company’s €2000 million approximately 2642 million 412 senior term loan rabobank due may 2 2016 company ability prepay term loan maturity date interest payable term loan 412 per annum payable quarterly arrears march 31 june 30 september 30 december 31 year term loan contains covenants restricting among things incurrence indebtedness making certain payments including dividends subject acceleration event default company also fulfill financial covenants respect total debt ebitda ratio interest coverage ratio 5 78 senior notes company’s 3000 million 578 senior notes due 2021 constitute senior unsecured unsubordinated indebtedness interest payable notes semiannually arrears june 1 december 1 year time prior september 1 2021 company may redeem notes whole part time option redemption price equal greater 100 principal amount plus accrued unpaid interest including additional interest excluding redemption date ii sum present values remaining scheduled payments principal interest exclusive interest accrued date redemption discounted redemption date treasury rate plus 05 plus accrued unpaid interest including additional interest beginning september 1 2021 company may redeem notes whole part time option redemption price equal 100 principal amount plus accrued unpaid interest including additional interest credit facility company’s revolving credit term loan facility consists 6000 million multicurrency revolving credit facility 3800 million term loan facility maturity date company’s credit facility december 1 2016 company required make quarterly payments towards term loan 50 million commencing march 2012 increasing 100 million commencing march 2015 interest accrues amounts outstanding credit facility company’s option either 1 libor plus margin ranging 10 20 based company’s leverage ratio 2 base rate equal higher administrative agent’s base lending rate applicable currency ii federal funds rate plus 05 iii onemonth libor loans denominated us dollars plus 10 plus margin ranging 00 05 based company’s leverage ratio credit facility contains covenants restricting among things incurrence indebtedness making certain payments including dividends subject acceleration event default company also fulfill financial covenants respect total debt ebitda ratio interest coverage ratio december 31 2012 company 4650 million outstanding borrowings credit facility availability borrow approximately 5150 million december 31 2011 company 6650 million outstanding borrowings credit facility availability borrow approximately 3350 million standby letters credit similar instruments company arrangements various banks issue standby letters credit similar instruments guarantee company’s obligations purchase sale certain inventories potential claims exposure insurance coverage december 31 2012 2011 outstanding letters credit totaled 158 million 156 million respectively 8 employee benefit plans company sponsors defined benefit pension plans covering certain employees principally united states united kingdom germany finland norway france switzerland australia argentina company also provides certain postretirement health care life insurance benefits certain employees principally united states brazil agco corporation notes consolidated financial statements continued net annual pension costs years ended december 31 2012 2011 2010 set forth millions weighted average assumptions used determine net annual pension costs company’s pension plans years ended december 31 2012 2011 2010 follows net annual postretirement benefit costs years ended december 31 2012 2011 2010 set forth millions except percentages agco corporation notes consolidated financial statements continued following tables set forth reconciliations changes benefit obligation plan assets funded status december 31 2012 2011 millions agco corporation notes consolidated financial statements continued december 31 2012 company’s accumulated comprehensive loss included net actuarial loss approximately 3215 million net prior service credit approximately 02 million related company’s defined benefit pension plans estimated net actuarial loss net prior service credit defined benefit pension plans expected amortized company’s accumulated comprehensive loss year ended december 31 2013 approximately 113 million 01 million respectively december 31 2012 company’s accumulated comprehensive loss included net actuarial loss approximately 108 million net prior service cost approximately 42 million related company’s us brazilian postretirement health care benefit plans estimated net actuarial loss net prior service cost postretirement health care benefit plans expected amortized company’s accumulated comprehensive loss year ended december 31 2013 approximately 05 million 03 million respectively weighted average assumptions used determine benefit obligation company’s pension plans december 31 2012 2011 follows weighted average discount rate used determine benefit obligation company’s postretirement benefit plans years ended december 31 2012 2011 47 48 respectively aggregate projected benefit obligation accumulated benefit obligation fair value plan assets pension postretirement plans accumulated benefit obligations excess plan assets 8708 million 8308 million 5690 million respectively december 31 2012 7908 million 7149 million 5141 million respectively december 31 2011 projected benefit obligation accumulated benefit obligation fair value plan assets company’s usbased qualified pension plans accumulated benefit obligations excess plan assets 544 million 544 million 367 million respectively december 31 2012 497 million 497 million 335 million respectively december 31 2011 company’s accumulated comprehensive loss december 31 2012 reflects reduction equity 3363 million net taxes 902 million primarily related company’s uk pension plan projected benefit obligation exceeded plan assets addition company’s accumulated comprehensive loss december 31 2012 reflects reduction equity approximately 14 million net taxes 05 million related company’s gima joint venture amount represents 50 gima’s unrecognized net actuarial losses unrecognized prior service cost associated pension plan company’s accumulated comprehensive loss december 31 2011 reflected reduction equity 3085 million net taxes 823 million primarily related company’s uk pension plan projected benefit obligation exceeded plan assets addition company’s accumulated comprehensive loss december 31 2011 reflected reduction equity approximately 08 million net taxes 02 million related company’s gima joint venture amount represented 50 gima’s unrecognized net actuarial losses unrecognized prior service cost associated pension plan years ended december 31 2012 2011 2010 company used globally consistent methodology set discount rate countries largest benefit obligations exist united states united kingdom euro zone company constructed hypothetical bond portfolio highquality corporate bonds applied cash flows company’s benefit plans bond yields derive discount rate bond portfolio planspecific cash flows vary country methodology portfolio constructed consistent united states bond portfolio large enough result taking “settlement approach” derive discount rate highquality corporate bonds assumed purchased resulting coupon payments maturities used satisfy company’s largest us pension plan’s projected benefit payments united kingdom euro zone discount rate derived using “yield curve approach” individual spot rate zero coupon bond yield future annual period developed discount future benefit payment thereby determine present value future payments settlement agco corporation notes consolidated financial statements continued yield curve approaches discount rate set equal single discount rate produces present value future payments investment strategy concentration risk weighted average asset allocation company’s us pension benefit plans december 31 2012 2011 follows weighted average asset allocation company’s nonus pension benefit plans december 31 2012 2011 follows asc 820 “fair value measurements” “asc 820” establishes framework measuring fair value framework provides fair value hierarchy prioritizes inputs valuation techniques used measure fair value hierarchy gives highest priority unadjusted quoted prices active markets identical assets liabilities level 1 measurements lowest priority unobservable inputs level 3 measurements three levels fair value hierarchy asc 820 described follows level 1 inputs valuation methodology unadjusted quoted prices identical assets liabilities active markets company ability access level 2 inputs valuation methodology include • quoted prices similar assets liabilities active markets • quoted prices identical similar assets liabilities inactive markets • inputs quoted prices observable asset liability • inputs derived principally corroborated observable market data correlation means asset liability specified contractual term level 2 input must observable substantially full term asset liability level 3 inputs valuation methodology unobservable significant fair value measurement asset’s liability’s fair value measurement level within fair value hierarchy based lowest level input significant fair value measurement company’s valuation techniques designed maximize use observable inputs minimize use unobservable inputs company uses following valuation methodologies measure fair value plan assets equity securities equity securities valued basis closing price per unit business day reported applicable exchange fixed income fixed income securities valued using closing prices active market fixed income investment trades fixed income funds valued using net asset value fund based fair value underlying securities agco corporation notes consolidated financial statements continued cash investments primarily consist short term investment funds valued using net asset value alternative investments pooled funds investments reported fair value determined general partner alternative investment pooled fund “market approach” valuation technique used value investments funds typically openend funds generally offer subscription redemption options investors frequency subscriptions redemptions dictated fund’s governing documents amount liquidity provided investors particular fund generally consistent liquidity risk associated underlying portfolio ie liquid investments portfolio greater liquidity provided investors liquidity individual funds varies based various factors may include “gates” “holdbacks” “side pockets” imposed manager fund well redemption fees may also apply investments funds typically valued utilizing net asset valuations provided underlying investment managers general partners administrators funds consider subscription redemption rights including restrictions disposition interest determination fair value insurance contracts insurance contracts valued using current prevailing interest rates fair value company’s pension assets december 31 2012 follows millions 1 39 “fixed income” securities investmentgrade corporate bonds 27 government treasuries 34 various fixed income securities 2 24 “alternative investments” longshort equity funds 19 multistrategy funds 17 eventdriven funds 12 relative value funds 12 credit funds 16 distributed hedged nonhedged funds 3 “miscellaneous funds” comprised pooled funds australia insurance contracts finland norway switzerland agco corporation notes consolidated financial statements continued following reconciliation level 3 assets december 31 2012 millions fair value company’s pension assets december 31 2011 follows millions 1 75 “fixed income” securities investmentgrade corporate bonds 21 government treasuries 4 various fixed income securities 2 23 “alternative investments” multistrategy funds 17 longshort equity funds 15 eventdriven funds 15 relative value funds 13 credit funds 17 distributed hedged nonhedged funds 3 “miscellaneous funds” comprised pooled funds australia various contracts finland norway switzerland agco corporation notes consolidated financial statements continued following reconciliation level 3 assets december 31 2011 millions taxqualified pension fund investments united states held agco corporation master pension trust company’s global pension fund strategy diversify investments across broad categories equity fixed income securities appropriate use alternative investment categories minimize risk volatility primary investment objective company’s pension plans secure participant retirement benefits key objective pension plans’ financial management promote stability extent appropriate growth funded status investment strategy plans’ portfolio assets balances requirement generate returns need control risk asset mix recognized primary mechanism influence reward risk structure pension fund investments effort accomplish plans’ funding objectives overall investment strategy usbased pension plans achieve mix approximately 20 assets nearterm benefit payments 80 longerterm growth overall us pension funds invest broad diversification asset types company’s us target allocation retirement fund investments 45 large smallcap domestic equity securities 15 international equity securities 20 broad fixed income securities 20 alternative investments company noted long periods mix investments would achieve average return excess 71 arriving choice expected return assumption 70 usbased plans year ended december 31 2013 company tempered historical indicator lower expectations returns equity investment future well administrative costs plans overall investment strategy nonus based pension plans achieve mix approximately 35 assets nearterm benefit payments 65 longerterm growth overall nonus pension funds invest broad diversification asset types company’s nonus target allocation retirement fund investments 40 equity securities 30 broad fixed income investments 30 alternative investments majority company’s nonus pension fund investments related company’s pension plan united kingdom company noted long periods mix investments would achieve average return excess 74 arriving choice expected return assumption 70 ukbased plans year ended december 31 2013 company tempered historical indicator lower expectations returns equity investment future well administrative costs plans equity securities primarily include investments largecap smallcap companies located across globe fixed income securities include corporate bonds companies diversified industries mortgagebacked securities agency mortgages assetbacked securities government securities alternative assets include investments hedge fund funds follow diversified investment strategies date company invested pension funds stock intention future within asset class careful consideration given balancing portfolio among industry sectors geographies interest rate sensitivity dependence economic growth currency factors affecting investment returns assets managed professional investment firms bound precise mandates measured specific benchmarks among asset managers consideration given among others balancing security concentration issuer concentration investment style reliance particular active investment strategies measuring expected us postretirement benefit obligation december 31 2012 2011 company assumed 80 health care cost trend rate 2013 2012 respectively decreasing 50 2019 2018 respectively measuring brazilian postretirement benefit plan obligation december 31 2012 company assumed 107 health care cost trend rate 2013 decreasing 62 2022 measuring brazilian postretirement benefit plan obligation december 31 2011 company assumed 100 health care cost trend rate 2012 decreasing 55 agco corporation notes consolidated financial statements continued 2021 changing assumed health care cost trend rates one percentage point year holding assumptions constant would following effect service interest cost 2013 accumulated postretirement benefit obligation december 31 2012 millions company currently estimates minimum contributions usbased defined pension plans 2013 aggregate approximately 21 million company currently estimates benefit payments 2013 usbased postretirement health care life insurance benefit plans aggregate approximately 17 million benefits 2013 brazilian postretirement health care benefit plans aggregate approximately 01 million company currently estimates minimum contributions underfunded plans benefit payments unfunded plans 2013 nonusbased defined pension plans aggregate approximately 380 million approximately 250 million relates uk pension plan 2012 approximately 450 million benefit payments made related company’s pension plans december 31 2012 aggregate expected benefit payments company’s pension plans follows millions 2012 approximately 18 million benefit payments made related company’s us brazilian postretirement benefit plans december 31 2012 aggregate expected benefit payments company’s us brazilian postretirement benefit plans follows millions company participates small number multiemployer plans netherlands sweden company assessed determined none multiemployer plans participates individually aggregate significant company’s consolidated financial statements company expect incur withdrawal liability expect significantly increase contributions remainder multiemployer plans’ contract periods company maintains executive nonqualified pension plan “enpp” provides usbased senior executives retirement income period 15 years based percentage average highest three nonconsecutive years base salary bonus final 10 years employment referred “threeyear average compensation” reduced senior executive’s social security benefits 401k employermatching contributions executive made maximum contribution benefit paid executives ranges 225 300 threeyear average compensation multiplied credited years service subject maximum 20 years nearly participants benefits enpp vest participant attained age 50 least ten years service five years agco corporation notes consolidated financial statements continued include years participation enpp payable participant reaches age 65 upon termination services death disability adjusted reflect payment prior age 65 net annual enpp cost measurement assumptions plans years ended december 31 2012 2011 2010 set forth millions except percentages following tables set forth reconciliations changes benefit obligation funded status december 31 2012 2011 millions weighted average discount rate used determine benefit obligation enpp years ended december 31 2012 2011 39 46 respectively december 31 2012 company’s accumulated comprehensive loss included net actuarial loss approximately 119 million net prior service cost approximately 56 million related enpp estimated net actuarial loss net prior service cost related enpp expected amortized company’s accumulated comprehensive loss year ended december 31 2013 approximately 07 million 09 million respectively december 31 2012 company recorded reduction equity 175 million net taxes 16 million related unfunded projected benefit obligation enpp december 31 2011 company recorded reduction equity 134 million related unfunded projected benefit obligation enpp company benefiting losses tax purposes united states prior year tax impact associated reduction equity december 31 2011 refer note 6 information reversal valuation allowance previously established company’s deferred tax assets united states agco corporation notes consolidated financial statements continued 2012 approximately 09 million benefit payments made related enpp december 31 2012 aggregate expected benefit payments enpp follows millions company maintains separate defined contribution plans covering certain employees primarily united states united kingdom brazil plans company contributes specified percentage eligible employee’s compensation company contributed approximately 108 million 96 million 90 million years ended december 31 2012 2011 2010 respectively company participates small number multiemployer plans netherlands sweden company assessed determined none multiemployer plans participates individually aggregate significant company’s consolidated financial statements company expect incur withdrawal liability significantly increase contributions remainder contract period 9 common stock december 31 2012 company 1500 million authorized shares common stock par value 001 per share approximately 968 million shares common stock outstanding approximately 44 million shares reserved issuance company’s 2006 longterm incentive plan “2006 plan” note 10 company stockholder rights plan adopted april 1994 following stockholder approval plan provides share common stock outstanding attached right purchase onehundredth share junior cumulative preferred stock par value 001 per share purchase price per onehundredth share 11000 subject adjustment rights exercisable person group “acquirer” acquires 20 company’s common stock announces tender offer exchange offer would result acquisition 20 company’s common stock circumstances additional conditions met exercisable plan allows stockholders acquirer purchase company’s common stock securities acquirer current market value two times exercise price right rights redeemable 001 per right subject adjustment option company’s board directors rights expire april 26 2014 unless extended redeemed exchanged company date share repurchase program july 2012 board directors approved share repurchase program company permitted repurchase 500 million shares common stock 2012 open market transactions company repurchased 409007 shares common stock approximately 176 million average price paid 4314 per share repurchased shares retired date purchase excess purchase price par value recorded “additional paidin capital” within company’s consolidated balance sheets 10 stock incentive plan 2006 plan 100 million shares agco common stock may issued 2006 plan allows company direction board directors’ compensation committee make grants performance shares stock appreciation rights stock options restricted stock awards employees officers nonemployee directors company employee plans 2006 plan encompasses stock incentive plans company executives key managers primary longterm incentive plan performance share plan provides awards shares company’s common stock based agco corporation notes consolidated financial statements continued achieving financial targets earnings per share return invested capital determined company’s board directors company’s incentive plan includes margin growth incentive plan provides awards shares company’s common stock based achieving operating margin targets determined company’s board directors stock awards 2006 plan earned performance period number shares earned determined based cumulative average results period depending measurement performance periods longterm incentive plan consecutive overlapping threeyear cycles performance targets set beginning cycle longterm incentive plan provides participants earn 33 200 target awards depending actual performance achieved shares earned performance established minimum target performance period margin growth incentive plan three fiveyear cycle commencing january 2011 performance targets set beginning cycle margin growth incentive plan provides participants earn 33 300 target awards depending actual performance achieved shares earned performance established minimum target awards earned 2006 plan paid shares common stock end performance period compensation expense associated awards amortized ratably vesting performance period based company’s projected assessment level performance achieved earned compensation expense recorded 2012 2011 2010 respect awards granted based upon stock price grant date weighted average grantdate fair value performance awards granted 2006 plan 2012 2011 2010 5211 5273 3362 respectively based level performance achieved december 31 2012 748137 shares earned 20102012 performance period 481323 shares issued 2013 net 266814 shares withheld taxes related earned awards based level performance achieved december 31 2011 shares earned issued 20092011 performance period 2006 plan allows participant option forfeiting portion shares awarded lieu cash payment contributed participant’s tax withholding satisfy participant’s statutory minimum federal state employment taxes would payable time grant 2012 company granted 1062502 awards threeyear performance period commencing 2012 ending 2014 assuming maximum target level performance achieved company also granted 148494 awards 2012 margin growth incentive plan prorated basis performance period commencing 2011 ending 2015 assuming maximum target level performance achieved operating margin improvement performance award transactions 2012 follows presented company achieve maximum levels performance plan december 31 2012 total compensation cost related unearned performance awards yet recognized assuming company’s current projected assessment level performance achieved earned approximately 396 million weighted average period expected recognized approximately two years december 6 2007 board directors company approved two retentionbased restricted stock awards 2000000 company’s chairman president chief executive officer first award granted december 6 2007 totaled 28839 shares vest fiveyear period rate 25 end third year 25 end fourth year 50 end fifth year second award granted december 5 2008 totaled 99010 shares vest fouryear period rate 25 end second year 25 end third year 50 end fourth year december 31 2012 awards fully vested company recognized stock compensation expense ratably vesting period grant addition performance share plans certain executives key managers eligible receive grants stocksettled appreciation rights “ssars” ssars provide participant right receive aggregate appreciation stock price market price company’s common stock date grant payable shares company’s common stock participant may exercise ssar time grant vested later seven years agco corporation notes consolidated financial statements continued date grant ssars vest ratably fouryear period date grant ssar award grants made certain executives key managers 2006 plan made base price equal price company’s common stock date grant company recorded stock compensation expense approximately 38 million 26 million 25 million associated ssar award grants 2012 2011 2010 respectively compensation expense associated awards amortized ratably vesting period company estimated fair value grants using blackscholes option pricing model company utilized “simplified” method estimating expected term granted ssars year ended december 31 2012 afforded sec staff accounting bulletin “sab” 107 “sharebased payment sab topic 14” sab 110 “sharebased payment sab topic 14d2” expected term used value grant simplified method midpoint vesting date contractual term ssar company granting ssars since april 2006 believe sufficient relevant experience regarding employee exercise behavior weighted average grantdate fair value ssars granted 2006 plan weighted average assumptions blackscholes option model follows years ended december 31 2012 2011 2010 ssar transactions year ended december 31 2012 follows december 31 2012 weighted average remaining contractual life ssars outstanding approximately four years december 31 2012 total compensation cost related unvested ssars yet recognized approximately 78 million weightedaverage period expected recognized approximately three years agco corporation notes consolidated financial statements continued following table sets forth exercise price range number shares weighted average exercise price remaining contractual lives groups similar price december 31 2012 total fair value ssars vested 2012 approximately 25 million 575325 ssars vested december 31 2012 total intrinsic value outstanding exercisable ssars december 31 2012 105 million 71 million respectively total intrinsic value ssars exercised 2012 approximately 10 million company realized insignificant tax benefit exercise ssars january 25 2013 company granted 503100 performance award shares subject company achieving future target levels performance 280900 ssars 2006 plan director restricted stock grants pursuant 2006 plan nonemployee directors receive annual restricted stock grants company’s common stock shares restricted transferability period three years subject forfeiture event director departs company’s board directors nontransferability period expires immediately plan allows director option forfeiting portion shares awarded lieu cash payment contributed participant’s tax withholding satisfy statutory minimum federal state employment taxes would payable time grant 2012 grant made april 26 2012 equated 19251 shares common stock 13986 shares common stock issued shares withheld taxes company recorded stock compensation expense approximately 09 million 2012 associated grants december 31 2012 100 million shares reserved issuance 2006 plan approximately 44 million shares available grant assuming maximum number shares earned related performance award grants discussed stock option plan grants company’s option plan since 2002 company intend make grants option plan future year ended december 31 2012 2000 stock options outstanding december 31 2011 exercised exercise price 2085 stock options outstanding december 31 2012 option plan total intrinsic value options exercised years ended december 31 2012 2011 2010 approximately 01 million 05 million 09 million respectively cash proceeds received stock option exercises 2012 2011 2010 approximately 00 million 03 million 05 million respectively company realized insignificant tax benefit exercise options 11 derivative instruments hedging activities derivatives recognized company’s consolidated balance sheets fair value date derivative contract entered company designates derivative either 1 fair value hedge recognized liability 2 cash flow hedge forecasted transaction 3 hedge net investment foreign operation 4 nondesignated derivative instrument agco corporation notes consolidated financial statements continued company formally documents relationships hedging instruments hedged items well risk management objectives strategy undertaking various hedge transactions company formally assesses hedge’s inception ongoing basis whether derivatives used hedging transactions highly effective offsetting changes fair values cash flow hedged items determined derivative longer highly effective hedge accounting discontinued prospective basis foreign currency risk company significant manufacturing operations united states france germany finland brazil purchases portion tractors combines components thirdparty foreign suppliers primarily various european countries japan company also sells products 140 countries throughout world company’s significant transactional foreign currency exposures euro brazilian real canadian dollar relation united states dollar euro relation british pound company attempts manage transactional foreign exchange exposure hedging foreign currency cash flow forecasts commitments arising anticipated settlement receivables payables future purchases sales naturally offsetting currency positions occur company hedges certain exposures use foreign currency contracts company’s translation exposure resulting translating financial statements foreign subsidiaries united states dollars hedged practical translation impact reduced financing local operations local borrowings foreign currency contracts primarily forward options contracts’ fair value measurements fall within level 2 fair value hierarchy level 2 fair value measurements generally based upon quoted market prices similar instruments active markets quoted prices identical similar instruments markets active modelderived valuations significant inputs significant valuedrivers observable active markets fair value foreign currency forward contracts based valuation model discounts cash flows resulting differential contract price marketbased forward rate fair value foreign currency option contracts based valuation model utilizes spot forward exchange rates interest rates currency pair volatility company’s senior management establishes company’s foreign currency interest rate risk management policies reviewed periodically audit committee company’s board directors policies allow use derivative instruments hedge exposures movements foreign currency interest rates company’s policies prohibit use derivative instruments speculative purposes cash flow hedges 2012 2011 2010 company designated certain foreign currency contracts cash flow hedges expected future sales purchases effective portion fair value gains losses cash flow hedges recorded comprehensive income loss subsequently reclassified cost goods sold period sales purchases recognized amounts offset effect changes foreign currency rates related sale purchase transactions amount loss gain recorded comprehensive loss income reclassified cost goods sold years ended december 31 2012 2011 2010 approximately 81 million 52 million 31 million respectively aftertax basis amount unrealized gain loss recorded comprehensive loss income related outstanding cash flow hedges december 31 2012 2011 2010 approximately 07 million 43 million 12 million respectively aftertax basis outstanding contracts december 31 2012 range maturity december 2013 agco corporation notes consolidated financial statements continued following table summarizes activity accumulated comprehensive income loss related derivatives held company years ended december 31 2012 2011 2010 millions 1 rounding may impact summation amounts december 31 2012 2011 company outstanding foreign currency contracts notional amount approximately 1103 million 2759 million respectively entered hedge forecasted sale purchase transactions derivative transactions designated hedging instruments 2012 2011 2010 company entered foreign currency contracts hedge receivables payables company subsidiaries’ balance sheets denominated foreign currencies functional currency contracts classified nondesignated derivative instruments december 31 2012 2011 company outstanding foreign currency contracts notional amount approximately 14670 million 9568 million respectively entered hedge receivables payables denominated foreign currencies functional currency changes fair value contracts reported “other expense net” years ended december 31 2012 2011 2010 company recorded net gain approximately 55 million net loss approximately 136 million net gain approximately 373 million respectively related contracts within “other expense net” company’s consolidated statements operations gains losses contracts substantially offset losses gains remeasurement underlying asset liability hedged table sets forth fair value derivative instruments december 31 2012 millions agco corporation notes consolidated financial statements continued table sets forth fair value derivative instruments december 31 2011 millions company unrealized gains losses approximately 19 million 49 million foreign currency contracts outstanding december 31 2012 2011 respectively 04 million 06 million respectively related nondesignated contracts recorded within “other expense net” consolidated statements operations years ended december 31 2012 2011 counterparty risk company regularly monitors counterparty risk credit ratings counterparties derivative instruments company believes exposures appropriately diversified across counterparties creditworthy financial institutions company perceives risk counterparty company would cease business counterparty negative impacts company nonperformance counterparties 12 commitments contingencies future payments required company’s significant commitments december 31 2012 follows millions 1 estimated interest payments calculated assuming current interest rates minimum maturity periods specified debt agreements debt may repaid sooner later minimum maturity periods unaudited 2 unconditional purchase obligations exclude routine purchase orders entered normal course business 3 shortterm longterm obligations include estimates future minimum contribution requirements company’s us nonus defined benefit pension postretirement plans estimates based current legislation countries company operates within subject change shortterm longterm obligations also include income tax liabilities related uncertain income tax positions connected ongoing income tax audits various jurisdictions unaudited agco corporation notes consolidated financial statements continued offbalance sheet arrangements guarantees company maintains remarketing agreement us retail finance joint venture whereby company obligated repurchase repossessed inventory market values company agreement us retail finance joint venture limits company’s purchase obligations arrangement 60 million aggregate per calendar year company believes losses might incurred resale equipment materially impact company’s financial position results operations due fair value underlying equipment december 31 2012 company guaranteed indebtedness owed third parties approximately 1779 million primarily related dealer enduser financing equipment guarantees generally obligate company repay outstanding finance obligations owed financial institutions dealers end users default loans 2017 company believes credit risk associated guarantees material financial position results operations losses guarantees historically insignificant addition company generally would expect able recover significant portion amounts paid guarantees sale underlying financed farm equipment fair value equipment expected sufficient offset substantial portion amounts paid december 31 2012 company outstanding designated nondesignated foreign exchange contracts gross notional amount approximately 15773 million outstanding contracts december 31 2012 range maturity december 2013 note 11 company sells substantially wholesale accounts receivable north america company’s us canadian retail finance joint ventures large portion wholesale accounts receivable retail finance joint ventures europe company also sells certain accounts receivable factoring arrangements financial institutions around world company reviewed sale receivables determined facilities accounted offbalance sheet transactions total lease expense noncancelable operating leases 688 million 572 million 502 million years ended december 31 2012 2011 2010 respectively contingencies result brazilian tax legislative changes impacting value added taxes “vat” company recorded reserve approximately 596 million 546 million outstanding balance brazilian vat taxes receivable december 31 2012 2011 respectively due uncertainty company’s ability collect amounts outstanding june 27 2008 republic iraq filed civil action federal court new york case 08 civ 59617 naming defendants company’s french subsidiary two foreign subsidiaries participated united nations oil food program “program” ninetyone entities companies also named defendants civil action due participation program complaint purports assert claims defendants seeking damages unspecified amount february 6 2013 federal court dismissed complaint prejudice plaintiff filed notice appeal respect decision although company’s subsidiaries intend vigorously defend action possible time predict outcome action impact company although outcome adverse company could required pay damages addition french government also investigating company’s french subsidiary connection participation program part routine audits brazilian taxing authorities disallowed deductions relating amortization certain goodwill recognized connection reorganization company’s brazilian operations related transfer certain assets company’s brazilian subsidiaries amount tax disallowance december 31 2012 including interest penalties approximately 1315 million brazilian reais approximately 642 million amount ultimately dispute greater interest penalties company advised legal tax advisors position respect deductions allowable tax laws brazil company contesting agco corporation notes consolidated financial statements continued disallowance believes likely assessment interest penalties required paid however ultimate outcome determined brazilian tax appeal process complete could take several years company party various legal claims actions incidental business company believes none claims actions either individually aggregate material business financial statements whole including results operations financial condition 13 related party transactions rabobank financial institution based netherlands 51 owner company’s retail finance joint ventures located united states canada germany france united kingdom austria ireland netherlands denmark italy sweden brazil argentina australia rabobank also principal agent participant company’s revolving credit facility note 7 majority assets company’s retail finance joint ventures represents finance receivables majority liabilities represents notes payable accrued interest various joint venture agreements rabobank affiliates provide financing joint venture companies primarily lines credit 2012 2011 2010 company made total approximately 71 million 83 million 254 million respectively investments retail finance joint ventures germany netherlands brazil primarily related additional capital required result increased retail finance portfolios 2012 2011 2010 company’s retail finance joint ventures provide retail financing wholesale financing dealers terms financing arrangements offered company’s dealers similar arrangements retail finance joint ventures provide unaffiliated third parties addition company transfers ongoing basis majority wholesale receivables north america europe 49 owned us canadian european retail finance joint ventures note 4 company maintains remarketing agreement us retail finance joint venture note 12 addition part sales incentives provided end users company may time subsidize interest rates retail financing provided retail finance joint ventures cost programs recognized time sale company’s dealers tractors farm equipment limited “tafe” company holds 235 interest manufactures massey fergusonbranded equipment primarily india also supplies tractors components company sale markets mallika srinivasan chairman chief executive officer tafe currently member company’s board directors 2012 2011 2010 company purchased approximately 1045 million 804 million 726 million respectively tractors components tafe 2012 2011 2010 company paid approximately 38 million 40 million 36 million respectively ppg industries inc painting materials used company’s manufacturing processes company’s chairman president chief executive officer currently member board directors ppg industries inc 14 segment reporting effective january 1 2012 company modified system reporting resulting changes internal management organizational structure changed reportable segments north america south america europeafricamiddle east rest world north america south america europeafricamiddle east asiapacific reportable segment includes regions asia australia new zealand europeafricamiddle east segment include certain markets eastern europe effective january 1 2012 reportable segments reflective company’s chief operating decision maker reviews operating results purposes allocating resources assessing performance disclosures years ended december 31 2011 2010 adjusted reflect change reportable segments agco corporation notes consolidated financial statements continued company’s four reportable segments distribute full range agricultural equipment related replacement parts company evaluates segment performance primarily based income operations sales segment based location thirdparty customer company’s selling general administrative expenses engineering expenses charged segment based region division expenses incurred result components income operations one segment may comparable another segment results years ended december 31 2012 2011 2010 based company’s current modified reportable segments follows millions reconciliation segment information consolidated balances income operations total assets set forth millions agco corporation notes consolidated financial statements continued net sales customer location years ended december 31 2012 2011 2010 follows millions net sales product years ended december 31 2012 2011 2010 follows millions property plant equipment amortizable intangible assets country december 31 2012 2011 follows millions item 9item 8 financial statements supplementary data following consolidated financial statements agco subsidiaries years threeyear period ended december 31 2013 included item information heading “quarterly results” item 7 form 10k incorporated herein reference report independent registered public accounting firm board directors stockholders agco corporation audited accompanying consolidated balance sheets agco corporation subsidiaries december 31 2013 2012 related consolidated statements operations comprehensive income stockholders’ equity cash flows years threeyear period ended december 31 2013 connection audits consolidated financial statements also audited financial statement schedule listed item 15a2 consolidated financial statements financial statement schedule responsibility company’s management responsibility express opinion consolidated financial statements financial statement schedule based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements referred present fairly material respects financial position agco corporation subsidiaries december 31 2013 2012 results operations cash flows years threeyear period ended december 31 2013 conformity us generally accepted accounting principles also opinion related financial statement schedule considered relation basic consolidated financial statements taken whole presents fairly material respects information set forth therein also audited accordance standards public company accounting oversight board united states agco corporation’s internal control financial reporting december 31 2013 based criteria established internal control integrated framework 1992 issued committee sponsoring organizations treadway commission coso report dated february 28 2014 expressed unqualified opinion effectiveness company’s internal control financial reporting kpmg llp atlanta georgia february 28 2014 agco corporation consolidated statements operations millions except per share data see accompanying notes consolidated financial statements agco corporation consolidated statements comprehensive income millions see accompanying notes consolidated financial statements agco corporation consolidated balance sheets millions except share amounts see accompanying notes consolidated financial statements agco corporation consolidated statements stockholders’ equity millions except share amounts see accompanying notes consolidated financial statements agco corporation consolidated statements cash flows millions see accompanying notes consolidated financial statements agco corporation notes consolidated financial statements 1 operations summary significant accounting policies business agco corporation subsidiaries “agco” “company” leading manufacturer distributor agricultural equipment related replacement parts throughout world company sells full range agricultural equipment including tractors combines hay tools sprayers forage equipment tillage implements grain storage protein production systems company’s products widely recognized agricultural equipment industry marketed number wellknown brand names including challenger® fendt® gsi® massey ferguson® valtra® company distributes products combination approximately 3100 independent dealers distributors addition company provides retail financing united states canada europe south america australia retail finance joint ventures coöperatieve centrale raiffeisenboerenleenbank ba “rabobank” basis presentation company’s consolidated financial statements represent consolidation whollyowned companies majorityowned companies joint ventures company determined primary beneficiary company records investments affiliate companies using equity method accounting significant influence investments including representing ownership less 20 recorded cost significant intercompany balances transactions eliminated consolidated financial statements certain prior period amounts reclassified conform current period presentation basis consolidation joint ventures variable interest entities gima joint venture agco claas tractor sas cooperate field purchasing design manufacturing components agricultural tractors party 50 ownership interest joint venture investment approximately €42 million joint venture parties purchase production output joint venture company consolidate gima joint venture company’s results operations financial position company controlling financial interest gima based shared powers joint venture partners direct activities significantly impact gima’s financial performance rabobank 51 owner company’s retail finance joint ventures majority assets company’s retail finance joint ventures represents finance receivables majority liabilities represents notes payable accrued interest various joint venture agreements rabobank affiliates provide financing joint venture companies primarily lines credit company guarantee debt obligations retail finance joint ventures company’s retail finance joint ventures provide retail financing wholesale financing dealers notes 3 12 company determined retail finance joint ventures meet consolidation requirements accounted voting interest model making determination company evaluated sufficiency equity risk retail finance joint venture ability joint venture investors make decisions joint ventures’ activities significant effect success entities economic performance obligations absorb expected losses joint ventures rights receive expected residual returns 2011 company acquired 50 agcoamity jv llc “agcoamity jv” thereby creating joint venture company amity technology llc agcoamity jv located north dakota manufactures airseeding tillage equipment company controlling voting interest direct activities significantly impact joint venture company consolidated joint venture’s operations company’s results operations financial position commencing date formation joint venture 2012 company acquired 61 santal equipamentos sa comércio e indústria “santal” manufacturer distributor sugar cane planting harvesting handling transportation equipment well replacement parts across brazil company controlling voting interest direct activities significantly impact santal company consolidated santal’s operations company’s results operations financial position commencing date acquisition agco corporation notes consolidated financial statements continued revenue recognition sales equipment replacement parts recorded company title risks ownership transferred independent dealer distributor customer certain countries sales certain grain storage protein production systems company responsible construction installation recorded completion project payment terms vary market product fixed payment schedules sales terms sale generally require purchase order confirmation accompany shipments title generally passes dealer distributor upon shipment risk loss upon damage theft destruction equipment responsibility dealer distributor thirdparty carrier certain foreign countries company retains form title goods delivered dealers dealer makes payment company recover goods event customer default payment occurs laws foreign countries provide seller’s retention security interest goods manner established united states uniform commercial code right company retains respect title enabling recovery goods event customer default payment dealer distributor may return equipment replacement parts contract company force replacement parts may returned promotional annual return programs provisions returns programs made time sale based terms program historical returns experience company may provide certain sales incentives dealers distributors provisions sales incentives made time sale existing incentive programs provisions revised event subsequent modification incentive program see “accounts notes receivable” discussion united states canada equipment sales dealers immediately due upon retail sale equipment dealer exception sales grain storage protein production systems previously paid dealer united states canada installment payments required generally beginning interestfree period remaining outstanding equipment balance generally due within 12 months shipment interest generally charged outstanding balance six 12 months shipment sales terms highly seasonal products provide payment due dates based specified date year regardless shipment date equipment sold dealers united states canada paid full average within 12 months shipment sales replacement parts generally payable within 30 days shipment terms larger seasonal stock orders generally requiring payment within six months shipment sales grain storage protein production systems generally payable within 30 days shipment international markets equipment sales generally payable full within 30 180 days shipment payment terms highly seasonal products specified due date year regardless shipment date sales replacement parts generally payable within 30 90 days shipment terms larger seasonal stock orders generally payable within six months shipment certain markets particularly north america time lag varies based timing level retail demand date company records sale dealer sells equipment retail customer foreign currency translation financial statements company’s foreign subsidiaries translated united states currency accordance accounting standard codification “asc” 830 “foreign currency matters” assets liabilities translated united states dollars periodend exchange rates income expense items translated average rates exchange prevailing period translation adjustments included “accumulated comprehensive loss” stockholders’ equity within company’s consolidated balance sheets gains losses result foreign currency transactions included accompanying consolidated statements operations use estimates preparation financial statements conformity us generally accepted accounting principles “gaap” requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ estimates made management primarily relate accounts notes receivable inventories deferred income tax valuation allowances goodwill identifiable intangible assets certain accrued liabilities principally relating reserves volume discounts sales incentives warranty obligations product liability workers’ compensation obligations pensions postretirement benefits agco corporation notes consolidated financial statements continued cash equivalents cash december 31 2013 2012 4652 million 4036 million respectively consisted primarily cash hand bank deposits company considers investments original maturity three months less cash equivalents cash equivalents december 31 2013 2012 5820 million 3777 million respectively consisted primarily money market deposits certificates deposits overnight investments accounts notes receivable accounts notes receivable arise sale equipment replacement parts independent dealers distributors customers payments due company’s terms sale generally range one 12 months contingent upon sale equipment dealer distributor retail customer normal circumstances payment terms extended equipment may returned certain regions respect equipment sales including united states canada company obligated repurchase equipment replacement parts upon cancellation dealer distributor contract obligations required national state provincial laws require company repurchase dealer distributor’s unsold inventory including inventories receivable already paid company offers various sales terms respect products sales markets outside united states canada company normally charge interest outstanding receivables dealers distributors sales certain dealers distributors united states canada interest charged prime lending rates outstanding receivable balances interestfree periods interestfree periods vary product generally range one 12 months exception certain seasonal products bear interest various periods 23 months depending time year sale dealer distributor’s sales volume preceding year company’s north american geographical reportable segment comprised approximately 256 company’s total net sales 2013 year ended december 31 2013 208 43 company’s net sales maximum interestfree periods ranging one six months seven 12 months respectively related north american geographical reporting segment net sales maximum interestfree periods ranging 13 23 months approximately 05 company’s net sales 2013 actual interestfree periods shorter described equipment receivable dealers distributors united states canada due immediately upon sale equipment retail customer normal circumstances interest forgiven interestfree periods extended company agreement permit transferring ongoing basis substantially wholesale interestbearing noninterest bearing accounts receivable north america us canadian retail finance joint ventures upon transfer receivables maintain standard payment terms including required regular principal payments amounts outstanding interest charges market rates company also accounts receivable sales agreements permit sale ongoing basis majority accounts receivables europe european retail finance joint ventures upon transfer receivables maintain standard payment terms qualified dealers may obtain additional financing company’s us canadian european retail finance joint ventures joint ventures’ discretion company provides various volume bonus sales incentive programs respect products sales incentive programs include reductions invoice prices reductions retail financing rates dealer commissions dealer incentive allowances cases incentive programs established communicated company’s dealers quarterly basis incentives paid either time invoice reduction invoice price time settlement receivable time retail financing time warranty registration subsequent time based dealer purchases incentive programs productline specific generally vary dealer cost sales incentives associated dealer commissions dealer incentive allowances estimated based upon terms programs historical experience based percentage sales price recorded later date related revenue recognized b date sales incentive offered related provisions accruals made product productline basis monitored adequacy revised least quarterly event subsequent modifications programs volume discounts estimated recognized based historical experience related reserves monitored adjusted based actual dealer purchases dealers’ progress towards achieving specified cumulative target levels company records cost interest subsidy payments reduction retail financing rates later date related revenue recognized b date sales incentive offered estimates incentives based terms programs historical experience incentive programs recorded presented reduction revenue due fact company receive identifiable benefit exchange consideration provided reserves incentive programs paid either reduction future invoices credit memos recorded “accounts receivable allowances” within company’s agco corporation notes consolidated financial statements continued consolidated balance sheets reserves incentive programs paid cash case company’s volume discount programs well sales incentives associated accounts receivable sold us canadian retail finance joint ventures recorded within “accrued expenses” within company’s consolidated balance sheets accounts notes receivable shown net allowances sales incentive discounts available dealers doubtful accounts cash flows related collection receivables reported within “cash flows operating activities” within company’s consolidated statements cash flows accounts notes receivable allowances december 31 2013 2012 follows millions company transfers certain accounts receivable accounts receivable sales agreements retail finance joint ventures note 3 company records transfers sales accounts receivable considered surrendered control receivables provisions accounting standards update “asu” 200916 “transfers servicing topic 860 accounting transfers financial assets” cash payments made company’s us canadian retail finance joint ventures sales incentive discounts provided dealers related outstanding accounts receivables sold balances sales discount reserves recorded within “accrued expenses” december 31 2013 2012 approximately 2062 million 1437 million respectively inventories valued lower cost market using firstin firstout method market current replacement cost purchase reproduction dependent type inventory cases market exceeds net realizable value ie estimated selling price less reasonably predictable costs completion disposal inventories stated net realizable value market considered less net realizable value reduced allowance approximately normal profit margin december 31 2013 2012 company recorded 1199 million 992 million respectively adjustment surplus obsolete inventories adjustments reflected within “inventories net” within company’s consolidated balance sheets inventories net december 31 2013 2012 follows millions cash flows related sale inventories reported within “cash flows operating activities” within company’s consolidated statements cash flows property plant equipment property plant equipment recorded cost less accumulated depreciation amortization depreciation provided straightline basis estimated useful lives 10 40 years buildings improvements 3 15 years machinery equipment 3 10 years furniture fixtures expenditures maintenance repairs charged expense incurred agco corporation notes consolidated financial statements continued property plant equipment net december 31 2013 2012 consisted following millions goodwill intangible assets longlived assets asc 350 “intangibles goodwill other” establishes method testing goodwill indefinitelived intangible assets impairment annual basis interim basis event occurs circumstances change would reduce fair value reporting unit carrying value company’s annual qualitative quantitative assessments involve determining estimate fair value company’s reporting units order evaluate whether impairment current carrying amount goodwill indefinitelived intangible assets exists qualitative assessment evaluates whether likely reporting unit’s fair value less carrying amount applying twostep quantitative goodwill impairment test first step quantitative goodwill impairment test used identify potential impairment compares fair value reporting unit carrying amount including goodwill fair value reporting unit exceeds carrying amount goodwill reporting unit considered impaired thus second step quantitative impairment test unnecessary carrying amount reporting unit exceeds fair value second step quantitative goodwill impairment test performed measure amount impairment loss fair values derived based evaluation past expected future performance company’s reporting units reporting unit operating segment one level operating segment example component operating segment reporting unit component constitutes business discrete financial information available company’s executive management team regularly reviews operating results component addition company combines aggregates two components operating segment single reporting unit components similar economic characteristics company’s reportable segments reporting units second step quantitative goodwill impairment test used measure amount impairment loss compares implied fair value reporting unit goodwill carrying amount goodwill carrying amount reporting unit goodwill exceeds implied fair value goodwill impairment loss recognized amount equal excess loss recognized cannot exceed carrying amount goodwill implied fair value goodwill determined manner amount goodwill recognized business combination company allocates fair value reporting unit assets liabilities unit including unrecognized intangible assets reporting unit acquired business combination fair value reporting unit price paid acquire reporting unit excess fair value reporting unit amounts assigned assets liabilities implied fair value goodwill company utilizes combination valuation techniques including discounted cash flow approach market multiple approach making quantitative goodwill assessments company reviews longlived assets include intangible assets subject amortization impairment whenever events changes circumstances indicate carrying amount asset may recoverable impairment loss recognized undiscounted future cash flows estimated generated asset held used sufficient recover unamortized balance asset impairment loss would recognized based difference carrying values estimated fair value estimated fair value determined based either discounted future cash flows appropriate fair value methods amount deficiency charged income current year asset tested recoverability acquired business combination intangible assets resulting acquisition related asset included assessment estimates future cash flows based many factors including current operating results expected market trends competitive influences company also evaluates amortization periods assigned intangible assets determine whether events changes circumstances warrant revised estimates useful lives assets disposed sale reported lower carrying amount fair value less estimated costs sell agco corporation notes consolidated financial statements continued fourth quarter 2012 company conducted quantitative goodwill impairment analysis chinese harvesting business also reviewed longlived assets impairment including trademark distribution network land use right identifiable intangible assets goodwill longlived asset impairment analyses indicated reduction carrying amount chinese harvesting business’s goodwill certain identifiable intangible assets required accordingly company recorded impairment charge approximately 224 million within “impairment charge” company’s consolidated statement operations year ended december 31 2012 chinese harvesting business operates within asiapacific geographical reportable segment company’s accumulated goodwill impairment approximately 1805 million comprised approximately 91 million recorded 2012 related chinese harvesting reporting unit approximately 1714 million recorded 2006 related company’s sprayer reporting unit sprayer reporting unit operates within north american geographical reportable segment results company’s goodwill longlived assets impairment analyses conducted october 1 2013 2011 indicated reduction carrying amount company’s goodwill longlived assets required results company’s goodwill impairment analysis conducted october 1 2012 indicated reduction carrying amount goodwill longlived assets required changes carrying amount goodwill years ended december 31 2013 2012 2011 summarized follows millions 2013 2012 2011 company reduced goodwill financial reporting purposes approximately 80 million 78 million 91 million respectively related realization tax benefits associated excess tax basis deductible goodwill resulting company’s acquisition valtra company amortizes certain acquired identifiable intangible assets primarily straightline basis estimated useful lives range 5 50 years acquired intangible assets weighted average useful life follows agco corporation notes consolidated financial statements continued years ended december 31 2013 2012 2011 acquired intangible asset amortization 478 million 493 million 216 million respectively company estimates amortization existing intangible assets 399 million 2014 399 million 2015 388 million 2016 384 million 2017 383 million 2018 company previously determined two trademarks indefinite useful life massey ferguson trademark existence since 1952 formed merger masseyharris established 1890’s ferguson established 1930’s massey ferguson brand currently sold 140 countries worldwide making one widely sold tractor brands world company also identified valtra trademark indefinitelived asset valtra trademark existence since late 1990’s derivative valmet trademark existence since 1951 valmet name transitioned valtra name period time marketplace valtra brand currently sold approximately 50 countries around world massey ferguson brand valtra brand primary product lines company’s business company plans use trademarks indefinite period time company plans continue make investments product development enhance value brands future legal regulatory contractual competitive economic factors company aware company believes would limit useful lives trademarks massey ferguson valtra trademark registrations renewed nominal cost countries company operates changes carrying amount acquired intangible assets 2013 2012 summarized follows millions agco corporation notes consolidated financial statements continued accrued expenses accrued expenses december 31 2013 2012 consisted following millions warranty reserves warranty reserve activity years ended december 31 2013 2012 2011 consisted following millions company’s agricultural equipment products generally warranty defects materials workmanship period one four years company accrues future warranty costs time sale based historical warranty experience approximately 390 million 330 million warranty reserves included “other noncurrent liabilities” company’s consolidated balance sheets december 31 2013 2012 respectively insurance reserves company’s insurance programs coverage obtained significant liability limits well risks required insured law contract policy company selfinsure portion certain expected losses related primarily workers’ compensation comprehensive general product vehicle liability provisions losses expected programs recorded based company’s estimates aggregate liabilities claims incurred agco corporation notes consolidated financial statements continued stock incentive plans stock compensation expense recorded follows millions refer note 9 additional information regarding company’s stock incentive plans 2013 2012 2011 research development expenses research development expenses expensed incurred included engineering expenses company’s consolidated statements operations advertising costs company expenses advertising costs incurred cooperative advertising costs normally expensed time revenue earned advertising expenses years ended december 31 2013 2012 2011 totaled approximately 605 million 602 million 501 million respectively shipping handling expenses shipping handling fees charged customers included component net sales shipping handling costs included part cost goods sold exception certain handling costs included selling general administrative expenses amount 293 million 310 million 299 million years ended december 31 2013 2012 2011 respectively interest expense net interest expense net years ended december 31 2013 2012 2011 consisted following millions income taxes income taxes accounted asset liability method deferred tax assets liabilities recognized future tax consequences attributable differences financial statement carrying amounts existing assets liabilities respective tax bases operating loss tax credit carryforwards deferred tax assets liabilities measured using enacted tax rates expected apply taxable income years temporary differences expected recovered settled effect deferred tax assets liabilities change tax rates recognized income period includes enactment date refer note 5 additional information regarding company’s income taxes net income per common share basic income per common share computed dividing net income weighted average number common shares outstanding period diluted income per common share assumes exercise outstanding stock options stocksettled stock appreciation rights “ssars” vesting restricted stock performance share awards agco corporation notes consolidated financial statements continued appreciation excess conversion value contingently convertible senior subordinated notes using treasury stock method effects assumptions dilutive company’s 2012 million aggregate principal amount 114 convertible senior subordinated notes provided settlement upon conversion cash principal amount converted notes excess conversion value settled shares company’s common stock dilution weighted shares outstanding depends company’s stock price excess conversion value using treasury stock method note 6 reconciliation net income attributable agco corporation subsidiaries weighted average common shares outstanding purposes calculating basic diluted net income per share years ended december 31 2013 2012 2011 follows millions except per share data ssars purchase 08 million shares 06 million shares 03 million shares respectively outstanding years ended december 31 2013 2012 2011 respectively included calculation weighted average common equivalent shares outstanding antidilutive impact agco corporation notes consolidated financial statements continued comprehensive income loss company reports comprehensive income loss defined total net income loss nonowner changes equity components thereof consolidated statements stockholders’ equity consolidated statements comprehensive income components comprehensive loss related tax effects years ended december 31 2013 2012 2011 follows millions financial instruments carrying amounts reported company’s consolidated balance sheets “cash equivalents” “accounts notes receivable” “accounts payable” approximate fair value due immediate shortterm maturity financial instruments carrying amounts longterm debt company’s 412 senior term loan credit facility note 6 approximate fair value based borrowing rates currently available company loans similar terms average maturities december 31 2013 estimated fair values company’s 578 senior notes 114 convertible notes note 6 based listed market values 3221 million 2905 million respectively compared carrying values 3000 million 2012 million respectively december 31 2012 estimated fair values company’s 578 senior notes 114 convertible notes note 6 based listed market values 3272 million 2506 million respectively compared carrying values 3000 million 1921 million respectively company uses foreign currency contracts hedge foreign currency exposure certain receivables payables contracts periods consistent exposure hedged generally maturities one year less contracts classified nondesignated derivative instruments company also enters foreign currency agco corporation notes consolidated financial statements continued contracts designated cash flow hedges expected sales company’s foreign currency contracts mitigate risk due exchange rate fluctuations gains losses contracts generally offset losses gains exposure hedged notional amounts foreign currency contracts represent amounts exchanged parties therefore measure company’s risk amounts exchanged calculated basis notional amounts terms contracts credit market risks contracts considered significant company’s hedging policy prohibits entering foreign currency contracts speculative trading purposes refer note 10 additional information regarding company’s derivative instruments hedging activities recent accounting pronouncements july 2013 financial accounting standards board “fasb” issued accounting standards update “asu” 201311 “presentation unrecognized tax benefit net operating loss carryforward similar tax loss tax credit carryforward exists” “asu 201311” asu 201311 requires unrecognized tax benefit portion unrecognized tax benefit presented financial statements reduction deferred tax asset net operating loss carryforward similar tax loss tax credit carryforward extent net operating loss carryfoward similar tax loss tax credit carryforward available reporting date tax law applicable jurisdiction settle additional income taxes would result disallowance tax position tax law applicable jurisdiction require entity use entity intend use deferred tax asset purpose unrecognized tax benefit presented financial statements liability combined deferred tax assets standard effective fiscal years interim periods within years beginning december 15 2013 early adoption permitted company plans adopt standard january 1 2014 company expect adoption asu 201311 material impact company’s results operations financial condition february 2013 fasb issued asu 201302 “comprehensive income topic 220 reporting amounts reclassified accumulated comprehensive income” “asu 201302” asu 201302 change current requirements reporting net income comprehensive income financial statements standard requires entity provide information amounts reclassified accumulated comprehensive income “aoci” component standard also requires entity present either face statement net income presented footnotes significant amounts reclassified aoci respective line items net income amount reclassified required reclassified net income entirety reporting period amounts required reclassified entirety net income standard requires entity crossreference disclosures provide additional detail amounts company adopted asu 201302 january 1 2013 presenting required amounts footnote disclosures note 8 july 2012 fasb issued asu 201202 “intangiblesgoodwill topic 350 testing indefinitelived intangible assets impairment” “asu 201202” asu 201202 permits entity make qualitative assessment whether likely indefinitelived intangible asset impaired entity concludes likely fair value asset exceeds carrying amount need calculate fair value asset year standard effective annual interim impairment tests performed fiscal years beginning september 15 2012 early adoption permitted adoption asu 201202 material impact company’s results operations financial condition september 2011 fasb issued asu 201108 “intangiblesgoodwill topic 350 testing goodwill impairment” “asu 201108” asu 201108 permits entity make qualitative assessment whether likely reporting unit’s fair value less carrying amount applying twostep goodwill impairment test entity concludes likely fair value reporting unit less carrying amount need perform twostep impairment test standard effective annual interim goodwill impairment tests performed fiscal years beginning december 15 2011 early adoption permitted adoption asu 201108 material impact company’s results operations financial condition june 2011 fasb issued asu 201105 “comprehensive income topic 220 presentation comprehensive income” “asu 201105” asu 201105 increases prominence comprehensive income financial statements asu 201105 change items must reported comprehensive income item comprehensive income must reclassified net income standard initially required reclassification adjustments comprehensive income measured presented income statement line item face statement agco corporation notes consolidated financial statements continued operations december 2011 however fasb issued asu 201112 “comprehensive income topic 220 deferral effective date amendments presentation reclassifications items accumulated comprehensive income asu 201105” “asu 201112” asu 201112 defers requirement present components reclassifications comprehensive income face statement operations company adopted asu 201105 201112 consecutively presenting consolidated statements operations consolidated statements comprehensive income years ended december 31 2013 2012 2011 2 acquisitions january 2012 company acquired 61 santal approximately r367 million net approximately r119 million cash acquired approximately 201 million net santal headquartered ribeirão preto brazil manufactures distributes sugar cane planting harvesting handling transportation equipment well replacement parts across brazil acquisition santal provide company’s customers brazil wider range agricultural products services acquisition funded available cash hand company recorded approximately 280 million goodwill approximately 26 million trade name trademark patent identifiable intangible assets associated acquisition goodwill generally resulted value cash flows expected generated future compared asset intensity business goodwill reported within company’s south american geographical reportable segment company seller call option put option respectively varying dates respect remaining 39 interest santal fair value redeemable noncontrolling interest santal recorded within “temporary equity” company’s condensed consolidated balance sheet acquisition date acquired identifiable intangible assets santal date acquisition summarized following table millions november 30 2011 company acquired gsi holdings corp “gsi” 9322 million net approximately 279 million cash acquired gsi headquartered assumption illinois leading manufacturer grain storage protein production systems gsi sells products globally independent dealers acquisition financed issuance 3000 million 578 senior notes company’s credit facility note 6 result acquisition company recorded tax benefit approximately 1493 million within “income tax benefit provision” company’s consolidated statement operations year ended december 31 2011 resulting reversal portion previously established deferred tax valuation allowance reversal required offset deferred tax liabilities established part acquisition accounting gsi relating acquired amortizable intangible assets note 5 final fair values assets acquired liabilities assumed acquisition date presented following table millions november 30 2011 company acquired 98 shandong dafeng machinery co ltd “dafeng” approximately 1717 million yuan approximately 269 million company acquired approximately 171 million agco corporation notes consolidated financial statements continued cash assumed approximately 411 million indebtedness associated transaction dafeng located yanzhou china manufactures complete range corn grain rice soybean harvesting machines chinese domestic markets acquisition funded available cash hand fair value noncontrolling interest dafeng recorded within “noncontrolling interests” company’s consolidated balance sheet acquisition date fourth quarter 2012 company recorded impairment charge approximately 224 million within “impairment charge” company’s consolidated statement operations associated writedown chinese harvesting reporting unit’s goodwill certain identifiable intangible assets refer note 1 additional information results operations santal gsi dafeng acquisitions included company’s consolidated financial statements dates respective acquisitions company allocated purchase price acquisition assets acquired liabilities assumed based fair values respective acquisition dates general acquired assets acquisitions consisted primarily accounts receivable inventories property plant equipment identifiable intangible assets liabilities assumed generally consisted accounts payable indebtedness following unaudited pro forma data summarizes results operations year ended december 31 2011 prior years’ acquisitions occurred january 1 2010 unaudited pro forma information reflect impact future events may occur acquisitions including limited anticipated cost savings operating synergies unaudited pro forma financial information adjusted give effect adjustments directly related business combinations factually supportable expected continuing impact adjustments include application company’s accounting policies depreciation amortization related fair value adjustments property plant equipment intangible assets inventory taxrelated adjustments impact company’s issuance 3000 million 578 senior notes new credit facility used finance acquisition gsi unaudited pro forma information prepared comparative purposes purport represent results operations company actually would transactions occurred date indicated results operations may future period millions except per share data 3 accounts receivable sales agreements december 31 2013 2012 company accounts receivable sales agreements permit sale ongoing basis majority wholesale receivables north america europe 49 owned us canadian european retail finance joint ventures december 31 2013 2012 cash received receivables sold us canadian european accounts receivable sales agreements approximately 13 billion 11 billion respectively terms accounts receivable sales agreements north america europe company pays annual servicing fee related servicing receivables sold company also pays respective agco finance entities subsidized interest payment respect sales agreements calculated based upon libor plus margin noninterest bearing accounts receivable outstanding sold sales agreements fees reflected within losses sales receivables included within “other expense net” company’s consolidated statements operations company service receivables sale occurs maintain direct retained interest receivables company reviewed accounting accounts receivable sales agreements determined facilities accounted offbalance sheet transactions company’s former european accounts receivable securitization facilities expired october 2011 wholesale accounts receivable sold revolving basis commercial paper conduits european facilities whollyowned qualified special purpose entity united kingdom losses sales receivables company’s agco corporation notes consolidated financial statements continued former european securitization facilities reflected within “interest expense net” company’s consolidated statements operations 2011 losses sales receivables associated accounts receivable financing facilities discussed reflected within “other expense net” “interest expense net” company’s consolidated statements operations approximately 256 million 218 million 220 million 2013 2012 2011 respectively company’s retail finance joint ventures brazil australia also provide wholesale financing company’s dealers receivables associated arrangements without recourse company service receivables sale occurs maintain direct retained interest receivables december 31 2013 2012 retail finance joint ventures approximately 682 million 1006 million respectively outstanding accounts receivable associated arrangements company reviewed accounting arrangements determined arrangements accounted offbalance sheet transactions addition company sells certain trade receivables factoring arrangements financial institutions around world company reviewed sale receivables determined arrangements accounted offbalance sheet transactions 4 investments affiliates investments affiliates december 31 2013 2012 follows millions company’s manufacturing joint ventures december 31 2013 consisted gima joint ventures thirdparty manufacturers assemble tractors algeria engines south america joint ventures represent minority investments farm equipment manufacturers distributors licensees company’s equity net earnings affiliates years ended december 31 2013 2012 2011 follows millions summarized combined financial information company’s retail finance joint ventures december 31 2013 2012 years ended december 31 2013 2012 2011 follows millions agco corporation notes consolidated financial statements continued majority assets company’s retail finance joint ventures represents finance receivables majority liabilities represents notes payable accrued interest various joint venture agreements rabobank affiliates provide financing joint venture companies note 12 december 31 2013 2012 company’s receivables affiliates approximately 1243 million 415 million respectively receivables affiliates reflected within accounts notes receivable net within company’s consolidated balance sheets portion company’s retained earnings balance represents undistributed retained earnings equity method investees approximately 2763 million 2460 million december 31 2013 2012 respectively 5 income taxes sources income loss income taxes equity net earnings affiliates follows years ended december 31 2013 2012 2011 millions provision income taxes location taxing jurisdiction years ended december 31 2013 2012 2011 consisted following millions december 31 2013 company’s foreign subsidiaries approximately 31 billion undistributed earnings considered indefinitely invested accordingly income taxes provided earnings determination amount unrecognized deferred taxes earnings practicable however unrecognized foreign tax credits would available reduce portion tax liability agco corporation notes consolidated financial statements continued reconciliation income taxes computed united states federal statutory income tax rate 35 provision income taxes reflected company’s consolidated statements operations years ended december 31 2013 2012 2011 follows millions “change valuation allowance” year ended december 31 2012 primarily relates usage approximately 547 million valuation allowance due income generated united states 2012 income tax provision also includes reversal approximately 138 million remaining valuation allowance previously established company’s us deferred tax assets reflected “change valuation allowance” well recognition certain us research development tax credits approximately 131 million “change valuation allowance” year ended december 31 2011 includes reversal approximately 1493 million valuation allowance previously established company’s deferred tax assets united states reversal required offset deferred tax liabilities established part acquisition accounting gsi agco corporation notes consolidated financial statements continued significant components deferred tax assets liabilities december 31 2013 2012 follows millions company recorded net deferred tax asset 97 million 412 million december 31 2013 2012 respectively reflected preceding table company valuation allowance 772 million 745 million december 31 2013 2012 respectively valuation allowance established likely portion deferred tax assets realized company assessed likelihood deferred tax assets would recovered estimated future taxable income available tax planning strategies determined valuation allowance december 31 2013 2012 appropriate making assessment available evidence considered including current economic climate well reasonable tax planning strategies company believes likely company realize remaining deferred tax assets net valuation allowance future years company net operating loss carryforwards 3349 million december 31 2013 expiration dates follows 2014 00 million 2015 87 million 2016 952 million thereafter unlimited 2310 million net operating loss carryforwards 3349 million entirely net operating loss carryforwards outside united states company paid income taxes 1745 million 1477 million 1164 million years ended december 31 2013 2012 2011 respectively december 31 2013 2012 company 1222 million 945 million respectively unrecognized income tax benefits would affect company’s effective tax rate recognized december 31 2013 2012 company approximately 619 million 235 million respectively accrued deferred taxes related uncertain income tax positions connected ongoing income tax audits various jurisdictions expects settle pay next 12 months company accrued approximately 23 million 38 million interest penalties related unrecognized tax benefits provision income taxes 2013 2012 respectively december 31 2013 2012 agco corporation notes consolidated financial statements continued company accrued interest penalties related unrecognized tax benefits 144 million 119 million respectively reconciliation beginning ending balances total amounts gross unrecognized tax benefits years ended december 31 2013 2012 follows millions company subsidiaries file income tax returns united states various state local foreign jurisdictions company subsidiaries routinely examined tax authorities jurisdictions december 31 2013 number income tax examinations foreign jurisdictions ongoing possible certain ongoing examinations may resolved within 12 months due potential resolution federal state foreign examinations expiration various statutes limitation reasonably possible company’s gross unrecognized income tax benefits balance may materially change within next 12 months due number jurisdictions issues involved uncertainty regarding timing settlements company unable time provide reasonable estimate change may occur within next 12 months although ongoing examinations various jurisdictions 2010 2013 tax years generally remain subject examination united states federal state authorities company’s significant foreign jurisdictions primarily united kingdom france germany switzerland finland brazil 2008 2013 tax years generally remain subject examination respective tax authorities brazil company contesting disallowed deductions related amortization certain goodwill amounts note 11 6 indebtedness consisted following december 31 2013 2012 millions agco corporation notes consolidated financial statements continued december 31 2013 aggregate scheduled maturities longterm debt excluding current portion longterm debt follows millions convertible senior subordinated notes following table sets forth december 31 2013 2012 carrying amount equity component principal amount liability component unamortized discount net carrying amount company’s 114 convertible senior subordinated notes millions following table sets forth interest expense recognized years ended december 31 2013 2012 2011 relating contractual interest coupon amortization discount liability component company’s former 134 convertible senior subordinated notes 114 convertible senior subordinated notes millions effective interest rate liability component 114 convertible senior subordinated notes years ended december 31 2013 2012 2011 61 unamortized discount 114 convertible senior subordinated notes amortized december 2013 earliest date notes’ holders could require company repurchase notes cash payments interest approximately 664 million 700 million 471 million years ended december 31 2013 2012 2011 respectively company’s 114 convertible senior subordinated notes due december 15 2036 issued december 2006 provided settlement upon conversion cash principal amount notes excess conversion value settled shares company’s common stock interest payable notes 114 per annum payable semiannually arrears cash june 15 december 15 year notes convertible shares company’s common stock effective price 4044 per share subject adjustment including reflect impact conversion rate upon payment dividends company’s stockholders current effective price reflects conversion rate notes 247268 shares common stock per 1000 principal amount notes agco corporation notes consolidated financial statements continued notes contain certain antidilution provisions designed protect holders’ interests change control transaction qualified “fundamental change” occurred prior december 15 2013 certain circumstances company increased conversion rate notes converted connection transaction number additional shares used paragraph “make whole shares” fundamental change transaction event connection 50 company’s common stock exchanged converted acquired constitutes solely right receive consideration least 90 common stock listed us national securities exchange approved quotation automated quotation system amount increase conversion rate would depended effective date transaction average price per share company’s common stock effective date adjustment conversion rate would made price per share common stock less 3133 per share 18000 per share number additional make whole shares range 73658 shares per 1000 principal amount 3133 per share 00000 shares per 1000 principal amount 18000 per share year ended december 15 2013 acquirer certain affiliates fundamental change transaction publicly traded common stock company would instead increasing conversion rate described cause notes become convertible publicly traded common stock acquirer principal notes repaid cash balance payable shares acquirer common stock time company issue aggregate number shares company’s common stock upon conversion notes excess 319183 shares per 1000 principal amount thereof holders company’s common stock receive cash fundamental change transaction holders notes receive cash well holders may convert notes following circumstances 1 fiscal quarter closing sales price company’s common stock exceeds 120 conversion price least 20 trading days 30 consecutive trading days ending last trading day preceding fiscal quarter 2 five business day period five consecutive trading day period trading price per note day period less 98 product closing sale price company’s common stock conversion rate 3 notes called redemption 4 upon occurrence certain corporate transactions beginning december 19 2013 company could redeem notes redemption price 100 principal amount plus accrued interest well settle excess conversion value shares company’s common stock holders notes may require company repurchase notes repurchase price 100 principal amount plus accrued interest december 15 2016 2021 2026 2031 holders may also require company repurchase portion notes upon fundamental change defined indenture repurchase price equal 100 principal amount notes repurchased plus accrued unpaid interest notes senior subordinated obligations subordinated company’s existing future senior indebtedness effectively subordinated debt liabilities company’s subsidiaries holders company’s 114 convertible senior subordinated notes right require company repurchase notes repurchase price 100 principal amount plus interest december 15 2013 notes tendered repurchase addition holders may convert notes fiscal quarter closing sales price company’s common stock exceeds 120 conversion price 4044 per share least 20 trading days 30 consecutive trading days ending last trading day preceding fiscal quarter december 31 2013 closing sales price company’s common stock exceeded 120 conversion price 114 convertible senior subordinated notes least 20 trading days 30 consecutive trading days ending december 31 2013 therefore holders notes may convert notes three months ending march 31 2014 due ability holders notes convert notes three months ending march 31 2014 company classified notes current liability december 31 2013 december 31 2012 company classified notes current liability due redemption feature notes company classified approximately 92 million equity component 114 convertible senior subordinated notes “temporary equity” december 31 2012 amount classified “temporary equity” measured excess amount cash would required paid upon conversion ii current carrying amount liabilityclassified component december 31 2013 amount principal cash required repaid upon conversion 114 convertible senior subordinated notes equivalent carrying amount liabilityclassified component future classification notes current liabilities longterm debt dependent closing sales price company’s common stock future quarters fourth quarter 2015 year ended december 31 2013 holders company’s 114 convertible senior subordinated notes converted less 01 million principal amount notes company issued 286 shares common stock associated less 01 million excess conversion value notes company reflected repayment principal notes totaling less 01 million within “conversion convertible senior subordinated notes” within company’s consolidated statements cash flows year ended december 31 2013 2011 holders company’s former 134 convertible senior subordinated notes converted approximately 1610 million principal amount notes company issued 3926574 shares common stock associated 1959 million excess conversion agco corporation notes consolidated financial statements continued value notes company reflected repayment principal notes totaling 1610 million within “conversion convertible senior subordinated notes” within company’s consolidated statement cash flows year ended december 31 2011 subsequent december 31 2013 holders company’s 114 convertible senior subordinated notes converted approximately 496 million principal amount notes company issued 377957 shares common stock associated 219 million excess conversion value notes 4 12 senior term loan company’s €2000 million approximately 2750 million 412 senior term loan rabobank due may 2 2016 company ability prepay term loan maturity date interest payable term loan 412 per annum payable quarterly arrears march 31 june 30 september 30 december 31 year term loan contains covenants restricting among things incurrence indebtedness making certain payments including dividends subject acceleration event default company also fulfill financial covenants respect total debt ebitda ratio interest coverage ratio 5 78 senior notes company’s 3000 million 578 senior notes due 2021 constitute senior unsecured unsubordinated indebtedness interest payable notes semiannually arrears june 1 december 1 year time prior september 1 2021 company may redeem notes whole part time option redemption price equal greater 100 principal amount plus accrued unpaid interest including additional interest excluding redemption date ii sum present values remaining scheduled payments principal interest exclusive interest accrued date redemption discounted redemption date treasury rate plus 05 plus accrued unpaid interest including additional interest beginning september 1 2021 company may redeem notes whole part time option redemption price equal 100 principal amount plus accrued unpaid interest including additional interest credit facility company’s revolving credit term loan facility consists 6000 million multicurrency revolving credit facility 3600 million term loan facility maturity date company’s credit facility december 1 2016 company required make quarterly payments towards term loan 50 million increase 100 million commencing march 2015 interest accrues amounts outstanding credit facility company’s option either 1 libor plus margin ranging 10 20 based company’s leverage ratio 2 base rate equal higher administrative agent’s base lending rate applicable currency ii federal funds rate plus 05 iii onemonth libor loans denominated us dollars plus 10 plus margin ranging 00 05 based company’s leverage ratio credit facility contains covenants restricting among things incurrence indebtedness making certain payments including dividends subject acceleration event default company also fulfill financial covenants respect total debt ebitda ratio interest coverage ratio december 31 2013 company 3600 million outstanding borrowings credit facility availability borrow approximately 6000 million december 31 2012 company 4650 million outstanding borrowings credit facility availability borrow approximately 5150 million standby letters credit similar instruments company arrangements various banks issue standby letters credit similar instruments guarantee company’s obligations purchase sale certain inventories potential claims exposure insurance coverage december 31 2013 2012 outstanding letters credit totaled 167 million 158 million respectively agco corporation notes consolidated financial statements continued 7 employee benefit plans company sponsors defined benefit pension plans covering certain employees principally united states united kingdom germany finland norway france switzerland australia argentina company also provides certain postretirement health care life insurance benefits certain employees principally united states brazil net annual pension costs years ended december 31 2013 2012 2011 set forth millions weighted average assumptions used determine net annual pension costs company’s pension plans years ended december 31 2013 2012 2011 follows net annual postretirement benefit costs years ended december 31 2013 2012 2011 set forth millions except percentages agco corporation notes consolidated financial statements continued following tables set forth reconciliations changes benefit obligation plan assets funded status december 31 2013 2012 millions agco corporation notes consolidated financial statements continued following table summarizes activity accumulated comprehensive loss related company’s defined pension postretirement benefit plans year ended december 31 2013 millions december 31 2013 company’s accumulated comprehensive loss included net actuarial loss approximately 2603 million net prior service credit approximately 01 million related company’s defined benefit pension plans estimated net actuarial loss net prior service credit defined benefit pension plans expected amortized company’s accumulated comprehensive loss year ended december 31 2014 approximately 86 million 01 million respectively december 31 2013 company’s accumulated comprehensive loss included net actuarial loss approximately 41 million net prior service cost approximately 39 million related company’s us brazilian postretirement health care benefit plans estimated net actuarial loss net prior service cost postretirement health care benefit plans expected amortized company’s accumulated comprehensive loss year ended december 31 2014 approximately 01 million 02 million respectively weighted average assumptions used determine benefit obligation company’s pension plans december 31 2013 2012 follows weighted average discount rate used determine benefit obligation company’s postretirement benefit plans years ended december 31 2013 2012 53 47 respectively aggregate projected benefit obligation accumulated benefit obligation fair value plan assets pension postretirement plans accumulated benefit obligations excess plan assets 8736 million 8345 million 6531 million respectively december 31 2013 8708 million 8308 million 5690 million respectively december 31 2012 projected benefit obligation accumulated benefit obligation fair value plan assets company’s usbased qualified pension plans accumulated benefit obligations excess plan assets 481 million 481 million 419 million respectively december 31 2013 544 million 544 million 367 million respectively december 31 2012 company’s accumulated comprehensive loss december 31 2013 reflects reduction equity 2682 million net taxes 740 million primarily related company’s uk pension plan projected benefit obligation exceeded plan assets addition company’s accumulated comprehensive loss december 31 2013 reflects reduction equity approximately 13 million net taxes 04 million related company’s gima joint venture amount represents 50 gima’s unrecognized net actuarial losses unrecognized prior service cost associated pension plan company’s accumulated comprehensive loss december 31 2012 reflected reduction equity 3363 million net taxes 902 million primarily related company’s uk pension plan projected benefit obligation exceeded plan assets addition company’s accumulated comprehensive loss december 31 2012 reflected reduction equity approximately 14 million net agco corporation notes consolidated financial statements continued taxes 05 million related company’s gima joint venture amount represented 50 gima’s unrecognized net actuarial losses unrecognized prior service cost associated pension plan years ended december 31 2013 2012 2011 company used globally consistent methodology set discount rate countries largest benefit obligations exist united states united kingdom euro zone company constructed hypothetical bond portfolio highquality corporate bonds applied cash flows company’s benefit plans bond yields derive discount rate bond portfolio planspecific cash flows vary country methodology portfolio constructed consistent united states bond portfolio large enough result taking “settlement approach” derive discount rate highquality corporate bonds assumed purchased resulting coupon payments maturities used satisfy company’s largest us pension plan’s projected benefit payments united kingdom euro zone discount rate derived using “yield curve approach” individual spot rate zero coupon bond yield future annual period developed discount future benefit payment thereby determine present value future payments settlement yield curve approaches discount rate set equal single discount rate produces present value future payments investment strategy concentration risk weighted average asset allocation company’s us pension benefit plans december 31 2013 2012 follows weighted average asset allocation company’s nonus pension benefit plans december 31 2013 2012 follows asc 820 “fair value measurements” “asc 820” establishes framework measuring fair value framework provides fair value hierarchy prioritizes inputs valuation techniques used measure fair value hierarchy gives highest priority unadjusted quoted prices active markets identical assets liabilities level 1 measurements lowest priority unobservable inputs level 3 measurements three levels fair value hierarchy asc 820 described follows level 1 inputs valuation methodology unadjusted quoted prices identical assets liabilities active markets company ability access level 2 inputs valuation methodology include • quoted prices similar assets liabilities active markets • quoted prices identical similar assets liabilities inactive markets • inputs quoted prices observable asset liability • inputs derived principally corroborated observable market data correlation means asset liability specified contractual term level 2 input must observable substantially full term asset liability level 3 inputs valuation methodology unobservable significant fair value measurement agco corporation notes consolidated financial statements continued asset’s liability’s fair value measurement level within fair value hierarchy based lowest level input significant fair value measurement company’s valuation techniques designed maximize use observable inputs minimize use unobservable inputs company uses following valuation methodologies measure fair value plan assets equity securities equity securities valued basis closing price per unit business day reported applicable exchange fixed income fixed income securities valued using closing prices active market fixed income investment trades fixed income funds valued using net asset value fund based fair value underlying securities cash investments primarily consist short term investment funds valued using net asset value alternative investments pooled funds investments reported fair value determined general partner alternative investment pooled fund “market approach” valuation technique used value investments funds typically openend funds generally offer subscription redemption options investors frequency subscriptions redemptions dictated fund’s governing documents amount liquidity provided investors particular fund generally consistent liquidity risk associated underlying portfolio ie liquid investments portfolio greater liquidity provided investors liquidity individual funds varies based various factors may include “gates” “holdbacks” “side pockets” imposed manager fund well redemption fees may also apply investments funds typically valued utilizing net asset valuations provided underlying investment managers general partners administrators funds consider subscription redemption rights including restrictions disposition interest determination fair value insurance contracts insurance contracts valued using current prevailing interest rates fair value company’s pension assets december 31 2013 follows millions 1 40 “fixed income” securities government treasuries 31 investmentgrade corporate bonds 29 various fixed income securities 2 35 “alternative investments” longshort equity funds 29 eventdriven funds 12 relative value funds 12 credit funds 7 distributed hedged nonhedged funds 5 multistrategy funds 3 “miscellaneous funds” comprised pooled funds australia insurance contracts finland norway switzerland agco corporation notes consolidated financial statements continued following reconciliation level 3 assets december 31 2013 millions fair value company’s pension assets december 31 2012 follows millions 1 39 “fixed income” securities investmentgrade corporate bonds 34 various fixed income securities 27 government treasuries 2 24 “alternative investments” longshort equity funds 19 multistrategy funds 17 eventdriven funds 16 distributed hedged nonhedged funds 12 relative value funds 12 credit funds 3 “miscellaneous funds” comprised pooled funds australia various contracts finland norway switzerland agco corporation notes consolidated financial statements continued following reconciliation level 3 assets december 31 2012 millions taxqualified pension fund investments united states held agco corporation master pension trust company’s global pension fund strategy diversify investments across broad categories equity fixed income securities appropriate use alternative investment categories minimize risk volatility primary investment objective company’s pension plans secure participant retirement benefits key objective pension plans’ financial management promote stability extent appropriate growth funded status investment strategy plans’ portfolio assets balances requirement generate returns need control risk asset mix recognized primary mechanism influence reward risk structure pension fund investments effort accomplish plans’ funding objectives overall investment strategy usbased pension plans achieve mix approximately 15 assets nearterm benefit payments 85 longerterm growth overall us pension funds invest broad diversification asset types company’s us target allocation retirement fund investments 45 large smallcap domestic equity securities 15 international equity securities 20 broad fixed income securities 20 alternative investments company noted long periods mix investments would achieve average return approximately 70 overall investment strategy nonus based pension plans achieve mix approximately 30 assets nearterm benefit payments 70 longerterm growth overall nonus pension funds invest broad diversification asset types company’s nonus target allocation retirement fund investments 45 equity securities 30 broad fixed income investments 25 alternative investments majority company’s nonus pension fund investments related company’s pension plan united kingdom company noted long periods mix investments would achieve average return excess 78 arriving choice expected return assumption 70 ukbased plans year ended december 31 2014 company tempered historical indicator lower expectations returns equity investment future well administrative costs plans equity securities primarily include investments largecap smallcap companies located across globe fixed income securities include corporate bonds companies diversified industries mortgagebacked securities agency mortgages assetbacked securities government securities alternative assets include investments hedge fund funds follow diversified investment strategies date company invested pension funds stock intention future within asset class careful consideration given balancing portfolio among industry sectors geographies interest rate sensitivity dependence economic growth currency factors affecting investment returns assets managed professional investment firms bound precise mandates measured specific benchmarks among asset managers consideration given among others balancing security concentration issuer concentration investment style reliance particular active investment strategies measuring expected us postretirement benefit obligation december 31 2013 2012 company assumed 75 80 health care cost trend rate 2014 2013 respectively decreasing 50 2019 measuring brazilian postretirement benefit plan obligation december 31 2013 company assumed 1225 health care cost trend rate 2014 decreasing 645 2024 measuring brazilian postretirement benefit plan obligation december 31 2012 company assumed 107 health care cost trend rate 2013 decreasing 62 2022 changing assumed health care cost trend rates one percentage point year holding assumptions constant agco corporation notes consolidated financial statements continued would following effect service interest cost 2013 accumulated postretirement benefit obligation december 31 2013 millions company currently estimates minimum contributions usbased defined pension plans 2014 aggregate approximately 26 million company currently estimates benefit payments 2014 usbased postretirement health care life insurance benefit plans aggregate approximately 18 million benefits 2014 brazilian postretirement health care benefit plans aggregate approximately less 01 million company currently estimates minimum contributions underfunded plans benefit payments unfunded plans 2014 nonusbased defined pension plans aggregate approximately 400 million approximately 256 million relates uk pension plan 2013 approximately 535 million benefit payments made related company’s pension plans december 31 2013 aggregate expected benefit payments company’s pension plans follows millions 2013 approximately 18 million benefit payments made related company’s us brazilian postretirement benefit plans december 31 2013 aggregate expected benefit payments company’s us brazilian postretirement benefit plans follows millions company participates small number multiemployer plans netherlands sweden company assessed determined none multiemployer plans participates individually aggregate significant company’s consolidated financial statements company expect incur withdrawal liability expect significantly increase contributions remainder multiemployer plans’ contract periods company maintains executive nonqualified pension plan “enpp” provides usbased senior executives retirement income period 15 years based percentage average highest three nonconsecutive years base salary bonus final ten years employment referred “threeyear average compensation” reduced senior executive’s social security benefits 401k employermatching contributions executive made maximum contribution benefit paid executives ranges 225 300 threeyear average compensation multiplied credited years service subject maximum 20 years nearly participants benefits enpp vest participant attained age 50 least ten years service five years agco corporation notes consolidated financial statements continued include years participation enpp payable participant reaches age 65 upon termination services death disability adjusted reflect payment prior age 65 net annual enpp cost measurement assumptions plans years ended december 31 2013 2012 2011 set forth millions except percentages following tables set forth reconciliations changes benefit obligation funded status december 31 2013 2012 millions weighted average discount rate used determine benefit obligation enpp years ended december 31 2013 2012 48 39 respectively december 31 2013 company’s accumulated comprehensive loss included net actuarial loss approximately 52 million net prior service cost approximately 47 million related enpp estimated net actuarial loss net prior service cost related enpp expected amortized company’s accumulated comprehensive loss year ended december 31 2014 approximately 01 million 09 million respectively december 31 2013 company recorded reduction equity 99 million addition deferred tax liability 14 million related unfunded projected benefit obligation enpp december 31 2012 company recorded reduction equity 175 million net taxes 16 million related unfunded projected benefit obligation enpp refer note 5 information reversal valuation allowance previously established company’s deferred tax assets united states agco corporation notes consolidated financial statements continued 2013 approximately 12 million benefit payments made related enpp december 31 2013 aggregate expected benefit payments enpp follows millions company maintains separate defined contribution plans covering certain employees primarily united states united kingdom brazil plans company contributes specified percentage eligible employee’s compensation company contributed approximately 130 million 117 million 100 million years ended december 31 2013 2012 2011 respectively 8 stockholders’ equity following table sets forth changes accumulated comprehensive loss component net tax attributed agco corporation subsidiaries year ended december 31 2013 millions agco corporation notes consolidated financial statements continued following table sets forth reclassification adjustments accumulated comprehensive loss component attributed agco corporation subsidiaries year ended december 31 2013 millions 1 losses included within consolidated statements operations year ended december 31 2013 2 accumulated comprehensive loss components included computation net periodic pension postretirement benefit cost see note 7 company’s consolidated financial statements common stock december 31 2013 company 1500 million authorized shares common stock par value 001 per share approximately 974 million shares common stock outstanding approximately 36 million shares reserved issuance company’s 2006 longterm incentive plan “2006 plan” note 9 company stockholder rights plan adopted april 1994 following stockholder approval plan provides share common stock outstanding attached right purchase onehundredth share junior cumulative preferred stock par value 001 per share purchase price per onehundredth share 11000 subject adjustment rights exercisable person group “acquirer” acquires 20 company’s common stock announces tender offer exchange offer would result acquisition 20 company’s common stock circumstances additional conditions met exercisable plan allows stockholders acquirer purchase company’s common stock securities acquirer current market value two times exercise price right rights redeemable 001 per right subject adjustment option company’s board directors rights expire april 26 2014 unless extended redeemed exchanged company date share repurchase program july 2012 board directors approved share repurchase program company permitted repurchase 500 million shares common stock 2013 open market transactions company repurchased 19510 shares common stock approximately 10 million average price paid 4934 per share 2012 company repurchased 409007 shares common stock approximately 176 million average price paid 4314 per share program open market transactions repurchased shares retired date purchase excess purchase price par value per share recorded “additional paidin capital” within company’s consolidated balance sheets december 2013 board directors approved additional share repurchase program company permitted repurchase 5000 million shares common stock 2014 company entered accelerated repurchase agreements “asrs” financial institution repurchase aggregate 2900 million shares company’s common stock company received approximately agco corporation notes consolidated financial statements continued 42 million shares date transactions specific number shares company ultimately repurchase determined completion terms asrs based daily volumeweighted average share price company’s common stock less agreed upon discount upon settlement asrs company may entitled receive additional shares common stock certain circumstances required remit settlement amount company expects additional shares received company upon final settlement current asr expires third quarter 2014 shares received asrs discussed retired upon receipt excess purchase price par value per share recorded “additional paidin capital” within company’s consolidated balance sheets 5500 million approved share repurchase programs remaining amount authorized repurchased approximately 2414 million 9 stock incentive plan 2006 plan 100 million shares agco common stock may issued 2006 plan allows company direction board directors’ compensation committee make grants performance shares stock appreciation rights stock options restricted stock awards employees officers nonemployee directors company employee plans 2006 plan encompasses stock incentive plans company executives key managers primary longterm incentive plan performance share plan provides awards shares company’s common stock based achieving financial targets earnings per share return invested capital determined company’s board directors company’s incentive plan includes margin growth incentive plan provides awards shares company’s common stock based achieving operating margin targets determined company’s board directors stock awards 2006 plan earned performance period number shares earned determined based cumulative average results period depending measurement performance periods longterm incentive plan consecutive overlapping threeyear cycles performance targets set beginning cycle longterm incentive plan provides participants earn 33 200 target awards depending actual performance achieved shares earned performance established minimum target performance period margin growth incentive plan three fiveyear cycle commencing january 2011 performance targets set beginning cycle margin growth incentive plan provides participants earn 33 300 target awards depending actual performance achieved shares earned performance established minimum target awards earned 2006 plan paid shares common stock end performance period compensation expense associated awards amortized ratably vesting performance period based company’s projected assessment level performance achieved earned compensation expense recorded 2013 2012 2011 respect awards granted based upon stock price grant date weighted average grantdate fair value performance awards granted 2006 plan 2013 2012 2011 5151 5211 5273 respectively based level performance achieved december 31 2013 622018 shares earned 20112013 performance period 368497 shares issued 2014 net 226721 shares withheld taxes related earned awards based level performance achieved december 31 2012 748137 shares earned 20102012 performance period 473499 shares issued 2013 net 274638 shares withheld taxes related earned awards 2006 plan allows participant option forfeiting portion shares awarded lieu cash payment contributed participant’s tax withholding satisfy participant’s statutory minimum federal state employment taxes would payable time grant 2013 company granted 1103494 awards threeyear performance period commencing 2013 ending 2015 assuming maximum target level performance achieved addition company granted 29158 awards threeyear performance period commencing 2012 ending 2014 8042 awards threeyear performance period commencing 2011 ending 2013 awards granted prorated basis assume maximum target levels performance achieved company also granted 11250 awards 2013 margin growth incentive plan prorated basis performance period commencing 2011 ending 2015 assuming maximum target level performance achieved operating margin improvement performance award transactions 2013 follows presented company achieve maximum levels performance plan agco corporation notes consolidated financial statements continued december 31 2013 total compensation cost related unearned performance awards yet recognized assuming company’s current projected assessment level performance achieved earned approximately 337 million weighted average period expected recognized approximately two years addition performance share plans certain executives key managers eligible receive grants ssars provide participant right receive aggregate appreciation stock price market price company’s common stock date grant payable shares company’s common stock participant may exercise ssars time grant vested later seven years date grant ssars vest ratably fouryear period date grant ssar award grants made certain executives key managers 2006 plan made base price equal price company’s common stock date grant company recorded stock compensation expense approximately 47 million 38 million 26 million associated ssar award grants 2013 2012 2011 respectively compensation expense associated awards amortized ratably vesting period company estimated fair value grants using blackscholes option pricing model weighted average grantdate fair value ssars granted 2006 plan weighted average assumptions blackscholes option model follows years ended december 31 2013 2012 2011 agco corporation notes consolidated financial statements continued ssar transactions year ended december 31 2013 follows december 31 2013 weighted average remaining contractual life ssars outstanding approximately four years december 31 2013 total compensation cost related unvested ssars yet recognized approximately 102 million weightedaverage period expected recognized approximately three years following table sets forth exercise price range number shares weighted average exercise price remaining contractual lives groups similar price december 31 2013 total fair value ssars vested 2013 approximately 36 million 630130 ssars vested december 31 2013 total intrinsic value outstanding exercisable ssars december 31 2013 142 million 93 million respectively total intrinsic value ssars exercised 2013 approximately 57 million company realized insignificant tax benefit exercise ssars excess tax benefit realized tax deductions united states related exercise ssars vesting performance awards 2006 plan exercise stock options company’s 1991 stock option plan approximately 114 million year ended december 31 2013 excess tax benefit realized tax deductions years ended december 31 2012 2011 united states company realized insignificant tax benefit exercise ssars vesting performance awards exercise stock options certain foreign jurisdictions years ended december 31 2013 2012 2011 january 22 2014 company granted 432300 performance award shares subject company achieving future target levels performance 296700 ssars 2006 plan agco corporation notes consolidated financial statements continued director restricted stock grants pursuant 2006 plan nonemployee directors receive annual restricted stock grants company’s common stock shares restricted transferability period three years event director departs company’s board directors nontransferability period expires immediately plan allows director option forfeiting portion shares awarded lieu cash payment contributed participant’s tax withholding satisfy statutory minimum federal state employment taxes would payable time grant 2013 grant made april 25 2013 equated 17171 shares common stock 12059 shares common stock issued shares withheld taxes company recorded stock compensation expense approximately 09 million 2013 associated grants december 31 2013 100 million shares reserved issuance 2006 plan approximately 36 million shares available grant assuming maximum number shares earned related performance award grants discussed 10 derivative instruments hedging activities derivatives recognized company’s consolidated balance sheets fair value date derivative contract entered company designates derivative either 1 fair value hedge recognized liability 2 cash flow hedge forecasted transaction 3 hedge net investment foreign operation 4 nondesignated derivative instrument company formally documents relationships hedging instruments hedged items well risk management objectives strategy undertaking various hedge transactions company formally assesses hedge’s inception ongoing basis whether derivatives used hedging transactions highly effective offsetting changes fair values cash flow hedged items determined derivative longer highly effective hedge accounting discontinued prospective basis foreign currency risk company significant manufacturing operations united states france germany finland brazil purchases portion tractors combines components thirdparty foreign suppliers primarily various european countries japan company also sells products 140 countries throughout world company’s significant transactional foreign currency exposures euro brazilian real canadian dollar relation united states dollar euro relation british pound company attempts manage transactional foreign exchange exposure hedging foreign currency cash flow forecasts commitments arising anticipated settlement receivables payables future purchases sales naturally offsetting currency positions occur company hedges certain exposures use foreign currency contracts company’s translation exposure resulting translating financial statements foreign subsidiaries united states dollars hedged practical translation impact reduced financing local operations local borrowings foreign currency contracts primarily forward options contracts’ fair value measurements fall within level 2 fair value hierarchy level 2 fair value measurements generally based upon quoted market prices similar instruments active markets quoted prices identical similar instruments markets active modelderived valuations significant inputs significant valuedrivers observable active markets fair value foreign currency forward contracts based valuation model discounts cash flows resulting differential contract price marketbased forward rate fair value foreign currency option contracts based valuation model utilizes spot forward exchange rates interest rates currency pair volatility company’s senior management establishes company’s foreign currency interest rate risk management policies reviewed periodically audit committee company’s board directors policies allow use derivative instruments hedge exposures movements foreign currency interest rates company’s policies prohibit use derivative instruments speculative purposes agco corporation notes consolidated financial statements continued cash flow hedges 2013 2012 2011 company designated certain foreign currency contracts cash flow hedges expected future sales purchases effective portion fair value gains losses cash flow hedges recorded comprehensive loss subsequently reclassified cost goods sold period sales purchases recognized amounts offset effect changes foreign currency rates related sale purchase transactions amount net loss gain recorded comprehensive loss reclassified cost goods sold years ended december 31 2013 2012 2011 approximately 05 million 81 million 52 million respectively aftertax basis amount unrealized loss gain recorded comprehensive loss related outstanding cash flow hedges december 31 2013 2012 2011 approximately 02 million 07 million 43 million respectively aftertax basis outstanding contracts december 31 2013 range maturity december 2014 following table summarizes activity accumulated comprehensive loss related derivatives held company years ended december 31 2013 2012 2011 millions 1 rounding may impact summation amounts december 31 2013 2012 company outstanding foreign currency contracts notional amount approximately 503 million 1103 million respectively entered hedge forecasted sale purchase transactions derivative transactions designated hedging instruments 2013 2012 2011 company entered foreign currency contracts hedge receivables payables company subsidiaries’ balance sheets denominated foreign currencies functional currency contracts classified nondesignated derivative instruments december 31 2013 2012 company outstanding foreign currency contracts notional amount approximately 12884 million 14670 million respectively entered hedge receivables payables denominated foreign currencies functional currency changes fair value contracts reported “other expense net” years ended december 31 2013 2012 2011 company recorded net gain approximately 95 million net gain approximately 55 million net loss approximately 136 million respectively related contracts within “other expense net” company’s consolidated statements operations gains losses contracts substantially offset losses gains remeasurement underlying asset liability hedged agco corporation notes consolidated financial statements continued table sets forth fair value derivative instruments december 31 2013 millions table sets forth fair value derivative instruments december 31 2012 millions company unrealized gains approximately 85 million 19 million foreign currency contracts outstanding december 31 2013 2012 respectively related designated nondesignated contracts company recorded approximately 86 million 04 million respectively unrealized gains within “other expense net” consolidated statements operations years ended december 31 2013 2012 related nondesignated contracts counterparty risk company regularly monitors counterparty risk credit ratings counterparties derivative instruments company believes exposures appropriately diversified across counterparties creditworthy financial institutions company perceives risk counterparty company would cease business counterparty negative impacts company nonperformance counterparties agco corporation notes consolidated financial statements continued 11 commitments contingencies future payments required company’s significant commitments december 31 2013 follows millions 1 estimated interest payments calculated assuming current interest rates minimum maturity periods specified debt agreements debt may repaid sooner later minimum maturity periods unaudited 2 unconditional purchase obligations exclude routine purchase orders entered normal course business 3 shortterm longterm obligations include estimates future minimum contribution requirements company’s us nonus defined benefit pension postretirement plans estimates based current legislation countries company operates within subject change shortterm longterm obligations also include income tax liabilities related uncertain income tax positions connected ongoing income tax audits various jurisdictions unaudited offbalance sheet arrangements guarantees company maintains remarketing agreement us retail finance joint venture whereby company obligated repurchase repossessed inventory market values company agreement us retail finance joint venture limits company’s purchase obligations arrangement 60 million aggregate per calendar year company believes losses might incurred resale equipment materially impact company’s financial position results operations due fair value underlying equipment december 31 2013 company guaranteed indebtedness owed third parties approximately 1716 million primarily related dealer enduser financing equipment guarantees generally obligate company repay outstanding finance obligations owed financial institutions dealers end users default loans 2018 company believes credit risk associated guarantees material financial position results operations losses guarantees historically insignificant addition company generally would expect able recover significant portion amounts paid guarantees sale underlying financed farm equipment fair value equipment expected sufficient offset substantial portion amounts paid december 31 2013 company outstanding designated nondesignated foreign exchange contracts gross notional amount approximately 13387 million outstanding contracts december 31 2013 range maturity december 2014 note 10 company sells substantially wholesale accounts receivable north america company’s us canadian retail finance joint ventures large portion wholesale accounts receivable retail finance joint ventures europe company also sells certain accounts receivable factoring arrangements financial institutions around agco corporation notes consolidated financial statements continued world company reviewed sale receivables determined facilities accounted offbalance sheet transactions total lease expense noncancelable operating leases 728 million 688 million 572 million years ended december 31 2013 2012 2011 respectively contingencies result brazilian tax legislative changes impacting value added taxes “vat” company recorded reserve approximately 628 million 596 million outstanding balance brazilian vat taxes receivable december 31 2013 2012 respectively due uncertainty company’s ability collect amounts outstanding june 27 2008 republic iraq filed civil action federal court southern district new york case 08 civ 59617 naming defendants one company’s french subsidiaries two foreign subsidiaries participated united nations oil food program “program” ninetyone entities companies also named defendants civil action due participation program complaint purports assert claims defendants seeking damages unspecified amount february 6 2013 federal court dismissed complaint prejudice plaintiff appealed decision appellate process ongoing although company’s subsidiaries intend vigorously defend action possible time predict outcome action impact company although outcome adverse company could required pay damages october 30 2012 thirdparty complaint filed federal court southern district texas case 09 civ 03884 naming defendants one company’s french subsidiaries two foreign subsidiaries sixty entities companies also named thirdparty defendants complaint asserts claims defendants certain also thirdparty plaintiffs seeking unspecified damages arising participation program thirdparty plaintiffs seek contribution thirdparty defendants february 12 2014 federal court dismissed thirdparty complaint prejudice appeals period expired although company’s subsidiaries intend vigorously defend action possible time predict outcome action impact company although outcome adverse company could required pay damages august 2008 part routine audits brazilian taxing authorities disallowed deductions relating amortization certain goodwill recognized connection reorganization company’s brazilian operations related transfer certain assets company’s brazilian subsidiaries amount tax disallowance december 31 2013 including interest penalties approximately 1315 million brazilian reais approximately 557 million amount ultimately dispute greater interest penalties company advised legal tax advisors position respect deductions allowable tax laws brazil company contesting disallowance believes likely assessment interest penalties required paid however ultimate outcome determined brazilian tax appeal process complete could take several years company party various legal claims actions incidental business company believes none claims actions either individually aggregate material business financial statements whole including results operations financial condition 12 related party transactions rabobank financial institution based netherlands 51 owner company’s retail finance joint ventures located united states canada europe brazil argentina australia rabobank also principal agent participant company’s revolving credit facility note 6 majority assets company’s retail finance joint ventures represents finance receivables majority liabilities represents notes payable accrued interest various joint venture agreements rabobank affiliates provide financing joint venture companies primarily lines credit 2013 2012 2011 company made total approximately 155 million 71 million 83 million respectively investments retail finance joint ventures germany netherlands primarily related additional capital required result increased retail finance portfolios 2013 2012 2011 agco corporation notes consolidated financial statements continued company’s retail finance joint ventures provide retail financing wholesale financing dealers terms financing arrangements offered company’s dealers similar arrangements retail finance joint ventures provide unaffiliated third parties addition company transfers ongoing basis majority wholesale receivables north america europe 49 owned us canadian european retail finance joint ventures note 3 company maintains remarketing agreement us retail finance joint venture note 11 addition part sales incentives provided end users company may time subsidize interest rates retail financing provided retail finance joint ventures cost programs recognized time sale company’s dealers tractors farm equipment limited “tafe” company holds 2375 interest manufactures massey fergusonbranded equipment primarily india also supplies tractors components company sale markets mallika srinivasan chairman chief executive officer tafe currently member company’s board directors 2013 2012 2011 company purchased approximately 907 million 1045 million 804 million respectively tractors components tafe 2013 2012 2011 company paid approximately 33 million 38 million 40 million respectively ppg industries inc painting materials used company’s manufacturing processes company’s chairman president chief executive officer currently member board directors ppg industries inc 2013 company paid approximately 23 million ryerson inc steel used company’s manufacturing processes michael arnold president chief executive officer ryerson inc currently member companys board directors 13 segment reporting company’s four reportable segments distribute full range agricultural equipment related replacement parts company evaluates segment performance primarily based income operations sales segment based location thirdparty customer company’s selling general administrative expenses engineering expenses charged segment based region division expenses incurred result components income operations one segment may comparable another segment results years ended december 31 2013 2012 2011 based company’s current reportable segments follows millions agco corporation notes consolidated financial statements continued reconciliation segment information consolidated balances income operations total assets set forth millions net sales customer location years ended december 31 2013 2012 2011 follows millions agco corporation notes consolidated financial statements continued net sales product years ended december 31 2013 2012 2011 follows millions property plant equipment amortizable intangible assets country december 31 2013 2012 follows millions item 9item 8 financial statements supplementary data following consolidated financial statements agco subsidiaries years threeyear period ended december 31 2014 included item information heading “quarterly results” item 7 form 10k incorporated herein reference report independent registered public accounting firm board directors stockholders agco corporation audited accompanying consolidated balance sheets agco corporation subsidiaries december 31 2014 2013 related consolidated statements operations comprehensive income stockholders’ equity cash flows years threeyear period ended december 31 2014 connection audits consolidated financial statements also audited financial statement schedule listed item 15a2 consolidated financial statements financial statement schedule responsibility company’s management responsibility express opinion consolidated financial statements financial statement schedule based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements referred present fairly material respects financial position agco corporation subsidiaries december 31 2014 2013 results operations cash flows years threeyear period ended december 31 2014 conformity us generally accepted accounting principles also opinion related financial statement schedule considered relation basic consolidated financial statements taken whole presents fairly material respects information set forth therein also audited accordance standards public company accounting oversight board united states agco corporation’s internal control financial reporting december 31 2014 based criteria established internal control integrated framework 1992 issued committee sponsoring organizations treadway commission coso report dated february 27 2015 expressed unqualified opinion effectiveness company’s internal control financial reporting kpmg llp atlanta georgia february 27 2015 agco corporation consolidated statements operations millions except per share data see accompanying notes consolidated financial statements agco corporation consolidated statements comprehensive income millions see accompanying notes consolidated financial statements agco corporation consolidated balance sheets millions except share amounts see accompanying notes consolidated financial statements agco corporation consolidated statements stockholders’ equity millions except share amounts see accompanying notes consolidated financial statements agco corporation consolidated statements cash flows millions see accompanying notes consolidated financial statements agco corporation notes consolidated financial statements 1 operations summary significant accounting policies business agco corporation subsidiaries “agco” “company” leading manufacturer distributor agricultural equipment related replacement parts throughout world company sells full range agricultural equipment including tractors combines hay tools sprayers forage equipment tillage implements grain storage protein production systems company’s products widely recognized agricultural equipment industry marketed number wellknown brand names including challenger® fendt® gsi® massey ferguson® valtra® company distributes products combination approximately 3100 independent dealers distributors well company utilizes associates licensees provide distribution channel products addition company provides retail financing finance joint ventures coöperatieve centrale raiffeisenboerenleenbank ba “rabobank” basis presentation consolidation company’s consolidated financial statements represent consolidation whollyowned companies majorityowned companies joint ventures company determined primary beneficiary company consolidates variable interest entity “vie” company determines primary beneficiary primary beneficiary vie party power direct activities significantly impact entity’s economic performance obligation absorb losses right receive benefits could potentially significant vie company also consolidates entities considered vies determined controlling voting interest direct activities significantly impact joint venture entity company records investments affiliate companies using equity method accounting significant influence investments including representing ownership less 20 recorded cost significant intercompany balances transactions eliminated consolidated financial statements certain prior period amounts reclassified conform current period presentation use estimates preparation financial statements conformity us generally accepted accounting principles “gaap” requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ estimates made management primarily relate accounts notes receivable inventories deferred income tax valuation allowances goodwill identifiable intangible assets certain accrued liabilities principally relating reserves volume discounts sales incentives warranty obligations product liability workers’ compensation obligations pensions postretirement benefits revenue recognition sales equipment replacement parts recorded company title risks ownership transferred independent dealer distributor customer certain countries sales certain grain storage protein production systems company responsible construction installation may contingent upon customer acceptance recorded completion project payment terms vary market product fixed payment schedules sales terms sale generally require purchase order confirmation accompany shipments title generally passes dealer distributor upon shipment specified delivery risk loss upon damage theft destruction equipment responsibility dealer distributor thirdparty carrier point stated shipping delivery term certain foreign countries company retains form title goods delivered dealers dealer makes payment company recover goods event customer default payment occurs laws foreign countries provide seller’s retention security interest goods manner established united states uniform commercial code right company retains respect title enabling recovery goods event customer default payment dealer distributor may return equipment replacement parts contract company force replacement parts may returned promotional annual return programs provisions returns programs made time sale based terms program historical returns experience company may provide certain sales incentives dealers distributors provisions sales incentives made time sale existing incentive programs provisions agco corporation notes consolidated financial statements continued revised event subsequent modification incentive program see “accounts notes receivable” discussion united states canada equipment sales dealers immediately due upon retail sale equipment dealer exception sales grain storage protein production systems previously paid dealer united states canada installment payments required generally beginning interestfree period remaining outstanding equipment balance generally due within 12 months shipment delivery interest generally charged outstanding balance six 12 months shipment delivery sales terms highly seasonal products provide payment due dates based specified date year regardless shipment date equipment sold dealers united states canada paid full average within 12 months shipment sales replacement parts generally payable within 30 days shipment terms larger seasonal stock orders generally requiring payment within six months shipment sales grain storage protein production systems generally payable within 30 days shipment international markets equipment sales generally payable full within 30 180 days shipment delivery payment terms highly seasonal products specified due date year regardless shipment delivery date sales replacement parts generally payable within 30 90 days shipment terms larger seasonal stock orders generally payable within six months shipment certain markets particularly north america time lag varies based timing level retail demand date company records sale dealer sells equipment retail customer foreign currency translation financial statements company’s foreign subsidiaries translated united states currency accordance accounting standards codification “asc” 830 “foreign currency matters” assets liabilities translated united states dollars periodend exchange rates income expense items translated average rates exchange prevailing period translation adjustments included “accumulated comprehensive loss” stockholders’ equity within company’s consolidated balance sheets gains losses result foreign currency transactions included accompanying consolidated statements operations cash equivalents cash december 31 2014 2013 2153 million 4652 million respectively consisted primarily cash hand bank deposits company considers investments original maturity three months less cash equivalents cash equivalents december 31 2014 2013 1484 million 5820 million respectively consisted primarily money market deposits certificates deposits overnight investments accounts notes receivable accounts notes receivable arise sale equipment replacement parts independent dealers distributors customers payments due company’s terms sale generally range one 12 months contingent upon sale equipment dealer distributor retail customer normal circumstances payment terms extended equipment may returned certain regions respect equipment sales including united states canada company obligated repurchase equipment replacement parts upon cancellation dealer distributor contract obligations required national state provincial laws require company repurchase dealer distributor’s unsold inventory including inventories receivable already paid company offers various sales terms respect products sales markets outside united states canada company generally charge interest outstanding receivables dealers distributors sales certain dealers distributors united states canada interest charged prime lending rates outstanding receivable balances interestfree periods interestfree periods vary product generally range one 12 months previously discussed globally limited circumstances provide sales terms cases interest free periods longer 12 months certain seasonal products harvesting equipment typically specified programs predominately united states canada interest charged period 23 months depending year sale dealer distributor’s sales volume preceding year actual agco corporation notes consolidated financial statements continued interestfree periods shorter described equipment receivable dealers distributors countries united states canada generally due immediately upon sale equipment retail customer receivables also paid prior terms specified sales agreements normal circumstances interest forgiven interestfree periods extended following summarizes geographic region percentage consolidated net sales amounts maximum interestfree periods presented millions company agreement permit transferring ongoing basis substantially wholesale interestbearing noninterest bearing accounts receivable north america us canadian finance joint ventures upon transfer receivables maintain standard payment terms including required regular principal payments amounts outstanding interest charges market rates company also accounts receivable sales agreements permit sale ongoing basis majority accounts receivables europe european finance joint ventures upon transfer receivables maintain standard payment terms qualified dealers may obtain additional financing company’s us canadian european finance joint ventures joint ventures’ discretion company provides various volume bonus sales incentive programs respect products sales incentive programs include reductions invoice prices reductions retail financing rates dealer commissions dealer incentive allowances cases incentive programs established communicated company’s dealers quarterly basis incentives paid either time invoice reduction invoice price time settlement receivable time retail financing time warranty registration subsequent time based dealer purchases incentive programs productline specific generally vary dealer cost sales incentives associated dealer commissions dealer incentive allowances estimated based upon terms programs historical experience based percentage sales price recorded later date related revenue recognized b date sales incentive offered related provisions accruals made product productline basis monitored adequacy revised least quarterly event subsequent modifications programs volume discounts estimated recognized based historical experience related reserves monitored adjusted based actual dealer purchases dealer’s progress towards achieving specified cumulative target levels company records cost interest subsidy payments reduction retail financing rates later date related revenue recognized b date sales incentive offered estimates incentives based terms programs historical experience incentive programs recorded presented reduction revenue due fact company receive identifiable benefit exchange consideration provided reserves incentive programs paid either reduction future invoices credit memos recorded “accounts receivable allowances” within company’s consolidated balance sheets reserves incentive programs paid cash case company’s volume discount programs well sales incentives associated accounts receivable sold us canadian finance joint ventures recorded within “accrued expenses” within company’s consolidated balance sheets accounts notes receivable shown net allowances sales incentive discounts available dealers doubtful accounts cash flows related collection receivables reported within “cash flows operating activities” within company’s consolidated statements cash flows accounts notes receivable allowances december 31 2014 2013 follows millions agco corporation notes consolidated financial statements continued company transfers certain accounts receivable accounts receivable sales agreements finance joint ventures note 4 company records transfers sales accounts receivable considered surrendered control receivables provisions accounting standards update “asu” 200916 “transfers servicing topic 860 accounting transfers financial assets” cash payments made company’s us canadian finance joint ventures sales incentive discounts provided dealers related outstanding accounts receivables sold balances sales discount reserves recorded within “accrued expenses” december 31 2014 2013 approximately 2365 million 2062 million respectively inventories valued lower cost market using firstin firstout method market current replacement cost purchase reproduction dependent type inventory cases market exceeds net realizable value ie estimated selling price less reasonably predictable costs completion disposal inventories stated net realizable value market considered less net realizable value reduced allowance approximately normal profit margin december 31 2014 2013 company recorded 1265 million 1199 million respectively adjustment surplus obsolete inventories adjustments reflected within “inventories net” within company’s consolidated balance sheets inventories net december 31 2014 2013 follows millions cash flows related sale inventories reported within “cash flows operating activities” within company’s consolidated statements cash flows property plant equipment property plant equipment recorded cost less accumulated depreciation amortization depreciation provided straightline basis estimated useful lives ten 40 years buildings improvements three 15 years machinery equipment three ten years furniture fixtures expenditures maintenance repairs charged expense incurred property plant equipment net december 31 2014 2013 consisted following millions agco corporation notes consolidated financial statements continued goodwill intangible assets longlived assets company tests goodwill impairment reporting unit level annually events circumstances indicate fair value reporting unit may carrying value reporting unit operating segment one level operating segment example component company combines aggregates two components operating segment single reporting unit components similar economic characteristics company’s reportable segments reporting units goodwill evaluated annually october 1 impairment using qualitative assessment quantitative twostep assessment company elects perform qualitative assessment determines fair value reporting units likely exceeds carrying value evaluation necessary reporting units company performs twostep quantitative assessment first step requires company compare fair value reporting unit determined based combination discounted cash flow valuation approach market multiple valuation approach respective carrying value including goodwill fair value reporting unit exceeds carrying value goodwill considered impaired carrying value higher fair value reporting unit second step quantitative process required measure amount impairment second step quantitative assessment results calculation implied fair value reporting unit’s goodwill determined excess fair value reporting unit fair values assigned assets liabilities implied fair value goodwill less carrying value reporting unit’s goodwill difference recognized impairment loss company reviews longlived assets includes intangible assets subject amortization impairment whenever events changes circumstances indicate carrying amount asset may recoverable evaluation recoverability performed level independent cash flows may attributed either asset group company determines carrying amount asset group recoverable based expected undiscounted future cash flows asset group impairment loss recorded equal excess carrying amounts estimated fair value longlived assets estimates future cash flows based many factors including current operating results expected market trends competitive influences company also evaluates amortization periods assigned intangible assets determine whether events changes circumstances warrant revised estimates useful lives assets disposed sale reported lower carrying amount fair value less estimated costs sell results company’s goodwill longlived assets impairment analyses conducted october 1 2014 2013 indicated reduction carrying amount company’s goodwill longlived assets required fourth quarter 2012 company conducted quantitative goodwill impairment analysis chinese harvesting business also reviewed longlived assets impairment including trademark distribution network land use right identifiable intangible assets goodwill longlived asset impairment analyses indicated reduction carrying amount chinese harvesting business’ goodwill certain identifiable intangible assets required accordingly company recorded impairment charge approximately 224 million within “impairment charge” company’s consolidated statement operations year ended december 31 2012 chinese harvesting business operates within asiapacific geographical reportable segment results company’s goodwill impairment analysis conducted october 1 2012 indicated reduction carrying amount goodwill longlived assets required company’s accumulated goodwill impairment approximately 1805 million comprised approximately 91 million recorded 2012 related chinese harvesting reporting unit approximately 1714 million recorded 2006 related company’s former sprayer reporting unit former sprayer reporting unit operates within north american geographical reportable segment agco corporation notes consolidated financial statements continued changes carrying amount goodwill years ended december 31 2014 2013 2012 summarized follows millions 2013 2012 company reduced goodwill financial reporting purposes approximately 80 million 78 million respectively related realization tax benefits associated excess tax basis deductible goodwill resulting company’s acquisition valtra company amortizes certain acquired identifiable intangible assets primarily straightline basis estimated useful lives range five 50 years acquired intangible assets weighted average useful life follows years ended december 31 2014 2013 2012 acquired intangible asset amortization 410 million 478 million 493 million respectively company estimates amortization existing intangible assets 427 million 2015 415 million 2016 412 million 2017 412 million 2018 412 million 2019 company previously determined two trademarks indefinite useful life massey ferguson trademark existence since 1952 formed merger masseyharris established 1890’s ferguson established 1930’s massey ferguson brand currently sold 140 countries worldwide making one widely sold tractor brands world company also identified valtra trademark indefinitelived asset valtra trademark existence since late 1990’s derivative valmet trademark existence since 1951 valmet name transitioned valtra name period time marketplace valtra brand currently sold approximately 50 countries around world massey ferguson brand valtra brand primary product lines company’s business company plans use trademarks indefinite period time company plans continue make investments product development enhance value brands future legal regulatory contractual competitive economic factors company aware company believes would limit useful lives trademarks massey ferguson valtra trademark registrations renewed nominal cost countries company operates agco corporation notes consolidated financial statements continued changes carrying amount acquired intangible assets 2014 2013 summarized follows millions accrued expenses accrued expenses december 31 2014 2013 consisted following millions agco corporation notes consolidated financial statements continued warranty reserves warranty reserve activity years ended december 31 2014 2013 2012 consisted following millions company’s agricultural equipment products generally warranty defects materials workmanship period one four years company accrues future warranty costs time sale based historical warranty experience approximately 389 million 390 million warranty reserves included “other noncurrent liabilities” company’s consolidated balance sheets december 31 2014 2013 respectively insurance reserves company’s insurance programs coverage obtained significant liability limits well risks required insured law contract policy company selfinsure portion certain expected losses related primarily workers’ compensation comprehensive general product vehicle liability provisions losses expected programs recorded based company’s estimates aggregate liabilities claims incurred stock incentive plans stock compensation expense credit recorded follows millions refer note 10 additional information regarding company’s stock incentive plans 2014 2013 2012 research development expenses research development expenses expensed incurred included engineering expenses company’s consolidated statements operations advertising costs company expenses advertising costs incurred cooperative advertising costs normally expensed time revenue earned advertising expenses years ended december 31 2014 2013 2012 totaled approximately 598 million 605 million 602 million respectively shipping handling expenses shipping handling fees charged customers included component net sales shipping handling costs included part cost goods sold exception certain handling costs included selling general agco corporation notes consolidated financial statements continued administrative expenses amount 292 million 293 million 310 million years ended december 31 2014 2013 2012 respectively interest expense net interest expense net years ended december 31 2014 2013 2012 consisted following millions income taxes income taxes accounted asset liability method deferred tax assets liabilities recognized future tax consequences attributable differences financial statement carrying amounts existing assets liabilities respective tax bases operating loss tax credit carryforwards deferred tax assets liabilities measured using enacted tax rates expected apply taxable income years temporary differences expected recovered settled effect deferred tax assets liabilities change tax rates recognized income period includes enactment date refer note 6 additional information regarding company’s income taxes net income per common share basic income per common share computed dividing net income weighted average number common shares outstanding period diluted income per common share assumes exercise outstanding stock options stocksettled stock appreciation rights “ssars” vesting restricted stock performance share awards appreciation excess conversion value contingently convertible senior subordinated notes using treasury stock method effects assumptions dilutive company’s former 114 convertible senior subordinated notes provided settlement upon conversion cash principal amount converted notes excess conversion value settled shares company’s common stock dilution weighted shares outstanding dependent company’s stock price excess conversion value using treasury stock method note 7 reconciliation net income attributable agco corporation subsidiaries weighted average common shares outstanding purposes calculating basic diluted net income per share years ended december 31 2014 2013 2012 follows millions except per share data agco corporation notes consolidated financial statements continued ssars purchase 10 million shares 08 million shares 06 million shares outstanding years ended december 31 2014 2013 2012 respectively included calculation weighted average common equivalent shares outstanding antidilutive impact comprehensive income loss company reports comprehensive income loss defined total net income loss nonowner changes equity components thereof consolidated statements stockholders’ equity consolidated statements comprehensive income components comprehensive loss related tax effects years ended december 31 2014 2013 2012 follows millions derivatives company uses foreign currency contracts hedge foreign currency exposure certain receivables payables contracts periods consistent exposure hedged generally maturities one year less contracts classified nondesignated derivative instruments company also enters foreign currency contracts designated cash flow hedges expected sales company’s foreign currency contracts mitigate risk due exchange rate fluctuations gains losses contracts generally offset losses gains exposure hedged notional amounts foreign currency contracts represent amounts exchanged parties therefore measure company’s risk amounts exchanged calculated basis notional amounts terms contracts credit market risks contracts considered significant agco corporation notes consolidated financial statements continued company’s hedging policy prohibits entering foreign currency contracts speculative trading purposes refer note 11 additional information regarding company’s derivative instruments hedging activities recent accounting pronouncements may 2014 financial accounting standards board “fasb” issued asu 201409 “revenue contracts customers” “asu 201409” supersedes existing revenue recognition guidance current us gaap asu 201409 outlines comprehensive single revenue recognition model provides fivestep analysis determining revenue recognized new model require revenue recognition depict transfer promised goods services customers amount reflects consideration expected received exchange goods services additional disclosures also required enable users understand nature amount timing uncertainty revenue cash flows arising contracts customers standard effective reporting periods beginning december 15 2016 using either full retrospective modified retrospective approach early adoption permitted company currently evaluating impact adopting standard company’s results operations financial condition july 2013 fasb issued asu 201311 “presentation unrecognized tax benefit net operating loss carryforward similar tax loss tax credit carryforward exists” “asu 201311” asu 201311 requires unrecognized tax benefit portion unrecognized tax benefit presented financial statements reduction deferred tax asset net operating loss carryforward similar tax loss tax credit carryforward extent net operating loss carryfoward similar tax loss tax credit carryforward available reporting date tax law applicable jurisdiction settle additional income taxes would result disallowance tax position tax law applicable jurisdiction require entity use entity intend use deferred tax asset purpose unrecognized tax benefit presented financial statements liability combined deferred tax assets standard effective fiscal years interim periods within years beginning december 15 2013 early adoption permitted company adopted standard january 1 2014 adoption asu 201311 material impact company’s results operations financial condition 2 acquisitions september 11 2014 company acquired remaining 39 interest santal equipamentos sa comércio e indústria “santal” approximately r90 million approximately 37 million santal headquartered ribeirão preto brazil manufactures distributes sugar cane planting harvesting handling transportation equipment well replacement parts across brazil due fact company seller call option put option respectively varying dates respect remaining 39 interest santal fair value redeemable noncontrolling interest previously recorded within “temporary equity” company’s consolidated balance sheets acquisition remaining interest funded available cash hand redemption related amounts settled reflected “additional paidin capital” company’s consolidated balance sheets august 1 2014 company acquired intersystems holdings inc “intersystems” approximately 1344 million net cash acquired approximately 41 million approximately 1303 million net intersystems headquartered omaha nebraska designs manufactures commercial material handling solutions primarily agricultural biofuels food feed processing industries acquisition financed available cash hand company’s credit facility note 7 company allocated purchase price assets acquired liabilities assumed based preliminary estimates fair values acquisition date acquired net assets primarily consisted accounts receivable inventories accounts payable accrued expenses property plant equipment customer relationship technology trademark identifiable intangible assets company recorded approximately 463 million customer relationship technology trademark identifiable intangible assets approximately 896 million goodwill associated acquisition goodwill reported within company’s north american geographical reportable segment results operations intersystems included company’s consolidated financial statements date acquisition agco corporation notes consolidated financial statements continued acquired identifiable intangible assets intersystems date acquisition summarized following table millions 3 restructuring infrequent expenses second half 2014 company announced initiated several actions rationalize employee headcount various manufacturing facilities located germany france finland italy china brazil argentina united states well various administrative offices located europe brazil china united states headcount reduction 1500 employees initiated order reduce costs response softening global market demand reduced production volumes company recorded restructuring infrequent expenses approximately 464 million associated rationalizations 444 million related severance related costs company paid approximately 190 million severance related costs 2014 remaining 254 million severance related costs accrued december 31 2014 paid 2015 2016 addition 2014 company recorded 12 million writedown property plant equipment associated rationalization certain manufacturing facilities impairment charge based upon estimated fair value assets compared carrying value company also recorded approximately 08 million net pension settlement special termination benefit charges related certain defined benefit plans result rationalizations finland united states 4 accounts receivable sales agreements december 31 2014 2013 company accounts receivable sales agreements permit sale ongoing basis majority wholesale receivables north america europe 49 owned us canadian european finance joint ventures december 31 2014 2013 cash received receivables sold us canadian european accounts receivable sales agreements approximately 12 billion 13 billion respectively terms accounts receivable sales agreements north america europe company pays annual servicing fee related servicing receivables sold company also pays respective agco finance entities subsidized interest payment respect sales agreements calculated based upon libor plus margin noninterest bearing accounts receivable outstanding sold sales agreements fees reflected within losses sales receivables included within “other expense net” company’s consolidated statements operations company service receivables sale occurs maintain direct retained interest receivables company reviewed accounting accounts receivable sales agreements determined facilities accounted offbalance sheet transactions losses sales receivables associated accounts receivable financing facilities discussed reflected within “other expense net” “interest expense net” company’s consolidated statements operations approximately 248 million 256 million 218 million 2014 2013 2012 respectively company’s finance joint ventures brazil australia also provide wholesale financing company’s dealers receivables associated arrangements without recourse company service receivables sale occurs maintain direct retained interest receivables december 31 2014 2013 finance joint ventures approximately 433 million 682 million respectively outstanding accounts receivable associated arrangements company reviewed accounting arrangements determined arrangements accounted offbalance sheet transactions addition company sells certain trade receivables factoring arrangements financial institutions around world company reviewed sale receivables determined arrangements accounted offbalance sheet transactions agco corporation notes consolidated financial statements continued 5 investments affiliates investments affiliates december 31 2014 2013 follows millions company’s manufacturing joint ventures december 31 2014 consisted gima joint ventures thirdparty manufacturers assemble tractors algeria engines south america joint ventures represent investments farm equipment manufacturers electronic software system manufacturer distributors licensees company’s equity net earnings affiliates years ended december 31 2014 2013 2012 follows millions summarized combined financial information company’s finance joint ventures december 31 2014 2013 years ended december 31 2014 2013 2012 follows millions majority assets company’s finance joint ventures represent finance receivables majority liabilities represent notes payable accrued interest various joint venture agreements rabobank affiliates provide financing joint venture companies note 14 december 31 2014 2013 company’s receivables affiliates approximately 1084 million 1243 million respectively receivables affiliates reflected within accounts notes receivable net within company’s consolidated balance sheets portion company’s retained earnings balance represents undistributed retained earnings equity method investees approximately 2933 million 2763 million december 31 2014 2013 respectively agco corporation notes consolidated financial statements continued 6 income taxes sources income taxes equity net earnings affiliates follows years ended december 31 2014 2013 2012 millions provision income taxes location taxing jurisdiction years ended december 31 2014 2013 2012 consisted following millions december 31 2014 company’s foreign subsidiaries approximately 33 billion undistributed earnings considered indefinitely invested accordingly income taxes provided earnings determination amount unrecognized deferred taxes earnings practicable however unrecognized foreign tax credits would available reduce portion tax liability reconciliation income taxes computed united states federal statutory income tax rate 35 provision income taxes reflected company’s consolidated statements operations years ended december 31 2014 2013 2012 follows millions “change valuation allowance” year ended december 31 2012 primarily relates usage approximately 547 million valuation allowance due income generated united states 2012 income tax provision also includes reversal approximately 138 million remaining valuation allowance previously established company’s us deferred tax assets reflected “change valuation allowance” well recognition certain us research development tax credits approximately 131 million agco corporation notes consolidated financial statements continued significant components deferred tax assets liabilities december 31 2014 2013 follows millions company recorded net deferred tax asset 42 million 97 million december 31 2014 2013 respectively reflected preceding table company valuation allowance 933 million 772 million december 31 2014 2013 respectively valuation allowance established likely portion deferred tax assets realized company assessed likelihood deferred tax assets would recovered estimated future taxable income available tax planning strategies determined valuation allowance december 31 2014 2013 appropriate making assessment available evidence considered including current economic climate well reasonable tax planning strategies company believes likely company realize remaining deferred tax assets net valuation allowance future years company net operating loss carryforwards 2655 million december 31 2014 expiration dates follows 2015 09 million 2016 233 million 2017 317 million thereafter unlimited 2096 million net operating loss carryforwards 2655 million entirely net operating loss carryforwards outside united states company paid income taxes 2236 million 1745 million 1477 million years ended december 31 2014 2013 2012 respectively december 31 2014 2013 company 1306 million 1222 million respectively unrecognized income tax benefits would affect company’s effective tax rate recognized december 31 2014 2013 company approximately 647 million 619 million respectively accrued deferred taxes related uncertain income tax positions connected ongoing income tax audits various jurisdictions expects settle pay next 12 months company accrued approximately 23 million interest penalties related unrecognized tax benefits agco corporation notes consolidated financial statements continued provision income taxes 2014 2013 december 31 2014 2013 company accrued interest penalties related unrecognized tax benefits 153 million 144 million respectively reconciliation beginning ending balances total amounts gross unrecognized tax benefits years ended december 31 2014 2013 follows millions company subsidiaries file income tax returns united states various state local foreign jurisdictions company subsidiaries routinely examined tax authorities jurisdictions december 31 2014 number income tax examinations foreign jurisdictions ongoing possible certain ongoing examinations may resolved within 12 months due potential resolution federal state foreign examinations expiration various statutes limitation reasonably possible company’s gross unrecognized income tax benefits balance may materially change within next 12 months due number jurisdictions issues involved uncertainty regarding timing settlements company unable time provide reasonable estimate change may occur within next 12 months although ongoing examinations various jurisdictions 2011 2014 tax years generally remain subject examination united states federal state authorities company’s significant foreign jurisdictions primarily united kingdom france germany switzerland finland brazil 2009 2014 tax years generally remain subject examination respective tax authorities brazil company contesting disallowed deductions related amortization certain goodwill amounts note 12 7 indebtedness consisted following december 31 2014 2013 millions agco corporation notes consolidated financial statements continued december 31 2014 aggregate scheduled maturities longterm debt excluding current portion longterm debt follows millions convertible senior subordinated notes carrying amount equity component company’s former 114 convertible senior subordinated notes 543 million december 31 2013 discount liability component notes fully amortized december 31 2013 effective interest rate liability component 114 convertible senior subordinated notes years ended december 31 2013 2012 61 following table sets forth interest expense recognized year ended december 31 2014 relating contractual interest coupon interest expense recognized years ended december 31 2013 2012 relating contractual interest coupon amortization discount liability component company’s former 114 convertible senior subordinated notes millions cash payments interest approximately 684 million 664 million 700 million years ended december 31 2014 2013 2012 respectively company’s former 114 convertible senior subordinated notes due december 15 2036 issued december 2006 provided settlement upon conversion cash principal amount notes excess conversion value settled shares company’s common stock ii conversion rate increased certain circumstances notes converted connection certain change control transactions occurring prior december 15 2013 notes unsecured obligations convertible cash shares company’s common stock upon satisfaction certain conditions interest payable notes 114 per annum payable semiannually arrears cash june 15 december 15 year holders company’s former 114 convertible senior subordinated notes ability convert notes fiscal quarter closing sales price company’s common stock exceeded 120 conversion price least 20 trading days 30 consecutive trading days ending last trading day preceding fiscal quarter notes would convertible shares company’s common stock effective price 4027 per share june 30 2014 subject adjustment including reflect impact conversion rate upon payment dividends company’s stockholders effective price reflected conversion rate notes 248295 shares common stock per 1000 principal amount notes first six months 2014 holders company’s former 114 convertible senior subordinated notes converted company repurchased approximately 497 million aggregate principal amount notes may 2014 company announced election redeem remaining 1515 million balance notes redemption date june 20 2014 substantially holders notes elected convert remaining notes prior redemption date redemptions settled july 2014 year ended december 31 2014 company issued total 1437465 shares common stock associated 810 million excess conversion value notes converted company reflected repayment principal notes totaling 2012 million within “repurchase conversion convertible senior subordinated notes” within company’s consolidated statements cash flows year ended december 31 2014 year ended december 31 2013 holders company’s former 114 convertible senior subordinated notes converted less 01 million principal amount notes company issued 286 shares common stock agco corporation notes consolidated financial statements continued associated less 01 million excess conversion value notes company reflected repayment principal notes totaling less 01 million within “repurchase conversion convertible senior subordinated notes” within company’s consolidated statements cash flows year ended december 31 2013 due ability holders notes convert notes three months ending march 31 2014 company classified notes current liability december 31 2013 4 12 senior term loan company’s €2000 million approximately 2420 million 412 senior term loan rabobank due may 2 2016 company ability prepay term loan maturity date interest payable term loan 412 per annum payable quarterly arrears march 31 june 30 september 30 december 31 year term loan contains covenants restricting among things incurrence indebtedness making certain payments including dividends subject acceleration event default company also fulfill financial covenants respect total debt ebitda ratio interest coverage ratio 5 78 senior notes company’s 3000 million 578 senior notes due 2021 constitute senior unsecured unsubordinated indebtedness interest payable notes semiannually arrears june 1 december 1 year time prior september 1 2021 company may redeem notes whole part time option redemption price equal greater 100 principal amount plus accrued unpaid interest including additional interest excluding redemption date ii sum present values remaining scheduled payments principal interest exclusive interest accrued date redemption discounted redemption date treasury rate plus 05 plus accrued unpaid interest including additional interest beginning september 1 2021 company may redeem notes whole part time option redemption price equal 100 principal amount plus accrued unpaid interest including additional interest credit facility june 30 2014 company amended restated credit facility agreement increasing multicurrency revolving credit facility 6000 million 8000 million maintaining 3550 million term loan facility maturity date company’s credit facility also extended june 28 2019 company amended term loan facility longer required make quarterly payments towards term loan previously company required make quarterly payments towards term loan 50 million increase 100 million commencing march 2015 interest accrues amounts outstanding credit facility company’s option either 1 libor plus margin ranging 10 20 based company’s leverage ratio 2 base rate equal higher administrative agent’s base lending rate applicable currency ii federal funds rate plus 05 iii onemonth libor loans denominated us dollars plus 10 plus margin ranging 00 05 based company’s leverage ratio credit facility contains covenants restricting among things incurrence indebtedness making certain payments including dividends subject acceleration event default company also fulfill financial covenants respect total debt ebitda ratio interest coverage ratio december 31 2014 company 4044 million outstanding borrowings credit facility availability borrow approximately 7506 million december 31 2013 company 3600 million outstanding borrowings credit facility availability borrow approximately 6000 million european investment bank “eib” senior term loan december 2014 company entered term loan eib provided company ability borrow €2000 million €2000 million approximately 2324 million funding received january 15 2015 maturity date january 15 2020 company ability prepay term loan maturity date interest payable term loan 1056 per annum payable quarterly arrears january 15 april 15 july 15 october 15 year term loan contains covenants restricting among things use funds certain research development projects incurrence indebtedness making certain payments subject acceleration event default company also fulfill financial covenants respect net leverage ratio interest coverage ratio agco corporation notes consolidated financial statements continued standby letters credit similar instruments company arrangements various banks issue standby letters credit similar instruments guarantee company’s obligations purchase sale certain inventories potential claims exposure insurance coverage december 31 2014 2013 outstanding letters credit totaled 185 million 167 million respectively 8 employee benefit plans company sponsors defined benefit pension plans covering certain employees principally united states united kingdom germany finland norway france switzerland argentina company also provides certain postretirement health care life insurance benefits certain employees principally united states brazil company also maintains executive nonqualified pension plan “enpp” provides usbased senior executives retirement income period 15 years based percentage average highest three nonconsecutive years base salary bonus final ten years employment referred “threeyear average compensation” reduced senior executive’s social security benefits 401k employermatching contributions executive made maximum contribution benefit paid executives ranges 225 300 threeyear average compensation multiplied credited years service subject maximum 20 years nearly participants benefits enpp vest participant attained age 50 least ten years service five years include years participation enpp payable participant reaches age 65 enpp unfunded nonqualified defined benefit pension plan net annual pension costs years ended december 31 2014 2013 2012 company’s defined benefit pension plans enpp set forth millions 1 rounding may impact summation amounts agco corporation notes consolidated financial statements continued weighted average assumptions used determine net annual pension costs company’s defined benefit pension plans enpp years ended december 31 2014 2013 2012 follows 1 applicable us funded qualified plans 2 applicable us unfunded nonqualified plan net annual postretirement benefit costs years ended december 31 2014 2013 2012 set forth millions except percentages agco corporation notes consolidated financial statements continued following tables set forth reconciliations changes benefit obligation plan assets funded status december 31 2014 2013 millions agco corporation notes consolidated financial statements continued following table summarizes activity accumulated comprehensive loss related company’s enpp defined pension postretirement benefit plans years ended december 31 2014 2013 millions december 31 2014 company’s accumulated comprehensive loss included net actuarial loss approximately 3297 million net prior service cost approximately 32 million related company’s defined benefit pension plans enpp estimated net actuarial loss net prior service cost defined benefit pension plans enpp expected amortized company’s accumulated comprehensive loss year ended december 31 2015 approximately 114 million 04 million respectively december 31 2014 company’s accumulated comprehensive loss included net actuarial loss approximately 33 million net prior service cost approximately 37 million related company’s us brazilian postretirement health care benefit plans estimated net actuarial loss net prior service cost postretirement health care benefit plans expected amortized company’s accumulated comprehensive loss year ended december 31 2015 approximately 01 million 02 million respectively aggregate projected benefit obligation accumulated benefit obligation fair value plan assets defined benefit pension plans enpp postretirement plans accumulated benefit obligations excess plan assets 9564 million 9017 million 6772 million respectively december 31 2014 9106 million 8637 million 6531 million respectively december 31 2013 projected benefit obligation accumulated benefit obligation fair value plan assets company’s usbased defined benefit pension plans enpp accumulated benefit obligations excess plan assets 1029 million 902 million 415 million respectively december 31 2014 851 million 774 million 419 million respectively december 31 2013 company’s accumulated comprehensive loss december 31 2014 reflects reduction equity 3399 million net taxes 876 million primarily related company’s uk pension plan projected benefit obligation exceeded plan assets addition company’s accumulated comprehensive loss december 31 2014 reflects reduction equity approximately 16 million net taxes 06 million related company’s gima joint venture amount represents 50 gima’s unrecognized net actuarial losses unrecognized prior service cost associated pension plan addition gima recognized net actuarial loss due settlements 2014 approximately 02 million company’s accumulated comprehensive loss december 31 2013 reflected reduction equity 2781 million net taxes 726 million primarily related company’s uk pension plan projected benefit obligation exceeded plan assets addition company’s accumulated comprehensive loss december 31 2013 reflected reduction equity approximately 13 million net taxes 04 million related company’s gima joint venture amount represented 50 gima’s unrecognized net actuarial losses unrecognized prior service cost associated pension plan agco corporation notes consolidated financial statements continued weighted average assumptions used determine benefit obligation company’s defined benefit pension plans enpp december 31 2014 2013 follows 1applicable us unfunded nonqualified plan weighted average discount rate used determine benefit obligation company’s postretirement benefit plans years ended december 31 2014 2013 46 53 respectively years ended december 31 2014 2013 2012 company used globally consistent methodology set discount rate countries largest benefit obligations exist united states united kingdom euro zone company constructed hypothetical bond portfolio highquality corporate bonds applied cash flows company’s benefit plans bond yields derive discount rate bond portfolio planspecific cash flows vary country methodology portfolio constructed consistent united states bond portfolio large enough result taking “settlement approach” derive discount rate highquality corporate bonds assumed purchased resulting coupon payments maturities used satisfy company’s us pension plans’ projected benefit payments united kingdom euro zone discount rate derived using “yield curve approach” individual spot rate zero coupon bond yield future annual period developed discount future benefit payment thereby determine present value future payments settlement yield curve approaches discount rate set equal single discount rate produces present value future payments measuring expected us postretirement benefit obligation december 31 2014 2013 company assumed 70 75 health care cost trend rate 2015 2014 respectively decreasing 50 2019 measuring brazilian postretirement benefit plan obligation december 31 2014 company assumed 1225 health care cost trend rate 2015 decreasing 645 2025 measuring brazilian postretirement benefit plan obligation december 31 2013 company assumed 1225 health care cost trend rate 2014 decreasing 645 2024 changing assumed health care cost trend rates one percentage point year holding assumptions constant would following effect service interest cost 2014 accumulated postretirement benefit obligation december 31 2014 millions company currently estimates minimum contributions benefit payments usbased underfunded defined benefit pension plans unfunded enpp 2015 aggregate approximately 29 million company currently estimates benefit payments 2015 usbased postretirement health care life insurance benefit plans aggregate approximately 15 million benefit payments 2015 brazilian postretirement health care benefit plans aggregate approximately less 01 million company currently estimates minimum contributions underfunded plans benefit payments unfunded plans 2015 nonusbased defined benefit pension plans aggregate approximately 358 million approximately 238 million relates uk pension plan agco corporation notes consolidated financial statements continued 2014 approximately 601 million benefit payments made related company’s defined benefit pension plans enpp december 31 2014 aggregate expected benefit payments company’s defined benefit pension plans enpp follows millions 2014 approximately 16 million benefit payments made related company’s us brazilian postretirement benefit plans december 31 2014 aggregate expected benefit payments company’s us brazilian postretirement benefit plans follows millions investment strategy concentration risk weighted average asset allocation company’s us pension benefit plans december 31 2014 2013 follows weighted average asset allocation company’s nonus pension benefit plans december 31 2014 2013 follows company categorizes pension plan assets one three levels based assumptions used valuing asset see note 13 discussion fair value hierarchy per guidance asc 820 “fair value measurements” “asc 820” company’s valuation techniques designed maximize use observable inputs minimize use unobservable inputs company uses following valuation methodologies measure fair value pension plan assets equity securities equity securities valued basis closing price per unit business day reported applicable exchange agco corporation notes consolidated financial statements continued fixed income fixed income securities valued using closing prices active market fixed income investment trades fixed income funds valued using net asset value fund based fair value underlying securities cash investments primarily consist shortterm investment funds valued using net asset value alternative investments pooled funds investments reported fair value determined general partner alternative investment pooled fund “market approach” valuation technique used value investments funds typically openend funds generally offer subscription redemption options investors frequency subscriptions redemptions dictated fund’s governing documents amount liquidity provided investors particular fund generally consistent liquidity risk associated underlying portfolio ie liquid investments portfolio greater liquidity provided investors liquidity individual funds varies based various factors may include “gates” “holdbacks” “side pockets” imposed manager fund well redemption fees may also apply investments funds typically valued utilizing net asset valuations provided underlying investment managers general partners administrators funds consider subscription redemption rights including restrictions disposition interest determination fair value insurance contracts insurance contracts valued using current prevailing interest rates fair value company’s pension assets december 31 2014 follows millions 1 39 “fixed income” securities government treasuries 37 investmentgrade corporate bonds 24 various fixed income securities 2 34 “alternative investments” longshort equity funds 31 eventdriven funds 12 relative value funds 10 credit funds 9 distributed hedged nonhedged funds 4 multistrategy funds 3 “miscellaneous funds” comprised insurance contracts finland norway switzerland agco corporation notes consolidated financial statements continued following reconciliation level 3 assets december 31 2014 millions fair value company’s pension assets december 31 2013 follows millions 1 40 “fixed income” securities government treasuries 31 investmentgrade corporate bonds 29 various fixed income securities 2 35 “alternative investments” longshort equity funds 29 eventdriven funds 12 relative value funds 12 credit funds 7 distributed hedged nonhedged funds 5 multistrategy funds 3 “miscellaneous funds” comprised pooled funds australia various contracts finland norway switzerland following reconciliation level 3 assets december 31 2013 millions agco corporation notes consolidated financial statements continued taxqualified pension fund investments united states held agco corporation master pension trust company’s global pension fund strategy diversify investments across broad categories equity fixed income securities appropriate use alternative investment categories minimize risk volatility primary investment objective company’s pension plans secure participant retirement benefits key objective pension plans’ financial management promote stability extent appropriate growth funded status investment strategy plans’ portfolio assets balances requirement generate returns need control risk asset mix recognized primary mechanism influence reward risk structure pension fund investments effort accomplish plans’ funding objectives overall investment strategy usbased pension plans achieve mix approximately 15 assets nearterm benefit payments 85 longerterm growth overall us pension funds invest broad diversification asset types company’s us target allocation retirement fund investments 30 large smallcap domestic equity securities 12 international equity securities 44 broad fixed income securities 14 alternative investments company noted long periods mix investments would achieve average return approximately 60 overall investment strategy nonus based pension plans achieve mix approximately 30 assets nearterm benefit payments 70 longerterm growth overall nonus pension funds invest broad diversification asset types company’s nonus target allocation retirement fund investments 45 equity securities 35 broad fixed income investments 20 alternative investments majority company’s nonus pension fund investments related company’s pension plan united kingdom company noted long periods mix investments would achieve average return approximately 73 arriving choice expected return assumption 70 ukbased plans year ended december 31 2015 company tempered historical indicator lower expectations returns equity investment future well administrative costs plans equity securities primarily include investments largecap smallcap companies located across globe fixed income securities include corporate bonds companies diversified industries mortgagebacked securities agency mortgages assetbacked securities government securities alternative assets include investments hedge fund funds follow diversified investment strategies date company invested pension funds stock intention future within asset class careful consideration given balancing portfolio among industry sectors geographies interest rate sensitivity dependence economic growth currency factors affecting investment returns assets managed professional investment firms bound precise mandates measured specific benchmarks among asset managers consideration given among others balancing security concentration issuer concentration investment style reliance particular active investment strategies company participates small number multiemployer plans netherlands sweden company assessed determined none multiemployer plans participates individually aggregate significant company’s consolidated financial statements company expect incur withdrawal liability expect significantly increase contributions remainder multiemployer plans’ contract periods company maintains separate defined contribution plans covering certain employees primarily united states united kingdom brazil plans company contributes specified percentage eligible employee’s compensation company contributed approximately 133 million 130 million 117 million years ended december 31 2014 2013 2012 respectively agco corporation notes consolidated financial statements continued 9 stockholders’ equity following table sets forth changes accumulated comprehensive loss component net tax attributed agco corporation subsidiaries years ended december 31 2014 2013 millions following table sets forth reclassification adjustments accumulated comprehensive loss component attributed agco corporation subsidiaries years ended december 31 2014 2013 millions 1 losses included within consolidated statements operations years ended december 31 2014 2013 respectively 2 accumulated comprehensive loss components included computation net periodic pension postretirement benefit cost see note 8 company’s consolidated financial statements agco corporation notes consolidated financial statements continued common stock december 31 2014 company 1500 million authorized shares common stock par value 001 per share approximately 891 million shares common stock outstanding approximately 36 million shares reserved issuance company’s 2006 longterm incentive plan “2006 plan” note 10 share repurchase program july 2012 company’s board directors approved share repurchase program company permitted repurchase 500 million shares common stock share repurchase program expiration date december 2013 company’s board directors approved second share repurchase program company permitted repurchase 5000 million shares common stock expiration date june 2015 december 2014 board directors approved third share repurchase program company repurchase additional 5000 million shares common stock december 2016 2014 open market transactions company repurchased 18 million shares common stock approximately 847 million average price paid 4660 per share 2013 open market transactions company repurchased less 01 million shares common stock approximately 10 million average price paid 4934 per share 2012 open market transactions company repurchased 04 million shares common stock approximately 176 million average price 4314 per share repurchased shares retired date purchase excess purchase price par value per share recorded “additional paidin capital” within company’s consolidated balance sheets 2014 company entered three accelerated repurchase agreements “asrs” financial institution repurchase aggregate 4150 million shares company’s common stock company received approximately 82 million shares year ended december 31 2014 related asrs shares received asrs retired upon receipt excess purchase price par value per share recorded “additional paidin capital” within company’s consolidated balance sheets 10500 million approved share repurchase programs remaining amount authorized repurchased approximately 5317 million 2015 company entered asr financial institution repurchase aggregate 625 million shares company’s common stock company received approximately 09 million shares date transaction specific number shares company ultimately repurchase determined completion term asr based daily volumeweighted average share price company’s common stock less agreedupon discount upon settlement asr company may entitled receive additional shares common stock certain circumstances required remit settlement amount company expects additional shares received company upon final settlement current asr expires second quarter 2015 shares received asr discussed retired upon receipt excess purchase price par value per share recorded “additional paidin capital” within company’s consolidated balance sheets dividends january 24 2013 company’s board directors approved initiation quarterly cash dividends stockholders quarterly dividend 010 per common share paid company’s stockholders 2013 january 24 2014 company’s board directors approved increase quarterly dividend 010 per common share 011 per common share beginning first quarter 2014 january 22 2015 company’s board directors approved increase quarterly dividend 011 per common share 012 per common share beginning first quarter 2015 10 stock incentive plan 2006 plan 100 million shares agco common stock may issued 2006 plan allows company direction board directors’ compensation committee make grants performance shares stock appreciation rights stock options restricted stock units restricted stock awards employees officers nonemployee directors company agco corporation notes consolidated financial statements continued longterm incentive plan company’s primary longterm incentive plan performance share plan provides awards shares company’s common stock based achieving financial targets earnings per share return invested capital determined company’s board directors company’s longterm incentive plan includes margin growth incentive plan provides awards shares company’s common stock based achieving operating margin targets determined company’s board directors stock awards 2006 plan earned performance period number shares earned determined based cumulative average results period depending measurement performance periods longterm incentive plan consecutive overlapping threeyear cycles performance targets set beginning cycle primary longterm incentive plan provides participants earn 33 200 target awards depending actual performance achieved shares earned performance established minimum target performance period margin growth incentive plan three fiveyear cycle commencing january 2011 performance targets set beginning cycle margin growth incentive plan provides participants earn 33 300 target awards depending actual performance achieved shares earned performance established minimum target awards earned 2006 plan paid shares common stock end performance period compensation expense associated awards amortized ratably vesting performance period based company’s projected assessment level performance achieved earned compensation expense recorded 2014 2013 2012 respect awards granted based upon stock price grant date weighted average grantdate fair value performance awards granted 2006 plan 2014 2013 2012 follows 2006 plan allows participant option forfeiting portion shares awarded lieu cash payment contributed participant’s tax withholding satisfy participant’s statutory minimum federal state employment taxes would payable time grant based level performance achieved december 31 2014 2013 following shares earned related performance period issued subsequent year net shares withheld taxes related earned awards 1 26800 shares issued 2013 2014 company granted 887198 performance awards threeyear performance period commencing 2014 ending 2016 awards granted assume maximum target level performance achieved performance award transactions 2014 follows presented company achieve maximum levels performance plan agco corporation notes consolidated financial statements continued year ended december 31 2014 company recorded credit approximately 169 million reversal previously recorded stock compensation expense reflect company’s projected level performance margin growth incentive plan threeyear cycles company’s primary longterm incentive plan company currently projects minimum target level performance related 20132015 20142016 threeyear cycles margin growth incentive plan achieved earned therefore compensation cost related unearned performance awards yet recognized respect cycles stocksettled appreciation rights addition performance share plans certain executives key managers eligible receive grants ssars provide participant right receive aggregate appreciation stock price market price company’s common stock date grant payable shares company’s common stock participant may exercise ssars time grant vested later seven years date grant ssars vest ratably fouryear period date grant ssar award grants made certain executives key managers 2006 plan made base price equal price company’s common stock date grant company recorded stock compensation expense approximately 52 million 47 million 38 million associated ssar award grants 2014 2013 2012 respectively compensation expense associated awards amortized ratably vesting period company estimated fair value grants using blackscholes option pricing model weighted average grantdate fair value ssars granted 2006 plan weighted average assumptions blackscholes option model follows years ended december 31 2014 2013 2012 ssar transactions year ended december 31 2014 follows december 31 2014 weighted average remaining contractual life ssars outstanding approximately four years december 31 2014 total compensation cost related unvested ssars yet recognized approximately 86 million weightedaverage period expected recognized approximately two years agco corporation notes consolidated financial statements continued following table sets forth exercise price range number shares weighted average exercise price remaining contractual lives groups similar price december 31 2014 total fair value ssars vested 2014 approximately 43 million 624747 ssars vested december 31 2014 total intrinsic value outstanding exercisable ssars december 31 2014 27 million total intrinsic value ssars exercised 2014 approximately 26 million shortfall tax benefit realized tax deductions united states related exercise ssars vesting performance awards 2006 plan approximately 02 million year ended december 31 2014 excess tax benefit realized tax deductions united states related exercise ssars vesting performance awards 2006 plan exercise stock options company’s 1991 stock option plan approximately 114 million year ended december 31 2013 excess tax benefit realized tax deductions year ended december 31 2012 united states company realized insignificant tax benefit exercise ssars vesting performance awards exercise stock options certain foreign jurisdictions years ended december 31 2014 2013 2012 january 21 2015 company granted 358950 performance award shares subject company achieving future target levels performance 325200 ssars 142150 restricted stock units 2006 plan director restricted stock grants pursuant 2006 plan nonemployee directors receive annual restricted stock grants company’s common stock restricted stock grants made company’s directors prior april 24 2014 restricted transferability period three years effective april 24 2014 shares granted date future grants made company’s directors restricted transferability period one year event director departs company’s board directors nontransferability period expires immediately plan allows director option forfeiting portion shares awarded lieu cash payment contributed participant’s tax withholding satisfy statutory minimum federal state employment taxes would payable time grant 2014 grant made april 24 2014 equated 18846 shares common stock 14907 shares common stock issued shares withheld taxes company recorded stock compensation expense approximately 11 million 2014 associated grants december 31 2014 100 million shares reserved issuance 2006 plan approximately 36 million shares available grant assuming maximum number shares earned related performance award grants discussed 11 derivative instruments hedging activities derivatives recognized company’s consolidated balance sheets fair value date derivative contract entered company designates derivative either 1 fair value hedge recognized liability 2 cash flow hedge forecasted transaction 3 hedge net investment foreign operation 4 nondesignated derivative instrument agco corporation notes consolidated financial statements continued company formally documents relationships hedging instruments hedged items well risk management objectives strategy undertaking various hedge transactions company formally assesses hedge’s inception ongoing basis whether derivatives used hedging transactions highly effective offsetting changes fair values cash flow hedged items determined derivative longer highly effective hedge accounting discontinued prospective basis foreign currency risk company significant manufacturing operations united states france germany finland brazil purchases portion tractors combines components thirdparty foreign suppliers primarily various european countries japan company also sells products 140 countries throughout world company’s significant transactional foreign currency exposures euro brazilian real canadian dollar relation united states dollar euro relation british pound company attempts manage transactional foreign exchange exposure hedging foreign currency cash flow forecasts commitments arising anticipated settlement receivables payables future purchases sales naturally offsetting currency positions occur company hedges certain exposures use foreign currency contracts company’s translation exposure resulting translating financial statements foreign subsidiaries united states dollars hedged practical translation impact reduced financing local operations local borrowings company’s senior management establishes company’s foreign currency interest rate risk management policies reviewed periodically audit committee company’s board directors policies allow use derivative instruments hedge exposures movements foreign currency interest rates company’s policies prohibit use derivative instruments speculative purposes company categorizes assets liabilities one three levels based assumptions used valuing asset liability see note 13 discussion fair value hierarchy per guidance asc 820 company’s valuation techniques designed maximize use observable inputs minimize use unobservable inputs cash flow hedges 2014 2013 2012 company designated certain foreign currency contracts cash flow hedges expected future sales purchases effective portion fair value gains losses cash flow hedges recorded comprehensive loss subsequently reclassified cost goods sold period sales purchases recognized amounts offset effect changes foreign currency rates related sale purchase transactions amount net loss recorded comprehensive loss reclassified cost goods sold years ended december 31 2014 2013 2012 approximately 15 million 05 million 81 million respectively aftertax basis amount unrealized loss gain recorded comprehensive loss related outstanding cash flow hedges december 31 2014 2013 2012 approximately 01 million 02 million 07 million respectively aftertax basis outstanding contracts december 31 2014 range maturity december 2015 agco corporation notes consolidated financial statements continued following table summarizes activity accumulated comprehensive loss related derivatives held company years ended december 31 2014 2013 2012 millions 1 rounding may impact summation amounts december 31 2014 2013 company outstanding foreign currency contracts notional amount approximately 238 million 503 million respectively entered hedge forecasted sale purchase transactions derivative transactions designated hedging instruments 2014 2013 2012 company entered foreign currency contracts hedge receivables payables company subsidiaries’ balance sheets denominated foreign currencies functional currency contracts classified nondesignated derivative instruments december 31 2014 2013 company outstanding foreign currency contracts notional amount approximately 18105 million 12884 million respectively entered hedge receivables payables denominated foreign currencies functional currency changes fair value contracts reported “other expense net” years ended december 31 2014 2013 2012 company recorded net loss approximately 23 million net gain approximately 95 million net gain approximately 55 million respectively related contracts within “other expense net” company’s consolidated statements operations gains losses contracts substantially offset losses gains remeasurement underlying asset liability hedged table sets forth fair value derivative instruments december 31 2014 millions agco corporation notes consolidated financial statements continued table sets forth fair value derivative instruments december 31 2013 millions company unrealized losses gains approximately 92 million 85 million foreign currency contracts outstanding december 31 2014 2013 respectively related designated nondesignated contracts company recorded approximately 90 million 86 million unrealized losses gains within “other expense net” consolidated statements operations years ended december 31 2014 2013 respectively related nondesignated contracts counterparty risk company regularly monitors counterparty risk credit ratings counterparties derivative instruments company believes exposures appropriately diversified across counterparties creditworthy financial institutions company perceives risk counterparty company would cease business counterparty negative impacts company nonperformance counterparties 12 commitments contingencies future payments required company’s significant commitments excluding indebtedness december 31 2014 follows millions 1 estimated interest payments calculated assuming current interest rates minimum maturity periods specified debt agreements debt may repaid sooner later minimum maturity periods unaudited 2 unconditional purchase obligations exclude routine purchase orders entered normal course business 3 shortterm longterm obligations include estimates future minimum contribution requirements company’s us nonus defined benefit pension postretirement plans estimates based current legislation countries company operates within subject change shortterm longterm obligations also include income tax liabilities related uncertain income tax positions connected ongoing income tax audits various jurisdictions unaudited agco corporation notes consolidated financial statements continued offbalance sheet arrangements guarantees company maintains remarketing agreement us finance joint venture whereby company obligated repurchase repossessed inventory market values company agreement us finance joint venture limits company’s purchase obligations arrangement 60 million aggregate per calendar year company believes losses might incurred resale equipment materially impact company’s financial position results operations due fair value underlying equipment december 31 2014 company guaranteed indebtedness owed third parties approximately 1297 million primarily related dealer enduser financing equipment guarantees generally obligate company repay outstanding finance obligations owed financial institutions dealers end users default loans 2019 company believes credit risk associated guarantees material financial position results operations losses guarantees historically insignificant addition company generally would expect able recover significant portion amounts paid guarantees sale underlying financed farm equipment fair value equipment expected sufficient offset substantial portion amounts paid december 31 2014 company outstanding designated nondesignated foreign exchange contracts gross notional amount approximately 18343 million outstanding contracts december 31 2014 range maturity december 2015 note 11 company sells substantially wholesale accounts receivable north america company’s us canadian finance joint ventures large portion wholesale accounts receivable finance joint ventures europe company also sells certain accounts receivable factoring arrangements financial institutions around world company reviewed sale receivables determined facilities accounted offbalance sheet transactions total lease expense noncancelable operating leases 739 million 728 million 688 million years ended december 31 2014 2013 2012 respectively contingencies june 27 2008 republic iraq filed civil action federal court southern district new york case 08 civ 59617 naming defendants one company’s french subsidiaries two foreign subsidiaries participated united nations oil food program “program” ninetyone entities companies also named defendants civil action due participation program complaint purports assert claims defendants seeking damages unspecified amount february 6 2013 federal court dismissed complaint prejudice federal appeals court affirmed decision time period plaintiff petition us supreme court writ certiorari yet expired although company’s subsidiaries intend vigorously defend action possible time predict outcome action impact company although outcome adverse company could required pay damages october 30 2012 thirdparty complaint filed federal court southern district texas case 09 civ 03884 naming defendants one company’s french subsidiaries two foreign subsidiaries sixty entities companies also named thirdparty defendants complaint asserts claims defendants certain also thirdparty plaintiffs seeking unspecified damages arising participation program thirdparty plaintiffs seek contribution thirdparty defendants february 12 2014 federal court dismissed thirdparty complaint prejudice thirdparty plaintiffs appealed dismissal resolution underlying case although company’s subsidiaries intend vigorously defend action possible time predict outcome action impact company although outcome adverse company could required pay damages agco corporation notes consolidated financial statements continued august 2008 part routine audits brazilian taxing authorities disallowed deductions relating amortization certain goodwill recognized connection reorganization company’s brazilian operations related transfer certain assets company’s brazilian subsidiaries amount tax disallowance december 31 2014 including interest penalties approximately 1315 million brazilian reais approximately 495 million amount ultimately dispute greater interest penalties company advised legal tax advisors position respect deductions allowable tax laws brazil company contesting disallowance believes likely assessment interest penalties required paid however ultimate outcome determined brazilian tax appeal process complete could take several years company party various legal claims actions incidental business company believes none claims actions either individually aggregate material business financial statements whole including results operations financial condition 13 fair value financial instruments company categorizes assets liabilities one three levels based assumptions used valuing asset liability estimates fair value financial assets liabilities based fair value hierarchy prioritizes inputs valuation techniques used measure fair value observable inputs highest level reflect market data obtained independent sources unobservable inputs lowest level reflect internally developed market assumptions accordance guidance fair value measurements classified following hierarchy level 1 quoted prices active markets identical assets liabilities level 2 quoted prices similar assets liabilities active markets quoted prices identical similar assets liabilities markets active modelderived valuations significant inputs observable corroborated observable market data substantially full term assets liabilities level 3 modelderived valuations one significant inputs unobservable company categorizes pension plan assets one three levels fair value hierarchy see note 8 discussion valuation methods used measure fair value company’s pension plan assets company enters foreign currency contracts primarily forward options contracts note 11 fair value foreign currency forward contracts based valuation model discounts cash flows resulting differential contract price marketbased forward rate fair value foreign currency option contracts based valuation model utilizes spot forward exchange rates interest rates currency pair volatility foreign currency contracts measured fair value recurring basis december 31 2014 2013 summarized millions cash equivalents accounts notes receivable accounts payable valued carrying amounts company’s consolidated balance sheets due immediate shortterm maturity financial instruments agco corporation notes consolidated financial statements continued carrying amounts longterm debt company’s 412 senior term loan credit facility note 7 approximate fair value based borrowing rates currently available company loans similar terms average maturities december 31 2014 estimated fair value company’s 578 senior notes note 7 based listed market value 3376 million compared carrying value 3000 million december 31 2013 estimated fair values company’s 578 senior notes 114 convertible notes note 7 based listed market values 3221 million 2905 million respectively compared carrying values 3000 million 2012 million respectively 14 related party transactions rabobank financial institution based netherlands 51 owner company’s finance joint ventures located united states canada europe brazil argentina australia rabobank also principal agent participant company’s revolving credit facility note 7 majority assets company’s finance joint ventures represents finance receivables majority liabilities represents notes payable accrued interest various joint venture agreements rabobank affiliates provide financing joint venture companies primarily lines credit 2014 company make additional investments finance joint ventures 2013 2012 company made total approximately 155 million 71 million respectively additional investments finance joint ventures germany netherlands primarily related additional capital required result increased retail finance portfolios 2013 2012 company’s finance joint ventures provide retail financing wholesale financing dealers terms financing arrangements offered company’s dealers similar arrangements finance joint ventures provide unaffiliated third parties addition company transfers ongoing basis majority wholesale receivables north america europe 49 owned us canadian european finance joint ventures note 4 company maintains remarketing agreement us finance joint venture note 12 addition part sales incentives provided end users company may time subsidize interest rates retail financing provided finance joint ventures cost programs recognized time sale company’s dealers tractors farm equipment limited “tafe” company holds 2375 interest manufactures massey fergusonbranded equipment primarily india also supplies tractors components company sale markets mallika srinivasan chairman chief executive officer tafe currently member company’s board directors december 31 2014 tafe owned 11196271 shares company’s common stock company tafe parties agreement pursuant among things tafe agreed purchase excess 12170290 shares company’s common stock subject certain adjustments company agreed annually nominate tafe representative board directors 2014 2013 2012 company purchased approximately 1490 million 907 million 1045 million respectively tractors components tafe 2014 2013 2012 company sold approximately 21 million 08 million 03 million respectively parts tafe company received dividends tafe approximately 18 million 16 million 13 million 2014 2013 2012 respectively 2014 2013 2012 company paid approximately 34 million 33 million 38 million respectively ppg industries inc painting materials used company’s manufacturing processes company’s chairman president chief executive officer currently member board directors ppg industries inc 2014 2013 company paid approximately 22 million 23 million respectively ryerson inc steel used company’s manufacturing processes michael arnold president chief executive officer ryerson inc currently member company’s board directors 15 segment reporting company’s four reportable segments distribute full range agricultural equipment related replacement parts company evaluates segment performance primarily based income operations sales segment based location thirdparty customer company’s selling general administrative expenses engineering expenses charged segment based region division expenses incurred result components income operations one segment may comparable another segment results years ended december 31 2014 2013 2012 based company’s current reportable segments follows agco corporation notes consolidated financial statements continued millions reconciliation segment information consolidated balances income operations total assets set forth millions agco corporation notes consolidated financial statements continued net sales customer location years ended december 31 2014 2013 2012 follows millions net sales product years ended december 31 2014 2013 2012 follows millions property plant equipment amortizable intangible assets country december 31 2014 2013 follows millions item 9item 8 financial statements supplementary data following consolidated financial statements agco subsidiaries years threeyear period ended december 31 2016 included item information heading “quarterly results” item 7 form 10k incorporated herein reference report independent registered public accounting firm board directors stockholders agco corporation audited accompanying consolidated balance sheets agco corporation subsidiaries december 31 2016 2015 related consolidated statements operations comprehensive income loss stockholders’ equity cash flows years threeyear period ended december 31 2016 connection audits consolidated financial statements also audited financial statement schedule listed item 15a2 consolidated financial statements financial statement schedule responsibility company’s management responsibility express opinion consolidated financial statements financial statement schedule based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements referred present fairly material respects financial position agco corporation subsidiaries december 31 2016 2015 results operations cash flows years threeyear period ended december 31 2016 conformity us generally accepted accounting principles also opinion related financial statement schedule considered relation basic consolidated financial statements taken whole presents fairly material respects information set forth therein also audited accordance standards public company accounting oversight board united states agco corporation’s internal control financial reporting december 31 2016 based criteria established internal control integrated framework 2013 issued committee sponsoring organizations treadway commission coso report dated february 28 2017 expressed unqualified opinion effectiveness company’s internal control financial reporting kpmg llp atlanta georgia february 28 2017 agco corporation consolidated statements operations millions except per share data see accompanying notes consolidated financial statements agco corporation consolidated statements comprehensive income loss millions see accompanying notes consolidated financial statements agco corporation consolidated balance sheets millions except share amounts see accompanying notes consolidated financial statements agco corporation consolidated statements stockholders’ equity millions except share amounts see accompanying notes consolidated financial statements agco corporation consolidated statements cash flows millions see accompanying notes consolidated financial statements agco corporation notes consolidated financial statements 1 operations summary significant accounting policies business agco corporation subsidiaries “agco” “company” leading manufacturer distributor agricultural equipment related replacement parts throughout world company sells full range agricultural equipment including tractors combines hay tools sprayers forage equipment seeding tillage equipment implements grain storage protein production systems company’s products widely recognized agricultural equipment industry marketed number wellknown brand names including challenger® fendt® gsi® massey ferguson® valtra® company distributes products combination 3000 independent dealers distributors well company utilizes associates licensees provide distribution channel products addition company provides retail financing finance joint ventures coöperatieve centrale raiffeisenboerenleenbank ba “rabobank” basis presentation consolidation company’s consolidated financial statements represent consolidation whollyowned companies majorityowned companies joint ventures company determined primary beneficiary company consolidates variable interest entity “vie” company determines primary beneficiary primary beneficiary vie party power direct activities significantly impact entity’s economic performance obligation absorb losses right receive benefits potentially could significant vie company also consolidates entities considered vies determined company controlling voting interest direct activities significantly impact joint venture entity company records investments affiliate companies using equity method accounting significant influence investments including representing ownership interest less 20 recorded cost significant intercompany balances transactions eliminated consolidated financial statements certain prior period amounts reclassified conform current period presentation use estimates preparation financial statements conformity us generally accepted accounting principles “gaap” requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ estimates made management primarily relate accounts notes receivable inventories deferred income tax valuation allowances uncertain tax positions goodwill identifiable intangible assets certain accrued liabilities principally relating reserves volume discounts sales incentives warranty obligations product liability workers’ compensation obligations pensions postretirement benefits revenue recognition sales equipment replacement parts recorded company title risks ownership transferred independent dealer distributor customer certain countries sales certain grain storage protein production systems company responsible construction installation may contingent upon customer acceptance recorded overtime basis using percentage completion method payment terms vary market product fixed payment schedules sales terms sale generally require purchase order confirmation accompany shipments title generally passes dealer distributor upon shipment specified delivery risk loss upon damage theft destruction equipment responsibility dealer distributor thirdparty carrier point stated shipping delivery term certain foreign countries company retains form title goods delivered dealers dealer makes payment company recover goods event customer default payment occurs laws foreign countries provide seller’s retention security interest goods manner established united states uniform commercial code right company retains respect title enabling recovery goods event customer default payment dealer distributor may return equipment replacement parts contract company force replacement parts may returned promotional annual return programs provisions returns programs made time sale based terms program historical returns experience company may agco corporation notes consolidated financial statements continued provide certain sales incentives dealers distributors provisions sales incentives made time sale existing incentive programs provisions revised event subsequent modification incentive program see “accounts notes receivable” discussion united states canada amounts due sales dealers immediately due upon retail sale underlying equipment dealer exception sales grain storage protein production systems previously paid dealer united states canada installment payments required generally beginning interestfree period remaining outstanding equipment balance generally due within 12 months shipment delivery specified programs united states canada may allow interestfree periods due dates 24 months certain products interest generally charged outstanding balance six 12 months shipment delivery sales terms highly seasonal products provide payment due dates based specified date year regardless shipment date equipment sold dealers united states canada paid full average within 12 months shipment sales replacement parts generally payable within 30 days shipment terms larger seasonal stock orders generally requiring payment within six months shipment sales grain storage protein production systems generally payable within 30 days shipment international markets equipment sales generally payable full within 30 180 days shipment delivery payment terms highly seasonal products specified due date year regardless shipment delivery date sales replacement parts generally payable within 30 90 days shipment terms larger seasonal stock orders generally payable within six months shipment certain markets particularly north america time lag varies based timing level retail demand date company records sale dealer sells equipment retail customer foreign currency translation financial statements company’s foreign subsidiaries translated united states currency accordance accounting standards codification “asc” 830 “foreign currency matters” assets liabilities translated united states dollars periodend exchange rates income expense items translated average rates exchange prevailing period translation adjustments included “accumulated comprehensive loss” stockholders’ equity within company’s consolidated balance sheets gains losses result foreign currency transactions included accompanying consolidated statements operations cash equivalents cash december 31 2016 2015 3862 million 3446 million respectively consisted primarily cash hand bank deposits company considers investments original maturity three months less cash equivalents cash equivalents december 31 2016 2015 435 million 821 million respectively consisted primarily money market deposits certificates deposits overnight investments accounts notes receivable accounts notes receivable arise sale equipment replacement parts independent dealers distributors customers payments due company’s terms sale generally range one 12 months contingent upon sale equipment dealer distributor retail customer normal circumstances payment terms extended equipment may returned certain regions respect equipment sales including united states canada company obligated repurchase equipment replacement parts upon cancellation dealer distributor contract obligations required national state provincial laws require company repurchase dealer distributor’s unsold inventory including inventories receivable already paid company offers various sales terms respect products sales markets outside united states canada company generally charge interest outstanding receivables dealers distributors sales certain dealers distributors united states canada interest charged prime lending rates outstanding receivable balances interestfree periods interestfree periods vary product generally range one 12 months previously discussed limited circumstances company provides sales terms cases interestfree periods longer 12 months certain products typically specified programs agco corporation notes consolidated financial statements continued predominantly united states canada interest charged period 24 months depending year sale dealer distributor’s ordering sales volume preceding year actual interestfree periods shorter described equipment receivable dealers distributors countries united states canada generally due immediately upon sale equipment retail customer receivables also paid prior terms specified sales agreements normal circumstances interest forgiven interestfree periods extended following summarizes geographic region percentage consolidated net sales amounts maximum interestfree periods presented millions company agreement permit transferring ongoing basis majority wholesale interestbearing noninterest bearing accounts receivable north america europe brazil us canadian european brazilian finance joint ventures qualified dealers may obtain additional financing company’s us canadian european brazilian finance joint ventures joint ventures’ discretion company provides various volume bonus sales incentive programs respect products sales incentive programs include reductions invoice prices reductions retail financing rates dealer commissions dealer incentive allowances cases incentive programs established communicated company’s dealers quarterly basis incentives paid either time invoice reduction invoice price time settlement receivable time retail financing time warranty registration subsequent time based dealer purchases incentive programs productline specific generally vary dealer cost sales incentives associated dealer commissions dealer incentive allowances estimated based upon terms programs historical experience often based percentage sales price recorded later date related revenue recognized b date sales incentive offered related provisions accruals made product productline basis monitored adequacy revised least quarterly event subsequent modifications programs volume discounts estimated recognized based historical experience related reserves monitored adjusted based actual dealer purchases dealer’s progress towards achieving specified cumulative target levels company records cost interest subsidy payments reduction retail financing rates later date related revenue recognized b date sales incentive offered estimates incentives based terms programs historical experience incentive programs recorded presented reduction revenue due fact company receive identifiable benefit exchange consideration provided reserves incentive programs paid either reduction future invoices credit memos recorded “accounts receivable allowances” within company’s consolidated balance sheets reserves incentive programs paid cash case company’s volume discount programs well sales incentives associated accounts receivable sold us canadian finance joint ventures recorded within “accrued expenses” within company’s consolidated balance sheets agco corporation notes consolidated financial statements continued accounts notes receivable shown net allowances sales incentive discounts available dealers doubtful accounts cash flows related collection receivables reported within “cash flows operating activities” within company’s consolidated statements cash flows accounts notes receivable allowances december 31 2016 2015 follows millions company transfers certain accounts receivable accounts receivable sales agreements finance joint ventures note 4 company records transfers sales accounts receivable considered surrendered control receivables provisions accounting standards update “asu” 200916 “transfers servicing topic 860 accounting transfers financial assets” cash payments made company’s us canadian finance joint ventures sales incentive discounts provided dealers related outstanding accounts receivables sold balances sales discount reserves recorded within “accrued expenses” december 31 2016 2015 approximately 2025 million 2295 million respectively inventories valued lower cost market using firstin firstout method market current replacement cost purchase reproduction dependent type inventory cases market exceeds net realizable value ie estimated selling price less reasonably predictable costs completion disposal inventories stated net realizable value market considered less net realizable value reduced allowance approximately normal profit margin december 31 2016 2015 company recorded 1372 million 1346 million respectively adjustment surplus obsolete inventories adjustments reflected within “inventories net” within company’s consolidated balance sheets inventories net december 31 2016 2015 follows millions cash flows related sale inventories reported within “cash flows operating activities” within company’s consolidated statements cash flows agco corporation notes consolidated financial statements continued property plant equipment property plant equipment recorded cost less accumulated depreciation amortization depreciation provided straightline basis estimated useful lives ten 40 years buildings improvements three 15 years machinery equipment three ten years furniture fixtures expenditures maintenance repairs charged expense incurred property plant equipment net december 31 2016 2015 consisted following millions goodwill intangible assets longlived assets company tests goodwill impairment reporting unit level annually events circumstances indicate fair value reporting unit may carrying value reporting unit operating segment one level operating segment example component company combines aggregates two components operating segment single reporting unit components similar economic characteristics company’s reportable segments reporting units goodwill evaluated annually october 1 impairment using qualitative assessment quantitative twostep assessment company elects perform qualitative assessment determines fair value reporting units likely exceed carrying value evaluation necessary reporting units company performs twostep quantitative assessment first step requires company compare fair value reporting unit determined based combination discounted cash flow valuation approach market multiple valuation approach respective carrying value including goodwill fair value reporting unit exceeds carrying value goodwill considered impaired carrying value higher fair value reporting unit second step quantitative process required measure amount impairment second step quantitative assessment results calculation implied fair value reporting unit’s goodwill determined excess fair value reporting unit fair values assigned assets liabilities implied fair value goodwill less carrying value reporting unit’s goodwill difference recognized impairment loss company reviews longlived assets include intangible assets subject amortization impairment whenever events changes circumstances indicate carrying amount asset may recoverable evaluation recoverability performed level independent cash flows may attributed either asset group company determines carrying amount asset group recoverable based expected undiscounted future cash flows asset group impairment loss recorded equal excess carrying amounts estimated fair value longlived assets estimates future cash flows based many factors including current operating results expected market trends competitive influences company also evaluates amortization periods assigned intangible assets determine whether events changes circumstances warrant revised estimates useful lives assets disposed sale reported lower carrying amount fair value less estimated costs sell results company’s goodwill longlived assets impairment analyses conducted october 1 2016 2015 2014 indicated reduction carrying amount company’s goodwill longlived assets required agco corporation notes consolidated financial statements continued company’s accumulated goodwill impairment approximately 1805 million related impairment charges company recorded 2012 2006 pertaining chinese harvesting reporting unit former sprayer reporting unit respectively chinese harvesting business operates within asiapacific geographical reportable segment former sprayer reporting unit operates within north american geographical reportable segment changes carrying amount goodwill years ended december 31 2016 2015 2014 summarized follows millions company amortizes certain acquired identifiable intangible assets primarily straightline basis estimated useful lives range five 50 years acquired intangible assets weighted average useful life follows years ended december 31 2016 2015 2014 acquired intangible asset amortization 512 million 427 million 410 million respectively company estimates amortization existing intangible assets 544 million 2017 2018 2019 540 million 2020 515 million 2021 company previously determined two trademarks indefinite useful life massey ferguson trademark existence since 1952 formed merger masseyharris established 1890’s ferguson established 1930’s massey ferguson brand currently sold 140 countries worldwide making one widely sold tractor brands world company also identified valtra trademark indefinitelived asset valtra trademark existence since late 1990’s derivative valmet trademark existence since 1951 valmet name transitioned valtra name period time marketplace valtra brand currently sold approximately 50 countries around world massey ferguson brand valtra brand primary product lines company’s business company plans use trademarks indefinite period time company plans continue make investments product development enhance value brands future legal regulatory contractual competitive economic factors company aware company believes would limit useful lives trademarks massey ferguson valtra trademark registrations renewed nominal cost countries company operates agco corporation notes consolidated financial statements continued changes carrying amount acquired intangible assets 2016 2015 summarized follows millions agco corporation notes consolidated financial statements continued accrued expenses accrued expenses december 31 2016 2015 consisted following millions warranty reserves warranty reserve activity years ended december 31 2016 2015 2014 consisted following millions company’s agricultural equipment products generally warranty defects materials workmanship period one four years company accrues future warranty costs time sale based historical warranty experience approximately 325 million 351 million warranty reserves included “other noncurrent liabilities” company’s consolidated balance sheets december 31 2016 2015 respectively insurance reserves company’s insurance programs coverage obtained significant liability limits well risks required insured law contract policy company selfinsure portion certain expected losses primarily related workers’ compensation comprehensive general liability product vehicle liability provisions losses expected programs recorded based company’s estimates aggregate liabilities claims incurred stock incentive plans stock compensation expense credit recorded follows millions refer note 10 additional information regarding company’s stock incentive plans 2016 2015 2014 agco corporation notes consolidated financial statements continued research development expenses research development expenses expensed incurred included engineering expenses company’s consolidated statements operations advertising costs company expenses advertising costs incurred cooperative advertising costs normally expensed time revenue earned advertising expenses years ended december 31 2016 2015 2014 totaled approximately 468 million 500 million 598 million respectively shipping handling expenses shipping handling fees charged customers included component net sales shipping handling costs included part cost goods sold exception certain handling costs included selling general administrative expenses amount 243 million 246 million 292 million years ended december 31 2016 2015 2014 respectively interest expense net interest expense net years ended december 31 2016 2015 2014 consisted following millions income taxes income taxes accounted asset liability method deferred tax assets liabilities recognized future tax consequences attributable differences financial statement carrying amounts existing assets liabilities respective tax bases operating loss tax credit carryforwards deferred tax assets liabilities measured using enacted tax rates expected apply taxable income years temporary differences expected recovered settled effect deferred tax assets liabilities change tax rates recognized income period includes enactment date refer note 6 additional information regarding company’s income taxes net income per common share basic income per common share computed dividing net income weighted average number common shares outstanding period diluted income per common share assumes exercise outstanding stocksettled stock appreciation rights “ssars” vesting performance share awards restricted stock units using treasury stock method effects assumptions dilutive agco corporation notes consolidated financial statements continued 2014 appreciation excess conversion value company’s former 114 contingently convertible senior subordinated notes included diluted net income per common share using treasury stock method impact assumption dilutive reconciliation net income attributable agco corporation subsidiaries weighted average common shares outstanding purposes calculating basic diluted net income per share years ended december 31 2016 2015 2014 follows millions except per share data ssars purchase 11 million shares 12 million shares 10 million shares outstanding years ended december 31 2016 2015 2014 respectively included calculation weighted average common equivalent shares outstanding antidilutive impact comprehensive income loss company reports comprehensive income loss defined total net income loss nonowner changes equity components thereof consolidated statements stockholders’ equity consolidated statements comprehensive income components comprehensive income loss related tax effects years ended december 31 2016 2015 2014 follows millions agco corporation notes consolidated financial statements continued derivatives company uses foreign currency contracts hedge foreign currency exposure certain receivables payables contracts periods consistent exposure hedged generally maturities one year less contracts classified nondesignated derivative instruments company also enters foreign currency contracts designated cash flow hedges expected sales company’s foreign currency contracts mitigate risk due exchange rate fluctuations gains losses contracts generally offset losses gains exposure hedged notional amounts foreign currency contracts represent amounts exchanged parties therefore measure company’s risk amounts exchanged calculated basis notional amounts terms contracts credit market risks contracts considered significant company’s interest expense part sensitive general level interest rates company manages exposure interest rate risk mix floating rate fixed rate debt time company enters interest rate swap agreements order manage company’s exposure interest rate fluctuations company uses nonderivative periodically derivative instruments hedge portion company’s net investment foreign operations adverse movements exchange rates company’s hedging policy prohibits entering foreign currency contracts speculative trading purposes refer note 11 additional information regarding company’s derivative instruments hedging activities recent accounting pronouncements january 2017 financial accounting standards board “fasb” issued asu 201704 “simplifying test goodwill impairment” “asu 201704” eliminates step 2 goodwill impairment test standard entity perform goodwill impairment test comparing fair value reporting unit carrying amount resulting impairment charge amount carrying amount exceeds reporting unit’s fair value impairment charge however exceed total amount goodwill allocated reporting unit impairment assessment asu 201704 applies reporting units including zero negative carrying amount asu 201704 effective annual periods beginning december 15 2019 interim periods within annual periods using prospective approach early adoption permitted interim annual goodwill impairment test performed testing dates january 1 2017 company currently evaluating impact adopting standard company’s results operations financial condition cash flows november 2016 fasb issued asu 201618 “restricted cash” “asu 201618” requires statement cash flows explain change period total cash equivalents amounts generally described restricted cash restricted cash equivalents result amounts generally described restricted cash restricted cash equivalents included cash equivalents reconciling beginningofperiod endofperiod total amounts shown statement cash flows asu 201618 effective annual periods beginning december 15 2017 interim period within annual periods using retrospective approach early adoption permitted interim annual period company currently evaluating impact adopting standard company’s cash flows october 2016 fasb issued asu 201616 “intraentity transfers assets inventory” “asu 201616” requires recognition income tax consequences intraentity transfer asset agco corporation notes consolidated financial statements continued inventory transfer occurs consequently standard eliminates exception recognition current deferred income taxes intraentity asset transfer inventory asset sold outside party asu 201616 effective annual periods beginning december 15 2017 interim periods within annual periods using modified retrospective approach early adoption permitted interim annual period company currently evaluating impact adopting standard company’s results operations financial condition cash flows august 2016 fasb issued asu 201615 “classification certain cash receipts cash payments” “asu 201615” addresses eight specific cash flow issues objective reducing existing diversity practice standard effective annual periods beginning december 15 2017 interim periods within fiscal years asu 201615 may applied using retrospective approach prospective approach impracticable apply amendments retrospectively early adoption permitted interim annual period company expects adopt asu 201615 january 1 2017 adoption material impact cash flows june 2016 fasb issued asu 201613 “measurement credit losses financial instruments” “asu 201613” requires measurement recognition expected versus incurred credit losses financial assets held asu 201613 effective annual periods beginning december 15 2019 interim periods within annual periods standard likely impact results operations financial condition company’s finance joint ventures result likely impact company’s “investment affiliates” “equity net earnings affiliates” upon adoption company’s finance joint ventures currently evaluating standard’s impact results operations financial condition march 2016 fasb issued asu 201609 “improvements employee sharebased payment accounting” “asu 201609” asu 201609 simplifies several aspects accounting sharebased payment transactions including accounting forfeitures employer tax withholding sharebased compensation financial statement presentation excess tax benefits deficiencies addition standard clarifies statement cash flow presentation certain components sharebased awards application methods specific component asu may applied using prospective retrospective modified retrospective approach asu 201609 effective annual periods beginning december 15 2016 interim periods within annual periods early adoption permitted interim annual period company expects adopt asu 201609 january 1 2017 adoption material impact results operations financial condition cash flows february 2016 fasb issued asu 201602 “leases” “asu 201602” supersedes existing lease guidance current us gaap asu 201602 based principle entities recognize assets liabilities arising leases standard significantly change lessees’ recognition measurement presentation expenses cash flows previous accounting standard leases classified finance operating asu 201602’s primary change requirement entities recognize lease liability payments rightofuse asset representing right use leased asset term operating lease arrangement lessees permitted make accounting policy election recognize asset liability leases term 12 months less lessors’ accounting standard largely unchanged previous accounting standard addition asu 201602 expands disclosure requirements lease arrangements standard effective reporting periods beginning december 15 2018 interim periods within annual periods early adoption permitted upon adoption lessees lessors required recognize measure leases beginning earliest period presented using modified retrospective approach company currently evaluating impact adopting standard company’s results operations financial condition cash flows may 2015 fasb issued asu 201507 “disclosures investments certain entities calculate net asset value per share equivalent” “asu 201507” among things amends accounting standards codification 820 “fair value measurements” remove requirement categorize within fair value hierarchy investments measured net asset value “nav” per share equivalent practical expedient standard effective fiscal years beginning december 15 2015 retrospective application early adoption permitted company adopted asu 201507 january 1 2016 retrospective application fair value hierarchy retrospective application resulted removal 74 million 1092 million defined benefit pension plan assets classified level 2 level 3 respectively fair value hierarchy december 31 2015 april 2015 fasb issued asu 201503 “simplifying presentation debt issuance costs” “asu 201503” asu 201503 amends existing guidance require presentation debt issuance costs balance sheet agco corporation notes consolidated financial statements continued direct deduction carrying amount related debt liability instead deferred charge asset given absence authoritative guidance within asu 201503 august 2015 fasb issued asu 201515 “presentation subsequent measurement debt issuance costs associated lineofcredit arrangements” “asu 201515” clarifies sec staff would object entity deferring presenting debt issuance costs asset subsequently amortizing deferred debt issuance costs ratably term lineofcredit arrangement regardless whether outstanding borrowings lineofcredit arrangement asu 201503 effective fiscal years interim periods within fiscal years beginning december 15 2015 early adoption permitted company adopted standard january 1 2016 applied requirements asu 201503 retrospectively periods presented consolidated balance sheet december 31 2015 company reclassified approximately 36 million decrease “other assets” correspondingly decreased “longterm debt” approximately 36 million debt issuance costs related company’s multicurrency revolving credit facility continue classified within “other assets” consolidated balance sheets permitted standard may 2014 fasb issued asu 2014 09 “revenue contracts customers” “asu 201409” provides single comprehensive revenue recognition model contracts customers fivestep analysis determining revenue recognized new model require revenue recognition depict transfer promised goods services customers amount reflects consideration expected received exchange goods services additional disclosures also required enable users understand nature amount timing uncertainty revenue cash flows arising contracts customers including significant judgments changes judgments standard effective reporting periods beginning december 31 2017 early adoption permitted reporting periods beginning december 31 2016 entities option apply new standard full retrospective approach prior reporting period presented modified retrospective approach cumulative effect initial adoption application within consolidated statement stockholders’ equity company plans adopt new standard effective january 1 2018 modified retrospective approach new model company begin recognize asset value expected replacement parts returns company yet completed evaluation process including identification new controls processes designed meet requirements standard time company identified impacts consolidated financial statements company believes material year adoption 2 acquisitions september 12 2016 company acquired cimbria holdings limited “cimbria” dkk 22349 million approximately 3375 million net cash acquired approximately dkk834 million approximately 126 million cimbria headquartered thisted denmark leading manufacturer products solutions processing handling storage seed grain acquisition financed company’s credit facility note 7 preliminary fair values assets acquired liabilities assumed acquisition date presented following table millions agco corporation notes consolidated financial statements continued acquired identifiable intangible assets cimbria date acquisition summarized following table millions results operations cimbria included company’s consolidated financial statements date acquisition associated goodwill included company’s europeafricamiddle east geographical reportable segment february 2 2016 company acquired tecno poultry equipment spa “tecno” approximately €587 million approximately 638 million company acquired cash approximately €176 million approximately 191 million associated acquisition tecno headquartered ronchi di villafranca italy manufactures supplies poultry housing related products including egg collection equipment trolley feeding systems acquisition financed company’s credit facility note 7 company allocated purchase price assets acquired liabilities assumed based estimates fair values acquisition date acquired net assets primarily consisted accounts receivable inventories accounts payable accrued expenses deferred revenue property plant equipment customer relationship technology trademark identifiable intangible assets company recorded approximately 275 million customer relationship technology trademark identifiable intangible assets approximately 204 million goodwill associated acquisition results operations tecno included company’s consolidated financial statements date acquisition associated goodwill included company’s europeafricamiddle east north america geographical reportable segments acquired identifiable intangible assets tecno date acquisition summarized following table millions april 17 2015 company acquired farmer automatic gmbh co kg “farmer automatic” approximately 179 million net cash acquired approximately 01 million farmer automatic headquartered laer germany manufactures supplies poultry housing related products including egg production cages broiler production equipment acquisition financed available cash hand company allocated purchase price assets acquired liabilities assumed based estimates fair values acquisition date acquired net assets primarily consisted accounts receivable inventories accounts payable accrued expenses property plant equipment customer relationship technology trademark identifiable intangible assets company recorded approximately 96 million identifiable intangible assets approximately 100 million goodwill associated acquisition results operations farmer automatic included company’s consolidated financial statements date acquisition associated goodwill included company’s europeafricamiddle east north america asiapacific geographical reportable segments agco corporation notes consolidated financial statements continued acquired identifiable intangible assets farmer automatic date acquisition summarized following table millions august 1 2014 company acquired intersystems holdings inc “intersystems” approximately 1303 million net cash acquired approximately 41 million intersystems headquartered omaha nebraska designs manufactures commercial material handling solutions primarily agricultural biofuels food feed processing industries acquisition financed available cash hand company’s credit facility note 7 company allocated purchase price assets acquired liabilities assumed based estimates fair values acquisition date acquired net assets primarily consisted accounts receivable inventories accounts payable accrued expenses property plant equipment customer relationship technology trademark identifiable intangible assets company recorded approximately 463 million customer relationship technology trademark identifiable intangible assets approximately 896 million goodwill associated acquisition results operations intersystems included company’s consolidated financial statements date acquisition goodwill reported within company’s north american geographical reportable segment acquired identifiable intangible assets intersystems date acquisition summarized following table millions agco corporation notes consolidated financial statements continued 3 restructuring expenses 2014 2015 2016 company announced initiated several actions rationalize employee headcount various manufacturing facilities located europe china brazil argentina united states well various administrative offices located europe brazil china united states order reduce costs response softening global market demand lower production volumes aggregate headcount reduction approximately 2750 employees 2014 2015 2016 components restructuring expenses summarized follows millions 4 accounts receivable sales agreements december 31 2016 2015 company accounts receivable sales agreements permit sale ongoing basis majority wholesale receivables north america europe brazil us canadian european brazilian finance joint ventures december 31 2016 2015 cash received receivables sold us canadian european brazilian accounts receivable sales agreements approximately 11 billion terms accounts receivable sales agreements north america europe brazil company pays annual servicing fee related servicing receivables sold company also pays respective agco finance entities interest payment calculated based upon libor plus margin noninterest bearing accounts receivable outstanding sold sales agreements fees reflected within losses sales receivables included within “other expense net” company’s consolidated statements operations company service receivables sale occurs maintain direct retained interest receivables company reviewed accounting accounts receivable sales agreements determined facilities accounted offbalance sheet transactions losses sales receivables associated accounts receivable financing facilities discussed reflected within “other expense net” company’s consolidated statements operations approximately 195 million 188 million 248 million 2016 2015 2014 respectively company’s finance joint ventures europe brazil australia also provide wholesale financing directly company’s dealers receivables associated arrangements without recourse company service receivables sale occurs maintain direct retained interest receivables agco corporation notes consolidated financial statements continued december 31 2016 2015 finance joint ventures approximately 415 million 383 million respectively outstanding accounts receivable associated arrangements company reviewed accounting arrangements determined arrangements accounted offbalance sheet transactions addition company sells certain trade receivables factoring arrangements financial institutions around world company reviewed sale receivables determined arrangements accounted offbalance sheet transactions 5 investments affiliates investments affiliates december 31 2016 2015 follows millions company’s manufacturing joint ventures december 31 2016 consisted groupement international de mecanique agricole sa “gima” joint venture thirdparty manufacturer purchase design manufacture components agricultural equipment france joint ventures thirdparty manufacturers assemble tractors algeria engines south america joint ventures represent investments farm equipment manufacturers electronic software system manufacturer distributors licensees company’s equity net earnings affiliates years ended december 31 2016 2015 2014 follows millions summarized combined financial information company’s finance joint ventures december 31 2016 2015 years ended december 31 2016 2015 2014 follows millions majority assets company’s finance joint ventures represents finance receivables majority liabilities represents notes payable accrued interest various joint venture agreements rabobank affiliates provide financing joint venture companies note 14 december 31 2016 2015 company’s receivables affiliates approximately 544 million 701 million respectively receivables affiliates reflected within “accounts notes receivable net” within company’s consolidated balance sheets agco corporation notes consolidated financial statements continued portion company’s retained earnings balance represents undistributed retained earnings equity method investees approximately 3126 million 2968 million december 31 2016 2015 respectively 6 income taxes sources income loss income taxes equity net earnings affiliates follows years ended december 31 2016 2015 2014 millions provision benefit income taxes location taxing jurisdiction years ended december 31 2016 2015 2014 consisted following millions december 31 2016 company’s foreign subsidiaries approximately 25 billion undistributed earnings considered indefinitely invested accordingly income taxes provided earnings determination amount unrecognized deferred taxes earnings practicable however unrecognized foreign tax credits would available reduce portion tax liability reconciliation income taxes computed united states federal statutory income tax rate 35 provision income taxes reflected company’s consolidated statements operations years ended december 31 2016 2015 2014 follows millions agco corporation notes consolidated financial statements continued significant components deferred tax assets liabilities december 31 2016 2015 follows millions company recorded net deferred tax liability 127 million december 31 2016 net deferred tax asset 143 million december 31 2015 reflected preceding table company valuation allowance 1160 million 758 million december 31 2016 2015 respectively second quarter 2016 company established valuation allowance fully reserve net deferred tax assets united states valuation allowance established likely portion deferred tax assets realized company assessed likelihood deferred tax assets would recovered estimated future taxable income available tax planning strategies determined adjustment valuation allowance appropriate making assessment available evidence considered including current economic climate well reasonable tax planning strategies company believes likely company realize remaining net deferred tax assets net valuation allowance future years company net operating loss carryforwards 2864 million december 31 2016 expiration dates follows 2017 273 million 2018 380 million 2019 418 million thereafter unlimited 1793 million net operating loss carryforwards 2864 million entirely tax jurisdictions outside united states company paid income taxes 1062 million 976 million 2236 million years ended december 31 2016 2015 2014 respectively december 31 2016 2015 company 1399 million 1330 million respectively unrecognized income tax benefits would affect company’s effective tax rate recognized december 31 2016 2015 company approximately 470 million 612 million respectively accrued deferred taxes related uncertain income tax positions connected ongoing income tax audits various jurisdictions expects settle pay next 12 months company accrued approximately 34 million 51 million interest penalties related unrecognized tax benefits provision income taxes 2016 2015 respectively december 31 2016 agco corporation notes consolidated financial statements continued 2015 company accrued interest penalties related unrecognized tax benefits 164 million 183 million respectively reconciliation beginning ending balances total amounts gross unrecognized tax benefits years ended december 31 2016 2015 follows millions company subsidiaries file income tax returns united states various state local foreign jurisdictions company subsidiaries routinely examined tax authorities jurisdictions december 31 2016 number income tax examinations foreign jurisdictions ongoing possible certain ongoing examinations may resolved within 12 months due potential resolution federal state foreign examinations expiration various statutes limitation reasonably possible company’s gross unrecognized income tax benefits balance may materially change within next 12 months due number jurisdictions issues involved uncertainty regarding timing settlements company unable time provide reasonable estimate change may occur within next 12 months although ongoing examinations various federal state jurisdictions 2013 2016 tax years generally remain subject examination united states applicable authorities company’s significant foreign jurisdictions primarily united kingdom france germany switzerland finland brazil 2011 2016 tax years generally remain subject examination respective tax authorities brazil company contesting disallowed deductions related amortization certain goodwill amounts note 12 7 indebtedness consisted following december 31 2016 2015 millions agco corporation notes consolidated financial statements continued december 31 2016 aggregate scheduled maturities longterm debt excluding current portion longterm debt follows millions cash payments interest approximately 588 million 630 million 684 million years ended december 31 2016 2015 2014 respectively 1056 senior term loan december 2014 company entered term loan european investment bank provided company ability borrow €2000 million €2000 million approximately 2110 million december 31 2016 funding received january 15 2015 maturity date january 15 2020 company ability prepay term loan maturity date interest payable term loan 1056 per annum payable quarterly arrears term loan contains covenants regarding among things incurrence indebtedness making certain payments well commitments regarding amounts future research development expenses europe subject acceleration events default company also fulfill financial covenants respect net leverage ratio interest coverage ratio credit facility company’s revolving credit term loan facility consists 8000 million multicurrency revolving credit facility €3120 million approximately 3292 million december 31 2016 term loan facility maturity date credit facility june 26 2020 credit facility agreement interest accrues amounts outstanding company’s option depending currency borrowed either 1 libor euribor plus margin ranging 10 175 based company’s leverage ratio 2 base rate equal higher administrative agent’s base lending rate applicable currency ii federal funds rate plus 05 iii onemonth libor loans denominated us dollars plus 10 plus margin ranging 00 025 based company’s leverage ratio fully described note 11 company entered interest rate swap 2015 convert term loan facility’s floating interest rate fixed interest rate 033 plus applicable margin remaining life term loan facility credit facility contains covenants restricting among things incurrence indebtedness making certain payments including dividends subject acceleration event default company also fulfill financial covenants respect total debt ebitda ratio interest coverage ratio december 31 2016 amounts outstanding company’s multicurrency revolving credit facility company ability borrow approximately 8000 million facility approximately €3120 million approximately 3292 million outstanding term loan facility december 31 2016 december 31 2015 amounts outstanding company’s multicurrency revolving credit facility company ability borrow approximately 8000 million facility approximately €3120 million approximately 3389 million outstanding term loan facility december 31 2015 company designated €3120 million 3292 million december 31 2016 term loan facility hedge net investment foreign operations offset foreign currency translation gains losses net investment see note 11 additional information net investment hedge senior term loans due 2021 april 2016 company entered two term loan agreements coöperatieve centrale raiffeisenboerenleenbank ba “rabobank” amount €1000 million €2000 million respectively aggregate approximately 3165 million december 31 2016 €3000 million funding received april 26 2016 partially used repay company’s 4½ senior term loan rabobank due may 2 2016 company received net proceeds approximately €996 million approximately 1122 million debt issuance costs agco corporation notes consolidated financial statements continued provisions two term loans identical nature company ability prepay term loans maturity date april 26 2021 interest payable term loans per annum equal euribor plus margin ranging 10 175 based company’s net leverage ratio interest paid quarterly arrears term loan contains covenants restricting among things incurrence indebtedness making certain payments including dividends subject acceleration event default company also fulfill financial covenants respect total debt ebitda ratio interest coverage ratio 578 senior notes company’s 3066 million 578 senior notes due december 1 2021 constitute senior unsecured unsubordinated indebtedness interest payable notes semiannually arrears time prior september 1 2021 company may redeem notes whole part time option redemption price equal greater 100 principal amount plus accrued unpaid interest including additional interest excluding redemption date ii sum present values remaining scheduled payments principal interest exclusive interest accrued date redemption discounted redemption date treasury rate plus 05 plus accrued unpaid interest including additional interest beginning september 1 2021 company may redeem notes whole part time option redemption price equal 100 principal amount plus accrued unpaid interest including additional interest fully described note 11 company entered interest rate swap 2015 convert senior notes’ fixed interest rate floating interest rate remaining life senior notes second quarter 2016 company terminated interest rate swap result company recorded deferred gain approximately 73 million associated termination amortized reduction “interest expense net” remaining term 578 senior notes december 1 2021 december 31 2016 unamortized portion deferred gain approximately 66 million amortization 2016 approximately 07 million senior term loans due 2019 2026 october 2016 company borrowed aggregate amount €3750 million approximately 3956 million december 31 2016 group seven related term loan agreements company received net proceeds approximately €3732 million approximately 4095 million october 19 2016 debt issuance costs used repay borrowings made company’s revolving credit facility provisions term loan agreements identical nature exception interest rate terms maturities company ability prepay term loans maturity dates interest payable term loans arrears either semiannually annually provided millions term loans contain covenants restricting among things incurrence indebtedness making certain payments including dividends subject acceleration event default agco corporation notes consolidated financial statements continued former 4 12 senior term loan april 26 2016 company repaid €2000 million approximately 2254 million 412 senior term loan rabobank due may 2 2016 company ability prepay term loan maturity date interest payable term loan 412 per annum payable quarterly arrears former convertible senior subordinated notes first six months 2014 holders company’s former 114 convertible senior subordinated notes converted company repurchased approximately 497 million aggregate principal amount notes may 2014 company announced election redeem remaining 1515 million balance notes redemption date june 20 2014 substantially holders notes elected convert remaining notes prior redemption date redemptions settled july 2014 year ended december 31 2014 company issued total 1437465 shares common stock associated 810 million excess conversion value notes converted company reflected repayment principal notes totaling 2012 million within “repurchase conversion convertible senior subordinated notes” within company’s consolidated statements cash flows year ended december 31 2014 interest expense recognized year ended december 31 2014 relating contractual interest coupon company’s former 114 convertible senior subordinated notes approximately 09 million standby letters credit similar instruments company arrangements various banks issue standby letters credit similar instruments guarantee company’s obligations purchase sale certain inventories potential claims exposure insurance coverage december 31 2016 2015 outstanding letters credit totaled 171 million 175 million respectively 8 employee benefit plans company sponsors defined benefit pension plans covering certain employees principally united kingdom united states germany switzerland finland france norway argentina company also provides certain postretirement health care life insurance benefits certain employees principally united states brazil company also maintains executive nonqualified pension plan “enpp” provides certain usbased senior executives retirement income period 15 years lifetime annuity certain requirements met benefits enpp vest participant attained age 50 least ten years service five years include years participation enpp payable participant reaches age 65 lifetime annuity benefit generally available participants retire reaching normal retirement age otherwise vested benefit enpp unfunded nonqualified defined benefit pension plan agco corporation notes consolidated financial statements continued net annual pension costs years ended december 31 2016 2015 2014 company’s defined benefit pension plans enpp set forth millions 1 rounding may impact summation amounts weighted average assumptions used determine net annual pension costs company’s defined benefit pension plans enpp years ended december 31 2016 2015 2014 follows 1 applicable us funded qualified plans 2 applicable us unfunded nonqualified plan net annual postretirement benefit costs weighted average discount rate used determine years ended december 31 2016 2015 2014 set forth millions except percentages agco corporation notes consolidated financial statements continued following tables set forth reconciliations changes benefit obligation plan assets funded status december 31 2016 2015 millions agco corporation notes consolidated financial statements continued following table summarizes activity accumulated comprehensive loss related company’s enpp defined pension postretirement benefit plans years ended december 31 2016 2015 millions december 31 2016 company’s accumulated comprehensive loss included net actuarial losses approximately 3847 million net prior service cost approximately 134 million related company’s defined benefit pension plans enpp estimated net actuarial losses net prior service cost defined benefit pension plans enpp expected amortized company’s accumulated comprehensive loss year ended december 31 2017 approximately 120 million 12 million respectively december 31 2016 company’s accumulated comprehensive loss included net actuarial losses approximately 20 million net prior service cost approximately 34 million related company’s us brazilian postretirement health care benefit plans estimated net actuarial losses net prior service cost postretirement health care benefit plans expected amortized company’s accumulated comprehensive loss year ended december 31 2017 less 01 million approximately 02 million respectively aggregate projected benefit obligation accumulated benefit obligation fair value plan assets defined benefit pension plans enpp postretirement plans accumulated benefit obligations excess plan assets 8776 million 8238 million 6009 million respectively december 31 2016 8692 million 8169 million 6279 million respectively december 31 2015 projected benefit obligation accumulated benefit obligation fair value plan assets company’s usbased defined benefit pension plans enpp accumulated benefit obligations excess plan assets 1181 million 1019 million 362 million respectively december 31 2016 1122 million 984 million 381 million respectively december 31 2015 company’s accumulated comprehensive loss december 31 2016 reflects reduction equity 4035 million net taxes 998 million primarily related company’s uk pension plan projected benefit obligation exceeded plan assets addition company’s accumulated comprehensive loss december 31 2016 reflects reduction equity approximately 13 million net taxes 05 million related company’s gima joint venture amount represents 50 gima’s unrecognized net actuarial losses unrecognized prior service cost associated pension plan addition gima recognized net actuarial loss due settlements 2016 approximately 01 million company’s accumulated comprehensive loss december 31 2015 reflected reduction equity 3352 million net taxes 871 million primarily related company’s uk pension plan projected benefit obligation exceeded plan assets addition company’s accumulated comprehensive loss december 31 2015 reflected reduction equity approximately 14 million net taxes 05 million related company’s gima joint venture amount represented 50 gima’s unrecognized net actuarial losses unrecognized prior service cost associated pension plan addition gima recognized net actuarial loss due settlements 2015 approximately 01 million agco corporation notes consolidated financial statements continued weighted average assumptions used determine benefit obligation company’s defined benefit pension plans enpp december 31 2016 2015 follows 1 applicable us unfunded nonqualified plan weighted average discount rate used determine benefit obligation company’s postretirement benefit plans years ended december 31 2016 2015 53 51 respectively years ended december 31 2016 2015 2014 company used globally consistent methodology set discount rate countries largest benefit obligations exist united states united kingdom euro zone company constructed hypothetical bond portfolio highquality corporate bonds applied cash flows company’s benefit plans bond yields derive discount rate bond portfolio planspecific cash flows vary country methodology portfolio constructed consistent united states bond portfolio large enough result taking “settlement approach” derive discount rate highquality corporate bonds assumed purchased resulting coupon payments maturities used satisfy company’s us pension plans’ projected benefit payments united kingdom euro zone discount rate derived using “yield curve approach” individual spot rate zero coupon bond yield future annual period developed discount future benefit payment thereby determine present value future payments settlement yield curve approaches discount rate set equal single discount rate produces present value future payments effective january 1 2016 company adopted spot yield curve determine discount rate united kingdom measure plan’s service cost interest cost year ended december 31 2016 previously company utilized single weightedaverage discount rate derived “yield curve approach” measure plan’s benefit obligation service cost interest cost going forward company elected utilize approach discounts individual expected service cost interest cost cash flows using applicable spot rates derived yield curve projected cash flow period measuring expected us postretirement benefit obligation december 31 2016 company assumed 70 health care cost trend rate 2017 decreasing 50 2025 measuring expected us postretirement benefit obligation december 31 2015 company assumed 725 health care cost trend rate 2016 decreasing 50 2025 measuring brazilian postretirement benefit plan obligation december 31 2016 company assumed 118 health care cost trend rate 2017 decreasing 61 2028 measuring brazilian postretirement benefit plan obligation december 31 2015 company assumed 126 health care cost trend rate 2016 decreasing 68 2026 changing assumed health care cost trend rates one percentage point year holding assumptions constant would following effect service interest cost 2016 accumulated postretirement benefit obligation us brazilian postretirement plans december 31 2016 millions company currently estimates minimum contributions benefit payments usbased underfunded defined benefit pension plans unfunded enpp 2017 aggregate approximately 22 million company currently estimates benefit payments 2017 usbased postretirement health care life insurance benefit plans aggregate approximately 15 million benefit payments 2017 brazilian postretirement health care benefit plans aggregate approximately less 01 million company currently estimates minimum contributions agco corporation notes consolidated financial statements continued underfunded plans benefit payments unfunded plans 2017 nonusbased defined benefit pension plans aggregate approximately 266 million approximately 190 million relates uk pension plan 2016 approximately 479 million benefit payments made related company’s defined benefit pension plans enpp december 31 2016 aggregate expected benefit payments company’s defined benefit pension plans enpp follows millions 2016 approximately 12 million benefit payments made related company’s us brazilian postretirement benefit plans december 31 2016 aggregate expected benefit payments company’s us brazilian postretirement benefit plans follows millions investment strategy concentration risk weighted average asset allocation company’s us pension benefit plans december 31 2016 2015 follows weighted average asset allocation company’s nonus pension benefit plans december 31 2016 2015 follows agco corporation notes consolidated financial statements continued company categorizes pension plan assets one three levels based assumptions used valuing asset see note 13 discussion fair value hierarchy per guidance asc 820 “fair value measurements” “asc 820” company’s valuation techniques designed maximize use observable inputs minimize use unobservable inputs company uses following valuation methodologies measure fair value pension plan assets equity securities equity securities valued basis closing price per unit business day reported applicable exchange fixed income fixed income securities valued using closing prices active market fixed income investment trades fixed income funds valued using net asset value fund based fair value underlying securities cash investments primarily consist shortterm investment funds valued using net asset value alternative investments reported fair value determined general partner alternative investment “market approach” valuation technique used value investments funds typically openend funds generally offer subscription redemption options investors frequency subscriptions redemptions dictated fund’s governing documents amount liquidity provided investors particular fund generally consistent liquidity risk associated underlying portfolio ie liquid investments portfolio greater liquidity provided investors liquidity individual funds varies based various factors may include “gates” “holdbacks” “side pockets” imposed manager fund well redemption fees may also apply investments funds typically valued utilizing net asset valuations provided underlying investment managers general partners administrators funds consider subscription redemption rights including restrictions disposition interest determination fair value insurance contracts insurance contracts valued using current prevailing interest rates fair value company’s pension assets december 31 2016 follows millions 1 31 “fixed income” securities foreign securities 25 government treasuries 19 investmentgrade corporate bonds 13 highyield securities 12 various fixed income securities 2 32 “alternative investments” relative value funds 27 longshort equity funds 23 eventdriven funds 12 distributed hedged nonhedged funds 6 credit funds 3 “miscellaneous funds” comprised insurance contracts finland norway switzerland 4 certain investments measured fair value using net asset value per share equivalent practical expedient categorized fair value hierarchy agco corporation notes consolidated financial statements continued following reconciliation level 3 assets december 31 2016 millions fair value company’s pension assets december 31 2015 follows millions 1 45 “fixed income” securities investmentgrade corporate bonds 32 “fixed income” securities government treasuries 23 various fixed income securities 2 34 “alternative investments” longshort equity funds 26 eventdriven funds 13 relative value funds 13 credit funds 12 distributed hedged nonhedged funds 2 multistrategy funds 3 “miscellaneous funds” comprised insurance contracts finland norway switzerland 4 certain investments measured fair value using net asset value per share equivalent practical expedient categorized fair value hierarchy agco corporation notes consolidated financial statements continued following reconciliation level 3 assets december 31 2015 millions taxqualified pension fund investments united states held agco corporation master pension trust company’s global pension fund strategy diversify investments across broad categories equity fixed income securities appropriate use alternative investment categories minimize risk volatility primary investment objective company’s pension plans secure participant retirement benefits key objective pension plans’ financial management promote stability extent appropriate growth funded status investment strategy plans’ portfolio assets balances requirement generate returns need control risk asset mix recognized primary mechanism influence reward risk structure pension fund investments effort accomplish plans’ funding objectives overall investment strategy usbased pension plans achieve mix approximately 15 assets nearterm benefit payments 85 longerterm growth overall us pension funds invest broad diversification asset types company’s us target allocation retirement fund investments 30 large smallcap domestic equity securities 12 international equity securities 44 broad fixed income securities 14 alternative investments company noted long periods mix investments would achieve average return approximately 67 arriving choice expected return assumption 60 us plans year ended december 31 2017 company tempered historical indicator lower expectations returns changes investments future well administrative costs plans overall investment strategy nonus based pension plans achieve mix approximately 30 assets nearterm benefit payments 70 longerterm growth overall nonus pension funds invest broad diversification asset types company’s nonus target allocation retirement fund investments december 31 2016 40 equity securities 55 broad fixed income investments 5 alternative investments majority company’s nonus pension fund investments related company’s pension plan united kingdom company noted long periods mix investments would achieve average return approximately 63 arriving choice expected return assumption 60 ukbased plans year ended december 31 2017 company tempered historical indicator lower expectations returns equity investment future well administrative costs plans equity securities primarily include investments largecap smallcap companies located across globe fixed income securities include corporate bonds companies diversified industries mortgagebacked securities agency mortgages assetbacked securities government securities alternative assets include investments hedge fund funds follow diversified investment strategies date company invested pension funds stock intention future within asset class careful consideration given balancing portfolio among industry sectors geographies interest rate sensitivity dependence economic growth currency factors affecting investment returns assets managed professional investment firms bound precise mandates measured specific benchmarks among asset managers consideration given among others balancing security concentration issuer concentration investment style reliance particular active investment strategies company participates small number multiemployer plans netherlands sweden company assessed determined none multiemployer plans participates individually aggregate significant company’s consolidated financial statements company expect incur withdrawal liability expect significantly increase contributions remainder multiemployer plans’ contract periods agco corporation notes consolidated financial statements continued company maintains separate defined contribution plans covering certain employees primarily united states united kingdom brazil plans company contributes specified percentage eligible employee’s compensation company contributed approximately 116 million 120 million 133 million years ended december 31 2016 2015 2014 respectively 9 stockholders’ equity common stock december 31 2016 company 150000000 authorized shares common stock par value 001 per share approximately 79465393 shares common stock outstanding approximately 3491118 shares reserved issuance company’s 2006 longterm incentive plan “2006 plan” note 10 share repurchase program 2012 2013 2014 2016 company’s board directors approved several share repurchase authorizations company permitted repurchase 13500 million shares common stock 2016 2015 2014 company repurchased 4413250 5541930 10066322 shares common stock respectively approximately 2125 million 2875 million 4997 million respectively either asr agreements financial institutions open market transactions shares received asr agreements retired upon receipt excess purchase price par value per share recorded “additional paidin capital” within company’s consolidated balance sheets december 31 2016 remaining amount authorized repurchased approximately 3314 million authorization 3000 million amount expire december 2019 remaining amount authorized expiration date dividends 2013 company’s board directors approved initiation quarterly cash dividends stockholders 010 per common share 2014 2015 2016 company’s board directors approved increase quarterly dividend 011 per common share beginning first quarter 2014 012 per common share beginning first quarter 2015 013 per common share beginning first quarter 2016 respectively january 26 2017 company’s board directors approved increase quarterly dividend 014 per common share beginning first quarter 2017 agco corporation notes consolidated financial statements continued following table sets forth changes accumulated comprehensive loss component net tax attributed agco corporation subsidiaries years ended december 31 2016 2015 millions following table sets forth reclassification adjustments accumulated comprehensive loss component attributed agco corporation subsidiaries years ended december 31 2016 2015 millions 1 gains losses included within consolidated statements operations years ended december 31 2016 2015 respectively 2 accumulated comprehensive loss components included computation net periodic pension postretirement benefit cost see note 8 company’s consolidated financial statements agco corporation notes consolidated financial statements continued 10 stock incentive plan 2006 plan 10000000 shares agco common stock may issued december 31 2016 10000000 shares reserved issuance 2006 plan approximately 3491118 shares available grant assuming maximum number shares earned related performance award grants discussed 2006 plan allows company direction board directors’ compensation committee make grants performance shares stock appreciation rights stock options restricted stock units restricted stock awards employees officers nonemployee directors company longterm incentive plan related performance awards company’s primary longterm incentive plan performance share plan provides awards shares company’s common stock based achieving financial targets earnings per share return invested capital operating margin selling general administrative expenses overhead levels determined company’s board directors stock awards 2006 plan earned performance period number shares earned determined based cumulative average results specified period depending measurement performance periods company’s primary longterm incentive plan consecutive overlapping threeyear cycles performance targets set beginning cycle primary longterm incentive plan provides participants earn 33 200 target awards depending actual performance achieved shares earned performance established minimum target awards earned 2006 plan paid shares common stock end performance period compensation expense associated awards amortized ratably vesting performance period based company’s projected assessment level performance achieved earned compensation expense recorded 2016 2015 2014 respect awards granted based upon stock price grant date weighted average grantdate fair value performance awards granted 2006 plan 2016 2015 2014 follows 2016 company granted 1351350 performance awards related varying performance periods awards granted assume maximum target level performance achieved performance award transactions 2016 follows presented company achieve maximum levels performance plan 2006 plan allows participant option forfeiting portion shares awarded lieu cash payment contributed participant’s tax withholding satisfy participant’s statutory minimum federal state employment taxes would payable time grant based level performance achieved december 31 2016 2015 shares earned vested issued december 31 2016 total compensation cost related unearned performance awards yet recognized assuming company’s current projected assessment level performance achieved earned approximately 379 million weighted average period expected recognized approximately two years estimate based current projected levels performance outstanding awards compensation cost yet recognized could higher lower based actual achieved levels performance agco corporation notes consolidated financial statements continued restricted stock units year ended december 31 2016 company granted 141202 restricted stock unit “rsu” awards entitle participant receive one share company’s common stock rsu granted vest onethird per year threeyear requisite service period dividends accrue unvested grants end vesting date within grant’s threeyear requisite service period january 2016 company amended rsu award agreement dividends accrue unvested grants requisite service period future rsu grants compensation expense associated awards amortized ratably requisite service period awards expected vest weighted average grantdate fair value rsus granted 2006 plan year ended december 31 2016 2015 4510 4403 respectively rsu transactions year ended december 31 2016 follows december 31 2016 total compensation cost related unvested rsus yet recognized approximately 64 million weighted average period expected recognized approximately two years stocksettled appreciation rights addition performance share plans certain executives key managers eligible receive grants ssars provide participant right receive aggregate appreciation stock price market price company’s common stock date grant payable shares company’s common stock participant may exercise ssars time grant vested later seven years date grant ssars vest ratably fouryear period date grant ssar award grants made certain executives key managers 2006 plan made base price equal price company’s common stock date grant company recorded stock compensation expense approximately 38 million 50 million 52 million associated ssar award grants 2016 2015 2014 respectively compensation expense associated awards amortized ratably vesting period company estimated fair value grants using blackscholes option pricing model weighted average grantdate fair value ssars granted 2006 plan weighted average assumptions blackscholes option model follows years ended december 31 2016 2015 2014 agco corporation notes consolidated financial statements continued ssar transactions year ended december 31 2016 follows december 31 2016 weighted average remaining contractual life ssars outstanding approximately four years december 31 2016 total compensation cost related unvested ssars yet recognized approximately 43 million weightedaverage period expected recognized approximately two years following table sets forth exercise price range number shares weighted average exercise price remaining contractual lives groups similar price december 31 2016 total fair value ssars vested 2016 approximately 44 million 722410 ssars vested december 31 2016 total intrinsic value outstanding exercisable ssars december 31 2016 115 million 42 million respectively total intrinsic value ssars exercised 2016 approximately 20 million excess tax benefit realized tax deductions united states related exercise ssars vesting rsu awards 2006 plan less 01 million year ended december 31 2016 excess tax benefit realized tax deductions united states related exercise ssars vesting rsu awards 2006 plan approximately 07 million year ended december 31 2015 shortfall tax benefit realized tax deductions united states related exercise ssars vesting performance awards 2006 plan approximately 02 million year ended december 31 2014 company realized insignificant tax benefit exercise ssars vesting performance awards vesting rsu awards exercise stock options certain foreign jurisdictions years ended december 31 2016 2015 2014 january 24 2017 company granted 267650 performance award shares subject company achieving future target levels performance 284500 ssars 109803 restricted stock units 2006 plan agco corporation notes consolidated financial statements continued director restricted stock grants pursuant 2006 plan nonemployee directors receive annual restricted stock grants company’s common stock restricted stock grants made company’s directors prior april 24 2014 restricted transferability period three years effective april 24 2014 shares granted date future grants made company’s directors restricted transferability period one year event director departs company’s board directors nontransferability period expires immediately plan allows director option forfeiting portion shares awarded lieu cash payment contributed participant’s tax withholding satisfy statutory minimum federal state employment taxes would payable time grant 2016 grant made april 28 2016 equated 20232 shares common stock 15395 shares common stock issued shares withheld taxes company recorded stock compensation expense approximately 11 million 2016 associated grants 11 derivative instruments hedging activities company significant manufacturing operations united states france germany finland brazil purchases portion tractors combines components thirdparty foreign suppliers primarily various european countries japan company also sells products 150 countries throughout world company’s significant transactional foreign currency exposures euro brazilian real canadian dollar relation united states dollar euro relation british pound company attempts manage transactional foreign exchange exposure hedging foreign currency cash flow forecasts commitments arising anticipated settlement receivables payables future purchases sales naturally offsetting currency positions occur company hedges certain exposures use foreign currency contracts company’s translation exposure resulting translating financial statements foreign subsidiaries united states dollars may partially hedged time company’s significant translation exposures euro british pound brazilian real relation united states dollar swiss franc relation euro practical translation impact reduced financing local operations local borrowings company uses floating rate fixed rate debt finance operations floating rate debt obligations expose company variability interest payments due changes euribor libor benchmark interest rates company believes prudent limit variability portion interest payments meet objective company periodically enters interest rate swaps manage interest rate risk associated company’s borrowings company designates interest rate contracts used convert interest rate exposure portion company’s debt portfolio floating rate fixed rate cash flow hedges contracts converting company’s interest rate exposure fixed rate floating rate designated fair value hedges company’s senior management establishes company’s foreign currency interest rate risk management policies reviewed periodically finance committee company’s board directors policies allow use derivative instruments hedge exposures movements foreign currency interest rates company’s policies prohibit use derivative instruments speculative purposes derivatives recognized company’s consolidated balance sheets fair value date derivative contract entered company designates derivative either 1 cash flow hedge forecasted transaction 2 fair value hedge recognized liability 3 hedge net investment foreign operation 4 nondesignated derivative instrument company formally documents relationships hedging instruments hedged items well risk management objectives strategy undertaking various hedge transactions company formally assesses hedge’s inception ongoing basis whether derivatives used hedging transactions highly effective offsetting changes fair values cash flow hedged items net investment hedges foreign operations determined derivative longer highly effective hedge accounting discontinued prospective basis company categorizes derivative assets liabilities one three levels based assumptions used valuing asset liability see note 13 discussion fair value hierarchy per guidance asc 820 agco corporation notes consolidated financial statements continued company’s valuation techniques designed maximize use observable inputs minimize use unobservable inputs counterparty risk company regularly monitors counterparty risk credit ratings counterparties derivative instruments company believes exposures appropriately diversified across counterparties creditworthy financial institutions company perceives risk counterparty company would cease business counterparty negative impacts company nonperformance counterparties derivative transactions designated hedging instruments cash flow hedges foreign currency contracts company uses cash flow hedges minimize variability cash flows assets liabilities forecasted transactions caused fluctuations foreign currency exchange rates changes fair values cash flow hedges recorded accumulated comprehensive loss subsequently reclassified “cost goods sold” period sales purchases recognized amounts offset effect changes foreign currency rates related sale purchase transactions 2016 2015 2014 company designated certain foreign currency contracts cash flow hedges expected future sales purchases total notional value derivatives designated cash flow hedges 1112 million december 31 2016 outstanding foreign currency exchange cash flow hedge contracts december 31 2015 interest rate contract company monitors mix shortterm longterm debt regularly time company manages risk interest rate fluctuations use derivative financial instruments 2015 company entered interest rate swap instrument notional amount €3120 million approximately 3292 million december 31 2016 expiration date june 26 2020 swap designated accounted cash flow hedge swap agreement company pays fixed interest rate 033 plus applicable margin counterparty agreement pays floating interest rate based threemonth euribor changes fair value interest rate swap recorded accumulated comprehensive loss subsequently reclassified “interest expense net” rate adjustment period related interest company’s floating rate term loan facility affects earnings agco corporation notes consolidated financial statements continued following table summarizes aftertax impact changes fair value derivatives designated cash flow hedges accumulated comprehensive loss earnings 2016 2015 2014 millions 1 outstanding contracts december 31 2016 range maturity december 2017 ineffectiveness respect cash flow hedges years ended december 31 2016 2015 2014 following table summarizes activity accumulated comprehensive loss related derivatives held company years ended december 31 2016 2015 2014 millions fair value hedges company uses interest rate swap agreements designated fair value hedges minimize exposure changes fair value fixedrate debt results fluctuations benchmark interest rates 2015 company entered interest rate swap instrument notional amount 3000 million expiration date december 1 2021 designated fair value hedge company’s 578 senior notes note 7 interest rate swap company paid floating interest rate based threemonth libor plus spread 414 counterparty agreement paid fixed interest rate 578 gains losses related changes fair value interest rate swap recorded “interest expense net” offset changes fair value underlying hedged 578 senior notes agco corporation notes consolidated financial statements continued second quarter 2016 company terminated existing interest rate swap transaction received cash proceeds approximately 73 million resulting gain deferred amortized reduction “interest expense net” remaining term company’s 578 senior notes december 1 2021 refer note 7 information net investment hedges company uses nonderivative derivative instruments hedge portion net investment foreign operations adverse movements exchange rates instruments designated hedges net investments foreign operations changes fair value derivative instruments recorded foreign currency translation adjustments component accumulated comprehensive loss offset changes value net investments hedged net investment foreign operations sold substantially liquidates amounts recorded accumulated comprehensive loss reclassified earnings extent foreign currency denominated debt dedesignated net investment hedge relationship changes value foreign currency denominated debt recorded earnings maturity date 2015 company designated €3120 million approximately 3292 million december 31 2016 term loan facility maturity date june 26 2020 hedge net investment foreign operations offset foreign currency translation gains losses net investment following table summarizes notional values aftertax impact changes fair value instrument designated net investment hedge millions ineffectiveness respect net investment hedge years ended december 31 2016 2015 derivative transactions designated hedging instruments 2016 2015 2014 company entered foreign currency contracts economically hedge receivables payables company subsidiaries’ balance sheets denominated foreign currencies functional currency contracts classified nondesignated derivative instruments gains losses contracts substantially offset losses gains remeasurement underlying asset liability hedged immediately recognized earnings december 31 2016 2015 company outstanding foreign currency contracts notional amount approximately 15502 million 15339 million respectively following table summarizes impact changes fair value derivatives designated hedging instruments earnings millions agco corporation notes consolidated financial statements continued table sets forth fair value derivative instruments designated hedging instruments derivative instruments designated hedging instruments december 31 2016 millions table sets forth fair value derivative instruments designated hedging instruments derivative instruments designated hedging instruments december 31 2015 millions agco corporation notes consolidated financial statements continued 12 commitments contingencies future payments required company’s significant commitments excluding indebtedness december 31 2016 follows millions 1 estimated interest payments calculated assuming current interest rates minimum maturity periods specified debt agreements debt may repaid sooner later minimum maturity periods unaudited 2 unconditional purchase obligations exclude routine purchase orders entered normal course business 3 shortterm longterm obligations include estimates future minimum contribution requirements company’s us nonus defined benefit pension postretirement plans estimates based current legislation countries company operates within subject change shortterm longterm obligations also include income tax liabilities related uncertain income tax positions connected ongoing income tax audits various jurisdictions unaudited offbalance sheet arrangements guarantees company maintains remarketing agreement us finance joint venture whereby company obligated repurchase repossessed inventory market values company agreement us finance joint venture agco finance llc limits company’s purchase obligations arrangement 60 million aggregate per calendar year company believes losses might incurred resale equipment materially impact company’s financial position results operations due fair value underlying equipment december 31 2016 company guaranteed indebtedness owed third parties approximately 638 million primarily related dealer enduser financing equipment guarantees generally obligate company repay outstanding finance obligations owed financial institutions dealers end users default loans 2021 company believes credit risk associated guarantees material financial position results operations losses guarantees historically insignificant addition company generally would expect able recover significant portion amounts paid guarantees sale underlying financed farm equipment fair value equipment expected sufficient offset substantial portion amounts paid december 31 2016 company outstanding designated nondesignated foreign exchange contracts gross notional amount approximately 16614 million outstanding contracts december 31 2016 range maturity december 2017 note 11 company sells majority wholesale accounts receivable north america europe company’s us canadian european finance joint ventures portion wholesale accounts receivable finance joint venture brazil company also sells certain accounts receivable factoring arrangements financial institutions agco corporation notes consolidated financial statements continued around world company reviewed sale receivables determined facilities accounted offbalance sheet transactions total lease expense noncancelable operating leases 768 million 772 million 914 million years ended december 31 2016 2015 2014 respectively contingencies environmental protection agency victoria australia “epa” provided company’s australian subsidiary draft notice epa considering issuing subsidiary regarding remediation contamination property located suburb melbourne australia property owned divested subsidiary acquired company australian subsidiary process reviewing claims contained draft notice time company able determine whether subsidiary might liability nature cost possible required remediation august 2008 part routine audits brazilian taxing authorities disallowed deductions relating amortization certain goodwill recognized connection reorganization company’s brazilian operations related transfer certain assets company’s brazilian subsidiaries amount tax disallowance december 31 2016 including interest penalties approximately 1315 million brazilian reais approximately 404 million amount ultimately dispute greater interest penalties company advised legal tax advisors position respect deductions allowable tax laws brazil company contesting disallowance believes likely assessment interest penalties required paid however ultimate outcome determined brazilian tax appeal process complete could take several years company party various legal claims actions incidental business company believes none claims actions either individually aggregate material business financial statements whole including results operations financial condition 13 fair value financial instruments company categorizes assets liabilities one three levels based assumptions used valuing asset liability estimates fair value financial assets liabilities based fair value hierarchy prioritizes inputs valuation techniques used measure fair value observable inputs highest level reflect market data obtained independent sources unobservable inputs lowest level reflect internally developed market assumptions accordance guidance fair value measurements classified following hierarchy level 1 quoted prices active markets identical assets liabilities level 2 quoted prices similar assets liabilities active markets quoted prices identical similar assets liabilities markets active modelderived valuations significant inputs observable corroborated observable market data substantially full term assets liabilities level 3 modelderived valuations one significant inputs unobservable company categorizes pension plan assets one three levels fair value hierarchy see note 8 discussion valuation methods used measure fair value company’s pension plan assets company enters foreign currency interest rate swap contracts fair values company’s derivative instruments determined using discounted cash flow valuation models significant inputs used models readily available public markets derived observable market transactions therefore classified level 2 inputs used discounted cash flow valuation models derivative instruments include applicable exchange rates forward rates interest rates models used option contracts also use implied volatility see note 11 discussion company’s derivative instruments hedging activities agco corporation notes consolidated financial statements continued company’s trading securities december 31 2015 consisted foreignbased government bonds fair value company’s investments trading securities classified level 2 priced using nonbinding market prices corroborated observable market data assets liabilities measured fair value recurring basis december 31 2016 2015 summarized millions cash equivalents accounts notes receivable accounts payable valued carrying amounts company’s consolidated balance sheets due immediate shortterm maturity financial instruments carrying amounts longterm debt company’s 1056 senior term loan credit facility senior term loans due 2021 senior term loans due 2019 2026 note 7 approximate fair value based borrowing rates currently available company loans similar terms average maturities december 31 2016 estimated fair value company’s 578 senior notes note 7 based listed market value approximately 3185 million compared carrying value 3066 million 14 related party transactions rabobank financial institution based netherlands 51 owner company’s finance joint ventures located united states canada europe brazil argentina australia rabobank also principal agent participant company’s revolving credit facility note 7 majority assets company’s finance joint ventures represents finance receivables majority liabilities represents notes payable accrued interest various joint venture agreements rabobank affiliates provide financing joint venture companies primarily lines credit 2016 company made total approximately 28 million additional investments retail finance joint venture netherlands primarily related additional capital required result increased retail finance portfolios 2016 2015 2014 company make additional investments finance joint ventures company’s finance joint ventures provide retail financing wholesale financing dealers terms financing arrangements offered company’s dealers similar arrangements finance joint ventures provide unaffiliated third parties addition company transfers ongoing basis majority wholesale receivables north america europe brazil us canadian european brazilian finance joint ventures note 4 company maintains remarketing agreement us finance joint venture note 12 addition part sales incentives provided end users company may time subsidize interest rates retail financing provided finance joint ventures cost programs recognized time sale company’s dealers tractors farm equipment limited “tafe” company holds 2375 interest manufactures massey fergusonbranded equipment primarily india also supplies tractors components company sale markets mallika srinivasan chairman chief executive officer tafe currently member company’s board directors december 31 2016 tafe owned 12150152 shares company’s common stock company tafe parties agreement pursuant among things tafe agreed purchase excess 12170290 shares company’s common stock subject certain adjustments company agreed agco corporation notes consolidated financial statements continued annually nominate tafe representative board directors 2016 2015 2014 company purchased approximately 1285 million 1292 million 1490 million respectively tractors components tafe 2016 2015 2014 company sold approximately 11 million 22 million 21 million respectively parts tafe company received dividends tafe approximately 16 million 17 million 18 million 2016 2015 2014 respectively 2016 2015 2014 company paid approximately 31 million 35 million 38 million respectively ppg industries inc painting materials used company’s manufacturing processes company’s chairman president chief executive officer currently member board directors ppg industries inc 2016 2015 company paid approximately 20 million 06 million respectively praxair inc propane gas welding laser consumables used company’s manufacturing processes october 2015 company’s chairman president chief executive officer became member board directors praxair inc 15 segment reporting company’s four reportable segments distribute full range agricultural equipment related replacement parts company evaluates segment performance primarily based income loss operations sales segment based location thirdparty customer company’s selling general administrative expenses engineering expenses charged segment based region division expenses incurred result components income loss operations one segment may comparable another segment results years ended december 31 2016 2015 2014 based company’s current reportable segments follows millions agco corporation notes consolidated financial statements continued reconciliation segment information consolidated balances income operations total assets set forth millions net sales customer location years ended december 31 2016 2015 2014 follows millions net sales product years ended december 31 2016 2015 2014 follows millions agco corporation notes consolidated financial statements continued property plant equipment amortizable intangible assets country december 31 2016 2015 follows millions effective january 1 2017 company modified system reporting resulting changes internal management organizational structure changed reportable segments north america south america europeafricamiddle east asiapacific north america south america europemiddle east asiapacificafrica reportable segment includes regions africa asia australia new zealand europeafrica middle east segment longer includes certain markets africa effective january 1 2017 reportable segments reflective company’s chief operating decision maker reviews operating results purposes allocating resources assessing performance 16 subsequent event february 9 2017 company reached binding agreement two largest shareholders kepler weber sa “kepler weber” acquire 35 outstanding shares kepler weber brazilian manufacturer grain handling storage equipment acquisition subject brazilian competition authority approval company ultimately acquiring minimum 65 outstanding shares kepler weber customary conditions company intends launch tender offer acquire potentially common shares held shareholders price agreed way binding agreement 2200 reais per share approximately 703 per share valuing kepler weber 5789 million reais approximately 1850 million item 9item 8 financial statements supplementary data following consolidated financial statements agco subsidiaries years threeyear period ended december 31 2017 included item information heading “quarterly results” item 7 form 10k incorporated herein reference report independent registered public accounting firm board directors stockholders agco corporation opinion consolidated financial statements audited accompanying consolidated balance sheets agco corporation subsidiaries “company” december 31 2017 2016 related consolidated statements operations comprehensive income loss stockholders’ equity cash flows years threeyear period ended december 31 2017 related notes financial statement schedule collectively “consolidated financial statements” opinion consolidated financial statements present fairly material respects financial position company december 31 2017 2016 results operations cash flows years threeyear period ended december 31 2017 conformity us generally accepted accounting principles also audited accordance standards public company accounting oversight board united states “pcaob” company’s internal control financial reporting december 31 2017 based criteria established internal control integrated framework 2013 issued committee sponsoring organizations treadway commission report dated february 28 2018 expressed unqualified opinion effectiveness company’s internal control financial reporting basis opinion consolidated financial statements responsibility company’s management responsibility express opinion consolidated financial statements based audits public accounting firm registered pcaob required independent respect company accordance us federal securities laws applicable rules regulations securities exchange commission pcaob conducted audits accordance standards pcaob standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement whether due error fraud audits included performing procedures assess risks material misstatement consolidated financial statements whether due error fraud performing procedures respond risks procedures included examining test basis evidence regarding amounts disclosures consolidated financial statements audits also included evaluating accounting principles used significant estimates made management well evaluating overall presentation consolidated financial statements believe audits provide reasonable basis opinion kpmg llp served company’s auditor since 2002 atlanta georgia february 28 2018 agco corporation consolidated statements operations millions except per share data see accompanying notes consolidated financial statements agco corporation consolidated statements comprehensive income loss millions see accompanying notes consolidated financial statements agco corporation consolidated balance sheets millions except share amounts see accompanying notes consolidated financial statements agco corporation consolidated statements stockholders’ equity millions except share amounts see accompanying notes consolidated financial statements agco corporation consolidated statements cash flows millions see accompanying notes consolidated financial statements agco corporation notes consolidated financial statements 1 operations summary significant accounting policies business agco corporation subsidiaries “agco” “company” leading manufacturer distributor agricultural equipment related replacement parts throughout world company sells full range agricultural equipment including tractors combines hay tools sprayers forage equipment seeding tillage equipment implements grain storage protein production systems company’s products widely recognized agricultural equipment industry marketed number wellknown brand names including challenger® fendt® gsi® massey ferguson® valtra® company distributes products combination approximately 4200 independent dealers distributors well company utilizes associates licensees provide distribution channel products addition company provides retail financing finance joint ventures coöperatieve centrale raiffeisenboerenleenbank ba “rabobank” basis presentation consolidation company’s consolidated financial statements represent consolidation whollyowned companies majorityowned companies joint ventures company determined primary beneficiary company consolidates variable interest entity “vie” company determines primary beneficiary primary beneficiary vie party power direct activities significantly impact entity’s economic performance obligation absorb losses right receive benefits potentially could significant vie company also consolidates entities considered vies determined company controlling voting interest direct activities significantly impact joint venture entity company records investments affiliate companies using equity method accounting significant influence investments including representing ownership interest less 20 recorded cost significant intercompany balances transactions eliminated consolidated financial statements certain prior period amounts reclassified conform current period presentation use estimates preparation financial statements conformity us generally accepted accounting principles “gaap” requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ estimates made management primarily relate accounts notes receivable inventories deferred income tax valuation allowances uncertain tax positions goodwill identifiable intangible assets certain accrued liabilities principally relating reserves volume discounts sales incentives warranty obligations product liability workers’ compensation obligations pensions postretirement benefits revenue recognition sales equipment replacement parts recorded company title risks ownership transferred independent dealer distributor customer certain countries sales certain grain storage protein production systems company responsible construction installation may contingent upon customer acceptance recorded overtime basis using percentage completion method payment terms vary market product fixed payment schedules sales terms sale generally require purchase order confirmation accompany shipments title generally passes dealer distributor upon shipment specified delivery risk loss upon damage theft destruction equipment responsibility dealer distributor thirdparty carrier point stated shipping delivery term certain foreign countries company retains form title goods delivered dealers dealer makes payment company recover goods event customer default payment occurs laws foreign countries provide seller’s retention security interest goods manner established united states uniform commercial code right company retains respect title enabling recovery goods event customer default payment dealer distributor may return equipment replacement parts contract company force replacement parts may returned promotional annual return programs provisions returns programs made time sale based terms program historical returns experience company may agco corporation notes consolidated financial statements continued provide certain sales incentives dealers distributors provisions sales incentives made time sale existing incentive programs provisions revised event subsequent modification incentive program see “accounts notes receivable” discussion united states canada amounts due sales dealers immediately due upon retail sale underlying equipment dealer exception sales grain storage protein production systems discussed previously paid dealer united states canada installment payments required generally beginning interestfree period remaining outstanding equipment balance generally due within 12 months shipment delivery specified programs united states canada may allow interestfree periods due dates 24 months certain products interest generally charged outstanding balance six 12 months shipment delivery sales terms highly seasonal products provide payment due dates based specified date year regardless shipment date equipment sold dealers united states canada paid full average within 12 months shipment sales replacement parts generally payable within 30 days shipment terms larger seasonal stock orders generally requiring payment within six months shipment international markets equipment sales generally payable full within 30 180 days shipment delivery payment terms highly seasonal products specified due date year regardless shipment delivery date sales replacement parts generally payable within 30 90 days shipment terms larger seasonal stock orders generally payable within six months shipment certain markets time lag varies based timing level retail demand date company records sale dealer sells equipment retail customer sales grain storage protein production systems generally payable within 30 days shipment certain countries sales systems company responsible construction installation may contingent upon customer acceptance payment terms vary market product fixed payment schedules sales foreign currency translation financial statements company’s foreign subsidiaries translated united states currency accordance accounting standards codification “asc” 830 “foreign currency matters” assets liabilities translated united states dollars periodend exchange rates income expense items translated average rates exchange prevailing period translation adjustments included “accumulated comprehensive loss” stockholders’ equity within company’s consolidated balance sheets gains losses result foreign currency transactions included accompanying consolidated statements operations cash equivalents cash december 31 2017 2016 3170 million 3862 million respectively consisted primarily cash hand bank deposits company considers investments original maturity three months less cash equivalents cash equivalents december 31 2017 2016 507 million 435 million respectively consisted primarily money market deposits certificates deposits overnight investments accounts notes receivable accounts notes receivable arise sale equipment replacement parts independent dealers distributors customers payments due company’s terms sale generally range one 12 months contingent upon sale equipment dealer distributor retail customer normal circumstances payment terms extended equipment may returned certain regions respect equipment sales including united states canada company obligated repurchase equipment replacement parts upon cancellation dealer distributor contract obligations required national state provincial laws require company repurchase dealer distributor’s unsold inventory including inventories receivable already paid company offers various sales terms respect products sales markets outside united states canada company generally charge interest outstanding receivables dealers distributors sales certain dealers distributors united states canada interest charged prime lending rates agco corporation notes consolidated financial statements continued outstanding receivable balances interestfree periods interestfree periods vary product generally range one 12 months previously discussed limited circumstances company provides sales terms cases interestfree periods longer 12 months certain products typically specified programs predominantly united states canada interest charged period 24 months depending year sale dealer distributor’s ordering sales volume preceding year actual interestfree periods shorter described equipment receivable dealers distributors countries united states canada generally due immediately upon sale equipment retail customer receivables also paid prior terms specified sales agreements normal circumstances interest forgiven interestfree periods extended following summarizes geographic region percentage consolidated net sales amounts maximum interestfree periods presented millions company agreement permit transferring ongoing basis majority wholesale interestbearing noninterest bearing accounts receivable north america europe brazil us canadian european brazilian finance joint ventures qualified dealers may obtain additional financing company’s us canadian european brazilian finance joint ventures joint ventures’ discretion company provides various volume bonus sales incentive programs respect products sales incentive programs include reductions invoice prices reductions retail financing rates dealer commissions dealer incentive allowances cases incentive programs established communicated company’s dealers quarterly basis incentives paid either time cash settlement receivable generally time retail sale time retail financing time warranty registration subsequent time based dealer purchase volumes incentive programs productline specific generally vary dealer cost sales incentives associated dealer commissions dealer incentive allowances estimated based upon terms programs historical experience often based percentage sales price recorded later date related revenue recognized b date sales incentive offered related provisions accruals made product productline basis monitored adequacy revised least quarterly event subsequent modifications programs volume discounts estimated recognized based historical experience related reserves monitored adjusted based actual dealer purchase volumes dealer’s progress towards achieving specified cumulative target levels company records cost interest subsidy payments reduction retail financing rates later date related revenue recognized b date sales incentive offered estimates incentives based terms programs historical experience incentive programs recorded presented reduction revenue due fact company receive identifiable benefit exchange consideration provided united states canada reserves incentive programs related accounts receivable sold company’s us canadian finance joint ventures recorded “accounts receivable allowances” within company’s consolidated balance sheets due fact incentives paid reduction future cash settlement receivable globally reserves incentive programs paid cash credit memos case company’s volume discount programs well sales incentives associated accounts receivable sold finance joint ventures recorded within “accrued expenses” within company’s consolidated balance sheets agco corporation notes consolidated financial statements continued accounts notes receivable shown net allowances sales incentive discounts available dealers doubtful accounts cash flows related collection receivables reported within “cash flows operating activities” within company’s consolidated statements cash flows accounts notes receivable allowances december 31 2017 2016 follows millions united states canada sales incentives paid future cash settlements receivables credit memos company’s dealers reductions retail financing rates paid company’s finance joint ventures outside united states canada sales incentives paid cash credit memos company’s dealers reductions retail financing rates paid company’s finance joint ventures company transfers certain accounts receivable accounts receivable sales agreements finance joint ventures note 4 company records transfers sales accounts receivable considered surrendered control receivables provisions accounting standards update “asu” 200916 “transfers servicing topic 860 accounting transfers financial assets” cash payments made company’s finance joint ventures sales incentive discounts provided dealers related outstanding accounts receivables sold recorded within “accrued expenses” inventories valued lower cost market using firstin firstout method market current replacement cost purchase reproduction dependent type inventory cases market exceeds net realizable value ie estimated selling price less reasonably predictable costs completion disposal inventories stated net realizable value market considered less net realizable value reduced allowance approximately normal profit margin december 31 2017 2016 company recorded 1657 million 1372 million respectively adjustment surplus obsolete inventories adjustments reflected within “inventories net” within company’s consolidated balance sheets inventories net december 31 2017 2016 follows millions cash flows related sale inventories reported within “cash flows operating activities” within company’s consolidated statements cash flows agco corporation notes consolidated financial statements continued property plant equipment property plant equipment recorded cost less accumulated depreciation amortization depreciation provided straightline basis estimated useful lives ten 40 years buildings improvements three 15 years machinery equipment three ten years furniture fixtures expenditures maintenance repairs charged expense incurred property plant equipment net december 31 2017 2016 consisted following millions goodwill intangible assets longlived assets company tests goodwill impairment reporting unit level annually events circumstances indicate fair value reporting unit may carrying value reporting unit operating segment one level operating segment example component company combines aggregates two components operating segment single reporting unit components similar economic characteristics company’s reportable segments reporting units goodwill evaluated annually october 1 impairment using qualitative assessment quantitative twostep assessment company elects perform qualitative assessment determines fair value reporting units likely exceed carrying value evaluation necessary reporting units company performs twostep quantitative assessment first step requires company compare fair value reporting unit determined based combination discounted cash flow valuation approach market multiple valuation approach respective carrying value including goodwill fair value reporting unit exceeds carrying value goodwill considered impaired carrying value higher fair value reporting unit second step quantitative process required measure amount impairment second step quantitative assessment results calculation implied fair value reporting unit’s goodwill determined excess fair value reporting unit fair values assigned assets liabilities implied fair value goodwill less carrying value reporting unit’s goodwill difference recognized impairment loss company reviews longlived assets include intangible assets subject amortization impairment whenever events changes circumstances indicate carrying amount asset may recoverable evaluation recoverability performed level independent cash flows may attributed either asset group company determines carrying amount asset group recoverable based expected undiscounted future cash flows asset group impairment loss recorded equal excess carrying amounts estimated fair value longlived assets estimates future cash flows based many factors including current operating results expected market trends competitive influences company also evaluates amortization periods assigned intangible assets determine whether events changes circumstances warrant revised estimates useful lives assets disposed sale reported lower carrying amount fair value less estimated costs sell results company’s goodwill longlived assets impairment analyses conducted october 1 2017 2016 2015 indicated reduction carrying amount company’s goodwill longlived assets required agco corporation notes consolidated financial statements continued company’s accumulated goodwill impairment approximately 1805 million related impairment charges company recorded 2012 2006 pertaining chinese harvesting reporting unit former sprayer reporting unit respectively chinese harvesting business operates within asiapacificafrica geographical reportable segment former sprayer reporting unit operates within north american geographical reportable segment changes carrying amount goodwill years ended december 31 2017 2016 2015 summarized follows millions company amortizes certain acquired identifiable intangible assets primarily straightline basis estimated useful lives range three 50 years acquired intangible assets weighted average useful life follows years ended december 31 2017 2016 2015 acquired intangible asset amortization 570 million 512 million 427 million respectively company estimates amortization existing intangible assets 628 million 2018 2019 624 million 2020 598 million 2021 591 million 2022 company previously determined two trademarks indefinite useful life massey ferguson trademark existence since 1952 formed merger masseyharris established 1890’s ferguson established 1930’s massey ferguson brand currently sold approximately 120 countries worldwide making one widely sold tractor brands world company also identified valtra trademark indefinitelived asset valtra trademark existence since late 1990’s derivative valmet trademark existence since 1951 valmet name transitioned valtra name period time marketplace valtra brand currently sold 80 countries around world massey ferguson brand valtra brand primary product lines company’s business company plans use trademarks indefinite period time company plans continue make investments product development enhance value brands future legal regulatory contractual competitive economic factors company aware company believes would limit useful lives trademarks massey ferguson valtra trademark registrations renewed nominal cost countries company operates agco corporation notes consolidated financial statements continued changes carrying amount acquired intangible assets 2017 2016 summarized follows millions agco corporation notes consolidated financial statements continued accrued expenses accrued expenses december 31 2017 2016 consisted following millions warranty reserves warranty reserve activity years ended december 31 2017 2016 2015 consisted following millions company’s agricultural equipment products generally warranty defects materials workmanship period one four years company accrues future warranty costs time sale based historical warranty experience approximately 424 million 325 million warranty reserves included “other noncurrent liabilities” company’s consolidated balance sheets december 31 2017 2016 respectively insurance reserves company’s insurance programs coverage obtained significant liability limits well risks required insured law contract policy company selfinsure portion certain expected losses primarily related workers’ compensation comprehensive general liability product vehicle liability provisions losses expected programs recorded based company’s estimates aggregate liabilities claims incurred stock incentive plans stock compensation expense recorded follows millions refer note 10 additional information regarding company’s stock incentive plans 2017 2016 2015 agco corporation notes consolidated financial statements continued research development expenses research development expenses expensed incurred included engineering expenses company’s consolidated statements operations advertising costs company expenses advertising costs incurred cooperative advertising costs normally expensed time revenue earned advertising expenses years ended december 31 2017 2016 2015 totaled approximately 426 million 468 million 500 million respectively shipping handling expenses shipping handling fees charged customers included component net sales shipping handling costs included part cost goods sold exception certain handling costs included selling general administrative expenses amount 295 million 243 million 246 million years ended december 31 2017 2016 2015 respectively interest expense net interest expense net years ended december 31 2017 2016 2015 consisted following millions income taxes income taxes accounted asset liability method deferred tax assets liabilities recognized future tax consequences attributable differences financial statement carrying amounts existing assets liabilities respective tax bases operating loss tax credit carryforwards deferred tax assets liabilities measured using enacted tax rates expected apply taxable income years temporary differences expected recovered settled effect deferred tax assets liabilities change tax rates recognized income period includes enactment date refer note 6 additional information regarding company’s income taxes net income per common share basic net income per common share computed dividing net income weighted average number common shares outstanding period diluted net income per common share assumes exercise outstanding stocksettled stock appreciation rights “ssars” vesting performance share awards restricted stock units using treasury stock method effects assumptions dilutive agco corporation notes consolidated financial statements continued reconciliation net income attributable agco corporation subsidiaries weighted average common shares outstanding purposes calculating basic diluted net income per share years ended december 31 2017 2016 2015 follows millions except per share data ssars purchase 03 million shares 11 million shares 12 million shares company’s common stock outstanding years ended december 31 2017 2016 2015 respectively included calculation weighted average common equivalent shares outstanding antidilutive impact comprehensive income loss company reports comprehensive income loss defined total net income loss nonowner changes equity components thereof consolidated statements stockholders’ equity consolidated statements comprehensive income components comprehensive income loss related tax effects years ended december 31 2017 2016 2015 follows millions agco corporation notes consolidated financial statements continued derivatives company uses foreign currency contracts hedge foreign currency exposure certain receivables payables contracts periods consistent exposure hedged generally maturities one year less contracts classified nondesignated derivative instruments company also enters foreign currency contracts designated cash flow hedges expected sales company’s foreign currency contracts mitigate risk due exchange rate fluctuations gains losses contracts generally offset losses gains exposure hedged notional amounts foreign currency contracts represent amounts exchanged parties therefore measure company’s risk amounts exchanged calculated basis notional amounts terms contracts credit market risks contracts considered significant company’s interest expense part sensitive general level interest rates company manages exposure interest rate risk mix floating rate fixed rate debt time company enters interest rate swap agreements order manage company’s exposure interest rate fluctuations company uses nonderivative periodically derivative instruments hedge portion company’s net investment foreign operations adverse movements exchange rates company’s hedging policy prohibits entering foreign currency contracts speculative trading purposes refer note 11 additional information regarding company’s derivative instruments hedging activities recent accounting pronouncements august 2017 financial accounting standards board “fasb” issued accounting standards update “asu” 201712 “targeted improvements accounting hedging activities” “asu 201712” aligns entity’s risk management activities financial reporting hedge relationships changes designation measurement guidance qualifying hedging relationships presentation hedge results amendments include 1 ability apply hedge accounting risk components hedging relationships involving nonfinancial risk interest rate risk 2 new alternatives measuring hedged item fair value hedges interest rate risk 3 elimination requirement separately measure report hedge ineffectiveness 4 requirement present earnings effect hedging instrument income statement line earnings effect hedged item reported 5 less stringent requirements effectiveness testing hedge documentation applying critical terms match method asu 201707 effective annual periods beginning december 15 2018 interim periods within annual periods using prospective approach early adoption permitted interim annual period amendments applied existing hedging relationships date adoption company adopted standard effective january 1 2018 standard material impact company’s results operations financial condition cash flows march 2017 fasb issued asu 201707 “improving presentation net periodic pension cost net periodic postretirement benefit cost” “asu 201707” requires service cost component net periodic pension postretirement benefit cost included line item compensation costs arising services rendered employees components net periodic pension postretirement benefit cost required classified outside subtotal income operations components net periodic pension postretirement benefit cost service cost component eligible asset capitalization asu 201707 effective annual periods beginning december 15 2017 interim periods within annual periods using retrospective approach presentation service cost component components net periodic pension postretirement benefit cost statement agco corporation notes consolidated financial statements continued operations prospective approach capitalization service cost component net periodic pension postretirement benefit cost assets early adoption permitted interim annual period asu 201707 allows practical expedient applying retrospective presentation requirements company expects adopt asu 201707 january 1 2018 adoption material impact results operations financial condition cash flows january 2017 fasb issued asu 201704 “simplifying test goodwill impairment” “asu 201704” eliminates step 2 goodwill impairment test standard entity perform goodwill impairment test comparing fair value reporting unit carrying amount resulting impairment charge amount carrying amount exceeds reporting unit’s fair value impairment charge however exceed total amount goodwill allocated reporting unit impairment assessment asu 201704 applies reporting units including zero negative carrying amount asu 201704 effective annual periods beginning december 15 2019 interim periods within annual periods using prospective approach early adoption permitted interim annual goodwill impairment test performed testing dates january 1 2017 company expects adopt asu 201704 effective january 1 2020 apply standard impairment tests performed thereafter november 2016 fasb issued asu 201618 “restricted cash” “asu 201618” requires statement cash flows explain change period total cash equivalents amounts generally described restricted cash restricted cash equivalents result amounts generally described restricted cash restricted cash equivalents included cash equivalents reconciling beginningofperiod endofperiod total amounts shown statement cash flows asu 201618 effective annual periods beginning december 15 2017 interim period within annual periods using retrospective approach early adoption permitted interim annual period company expects adopt asu 201618 january 1 2018 adoption material impact cash flows october 2016 fasb issued asu 201616 “intraentity transfers assets inventory” “asu 201616” requires recognition income tax consequences intraentity transfer asset inventory transfer occurs consequently standard eliminates exception recognition current deferred income taxes intraentity asset transfer inventory asset sold outside party asu 201616 effective annual periods beginning december 15 2017 interim periods within annual periods using modified retrospective approach early adoption permitted interim annual period company expects adopt asu 201616 january 1 2018 adoption material impact results operations financial condition cash flows august 2016 fasb issued asu 201615 “classification certain cash receipts cash payments” “asu 201615” addresses eight specific cash flow issues objective reducing existing diversity practice standard effective annual periods beginning december 15 2017 interim periods within fiscal years asu 201615 may applied using retrospective approach prospective approach impracticable apply amendments retrospectively early adoption permitted interim annual period company adopted asu 201615 january 1 2017 adoption material impact cash flows june 2016 fasb issued asu 201613 “measurement credit losses financial instruments” “asu 201613” requires measurement recognition expected versus incurred credit losses financial assets held asu 201613 effective annual periods beginning december 15 2019 interim periods within annual periods standard likely impact results operations financial condition company’s finance joint ventures result likely impact company’s “investment affiliates” “equity net earnings affiliates” upon adoption company’s finance joint ventures currently evaluating standard’s impact results operations financial condition march 2016 fasb issued asu 201609 “improvements employee sharebased payment accounting” “asu 201609” asu 201609 simplifies several aspects accounting sharebased payment transactions including accounting forfeitures employer tax withholding sharebased compensation financial statement presentation excess tax benefits deficiencies addition standard clarifies statement cash flow presentation certain components sharebased awards company adopted asu 201609 january 1 2017 prospectively recognizing excess tax benefits tax deficiencies company’s consolidated statements operations awards vest settled applicable prospectively presenting excess tax benefits operating activity agco corporation notes consolidated financial statements continued rather financing activity company’s consolidated statements cash flows applicable addition company elected change accounting policy recognize actual forfeitures rather estimate number awards expected vest adjusting stock compensation expense period forfeitures occur change accounting policy adopted using modified retrospective approach cumulative effect adjustment “retained earnings” approximately 17 million january 1 2017 difference stock compensation expense previously recorded amount would recorded without assuming forfeitures february 2016 fasb issued asu 201602 “leases” “asu 201602” supersedes existing lease guidance current us gaap asu 201602 based principle entities recognize assets liabilities arising leases standard significantly change lessees’ recognition measurement presentation expenses cash flows previous accounting standard leases classified finance operating asu 201602’s primary change requirement entities recognize lease liability payments rightofuse asset representing right use leased asset term operating lease arrangement lessees permitted make accounting policy election recognize asset liability leases term 12 months less lessors’ accounting standard largely unchanged previous accounting standard addition asu 201602 expands disclosure requirements lease arrangements standard effective reporting periods beginning december 15 2018 interim periods within annual periods early adoption permitted upon adoption lessees lessors required recognize measure leases beginning earliest period presented using modified retrospective approach company currently evaluating impact adopting standard company’s results operations financial condition cash flows company elected early adopt standard year ended december 31 2017 may 2014 fasb issued asu 201409 “revenue contracts customers” “asu 201409” provides single comprehensive revenue recognition model contracts customers fivestep analysis determining revenue recognized new model require revenue recognition depict transfer promised goods services customers amount reflects consideration expected received exchange goods services additional disclosures also required enable users understand nature amount timing uncertainty revenue cash flows arising contracts customers including significant judgments changes judgments standard effective reporting periods beginning december 15 2017 early adoption permitted reporting periods beginning december 31 2016 entities option apply new standard full retrospective approach prior reporting period presented modified retrospective approach cumulative effect initial adoption application within consolidated statement stockholders’ equity company completed evaluation process including identification new controls processes designed meet requirements standard well assessed impact adoption consolidated financial statements disclosures new model company recognize contract asset value expected replacement parts returns effective january 1 2018 company adopted new standard modified retrospective approach resulting insignificant cumulative adjustment “retained earnings” disclosures included company’s consolidated financial statements related revenue recognition significantly expanded new standard 2018 2 acquisitions october 2 2017 company acquired hay forage division lely group “lely” approximately €805 million approximately 950 million net cash acquired approximately €60 million approximately 71 million lely acquisition manufacturing locations northern germany allow company expand product offering hay forage equipment including balers loader wagons harvesting tools acquisition financed company’s credit facility note 7 agco corporation notes consolidated financial statements continued preliminary fair values assets acquired liabilities assumed acquisition date presented following table millions acquired identifiable intangible assets lely date acquisition summarized following table millions results operations lely included company’s consolidated financial statements date acquisition associated goodwill included company’s europemiddle east geographical reportable segment proforma results related acquisition material september 1 2017 company acquired precision planting llc “precision planting” approximately 1981 million net cash acquired approximately 16 million precision planting headquartered tremont illinois leading manufacturer hightech planting equipment acquisition precision planting provided company opportunity expand precision farming technology offerings global basis acquisition financed company’s credit facility note 7 preliminary fair values assets acquired liabilities assumed acquisition date presented following table millions agco corporation notes consolidated financial statements continued acquired identifiable intangible assets precision planting date acquisition summarized following table millions results operations precision planting included company’s consolidated financial statements date acquisition associated tax deductible goodwill included company’s north america geographical reportable segment proforma results related acquisition material september 12 2016 company acquired cimbria holdings limited “cimbria” dkk 22349 million approximately 3375 million net cash acquired approximately dkk834 million approximately 126 million cimbria headquartered thisted denmark leading manufacturer products solutions processing handling storage seed grain acquisition financed company’s credit facility note 7 fair values assets acquired liabilities assumed acquisition date presented following table millions acquired identifiable intangible assets cimbria date acquisition summarized following table millions results operations cimbria included company’s consolidated financial statements date acquisition associated goodwill included company’s europemiddle east asiapacificafrica geographical reportable segments february 2 2016 company acquired tecno poultry equipment spa “tecno” approximately €587 million approximately 638 million company acquired cash approximately €176 million approximately 191 million associated acquisition tecno headquartered ronchi di villafranca italy manufactures supplies poultry housing related products including egg collection equipment trolley feeding systems acquisition financed company’s credit facility note 7 company allocated purchase price assets acquired agco corporation notes consolidated financial statements continued liabilities assumed based fair values acquisition date acquired net assets primarily consisted accounts receivable inventories accounts payable accrued expenses deferred revenue property plant equipment customer relationship technology trademark identifiable intangible assets company recorded approximately 275 million customer relationship technology trademark identifiable intangible assets approximately 204 million goodwill associated acquisition results operations tecno included company’s consolidated financial statements date acquisition associated goodwill included company’s europemiddle east north america geographical reportable segments acquired identifiable intangible assets tecno date acquisition summarized following table millions april 17 2015 company acquired farmer automatic gmbh co kg “farmer automatic” approximately 179 million net cash acquired approximately 01 million farmer automatic headquartered laer germany manufactures supplies poultry housing related products including egg production cages broiler production equipment acquisition financed available cash hand company allocated purchase price assets acquired liabilities assumed based fair values acquisition date acquired net assets primarily consisted accounts receivable inventories accounts payable accrued expenses property plant equipment customer relationship technology trademark identifiable intangible assets company recorded approximately 96 million identifiable intangible assets approximately 100 million goodwill associated acquisition results operations farmer automatic included company’s consolidated financial statements date acquisition associated goodwill included company’s europemiddle east north america asiapacificafrica geographical reportable segments acquired identifiable intangible assets farmer automatic date acquisition summarized following table millions agco corporation notes consolidated financial statements continued 3 restructuring expenses beginning 2014 2017 company announced initiated several actions rationalize employee headcount various manufacturing facilities various administrative offices located europe south america china united states order reduce costs response softening global market demand lower production volumes aggregate headcount reduction approximately 2750 employees 2014 2015 2016 2017 company recorded severance related costs associated rationalizations connection termination approximately 620 employees components restructuring expenses summarized follows millions 4 accounts receivable sales agreements december 31 2017 2016 company accounts receivable sales agreements permit sale ongoing basis majority wholesale receivables north america europe brazil us canadian european brazilian finance joint ventures december 31 2017 2016 cash received receivables sold us canadian european brazilian accounts receivable sales agreements approximately 13 billion 11 billion respectively terms accounts receivable sales agreements north america europe brazil company pays annual servicing fee related servicing receivables sold company also pays respective agco finance entities interest payment calculated based upon libor plus margin noninterest bearing accounts receivable outstanding sold sales agreements fees reflected within losses sales receivables included within “other expense net” company’s consolidated statements operations company service receivables sale occurs maintain direct retained interest receivables company reviewed accounting accounts receivable sales agreements determined facilities accounted offbalance sheet transactions losses sales receivables associated accounts receivable financing facilities discussed reflected within “other expense net” company’s consolidated statements operations approximately 392 million 195 million 188 million 2017 2016 2015 respectively agco corporation notes consolidated financial statements continued company’s finance joint ventures europe brazil australia also provide wholesale financing directly company’s dealers receivables associated arrangements without recourse company service receivables sale occurs maintain direct retained interest receivables december 31 2017 2016 finance joint ventures approximately 416 million 415 million respectively outstanding accounts receivable associated arrangements company reviewed accounting arrangements determined arrangements accounted offbalance sheet transactions addition company sells certain trade receivables factoring arrangements financial institutions around world company reviewed sale receivables determined arrangements accounted offbalance sheet transactions 5 investments affiliates investments affiliates december 31 2017 2016 follows millions company’s manufacturing joint ventures december 31 2017 consisted groupement international de mecanique agricole sa “gima” joint venture thirdparty manufacturer purchase design manufacture components agricultural equipment france joint ventures thirdparty manufacturers assemble tractors algeria engines south america joint ventures represent investments farm equipment manufacturers electronic software system manufacturer distributors licensees company’s equity net earnings affiliates years ended december 31 2017 2016 2015 follows millions summarized combined financial information company’s finance joint ventures december 31 2017 2016 years ended december 31 2017 2016 2015 follows millions majority assets company’s finance joint ventures represents finance receivables majority liabilities represents notes payable accrued interest various joint venture agreements rabobank affiliates provide financing joint venture companies note 14 agco corporation notes consolidated financial statements continued december 31 2017 2016 company’s receivables affiliates approximately 234 million 544 million respectively receivables affiliates reflected within “accounts notes receivable net” within company’s consolidated balance sheets portion company’s retained earnings balance represents undistributed retained earnings equity method investees approximately 3219 million 3126 million december 31 2017 2016 respectively 6 income taxes sources income taxes equity net earnings affiliates follows years ended december 31 2017 2016 2015 millions provision benefit income taxes location taxing jurisdiction years ended december 31 2017 2016 2015 consisted following millions december 22 2017 tax cuts jobs act “the 2017 tax act” enacted united states 2017 tax act includes number changes existing us tax laws impact company including reduction us corporate income tax rate 35 percent 21 percent tax years beginning december 31 2017 tax act also provides onetime transition tax certain foreign earnings acceleration depreciation certain assets placed service september 27 2017 well prospective changes beginning 2018 including repeal domestic manufacturing deduction capitalization research development expenditures additional limitations executive compensation limitations deductibility interest three months ended december 31 2017 company recorded provision approximately 420 million accordance staff accounting bulletin 118 provides sec staff guidance application asc 740 “income taxes” reporting period 2017 tax act enacted company’s consolidated financial statements reflect income tax effects 2017 tax act accounting asc 740 complete well provisional amounts specific income tax effects 2017 tax act accounting asc 740 incomplete reasonable estimate could determined company identify items income tax effects 2017 tax act completed reasonable estimate could determined december 31 2017 420 million provision included provisional income tax charge approximately 143 million related onetime transition tax associated mandatory deemed repatriation approximately 34 billion unremitted foreign earnings 420 million provision included company’s rate reconciliation “impacts related 2017 tax agco corporation notes consolidated financial statements continued act” net 496 million benefit associated 2017 us pretax losses netted determination us transition tax b 370 million benefit use certain tax credits offsets benefits reflected within “tax effect permanent differences” “change valuation allowance” respectively company’s provision also included provisional income tax charge approximately 104 million income tax consequences associated expected future repatriation certain underlying foreign earnings historically company considered indefinitely reinvested remaining balance company’s provision primarily related remeasurement certain net deferred tax assets using lower enacted us corporate tax rate well miscellaneous related impacts final impact tax reform legislation may differ materially due factors refinement company’s calculations changes interpretations assumptions company advisors made additional guidance may issued future us government actions company may take result tax reform legislation additional information analysis needed factors whether nonus entities subject withholding taxes reserve requirements projected working capital needs country earnings generated would result decision indefinitely reinvest portion earnings guidance interpretations released specifically respect transition tax future repatriation foreign earnings us company complete accounting revise provisional estimates required reconciliation income taxes computed united states federal statutory income tax rate 35 provision income taxes reflected company’s consolidated statements operations years ended december 31 2017 2016 2015 follows millions agco corporation notes consolidated financial statements continued significant components deferred tax assets liabilities december 31 2017 2016 follows millions company recorded net deferred tax liability 183 million 127 million december 31 2017 december 31 2016 respectively reflected preceding table company valuation allowance 819 million 1160 million december 31 2017 2016 respectively second quarter 2016 company established valuation allowance fully reserve net deferred tax assets united states decrease company’s valuation allowance 2017 primarily related release portion company’s valuation allowance china maintained deferred tax assets one chinese subsidiaries valuation allowance established likely portion deferred tax assets realized company assessed likelihood deferred tax assets would recovered estimated future taxable income available tax planning strategies determined adjustments valuation allowance appropriate making assessment available evidence considered including current economic climate well reasonable tax planning strategies company believes likely company realize remaining net deferred tax assets net valuation allowance future years company net operating loss carryforwards 2723 million december 31 2017 expiration dates follows 2018 265 million 2019 411 million 2020 482 million thereafter unlimited 1565 million net operating loss carryforwards 2723 million entirely tax jurisdictions outside united states company paid income taxes 1112 million 1062 million 976 million years ended december 31 2017 2016 2015 respectively december 31 2017 2016 company 1634 million 1399 million respectively unrecognized income tax benefits would affect company’s effective tax rate recognized december 31 2017 2016 agco corporation notes consolidated financial statements continued company approximately 618 million 470 million respectively accrued deferred taxes related uncertain income tax positions connected ongoing income tax audits various jurisdictions expects settle pay next 12 months company accrued approximately 46 million 34 million interest penalties related unrecognized tax benefits provision income taxes 2017 2016 respectively december 31 2017 2016 company accrued interest penalties related unrecognized tax benefits 230 million 164 million respectively reconciliation beginning ending balances total amounts gross unrecognized tax benefits years ended december 31 2017 2016 follows millions company subsidiaries file income tax returns united states various state local foreign jurisdictions company subsidiaries routinely examined tax authorities jurisdictions december 31 2017 number income tax examinations foreign jurisdictions ongoing possible certain ongoing examinations may resolved within 12 months due potential resolution federal state foreign examinations expiration various statutes limitation reasonably possible company’s gross unrecognized income tax benefits balance may materially change within next 12 months due number jurisdictions issues involved uncertainty regarding timing settlements company unable time provide reasonable estimate change may occur within next 12 months although ongoing examinations various federal state jurisdictions 2014 2017 tax years generally remain subject examination united states applicable authorities company’s significant foreign jurisdictions primarily united kingdom france germany switzerland finland brazil 2012 2017 tax years generally remain subject examination respective tax authorities brazil company contesting disallowed deductions related amortization certain goodwill amounts note 12 7 indebtedness consisted following december 31 2017 2016 millions agco corporation notes consolidated financial statements continued december 31 2017 aggregate scheduled maturities longterm debt excluding current portion longterm debt follows millions cash payments interest approximately 514 million 588 million 630 million years ended december 31 2017 2016 2015 respectively 1056 senior term loan december 2014 company entered term loan european investment bank company borrowed €2000 million approximately 2398 million december 31 2017 funding received january 15 2015 maturity date january 15 2020 company ability prepay term loan maturity date interest payable term loan 1056 per annum payable quarterly arrears term loan contains covenants regarding among things incurrence indebtedness making certain payments well commitments regarding amounts future research development expenses europe subject acceleration events default company also fulfill financial covenants respect net leverage ratio interest coverage ratio credit facility company’s revolving credit term loan facility consists 8000 million multicurrency revolving credit facility €3120 million approximately 3742 million december 31 2017 term loan facility maturity date credit facility june 26 2020 credit facility agreement interest accrues amounts outstanding company’s option depending currency borrowed either 1 libor euribor plus margin ranging 10 175 based company’s leverage ratio 2 base rate equal higher administrative agent’s base lending rate applicable currency ii federal funds rate plus 05 iii onemonth libor loans denominated us dollars plus 10 plus margin ranging 00 025 based company’s leverage ratio fully described note 11 company entered interest rate swap 2015 convert term loan facility’s floating interest rate fixed interest rate 033 plus applicable margin remaining life term loan facility credit facility contains covenants restricting among things incurrence indebtedness making certain payments including dividends subject acceleration event default company also fulfill financial covenants respect total debt ebitda ratio interest coverage ratio december 31 2017 company 4712 million outstanding borrowings credit facility ability borrow approximately 7030 million facility approximately 970 million outstanding multicurrency revolving credit facility €3120 million approximately 3742 million outstanding term loan facility december 31 2017 december 31 2016 amounts outstanding company’s multicurrency revolving credit facility company ability borrow approximately 8000 million facility approximately €3120 million approximately 3292 million outstanding term loan facility december 31 2016 2015 company designated €3120 million 3742 million december 31 2017 term loan facility hedge net investment foreign operations offset foreign currency translation gains losses net investment see note 11 additional information net investment hedge senior term loans due 2021 april 2016 company entered two term loan agreements coöperatieve centrale raiffeisenboerenleenbank ba “rabobank” amount €1000 million €2000 million respectively €3000 million funding received april 26 2016 partially used repay company’s former 4½ senior term loan rabobank due may 2 2016 company received net proceeds approximately €996 million approximately 1122 million debt issuance costs provisions two term loans identical nature december 2017 agco corporation notes consolidated financial statements continued company repaid €2000 million approximately 2398 million term loan company’s €1000 million approximately 1199 million december 31 2017 remains outstanding company ability prepay term loans maturity date april 26 2021 interest payable term loans per annum equal euribor plus margin ranging 10 175 based company’s net leverage ratio interest paid quarterly arrears remaining term loan contains covenants restricting among things incurrence indebtedness making certain payments including dividends subject acceleration event default company also fulfill financial covenants respect total debt ebitda ratio interest coverage ratio 578 senior notes company’s 3053 million 578 senior notes due december 1 2021 constitute senior unsecured unsubordinated indebtedness interest payable notes semiannually arrears time prior september 1 2021 company may redeem notes whole part time option redemption price equal greater 100 principal amount plus accrued unpaid interest including additional interest excluding redemption date ii sum present values remaining scheduled payments principal interest exclusive interest accrued date redemption discounted redemption date treasury rate plus 05 plus accrued unpaid interest including additional interest beginning september 1 2021 company may redeem notes whole part time option redemption price equal 100 principal amount plus accrued unpaid interest including additional interest fully described note 11 company entered interest rate swap 2015 convert senior notes’ fixed interest rate floating interest rate remaining life senior notes second quarter 2016 company terminated interest rate swap result company recorded deferred gain approximately 73 million associated termination amortized reduction “interest expense net” remaining term 578 senior notes december 1 2021 december 31 2017 2016 unamortized portion deferred gain approximately 53 million 66 million respectively amortization 2017 2016 approximately 13 million 07 million respectively senior term loans due 2019 2026 october 2016 company borrowed aggregate amount €3750 million approximately 4497 million december 31 2017 group seven related term loan agreements company received net proceeds approximately €3732 million approximately 4095 million october 19 2016 debt issuance costs used repay borrowings made company’s revolving credit facility provisions term loan agreements identical nature exception interest rate terms maturities company ability prepay term loans maturity dates interest payable term loans arrears either semiannually annually provided millions term loans contain covenants restricting among things incurrence indebtedness making certain payments including dividends subject acceleration event default agco corporation notes consolidated financial statements continued standby letters credit similar instruments company arrangements various banks issue standby letters credit similar instruments guarantee company’s obligations purchase sale certain inventories potential claims exposure insurance coverage december 31 2017 2016 outstanding letters credit totaled 152 million 171 million respectively 8 employee benefit plans company sponsors defined benefit pension plans covering certain employees principally united kingdom united states germany switzerland finland france norway argentina company also provides certain postretirement health care life insurance benefits certain employees principally united states brazil company also maintains executive nonqualified pension plan “enpp” provides certain usbased senior executives retirement income period 15 years lifetime annuity certain requirements met benefits enpp vest participant attained age 50 least ten years service five years include years participation enpp payable participant reaches age 65 lifetime annuity benefit generally available participants retire reaching normal retirement age otherwise vested benefit enpp unfunded nonqualified defined benefit pension plan net annual pension costs years ended december 31 2017 2016 2015 company’s defined benefit pension plans enpp set forth millions agco corporation notes consolidated financial statements continued weighted average assumptions used determine net annual pension costs company’s defined benefit pension plans enpp years ended december 31 2017 2016 2015 follows 1 applicable us funded qualified plans 2 applicable us unfunded nonqualified plan net annual postretirement benefit costs weighted average discount rate used determine years ended december 31 2017 2016 2015 set forth millions except percentages agco corporation notes consolidated financial statements continued following tables set forth reconciliations changes benefit obligation plan assets funded status december 31 2017 2016 millions agco corporation notes consolidated financial statements continued following table summarizes activity accumulated comprehensive loss related company’s enpp defined pension postretirement benefit plans years ended december 31 2017 2016 millions december 31 2017 company’s accumulated comprehensive loss included net actuarial losses approximately 3601 million net prior service cost approximately 122 million related company’s defined benefit pension plans enpp estimated net actuarial losses net prior service cost defined benefit pension plans enpp expected amortized company’s accumulated comprehensive loss year ended december 31 2018 approximately 122 million 12 million respectively december 31 2017 company’s accumulated comprehensive loss included net actuarial losses approximately 38 million net prior service cost approximately 32 million related company’s us brazilian postretirement health care benefit plans estimated net actuarial losses net prior service cost postretirement health care benefit plans expected amortized company’s accumulated comprehensive loss year ended december 31 2018 approximately 01 million 02 million respectively aggregate projected benefit obligation accumulated benefit obligation fair value plan assets defined benefit pension plans enpp postretirement plans accumulated benefit obligations excess plan assets 9460 million 8912 million 6908 million respectively december 31 2017 8776 million 8238 million 6009 million respectively december 31 2016 projected benefit obligation accumulated benefit obligation fair value plan assets company’s usbased defined benefit pension plans enpp accumulated benefit obligations excess plan assets 1296 million 1115 million 366 million respectively december 31 2017 1181 million 1019 million 362 million respectively december 31 2016 company’s accumulated comprehensive loss december 31 2017 reflects reduction equity 3793 million net taxes 950 million primarily related company’s uk pension plan projected benefit obligation exceeded plan assets addition company’s accumulated comprehensive loss december 31 2017 reflects reduction equity approximately 13 million net taxes 05 million related company’s gima joint venture amount represents 50 gima’s unrecognized net actuarial losses unrecognized prior service cost associated pension plan addition gima recognized net actuarial loss due settlements 2017 approximately 01 million company’s accumulated comprehensive loss december 31 2016 reflected reduction equity 4035 million net taxes 998 million primarily related company’s uk pension plan projected benefit obligation exceeded plan assets addition company’s accumulated comprehensive loss december 31 2016 reflected reduction equity approximately 13 million net taxes 05 million related company’s gima joint venture amount represented 50 gima’s unrecognized net actuarial losses unrecognized prior service cost associated pension plan addition gima recognized net actuarial loss due settlements 2016 approximately 01 million agco corporation notes consolidated financial statements continued company’s defined benefit pension obligation reflected based manner defined benefit plans administered obligation resulting liability calculated employing actuarial legal assumptions include limited future inflation return pension assets discount rates life expectancy potential salary increases also assumptions related manner individual benefit plan benefits calculated legal nature include limited member eligibility years service uniformity guaranteed minimum pension benefits member normal retirement ages men women event assumptions administration approach proven different company’s current interpretations approach could material increases company’s defined benefit pension obligation related amounts timing future contributions paid company weighted average assumptions used determine benefit obligation company’s defined benefit pension plans enpp december 31 2017 2016 follows 1 applicable us unfunded nonqualified plan weighted average discount rate used determine benefit obligation company’s postretirement benefit plans years ended december 31 2017 2016 49 53 respectively years ended december 31 2017 2016 2015 company used globally consistent methodology set discount rate countries largest benefit obligations exist united states united kingdom euro zone company constructed hypothetical bond portfolio highquality corporate bonds applied cash flows company’s benefit plans bond yields derive discount rate bond portfolio planspecific cash flows vary country methodology portfolio constructed consistent united states bond portfolio large enough result taking “settlement approach” derive discount rate highquality corporate bonds assumed purchased resulting coupon payments maturities used satisfy company’s us pension plans’ projected benefit payments united kingdom euro zone discount rate derived using “yield curve approach” individual spot rate zero coupon bond yield future annual period developed discount future benefit payment thereby determine present value future payments settlement yield curve approaches discount rate set equal single discount rate produces present value future payments effective january 1 2016 company adopted spot yield curve determine discount rate united kingdom measure plan’s service cost interest cost year ended december 31 2016 previously company utilized single weightedaverage discount rate derived “yield curve approach” measure plan’s benefit obligation service cost interest cost since 2016 company elected utilize approach discounts individual expected cash flows underlying benefit obligation service cost using applicable spot rates derived yield curve projected cash flow period agco corporation notes consolidated financial statements continued measuring expected us postretirement benefit obligation december 31 2017 company assumed 675 health care cost trend rate 2018 decreasing 50 2025 measuring expected us postretirement benefit obligation december 31 2016 company assumed 70 health care cost trend rate 2017 decreasing 50 2025 measuring brazilian postretirement benefit plan obligation december 31 2017 company assumed 110 health care cost trend rate 2018 decreasing 53 2029 measuring brazilian postretirement benefit plan obligation december 31 2016 company assumed 118 health care cost trend rate 2017 decreasing 61 2028 changing assumed health care cost trend rates one percentage point year holding assumptions constant would following effect service interest cost 2017 accumulated postretirement benefit obligation us brazilian postretirement plans december 31 2017 millions company currently estimates minimum contributions benefit payments usbased underfunded defined benefit pension plans unfunded enpp 2018 aggregate approximately 31 million company currently estimates benefit payments 2018 usbased postretirement health care life insurance benefit plans aggregate approximately 16 million benefit payments 2018 brazilian postretirement health care benefit plans aggregate approximately less 01 million company currently estimates minimum contributions underfunded plans benefit payments unfunded plans 2018 nonusbased defined benefit pension plans aggregate approximately 298 million approximately 206 million relates uk pension plan 2017 approximately 433 million benefit payments made related company’s defined benefit pension plans enpp december 31 2017 aggregate expected benefit payments company’s defined benefit pension plans enpp follows millions 2017 approximately 16 million benefit payments made related company’s us brazilian postretirement benefit plans december 31 2017 aggregate expected benefit payments company’s us brazilian postretirement benefit plans follows millions agco corporation notes consolidated financial statements continued investment strategy concentration risk weighted average asset allocation company’s us pension benefit plans december 31 2017 2016 follows weighted average asset allocation company’s nonus pension benefit plans december 31 2017 2016 follows company categorizes pension plan assets one three levels based assumptions used valuing asset see note 13 discussion fair value hierarchy per guidance asc 820 “fair value measurements” “asc 820” company’s valuation techniques designed maximize use observable inputs minimize use unobservable inputs company uses following valuation methodologies measure fair value pension plan assets equity securities equity securities valued basis closing price per unit business day reported applicable exchange fixed income fixed income securities valued using closing prices active market fixed income investment trades fixed income funds valued using net asset value fund based fair value underlying securities cash investments primarily consist shortterm investment funds valued using net asset value alternative investments reported fair value determined general partner alternative investment “market approach” valuation technique used value investments funds typically openend funds generally offer subscription redemption options investors frequency subscriptions redemptions dictated fund’s governing documents amount liquidity provided investors particular fund generally consistent liquidity risk associated underlying portfolio ie liquid investments portfolio greater liquidity provided investors liquidity individual funds varies based various factors may include “gates” “holdbacks” “side pockets” imposed manager fund well redemption fees may also apply investments funds typically valued utilizing net asset valuations provided underlying investment managers general partners administrators funds consider subscription redemption rights including restrictions disposition interest determination fair value insurance contracts insurance contracts valued using current prevailing interest rates agco corporation notes consolidated financial statements continued fair value company’s pension assets december 31 2017 follows millions 1 30 “fixed income” securities investmentgrade corporate bonds 29 government treasuries 15 foreign securities 13 highyield securities 13 various fixed income securities 2 39 “alternative investments” relative value funds 26 longshort equity funds 21 eventdriven funds 8 distributed hedged nonhedged funds 6 credit funds 3 “miscellaneous funds” comprised insurance contracts finland norway switzerland 4 certain investments measured fair value using net asset value per share equivalent practical expedient categorized fair value hierarchy following reconciliation level 3 assets december 31 2017 millions agco corporation notes consolidated financial statements continued fair value company’s pension assets december 31 2016 follows millions 1 31 “fixed income” securities foreign securities 25 government treasuries 19 investmentgrade corporate bonds 13 highyield securities 12 various fixed income securities 2 32 “alternative investments” relative value funds 27 longshort equity funds 23 eventdriven funds 12 distributed hedged nonhedged funds 6 credit funds 3 “miscellaneous funds” comprised insurance contracts finland norway switzerland 4 certain investments measured fair value using net asset value per share equivalent practical expedient categorized fair value hierarchy following reconciliation level 3 assets december 31 2016 millions taxqualified pension fund investments united states held agco corporation master pension trust company’s global pension fund strategy diversify investments across broad categories equity fixed income securities appropriate use alternative investment categories minimize risk volatility primary investment objective company’s pension plans secure participant retirement benefits key objective pension plans’ financial management promote stability extent appropriate growth funded status investment strategy plans’ portfolio assets balances requirement generate returns need control risk asset mix recognized primary mechanism influence reward risk structure pension fund investments effort accomplish plans’ funding objectives overall investment strategy usbased pension plans achieve mix approximately 15 assets nearterm benefit payments 85 longerterm agco corporation notes consolidated financial statements continued growth overall us pension funds invest broad diversification asset types company’s us target allocation retirement fund investments 30 large smallcap domestic equity securities 12 international equity securities 44 broad fixed income securities 14 alternative investments company noted long periods mix investments would achieve average return approximately 64 arriving choice expected return assumption 60 us plans year ended december 31 2018 company tempered historical indicator lower expectations returns changes investments future well administrative costs plans overall investment strategy nonus based pension plans achieve mix approximately 30 assets nearterm benefit payments 70 longerterm growth overall nonus pension funds invest broad diversification asset types company’s nonus target allocation retirement fund investments 40 equity securities 55 broad fixed income investments 5 alternative investments majority company’s nonus pension fund investments related company’s pension plan united kingdom company noted long periods mix investments would achieve average return approximately 60 arriving choice expected return assumption 55 ukbased plans year ended december 31 2018 company tempered historical indicator lower expectations returns changes investments future well administrative costs plans equity securities primarily include investments largecap smallcap companies located across globe fixed income securities include corporate bonds companies diversified industries mortgagebacked securities agency mortgages assetbacked securities government securities alternative assets include investments hedge fund funds follow diversified investment strategies date company invested pension funds stock intention future within asset class careful consideration given balancing portfolio among industry sectors geographies interest rate sensitivity dependence economic growth currency factors affecting investment returns assets managed professional investment firms bound precise mandates measured specific benchmarks among asset managers consideration given among others balancing security concentration issuer concentration investment style reliance particular active investment strategies company participates small number multiemployer plans netherlands sweden company assessed determined none multiemployer plans participates individually aggregate significant company’s consolidated financial statements company expect incur withdrawal liability expect significantly increase contributions remainder multiemployer plans’ contract periods company maintains separate defined contribution plans covering certain employees primarily united states united kingdom brazil plans company contributes specified percentage eligible employee’s compensation company contributed approximately 123 million 116 million 120 million years ended december 31 2017 2016 2015 respectively 9 stockholders’ equity common stock december 31 2017 company 150000000 authorized shares common stock par value 001 per share approximately 79553825 shares common stock outstanding approximately 4053539 shares reserved issuance company’s 2006 longterm incentive plan “2006 plan” note 10 share repurchase program 2012 2013 2014 2016 company’s board directors approved several share repurchase authorizations company permitted repurchase 13500 million shares common stock agco corporation notes consolidated financial statements continued 2016 2015 company repurchased 4413250 5541930 shares common stock respectively approximately 2125 million 2875 million respectively either accelerated share repurchase “asr” agreements financial institutions open market transactions 2017 company received approximately 70464 shares associated remaining balance shares delivered asr agreement completed november 2016 shares received asr agreements retired upon receipt excess purchase price par value per share recorded “additional paidin capital” within company’s consolidated balance sheets december 31 2017 remaining amount authorized repurchased approximately 3314 million authorization 3000 million amount expire december 2019 remaining amount authorized expiration date dividends company’s board directors declared company paid quarterly cash dividends 012 per common share beginning first quarter 2015 013 per common share beginning first quarter 2016 014 per common share beginning first quarter 2017 respectively january 25 2018 company’s board directors approved increase quarterly dividend 015 per common share beginning first quarter 2018 following table sets forth changes accumulated comprehensive loss component net tax attributed agco corporation subsidiaries years ended december 31 2017 2016 millions agco corporation notes consolidated financial statements continued following table sets forth reclassification adjustments accumulated comprehensive loss component attributed agco corporation subsidiaries years ended december 31 2017 2016 millions 1 gains losses included within consolidated statements operations years ended december 31 2017 2016 respectively 2 accumulated comprehensive loss components included computation net periodic pension postretirement benefit cost see note 8 company’s consolidated financial statements agco corporation notes consolidated financial statements continued 10 stock incentive plan 2006 plan 10000000 shares agco common stock may issued december 31 2017 10000000 shares reserved issuance 2006 plan approximately 4053539 shares available grant assuming maximum number shares earned related performance award grants discussed 2006 plan allows company direction board directors’ compensation committee make grants performance shares stock appreciation rights stock options restricted stock units restricted stock awards employees officers nonemployee directors company longterm incentive plan related performance awards company’s primary longterm incentive plan performance share plan provides awards shares company’s common stock based achieving financial targets earnings per share return invested capital operating margin selling general administrative expenses overhead levels determined company’s board directors stock awards 2006 plan earned performance period number shares earned determined based annual cumulative average results specified period depending measurement performance periods company’s primary longterm incentive plan consecutive overlapping threeyear cycles performance targets set beginning cycle primary longterm incentive plan provides participants earn 33 200 target awards depending actual performance achieved shares earned performance established minimum target awards earned 2006 plan paid shares common stock end performance period compensation expense associated awards amortized ratably vesting performance period based company’s projected assessment level performance achieved earned compensation expense recorded 2017 2016 2015 respect awards granted based upon stock price grant date weighted average grantdate fair value performance awards granted 2006 plan 2017 2016 2015 follows 2017 company granted 539598 performance awards related varying performance periods awards granted assume maximum target level performance achieved performance award transactions 2017 follows presented company achieve maximum levels performance plan 2006 plan allows participant option forfeiting portion shares awarded lieu cash payment contributed participant’s tax withholding satisfy participant’s statutory minimum federal state employment taxes would payable time grant based level performance achieved december 31 2017 2016 shares earned vested issued 2017 company recorded approximately 48 million accelerated stock compensation expense associated stock award declined company’s chief executive officer december 31 2017 total compensation cost related unearned performance awards yet recognized assuming company’s current projected assessment level performance achieved earned approximately 355 million weighted average period expected recognized approximately two agco corporation notes consolidated financial statements continued years estimate based current projected levels performance outstanding awards compensation cost yet recognized could higher lower based actual achieved levels performance restricted stock units year ended december 31 2017 company granted 111166 restricted stock unit “rsu” awards entitle participant receive one share company’s common stock rsu granted vest onethird per year threeyear requisite service period dividends grants prior january 2016 accrue unvested grants end vesting date within grant’s threeyear requisite service period subsequent grants accrue dividends compensation expense associated awards amortized ratably requisite service period awards expected vest weighted average grantdate fair value rsus granted 2006 plan year ended december 31 2017 2016 6199 4510 respectively rsu transactions year ended december 31 2017 follows december 31 2017 total compensation cost related unvested rsus yet recognized approximately 69 million weighted average period expected recognized approximately two years stocksettled appreciation rights addition performance share plans certain executives key managers eligible receive grants ssars provide participant right receive aggregate appreciation stock price market price company’s common stock date grant payable shares company’s common stock participant may exercise ssars time grant vested later seven years date grant ssars vest ratably fouryear period date grant ssar award grants made certain executives key managers 2006 plan made base price equal price company’s common stock date grant company recorded stock compensation expense approximately 30 million 38 million 50 million associated ssar award grants 2017 2016 2015 respectively compensation expense associated awards amortized ratably vesting period company estimated fair value grants using blackscholes option pricing model weighted average grantdate fair value ssars granted 2006 plan weighted average assumptions blackscholes option model follows years ended december 31 2017 2016 2015 agco corporation notes consolidated financial statements continued ssar transactions year ended december 31 2017 follows december 31 2017 weighted average remaining contractual life ssars outstanding approximately five years december 31 2017 total compensation cost related unvested ssars yet recognized approximately 43 million weightedaverage period expected recognized approximately two years following table sets forth exercise price range number shares weighted average exercise price remaining contractual lives groups similar price december 31 2017 total fair value ssars vested 2017 approximately 35 million 712150 ssars vested december 31 2017 total intrinsic value outstanding exercisable ssars december 31 2017 201 million 73 million respectively total intrinsic value ssars exercised 2017 approximately 108 million excess tax benefit realized tax deductions united states related exercise ssars vesting rsu awards 2006 plan approximately 01 million year ended december 31 2017 excess tax benefit realized tax deductions united states related exercise ssars vesting rsu awards 2006 plan less 01 million year ended december 31 2016 excess tax benefit realized tax deductions united states related exercise ssars vesting rsu awards 2006 plan approximately 07 million year ended december 31 2015 company realized insignificant tax benefit exercise ssars vesting performance awards vesting rsu awards certain foreign jurisdictions years ended december 31 2017 2016 2015 january 23 2018 company granted 220900 performance award shares subject company achieving future target levels performance 157700 ssars 111119 restricted stock units 2006 plan agco corporation notes consolidated financial statements continued director restricted stock grants pursuant 2006 plan nonemployee directors receive annual restricted stock grants company’s common stock restricted stock grants made company’s directors restricted transferability period one year event director departs company’s board directors nontransferability period expires immediately plan allows director option forfeiting portion shares awarded lieu cash payment contributed participant’s tax withholding satisfy statutory minimum federal state employment taxes would payable time grant 2017 grant made april 27 2017 equated 14968 shares common stock 12066 shares common stock issued shares withheld taxes company recorded stock compensation expense approximately 10 million 2017 associated grants 11 derivative instruments hedging activities company significant manufacturing operations united states france germany finland brazil purchases portion tractors combines components thirdparty foreign suppliers primarily various european countries japan company also sells products approximately 150 countries throughout world company’s significant transactional foreign currency exposures euro brazilian real canadian dollar relation united states dollar euro relation british pound company attempts manage transactional foreign exchange exposure hedging foreign currency cash flow forecasts commitments arising anticipated settlement receivables payables future purchases sales naturally offsetting currency positions occur company hedges certain exposures use foreign currency contracts company’s translation exposure resulting translating financial statements foreign subsidiaries united states dollars may partially hedged time company’s significant translation exposures euro british pound brazilian real relation united states dollar swiss franc relation euro practical translation impact reduced financing local operations local borrowings company uses floating rate fixed rate debt finance operations floating rate debt obligations expose company variability interest payments due changes euribor libor benchmark interest rates company believes prudent limit variability portion interest payments meet objective company periodically enters interest rate swaps manage interest rate risk associated company’s borrowings company designates interest rate contracts used convert interest rate exposure portion company’s debt portfolio floating rate fixed rate cash flow hedges contracts converting company’s interest rate exposure fixed rate floating rate designated fair value hedges company’s senior management establishes company’s foreign currency interest rate risk management policies reviewed periodically finance committee company’s board directors policies allow use derivative instruments hedge exposures movements foreign currency interest rates company’s policies prohibit use derivative instruments speculative purposes derivatives recognized company’s consolidated balance sheets fair value date derivative contract entered company designates derivative either 1 cash flow hedge forecasted transaction 2 fair value hedge recognized liability 3 hedge net investment foreign operation 4 nondesignated derivative instrument company formally documents relationships hedging instruments hedged items well risk management objectives strategy undertaking various hedge transactions company formally assesses hedge’s inception ongoing basis whether derivatives used hedging transactions highly effective offsetting changes fair values cash flow hedged items net investment hedges foreign operations determined derivative longer highly effective hedge accounting discontinued prospective basis company categorizes derivative assets liabilities one three levels based assumptions used valuing asset liability see note 13 discussion fair value hierarchy per guidance asc 820 company’s valuation techniques designed maximize use observable inputs minimize use unobservable inputs agco corporation notes consolidated financial statements continued counterparty risk company regularly monitors counterparty risk credit ratings counterparties derivative instruments company believes exposures appropriately diversified across counterparties creditworthy financial institutions company perceives risk counterparty company would cease business counterparty negative impacts company nonperformance counterparties derivative transactions designated hedging instruments cash flow hedges foreign currency contracts company uses cash flow hedges minimize variability cash flows assets liabilities forecasted transactions caused fluctuations foreign currency exchange rates changes fair values cash flow hedges recorded accumulated comprehensive loss subsequently reclassified “cost goods sold” period sales purchases recognized amounts offset effect changes foreign currency rates related sale purchase transactions 2017 2016 2015 company designated certain foreign currency contracts cash flow hedges expected future sales purchases total notional value derivatives designated cash flow hedges 968 million 1112 million december 31 2017 2016 respectively interest rate contract company monitors mix shortterm longterm debt regularly time company manages risk interest rate fluctuations use derivative financial instruments 2015 company entered interest rate swap instrument notional amount €3120 million approximately 3742 million december 31 2017 expiration date june 26 2020 swap designated accounted cash flow hedge swap agreement company pays fixed interest rate 033 plus applicable margin counterparty agreement pays floating interest rate based threemonth euribor changes fair value interest rate swap recorded accumulated comprehensive loss subsequently reclassified “interest expense net” rate adjustment period related interest company’s floating rate term loan facility affects earnings agco corporation notes consolidated financial statements continued following table summarizes aftertax impact changes fair value derivatives designated cash flow hedges accumulated comprehensive loss earnings 2017 2016 2015 millions 1 outstanding contracts december 31 2017 range maturity december 2018 ineffectiveness respect cash flow hedges years ended december 31 2017 2016 2015 following table summarizes activity accumulated comprehensive loss related derivatives held company years ended december 31 2017 2016 2015 millions agco corporation notes consolidated financial statements continued fair value hedges company uses interest rate swap agreements designated fair value hedges minimize exposure changes fair value fixedrate debt results fluctuations benchmark interest rates 2015 company entered interest rate swap instrument notional amount 3000 million expiration date december 1 2021 designated fair value hedge company’s 578 senior notes note 7 interest rate swap company paid floating interest rate based threemonth libor plus spread 414 counterparty agreement paid fixed interest rate 578 gains losses related changes fair value interest rate swap recorded “interest expense net” offset changes fair value underlying hedged 578 senior notes 2016 company terminated existing interest rate swap transaction received cash proceeds approximately 73 million resulting gain deferred amortized reduction “interest expense net” remaining term company’s 578 senior notes december 1 2021 refer note 7 information net investment hedges company uses nonderivative derivative instruments hedge portion net investment foreign operations adverse movements exchange rates instruments designated hedges net investments foreign operations changes fair value derivative instruments recorded foreign currency translation adjustments component accumulated comprehensive loss offset changes value net investments hedged net investment foreign operations sold substantially liquidates amounts recorded accumulated comprehensive loss reclassified earnings extent foreign currency denominated debt dedesignated net investment hedge relationship changes value foreign currency denominated debt recorded earnings maturity date 2015 company designated €3120 million approximately 3742 million december 31 2017 term loan facility maturity date june 26 2020 hedge net investment foreign operations offset foreign currency translation gains losses net investment following table summarizes notional values aftertax impact changes fair value instrument designated net investment hedge millions ineffectiveness respect net investment hedge years ended december 31 2017 2016 derivative transactions designated hedging instruments 2017 2016 2015 company entered foreign currency contracts economically hedge receivables payables company subsidiaries’ balance sheets denominated foreign currencies functional currency contracts classified nondesignated derivative instruments gains losses contracts substantially offset losses gains remeasurement underlying asset liability hedged immediately recognized earnings december 31 2017 2016 company outstanding foreign currency contracts notional amount approximately 17014 million 15502 million respectively agco corporation notes consolidated financial statements continued following table summarizes impact changes fair value derivatives designated hedging instruments earnings millions table sets forth fair value derivative instruments december 31 2017 millions table sets forth fair value derivative instruments december 31 2016 millions agco corporation notes consolidated financial statements continued 12 commitments contingencies future payments required company’s significant commitments excluding indebtedness december 31 2017 follows millions 1 estimated interest payments calculated assuming current interest rates minimum maturity periods specified debt agreements debt may repaid sooner later minimum maturity periods unaudited 2 unconditional purchase obligations exclude routine purchase orders entered normal course business 3 shortterm longterm obligations include estimates future minimum contribution requirements company’s us nonus defined benefit pension postretirement plans estimates based current legislation countries company operates within subject change shortterm longterm obligations also include income tax liabilities related uncertain income tax positions connected ongoing income tax audits various jurisdictions unaudited offbalance sheet arrangements guarantees company maintains remarketing agreement us finance joint venture whereby company obligated repurchase repossessed inventory market values company agreement us finance joint venture agco finance llc limits company’s purchase obligations arrangement 60 million aggregate per calendar year company believes losses might incurred resale equipment materially impact company’s financial position results operations due fair value underlying equipment december 31 2017 company outstanding guarantees indebtedness owed third parties approximately 1151 million primarily related dealer enduser financing equipment guarantees generally obligate company repay outstanding finance obligations owed financial institutions dealers end users default loans 2022 company believes credit risk associated guarantees material financial position results operations losses guarantees historically insignificant addition company generally would expect able recover significant portion amounts paid guarantees sale underlying financed farm equipment fair value equipment expected sufficient offset substantial portion amounts paid december 31 2017 company outstanding designated nondesignated foreign exchange contracts gross notional amount approximately 17982 million outstanding contracts december 31 2017 range maturity december 2018 note 11 company sells majority wholesale receivables north america europe brazil us canadian european brazilian finance joint ventures company also sells certain accounts receivable factoring agco corporation notes consolidated financial statements continued arrangements financial institutions around world company reviewed sale receivables determined facilities accounted offbalance sheet transactions total lease expense noncancelable operating leases 730 million 768 million 772 million years ended december 31 2017 2016 2015 respectively contingencies environmental protection agency victoria australia issued notice company’s australian subsidiary regarding remediation contamination property located suburb melbourne australia property owned divested subsidiary acquired company australian subsidiary correspondence environmental protection agency concerning notice time company able determine whether subsidiary might liability nature cost possible required remediation august 2008 part routine audits brazilian taxing authorities disallowed deductions relating amortization certain goodwill recognized connection reorganization company’s brazilian operations related transfer certain assets company’s brazilian subsidiaries amount tax disallowance december 31 2017 including interest penalties approximately 1315 million brazilian reais approximately 397 million amount ultimately dispute significantly greater interest penalties company advised legal tax advisors position respect deductions allowable tax laws brazil company contesting disallowance believes likely assessment interest penalties required paid however ultimate outcome determined brazilian tax appeal process complete could take several years company party various legal claims actions incidental business company believes none claims actions either individually aggregate material business financial statements whole including results operations financial condition 13 fair value financial instruments company categorizes assets liabilities one three levels based assumptions used valuing asset liability estimates fair value financial assets liabilities based fair value hierarchy prioritizes inputs valuation techniques used measure fair value observable inputs highest level reflect market data obtained independent sources unobservable inputs lowest level reflect internally developed market assumptions accordance guidance fair value measurements classified following hierarchy level 1 quoted prices active markets identical assets liabilities level 2 quoted prices similar assets liabilities active markets quoted prices identical similar assets liabilities markets active modelderived valuations significant inputs observable corroborated observable market data substantially full term assets liabilities level 3 modelderived valuations one significant inputs unobservable company categorizes pension plan assets one three levels fair value hierarchy see note 8 discussion valuation methods used measure fair value company’s pension plan assets company enters foreign currency interest rate swap contracts fair values company’s derivative instruments determined using discounted cash flow valuation models significant inputs used models readily available public markets derived observable market transactions therefore classified level 2 inputs used discounted cash flow valuation models derivative instruments include applicable exchange rates forward rates interest rates models used option contracts also use implied volatility see note 11 discussion company’s derivative instruments hedging activities agco corporation notes consolidated financial statements continued assets liabilities measured fair value recurring basis december 31 2017 2016 summarized millions cash equivalents accounts notes receivable accounts payable valued carrying amounts company’s consolidated balance sheets due immediate shortterm maturity financial instruments carrying amounts longterm debt company’s 1056 senior term loan credit facility senior term loans due 2021 senior term loans due 2019 2026 note 7 approximate fair value based borrowing rates currently available company loans similar terms average maturities december 31 2017 estimated fair value company’s 578 senior notes note 7 based listed market values approximately 3247 million compared carrying value 3053 million 14 related party transactions rabobank financial institution based netherlands 51 owner company’s finance joint ventures located united states canada europe brazil argentina australia rabobank also principal agent participant company’s revolving credit facility note 7 majority assets company’s finance joint ventures represents finance receivables majority liabilities represents notes payable accrued interest various joint venture agreements rabobank affiliates provide financing joint venture companies primarily lines credit 2017 2015 company make additional investments finance joint ventures 2016 company made total approximately 28 million additional investments retail finance joint venture netherlands primarily related additional capital required result increased retail finance portfolios 2016 2017 2016 company received dividends approximately 785 million 445 million respectively certain company’s finance joint ventures company’s finance joint ventures provide retail financing wholesale financing dealers terms financing arrangements offered company’s dealers similar arrangements finance joint ventures provide unaffiliated third parties addition company transfers ongoing basis majority wholesale receivables north america europe brazil us canadian european brazilian finance joint ventures note 4 company maintains remarketing agreement us finance joint venture note 12 addition part sales incentives provided end users company may time subsidize interest rates retail financing provided finance joint ventures cost programs recognized time sale company’s dealers tractors farm equipment limited “tafe” company holds 2375 interest manufactures sells massey fergusonbranded equipment primarily india also supplies tractors components company sale markets mallika srinivasan chairman chief executive officer tafe currently member company’s board directors december 31 2017 tafe owned 12150152 shares company’s common stock company tafe parties agreement pursuant among things tafe agreed purchase excess 12170290 shares company’s common stock subject certain adjustments company agreed annually nominate tafe representative board directors 2017 2016 2015 company purchased approximately 1020 million 1285 million 1292 million respectively tractors components tafe 2017 2016 2015 company sold approximately 12 million 11 million 22 million respectively parts tafe company received dividends tafe approximately 18 million 16 million 17 million 2017 2016 2015 respectively agco corporation notes consolidated financial statements continued 2017 2016 2015 company paid approximately 72 million 31 million 35 million respectively ppg industries inc painting materials used company’s manufacturing processes company’s chairman president chief executive officer currently member board directors ppg industries inc 2017 2016 2015 company paid approximately 15 million 20 million 06 million respectively praxair inc propane gas welding laser consumables used company’s manufacturing processes company’s chairman president chief executive officer currently member board directors praxair inc 15 segment reporting effective january 1 2017 company modified system reporting resulting changes internal management organizational structure changed reportable segments north america south america europeafricamiddle east asiapacific north america south america europemiddle east asiapacificafrica reportable segment includes regions africa asia australia new zealand europemiddle east segment longer includes certain markets africa effective january 1 2017 reportable segments reflective company’s chief operating decision maker reviews operating results purposes allocating resources assessing performance disclosures years ended december 31 2017 2016 2015 adjusted reflect change reportable segments company’s four reportable segments distribute full range agricultural equipment related replacement parts company evaluates segment performance primarily based income operations sales segment based location thirdparty customer company’s selling general administrative expenses engineering expenses charged segment based region division expenses incurred result components income operations one segment may comparable another segment results years ended december 31 2017 2016 2015 based company’s current reportable segments follows millions agco corporation notes consolidated financial statements continued reconciliation segment information consolidated balances income operations total assets set forth millions net sales customer location years ended december 31 2017 2016 2015 follows millions net sales product years ended december 31 2017 2016 2015 follows millions agco corporation notes consolidated financial statements continued property plant equipment amortizable intangible assets country december 31 2017 2016 follows millions item 9item 8 financial statements supplementary data following consolidated financial statements agco subsidiaries years threeyear period ended december 31 2020 included item information heading “quarterly results” item 7 form 10k incorporated herein reference report independent registered public accounting firm stockholders board directors agco corporation opinion consolidated financial statements audited accompanying consolidated balance sheets agco corporation subsidiaries company december 31 2020 2019 related consolidated statements operations comprehensive income loss stockholders’ equity cash flows years threeyear period ended december 31 2020 related notes financial statement schedule ii valuation qualifying accounts collectively consolidated financial statements opinion consolidated financial statements present fairly material respects financial position company december 31 2020 2019 results operations cash flows years threeyear period ended december 31 2020 conformity us generally accepted accounting principles also audited accordance standards public company accounting oversight board united states pcaob company’s internal control financial reporting december 31 2020 based criteria established internal control integrated framework 2013 issued committee sponsoring organizations treadway commission report dated february 26 2021 expressed unqualified opinion effectiveness company’s internal control financial reporting change accounting principle discussed note 1 consolidated financial statements company changed method accounting leases 2019 due adoption accounting standards codification 842 leases basis opinion consolidated financial statements responsibility company’s management responsibility express opinion consolidated financial statements based audits public accounting firm registered pcaob required independent respect company accordance us federal securities laws applicable rules regulations securities exchange commission pcaob conducted audits accordance standards pcaob standards require plan perform audit obtain reasonable assurance whether consolidated financial statements free material misstatement whether due error fraud audits included performing procedures assess risks material misstatement consolidated financial statements whether due error fraud performing procedures respond risks procedures included examining test basis evidence regarding amounts disclosures consolidated financial statements audits also included evaluating accounting principles used significant estimates made management well evaluating overall presentation consolidated financial statements believe audits provide reasonable basis opinion critical audit matters critical audit matters communicated matters arising current period audit consolidated financial statements communicated required communicated audit committee 1 relate accounts disclosures material consolidated financial statements 2 involved especially challenging subjective complex judgments communication critical audit matters alter way opinion consolidated financial statements taken whole communicating critical audit matters providing separate opinions critical audit matters accounts disclosures relate assessment reserve allowance volume discount sales incentive programs certain geographic regions discussed note 1 consolidated financial statements company provides various volume discount sales incentive programs respect products december 31 2020 company accrued volume discounts sales incentives approximately 5829 million allowance sales incentive discounts approximately 129 million sales incentive programs include reductions invoice prices reductions retail financial rates dealer commissions dealer incentive allowances volume discounts sales incentives recorded time sale reduction revenue using expected value method identified assessment reserve allowance volume discount sales incentive programs certain geographic regions critical audit matter auditor judgment required evaluate certain assumptions higher degree measurement uncertainty significant assumptions included estimated incentive rates estimated rates programs applied eligible products estimated achievement dealers specified cumulative targeted purchase levels following primary procedures performed address critical audit matter evaluated design tested operating effectiveness certain internal controls company’s reserve allowance volume discount sales incentive process including controls related development significant assumptions certain volume discount sales incentive programs compared program details dealer communications significant assumptions historical results similar programs assessed company’s historical ability estimate significant assumptions comparing prior year estimated amounts actual discounts sales incentives realized customers evaluated significant assumptions comparing actual results including results transactions occurring yearend assessment gross unrecognized income tax benefits certain jurisdictions discussed note 5 consolidated financial statements company recorded liability gross unrecognized income tax benefits approximately 2279 million december 31 2020 company recognizes income tax benefits uncertain tax positions 50 likelihood tax positions sustained upon examination taxing authorities based technical merits positions identified assessment gross unrecognized income tax benefits certain jurisdictions critical audit matter complex auditor judgment specialized skills required evaluating company’s interpretation application tax laws estimate amount tax benefits expected realized following primary procedures performed address critical audit matter evaluated design tested operating effectiveness certain internal controls company’s gross unrecognized income tax benefit process included controls related company’s consideration information could affect recognition measurement income tax benefits uncertain tax positions interpretation application tax laws involved tax professionals specialized skills knowledge assisted •inspecting correspondence assessments taxing authorities •evaluating company’s interpretation application tax laws •developing expectation company’s tax positions comparing results company’s assessment goodwill impairment certain reporting units discussed note 1 consolidated financial statements company evaluates goodwill impairment annually october 1 events circumstances indicate fair value reporting unit may carrying value december 31 2020 company 13065 million goodwill company performs goodwill impairment analyses using either qualitative quantitative assessment fair values reporting units determined based combination valuation techniques including income approach guideline public company method based company’s analysis company determined fair values certain reporting units excess carrying values therefore record goodwill impairment reporting units identified assessment goodwill impairment certain reporting units critical audit matter high degree subjective auditor judgment required evaluate fair value reporting units fair value model used following significant assumptions limited observable market information forecasted revenue growth discount rates determined fair values sensitive changes significant assumptions following primary procedures performed address critical audit matter evaluated design tested operating effectiveness certain internal controls company’s goodwill impairment process including controls significant assumptions performed sensitivity analyses significant assumptions assess impact company’s fair value determination compared company’s forecasted revenue growth used valuation model underlying business strategies growth plans compared company’s historical revenue forecasts actual results assess company’s ability forecast addition involved valuation professionals specialized skills knowledge assisted •comparing company’s discount rate inputs publicly available information comparable entities test selected discount rate •recomputing estimate fair value reporting units using company’s significant assumptions comparing result company’s fair value estimate kpmg llp served company’s auditor since 2002 atlanta georgia february 26 2021 agco corporation consolidated statements operations millions except per share data see accompanying notes consolidated financial statements agco corporation consolidated statements comprehensive income loss millions see accompanying notes consolidated financial statements agco corporation consolidated balance sheets millions except share amounts see accompanying notes consolidated financial statements agco corporation consolidated statements stockholders’ equity millions except share amounts see accompanying notes consolidated financial statements agco corporation consolidated statements cash flows millions see accompanying notes consolidated financial statements agco corporation notes consolidated financial statements 1 operations summary significant accounting policies business agco corporation subsidiaries “agco” “company” leading manufacturer distributor agricultural equipment related replacement parts throughout world company sells full range agricultural equipment including tractors combines hay tools sprayers forage equipment seeding tillage equipment implements grain storage protein production systems company’s products widely recognized agricultural equipment industry marketed number wellknown brand names including challenger® fendt® gsi® massey ferguson® valtra® company distributes products combination approximately 3250 independent dealers distributors well company utilizes associates licensees provide distribution channel products addition company provides retail financing finance joint ventures coöperatieve centrale raiffeisenboerenleenbank ba “rabobank” basis presentation consolidation company’s consolidated financial statements represent consolidation whollyowned companies majorityowned companies joint ventures company determined primary beneficiary company consolidates variable interest entity “vie” company determines primary beneficiary primary beneficiary vie party power direct activities significantly impact entity’s economic performance obligation absorb losses right receive benefits potentially could significant vie company also consolidates entities considered vies determined company controlling voting interest direct activities significantly impact joint venture entity company records investments affiliate companies using equity method accounting significant influence investments including representing ownership interest less 20 recorded cost significant intercompany balances transactions eliminated consolidated financial statements use estimates preparation financial statements conformity us generally accepted accounting principles “gaap” requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ estimates made management primarily relate accounts notes receivable inventories deferred income tax valuation allowances uncertain tax positions goodwill identifiable intangible assets certain accrued liabilities principally relating reserves volume discounts sales incentives warranty obligations product liability workers’ compensation obligations pensions postretirement benefits company cannot predict ongoing impact covid19 pandemic due increased volatility global economic political environments uncertain market demand products supply chain disruptions possible workforce unavailability exchange rate commodity protein price volatility availability financing impact company’s net sales production volumes costs overall financial condition available funding company may required record significant impairment charges future respect noncurrent assets goodwill intangible assets equity method investments whose fair values may negatively affected covid19 pandemic company also may required writedown obsolete inventory due decreased customer demand sales orders company closely monitoring collection accounts receivable well operating results finance joint ventures around world economic conditions around world continue deteriorate company finance joint ventures may collect accounts receivable expected levels operating results finance joint ventures may negatively impacted thus negatively impacting company’s results operations financial condition company also closely assessing compliance debt covenants recognition future insurance recoveries cash flow hedging forecasts compared actual transactions fair value pension assets accounting incentive stock compensation accruals revenue recognition discount reserve setting well realization deferred tax assets light covid19 pandemic agco corporation notes consolidated financial statements continued foreign currency translation financial statements company’s foreign subsidiaries translated united states currency accordance accounting standards codification “asc” 830 “foreign currency matters” assets liabilities translated united states dollars periodend exchange rates income expense items translated average rates exchange prevailing period translation adjustments included “accumulated comprehensive loss” stockholders’ equity within company’s consolidated balance sheets gains losses result foreign currency transactions included accompanying consolidated statements operations company changed functional currency whollyowned subsidiary argentinian peso us dollar effective july 1 2018 cash equivalents restricted cash equivalents reported consolidated balance sheets december 31 2020 2019 2018 cash equivalents restricted cash shown consolidated statements cash flows years ended december 31 2020 2019 2018 follows millions 1 consisted primarily cash hand bank deposits 2 consisted primarily money market deposits certificates deposits overnight investments company considers investments original maturity three months less cash equivalents 3 consisted primarily cash escrow held guarantee support specific requirements accounts notes receivable accounts notes receivable arise sale equipment replacement parts independent dealers distributors customers united states canada amounts due sales dealers immediately due upon retail sale underlying equipment dealer exception sales grain storage protein production systems discussed previously paid dealer united states canada installment payments required generally beginning interestfree period remaining outstanding equipment balance generally due within 12 months shipment delivery interestfree periods vary product generally range one 12 months limited circumstances company provides sales terms cases interestfree periods longer 12 months certain products typically specified programs predominately united states canada allow interestfree periods due dates 24 months certain products depending year sale dealer distributor’s ordering sales volume preceding year interest generally charged prime lending rates outstanding receivable balances shipment delivery interestfree periods sales terms highly seasonal products provide payment due dates based specified date year regardless shipment date equipment sold dealers united states canada paid full average within 12 months shipment sales replacement parts generally payable within 30 days shipment terms larger seasonal stock orders generally requiring payment within six months shipment normal circumstances equipment may returned certain regions respect equipment sales including united states canada company obligated repurchase equipment replacement parts upon cancellation dealer distributor contract obligations required national state provincial laws require company repurchase dealer distributor’s unsold inventory including inventories receivable already paid actual interestfree periods shorter described equipment receivable dealers distributors countries united states canada generally due immediately upon sale equipment retail customer discussed receivables also paid prior terms specified sales agreements normal circumstances interest forgiven interestfree periods extended international markets equipment sales generally payable full within 30 days 180 days shipment delivery payment terms highly seasonal products specified due date year regardless shipment delivery date sales markets outside united states canada company generally charge agco corporation notes consolidated financial statements continued interest outstanding receivables dealers distributors sales replacement parts generally payable within 30 days 90 days shipment terms larger seasonal stock orders generally payable within six months shipment certain markets time lag varies based timing level retail demand date company records sale dealer sells equipment retail customer sales grain storage protein production systems united states countries generally payable within 30 days shipment certain countries sales systems company responsible construction installation may contingent upon customer acceptance payment terms vary market product fixed payment schedules sales installation services occur fixed payment schedules may include upfront deposits progress payments final payment upon customer acceptance following summarizes geographic region percentage company’s consolidated net sales amounts maximum interestfree periods presented millions company agreement permit transferring ongoing basis majority wholesale interestbearing noninterest bearing accounts receivable north america europe brazil us canadian european brazilian finance joint ventures qualified dealers may obtain additional financing company’s us canadian european brazilian finance joint ventures joint ventures’ discretion company provides various volume bonus sales incentive programs respect products sales incentive programs include reductions invoice prices reductions retail financing rates dealer commissions dealer incentive allowances cases incentive programs established communicated company’s dealers quarterly basis incentives paid either time cash settlement receivable generally time retail sale time retail financing time warranty registration subsequent time based dealer purchase volumes incentive programs productline specific generally vary dealer cost sales incentives associated dealer commissions dealer incentive allowances estimated based upon terms programs historical experience based percentage sales price estimates sales incentives made recorded time sale expected incentive programs using expected value method estimates reassessed reporting period revised event subsequent modifications incentive programs communicated dealers related provisions accruals made product productline basis monitored adequacy revised least quarterly event subsequent modifications programs interest rate subsidy payments reduction retail finance rates recorded manner dealer commissions dealer incentive allowances volume discounts estimated recognized based historical experience related reserves monitored adjusted based actual dealer purchase volumes dealer’s progress towards achieving specified cumulative target levels incentive programs recorded presented reduction revenue due fact company receive distinct good service exchange consideration provided united states canada reserves incentive programs related accounts receivable sold company’s us canadian finance joint ventures recorded “accounts receivable allowances” within company’s consolidated balance sheets due fact incentives paid reduction future cash settlement receivable globally reserves incentive programs paid cash credit memos case company’s volume discount programs well sales incentives associated accounts receivable sold finance joint ventures recorded within “accrued expenses” within company’s consolidated balance sheets agco corporation notes consolidated financial statements continued accounts notes receivable shown net allowances sales incentive discounts available dealers doubtful accounts cash flows related collection receivables reported within “cash flows operating activities” within company’s consolidated statements cash flows accounts notes receivable allowances december 31 2020 2019 follows millions company accounts provision doubtful accounts accordance asu 201613 “measurement credit losses financial instruments” “asu 201613” united states canada sales incentives paid future cash settlements receivables credit memos company’s dealers reductions retail financing rates paid company’s finance joint ventures outside united states canada sales incentives paid cash credit memos company’s dealers reductions retail financing rates paid company’s finance joint ventures company transfers certain accounts receivable accounts receivable sales agreements finance joint ventures see note 3 company records transfers sales accounts receivable considered surrendered control receivables provisions accounting standards update “asu” 200916 “transfers servicing topic 860 accounting transfers financial assets” cash payments made company’s finance joint ventures sales incentive discounts provided dealers related outstanding accounts receivables sold recorded within “accrued expenses” inventories valued lower cost net realizable value using firstin firstout method net realizable value estimated selling price ordinary course business less reasonably predictable costs completion disposal transportation december 31 2020 2019 company recorded 2092 million 1786 million respectively adjustment surplus obsolete inventories adjustments reflected within “inventories net” within company’s consolidated balance sheets inventories net december 31 2020 2019 follows millions cash flows related sale inventories reported within “cash flows operating activities” within company’s consolidated statements cash flows recoverable indirect taxes company’s brazilian operations incur value added taxes “vat” certain purchases raw materials components services taxes accumulated tax credits create assets reduced vat collected company’s sales brazilian market company regularly assesses recoverability tax credits establishes reserves necessary analyses include amongst others history realization transfer tax credits third parties authorized government anticipated changes supply chain future expectation tax debits company’s ongoing operations company believes tax credits net established reserves realizable company recorded approximately 912 million 1423 million respectively vat tax credits net reserves december 31 2020 2019 agco corporation notes consolidated financial statements continued property plant equipment property plant equipment recorded cost less accumulated depreciation amortization depreciation provided straightline basis estimated useful lives ten 40 years buildings improvements three 15 years machinery equipment three ten years furniture fixtures expenditures maintenance repairs primarily charged expense incurred property plant equipment net december 31 2020 2019 consisted following millions goodwill intangible assets longlived assets company tests goodwill impairment reporting unit level annually events circumstances indicate fair value reporting unit may carrying value reporting unit operating segment one level operating segment example component company combines aggregates two components operating segment single reporting unit components similar economic characteristics company’s reportable segments reporting units goodwill evaluated annually october 1 impairment using qualitative assessment quantitative onestep assessment company elects perform qualitative assessment determines fair value reporting units likely exceed carrying value net assets evaluation necessary reporting units company performs onestep quantitative assessment company compares fair value reporting unit determined based combination discounted cash flow valuation approach market multiple valuation approach respective carrying value net assets including goodwill fair value reporting unit exceeds carrying value net assets goodwill considered impaired carrying value net assets higher fair value reporting unit impairment charge recorded amount carrying value exceeds reporting unit’s fair value accordance asu 201704 company reviews longlived assets include intangible assets subject amortization impairment whenever events changes circumstances indicate carrying amount asset may recoverable evaluation recoverability performed level independent cash flows may attributed either asset group company determines carrying amount asset group recoverable based expected undiscounted future cash flows asset group impairment loss recorded equal excess carrying amounts estimated fair value longlived assets estimates future cash flows based many factors including current operating results expected market trends competitive influences company also evaluates amortization periods assigned intangible assets determine whether events changes circumstances warrant revised estimates useful lives assets disposed sale reported lower carrying amount fair value less estimated costs sell covid19 pandemic adversely impacted global economy whole based current macroeconomic conditions company assessed goodwill intangible assets indications impairment march 31 2020 june 30 2020 september 30 2020 june 302020 company concluded indicators impairment three months ended june 30 2020 related one smaller reporting units 50owned tillage seeding equipment joint venture company consolidates reporting unit determined primary beneficiary joint venture deteriorating market conditions products joint venture sells negatively impacted covid19 pandemic second quarter greater initially expected result updated strategic reviews revised forecasts indicated impairment entire goodwill balance reporting unit necessary agco corporation notes consolidated financial statements continued june 30 2020 three months ended june 30 2020 impairment charge approximately 200 million recorded “impairment charge” within company’s consolidated statements operations offsetting benefit approximately 100 million included within “net loss attributable noncontrolling interests” company’s goodwill impairment analysis conducted october 1 2020 indicated indicators impairment existed reduction carrying amount goodwill longlived assets required related company’s reporting units company’s goodwill impairment analysis conducted october 1 2019 indicated carrying value net assets company’s grain storage protein production systems operations europemiddle east excess fair value reporting unit therefore company recorded noncash impairment charge approximately 1736 million within “impairment charges” company’s consolidated statements operations three months ended december 31 2019 company also recorded noncash impairment charge approximately 30 million within “impairment charge” company’s consolidated statements operations impairment charge related certain longlived assets associated company’s grain storage protein production systems operations within north america due discontinuation certain brand name related product customers results company’s goodwill longlived assets impairment analyses conducted october 1 2018 indicated reduction carrying amount company’s goodwill longlived assets required company’s accumulated goodwill impairment approximately 3741 million related impairment charges company recorded 2020 2019 2012 2006 pertaining 50owned tillage seeding equipment joint venture grain storage protein production systems business europemiddle east chinese harvesting reporting unit former sprayer reporting unit respectively tillage seeding equipment joint venture operates within north american geographical reportable segment company’s grain storage protein production systems europemiddle east reporting unit operates within europemiddle east geographical reportable segment chinese harvesting business operates within asiapacificafrica geographical reportable segment former sprayer reporting unit operates within north american geographical reportable segment changes carrying amount goodwill years ended december 31 2020 2019 2018 summarized follows millions september 10 2020 company acquired 151 research inc company specializing agricultural technology approximately 28 million company agreed contingent consideration related acquisition therefore recorded liability approximately 44 million reflect estimated achievement agreed upon targets acquisition material impact company agco corporation notes consolidated financial statements continued company amortizes certain acquired identifiable intangible assets primarily straightline basis estimated useful lives range five 50 years acquired intangible assets weighted average useful life follows years ended december 31 2020 2019 2018 acquired intangible asset amortization 595 million 611 million 647 million respectively company estimates amortization existing intangible assets 578 million 2021 575 million 2022 554 million 2023 540 million 2024 498 million 2025 company previously determined two trademarks indefinite useful life massey ferguson trademark existence since 1952 formed merger masseyharris established 1890’s ferguson established 1930’s massey ferguson brand currently sold approximately 110 countries worldwide making one widely sold tractor brands world company also identified valtra trademark indefinitelived asset valtra trademark existence since late 1990’s derivative valmet trademark existence since 1951 valmet name transitioned valtra name period time marketplace valtra brand currently sold 70 countries around world massey ferguson brand valtra brand primary product lines company’s business company plans use trademarks indefinite period time company plans continue make investments product development enhance value brands future legal regulatory contractual competitive economic factors company aware company believes would limit useful lives trademarks massey ferguson valtra trademark registrations renewed nominal cost countries company operates changes carrying amount acquired intangible assets 2020 2019 summarized follows millions agco corporation notes consolidated financial statements continued accrued expenses accrued expenses december 31 2020 2019 consisted following millions warranty reserves warranty reserve activity years ended december 31 2020 2019 2018 consisted following millions company’s agricultural equipment products generally warranty defects materials workmanship period one four years company accrues future warranty costs time sale based historical warranty experience approximately 902 million 609 million warranty reserves included “other noncurrent liabilities” company’s consolidated balance sheets december 31 2020 2019 respectively agco corporation notes consolidated financial statements continued company recognizes recoveries costs associated warranties provides collection probable specifics recovery agreed upon company’s suppliers confirmation liability recovery company records recovery within “accounts notes receivable net” estimates amount warranty claim recoveries received company’s suppliers based upon contractual supplier arrangements recorded within “other current assets” insurance reserves company’s insurance programs coverage obtained significant liability limits well risks required insured law contract policy company selfinsure portion certain expected losses primarily related workers’ compensation comprehensive general liability product vehicle liability provisions losses expected programs recorded based company’s estimates aggregate liabilities claims incurred revenue company accounts revenue recognition pursuant asu 201409 “revenue contracts customers” revenue recognized company satisfies performance obligation transferring control goods services dealer distributor customer amount revenue recognized measured consideration company expects receive exchange goods services pursuant contract customer contract exists company receives accepts purchase order dealer sales agreement company enters contract end user company recognize revenue cases collectability probable defers recognition collection probable payment received company generates revenue manufacture distribution agricultural equipment replacement parts sales equipment replacement parts represents majority company’s net sales recorded company point time title control transferred independent dealer distributor customer title generally passes dealer distributor upon shipment specified delivery risk loss upon damage theft destruction equipment responsibility dealer distributor designated thirdparty carrier company believes control passes performance obligation satisfied point stated shipping delivery term respect sales previously discussed amount consideration company receives revenue recognized varies certain sales incentives company offers dealers distributors estimates sales incentives made time sale expected incentive programs using expected value method estimates revised event subsequent modification incentive program incentive programs recorded presented reduction revenue due fact company receive distinct good service exchange consideration provided dealers distributors may return equipment replacement parts contract company force except established promotional annual replacement parts return programs time sale company estimates amount returns based terms promotional annual return programs anticipated returns future sales related taxes excluded transaction price shipping handling costs associated freight activities customer obtained control accounted fulfillment costs expensed accrued time revenue recognized “cost goods sold” “selling general administrative expenses” company’s consolidated statements operations afforded practical expedient asu 201409 company adjust amount revenue recognized contract dealer distributor customer time value money difference receipt payment recognition revenue less one year although substantially revenue recognized point time relatively insignificant amount installation revenue associated sale grain storage protein production systems recognized “over time” basis discussed company also recognizes revenue “over time” respect extended warranty maintenance contracts certain precision technology services generally almost grain storage protein production systems contracts customers relate “over time” revenue recognition contract durations less 12 months agco corporation notes consolidated financial statements continued extended warranty maintenance services contracts certain precision technology services generally contract durations 12 months grain storage protein production systems installation revenue certain countries company sells grain storage protein production systems company responsible construction installation sale contingent upon customer acceptance conditions revenues recognized term contract company objectively determine control transferred customer accordance agreedupon specifications contract contracts company may entitled receive advance payment recognized contract liability amount excess revenue recognized company uses input method using costs incurred date relative total estimated costs completion measure progress toward satisfaction performance obligation revenues recorded proportionally costs incurred costs include labor material overhead estimation progress toward completion subject various assumptions part estimation process company reviews length time complete performance obligation cost materials labor productivity significant change one assumptions occurs company recognize adjustment cumulative catchup method impact adjustment revenue recorded date recognized period adjustment identified extended warranty contracts company sells separately priced extended warranty contracts maintenance contracts extends coverage beyond base warranty period covers maintenance specified period revenue recognized extended warranty contract straightline basis company believes approximates costs expected incurred satisfying obligations extended warranty period extended warranty period ranges one five years payment received revenue deferred free contracts inception extended warranty contract maintenance contract recognized contract liability amount excess revenue recognized revenue associated sale extended warranty contracts insignificant precision technology services revenue company sells combination precision technology products services bundled package technology products services sold portion consideration received related services component recognized time company satisfies future performance obligation revenue recognized hardware component control transferred dealer distributor payment received revenue deferred free subscriptions inception precision technology subscription period recognized contract liability amount excess revenue recognized revenue associated sale precision technology services insignificant see note 15 additional information regarding company’s sources revenue associated contract liabilities performance obligations stock incentive plans stock compensation expense recorded follows millions refer note 9 additional information regarding company’s stock incentive plans 2020 2019 2018 research development expenses research development expenses expensed incurred included engineering expenses company’s consolidated statements operations agco corporation notes consolidated financial statements continued advertising costs company expenses advertising costs incurred cooperative advertising costs normally expensed time revenue earned advertising expenses years ended december 31 2020 2019 2018 totaled approximately 453 million 423 million 424 million respectively shipping handling expenses shipping handling fees charged customers included component net sales associated freight activities customer obtained control shipping handling costs accounted fulfillment costs expensed accrued time revenue recognized within “cost goods sold” exception certain handling costs included “selling general administrative expenses” amount 380 million 389 million 379 million years ended december 31 2020 2019 2018 respectively interest expense net interest expense net years ended december 31 2020 2019 2018 consisted following millions 2018 company repurchased 578 senior notes due december 1 2021 result recorded approximately 245 million loss extinguishment debt reflected “interest expense net” offset approximately 47 million accelerated amortization deferred gain related terminated interest rate swap agreement associated senior notes refer note 6 information income taxes income taxes accounted asset liability method deferred tax assets liabilities recognized future tax consequences attributable differences financial statement carrying amounts existing assets liabilities respective tax bases operating loss tax credit carryforwards deferred tax assets liabilities measured using enacted tax rates expected apply taxable income years temporary differences expected recovered settled effect deferred tax assets liabilities change tax rates recognized income period includes enactment date see note 5 additional information regarding company’s income taxes net income per common share basic net income per common share computed dividing net income weighted average number common shares outstanding period diluted net income per common share assumes exercise outstanding stocksettled stock appreciation rights “ssars” vesting performance share awards restricted stock units using treasury stock method effects assumptions dilutive agco corporation notes consolidated financial statements continued reconciliation net income attributable agco corporation subsidiaries weighted average common shares outstanding purposes calculating basic diluted net income per share years ended december 31 2020 2019 2018 follows millions except per share data ssars purchase approximately 03 million shares 02 million shares 05 million shares company’s common stock years ended december 31 2020 2019 2018 respectively outstanding included calculation weighted average common equivalent shares outstanding antidilutive impact comprehensive income loss company reports comprehensive income loss defined total net come loss nonowner changes equity components thereof consolidated statements stockholders’ equity consolidated statements comprehensive income loss components comprehensive loss income related tax effects years ended december 31 2020 2019 2018 follows millions agco corporation notes consolidated financial statements continued derivatives company uses foreign currency contracts hedge foreign currency exposure certain receivables payables contracts periods consistent exposure hedged generally maturities one year less contracts classified nondesignated derivative instruments company also enters foreign currency contracts designated cash flow hedges expected sales company’s foreign currency contracts mitigate risk due exchange rate fluctuations gains losses contracts generally offset losses gains exposure hedged notional amounts foreign currency contracts represent amounts exchanged parties therefore measure company’s risk amounts exchanged calculated basis notional amounts terms contracts credit market risks contracts considered significant company’s interest expense part sensitive general level interest rates company manages exposure interest rate risk mix floating rate fixed rate debt time company enters interest rate swap agreements order manage company’s exposure interest rate fluctuations company uses nonderivative periodically derivative instruments hedge portion company’s net investment foreign operations adverse movements exchange rates company’s gross profit sensitive cost steel raw materials time company enters derivative instruments hedge portion commodity purchases adverse movements commodity prices company’s hedging policy prohibits entering foreign currency contracts speculative trading purposes see note 10 additional information regarding company’s derivative instruments hedging activities agco corporation notes consolidated financial statements continued recent accounting pronouncements june 2016 fasb issued asu 201613 requires measurement recognition expected versus incurred credit losses financial assets held asu 201613 effective annual periods beginning december 15 2019 interim periods within annual periods adoption standard relates company april 2019 fasb issued asu 201904 “codification improvements topic 326 financial instruments credit losses topic 815 derivatives hedging topic 825 financial instruments” “asu 201904” provides among things targeted improvements certain aspects accounting credit losses addressed asu 201613 november 2019 fasb issued asu 201911 “codification improvements topic 326 financial instruments credit losses” clarifies treatment expected recoveries amounts previously writtenoff purchased receivables provides transition relief troubled debt restructurings allows certain disclosure simplifications accrued interest effective dates asu 201904 asu 201911 effective dates asu 201613 company adopted standard subsequent modifications january 1 2020 adoption material impact company’s results operations financial condition cash flows company also adopted following pronouncements none material impact company’s results operations financial condition cash flows •asu 202004 “facilitation effects reference rate reform financial reporting” adopted 2020 see note 6 additional information •asu 201815 “customer’s accounting implementation costs incurred cloud computing arrangement service contract” adopted 2020 •asu 201912 “simplifying accounting income taxes” adopted january 1 2021 new accounting pronouncements adopted discussed june 2016 fasb issued asu 201613 requires measurement recognition expected versus incurred credit losses financial assets held november 2019 fasb issued asu 201910 “financial instruments credit losses topic 326 derivatives hedging topic 815 leases topic 842 effective dates” delays effective date asu 201613 smaller reporting companies nonsec reporting entities applies company’s equity method finance joint ventures required adopt asu 201613 annual periods beginning december 15 2022 interim periods within annual periods standard subsequent modification likely impact results operations financial condition company’s finance joint ventures therefore adoption standard company’s finance joint ventures likely impact company’s “investment affiliates” “equity net earnings affiliates” company’s finance joint ventures currently evaluating impact asu 201613 results operations financial condition agco corporation notes consolidated financial statements continued 2 restructuring expenses company announced initiated actions course several years rationalize employee headcount various manufacturing facilities various administrative offices located europe south america africa china united states well rationalization grain storage protein production system operations rationalizations taken reduce costs response softening global market demand lower production volumes 2020 company recorded severance related costs associated rationalizations connection termination approximately 350 employees components restructuring expenses summarized follows millions three months ended december 31 2019 company exited sold 50 interest usc llc joint venture joint venture partner approximately 51 million operations joint venture part companys grain storage production system operations decision sell joint venture result overall rationalization business company recorded loss approximately 21 million associated sale reflected within “restructuring expenses” company’s consolidated statements operations agco corporation notes consolidated financial statements continued 3 accounts receivable sales agreements company accounts receivable sales agreements permit sale ongoing basis majority wholesale receivables north america europe brazil us canadian european brazilian finance joint ventures december 31 2020 2019 cash received receivables sold us canadian european brazilian accounts receivable sales agreements approximately 15 billion 16 billion respectively terms accounts receivable sales agreements north america europe brazil company pays annual fee related servicing receivables sold company also pays respective agco finance entities subsidized interest payment respect accounts receivable sales agreements calculated based upon libor plus margin noninterest bearing accounts receivable outstanding sold accounts receivables sales agreements fees reflected within losses sales receivables included within “other expense net” company’s consolidated statements operations company service receivables sale occurs maintain direct retained interest receivables company reviewed accounting accounts receivable sales agreements determined facilities accounted offbalance sheet transactions losses sales receivables associated accounts receivable financing facilities discussed reflected within “other expense net” company’s consolidated statements operations approximately 241 million 424 million 360 million 2020 2019 2018 respectively company’s finance joint ventures europe brazil australia also provide wholesale financing directly company’s dealers receivables associated arrangements without recourse company service receivables sale occurs maintain direct retained interest receivables december 31 2020 2019 finance joint ventures approximately 852 million 1043 million respectively outstanding accounts receivable associated arrangements company reviewed accounting arrangements determined arrangements accounted offbalance sheet transactions addition company sells certain trade receivables factoring arrangements financial institutions around world company reviewed sale receivables determined arrangements accounted offbalance sheet transactions 4 investments affiliates investments affiliates december 31 2020 2019 follows millions companys finance joint ventures provide retail financing wholesale financing dealers majority assets company’s finance joint ventures represent finance receivables majority liabilities represent notes payable accrued interest various joint venture agreements rabobank affiliates provide financing joint venture companies agco 49 interest company’s finance joint ventures note 13 company’s manufacturing joint ventures consist groupement international de mecanique agricole sa “gima” joint venture thirdparty manufacturer purchase design manufacture components agricultural equipment france joint venture thirdparty manufacturer manufacture protein production equipment china joint ventures represent investments farm equipment manufacturers electronic software system manufacturer distributors licensees agco corporation notes consolidated financial statements continued company’s equity net earnings affiliates years ended december 31 2020 2019 2018 follows millions summarized combined financial information company’s finance joint ventures december 31 2020 2019 years ended december 31 2020 2019 2018 follows millions december 31 2020 2019 company’s receivables affiliates approximately 475 million 152 million respectively receivables affiliates reflected within “accounts notes receivable net” within company’s consolidated balance sheets portion company’s retained earnings balance represents undistributed retained earnings equity method investees approximately 3755 million 3108 million december 31 2020 2019 respectively agco corporation notes consolidated financial statements continued 5 income taxes sources income taxes equity net earnings affiliates follows years ended december 31 2020 2019 2018 millions provision income taxes location taxing jurisdiction years ended december 31 2020 2019 2018 consisted following millions march 27 2020 cares act “act” enacted united states response covid19 pandemic among things provide tax relief businesses tax provisions act include deferral certain payroll taxes relief retaining employees provisions governments around world also enacted similar measures may enact measures future date act similar worldwide measures material impact company’s results operations financial condition swiss tax reform enacted 2019 eliminated certain preferential tax items well implemented new tax rates federal cantonal levels three months ended december 31 2019 company recognized onetime income tax gain approximately 218 million associated changing swiss federal cantonal tax rates well recognition deferred tax asset associated estimated value tax basis stepup company’s swiss subsidiary’s assets december 22 2017 tax cuts jobs act “the 2017 tax act” enacted united states primary provisions 2017 tax act affecting company 2018 reduction corporate tax rate 35 21 transition worldwide corporate tax system primarily territorial tax system beginning 2018 company also subject additional provisions 2017 tax act main provisions include tax global intangible lowtaxed income “gilti” limitation deductibility certain executive compensation combined effect provisions material effect company’s provision income taxes 2020 2019 three months ended december 31 2018 company finalized calculations related 2017 tax act’s onetime transition tax associated mandatory deemed repatriation unremitted foreign earnings recorded income tax benefit approximately 84 million agco corporation notes consolidated financial statements continued reconciliation income taxes computed united states federal statutory income tax rate 21 2020 2019 2018 35 2017 provision income taxes reflected company’s consolidated statements operations years ended december 31 2020 2019 2018 follows millions significant components deferred tax assets liabilities december 31 2020 2019 follows millions reflected preceding table company recorded net deferred tax liability 348 million 132 million december 31 2020 december 31 2019 respectively valuation allowance gross deferred tax assets approximately 1810 million 1691 million december 31 2020 2019 respectively agco corporation notes consolidated financial statements continued three months ended september 30 2019 company recorded noncash deferred income tax charge approximately 537 million establish valuation allowance brazilian net deferred income tax assets addition company maintains valuation allowance fully reserve net deferred tax assets united states certain foreign jurisdictions valuation allowance established likely portion deferred tax assets realized company assessed likelihood deferred tax assets would recovered estimated future taxable income available tax planning strategies determined adjustments valuation allowance appropriate making assessment available evidence considered including current economic climate well reasonable tax planning strategies company believes likely realize remaining net deferred tax assets net valuation allowance future years company net operating loss carryforwards 2197 million december 31 2020 expiration dates follows 2021 240 million 2022 150 million 2023 467 million thereafter unlimited 1340 million net operating loss carryforwards 2197 million entirely tax jurisdictions outside united states company material us state net operating loss carryforwards company paid income taxes 1814 million 1444 million 1016 million years ended december 31 2020 2019 2018 respectively company recognizes income tax benefits uncertain tax positions 50 likelihood tax positions sustained upon examination taxing authorities based technical merits positions december 31 2020 2019 company 2279 million 2107 million respectively unrecognized income tax benefits would affect company’s effective tax rate recognized december 31 2020 2019 company approximately 571 million 510 million respectively accrued deferred taxes related uncertain income tax positions connected ongoing income tax audits various jurisdictions expects settle pay next 12 months company accrued approximately 71 million 18 million interest penalties related unrecognized tax benefits provision income taxes 2020 2019 respectively december 31 2020 2019 company accrued interest penalties related unrecognized tax benefits 394 million 284 million respectively reconciliation beginning ending balances total amounts gross unrecognized tax benefits years ended december 31 2020 2019 follows millions reconciliation gross unrecognized tax benefits 2020 2019 excludes certain indirect favorable effects relate tax jurisdictions approximately 641 million 449 million respectively change certain indirect favorable effects 2020 2019 includes approximately 131 million related additions reductions tax positions current prior years changes judgments lapses statutes limitations company subsidiaries file income tax returns united states various state local foreign jurisdictions company subsidiaries routinely examined tax authorities jurisdictions december 31 2020 number income tax examinations foreign jurisdictions well united states ongoing possible certain ongoing examinations may resolved within 12 months due potential resolution federal state foreign examinations expiration various statutes limitation reasonably possible company’s gross unrecognized income tax benefits balance may materially change within next 12 months certain agco corporation notes consolidated financial statements continued foreign jurisdictions either statutory expirations company’s settlement expectations approximately 571 million could concluded within next 12 months although ongoing examinations various federal state jurisdictions 2017 2020 tax years generally remain subject examination united states applicable authorities company’s significant foreign jurisdictions primarily united kingdom france germany switzerland finland brazil 2015 2020 tax years generally remain subject examination respective tax authorities brazil company contesting disallowed deductions related amortization certain goodwill amounts see note 11 6 indebtedness longterm debt consisted following december 31 2020 2019 millions 1 maturity dates reflected december 31 2020 december 31 2020 aggregate scheduled maturities longterm debt excluding current portion longterm debt follows millions cash payments interest approximately 236 million 263 million 352 million years ended december 31 2020 2019 2018 respectively current indebtedness senior term loan due 2022 october 2018 company entered term loan agreement rabobank amount €1500 million approximately 1840 million december 31 2020 company permitted prepay term loan maturity date october 28 2022 interest payable term loan quarterly arrears annual rate equal euribor plus margin ranging 0875 1875 based company’s credit rating company also fulfill financial covenants respect total debt ebitda ratio interest coverage ratio agco corporation notes consolidated financial statements continued credit facility october 2018 company entered multicurrency revolving credit facility 8000 million maturity date credit facility october 17 2023 interest accrues amounts outstanding credit facility company’s option either 1 libor plus margin ranging 0875 1875 based company’s credit rating 2 base rate equal higher administrative agent’s base lending rate applicable currency ii federal funds rate plus 05 iii onemonth libor loans denominated us dollars plus 10 plus margin ranging 00 0875 based company’s credit rating credit facility contains covenants restricting among things incurrence indebtedness making certain payments including dividends company also fulfill financial covenants respect total debt ebitda ratio interest coverage ratio december 31 2020 2019 company outstanding borrowings revolving credit facility ability borrow approximately 8000 million facility april 9 2020 company entered amendment 8000 million multicurrency revolving credit facility include incremental term loans “2020 term loans” allow company borrow aggregate principal amount €2350 million 2675 million respectively aggregate approximately 5558 million december 31 2020 amounts drawn incrementally time prior maturity must drawn proportionately amounts drawn must minimum principal amount 1000 million integral multiples 500 million excess thereof amounts repaid amounts permitted redrawn maturity date 2020 term loans april 8 2022 interest accrues amounts outstanding 2020 term loans company’s option either 1 libor plus margin based company’s credit rating ranging 1125 2125 april 8 2021 ranging 1375 2375 thereafter 2 base rate equal higher administrative agent’s base lending rate applicable currency ii federal funds rate plus 05 iii onemonth libor loans denominated us dollars plus 10 plus margin based company’s credit rating ranging 0125 1375 april 8 2021 ranging 0375 1375 thereafter 2020 term loans contain covenants restricting among things incurrence indebtedness making certain payments including dividends company also fulfill financial covenants respect total debt ebitda ratio interest coverage ratio april 15 2020 company borrowed €1175 million 1338 million aggregate approximately 2779 million december 31 2020 term loans company simultaneously repaid €1000 million approximately 1087 million revolving credit facility borrowings received borrowings 2020 term loans subsequent initial borrowings april 2020 december 31 2020 company ability borrow approximately 2779 million 2020 term loans interest us dollar borrowings company’s credit facility calculated based upon libor event libor longer published interest calculated upon either base rate secured overnight financing rate depending cost credit facility 2020 term loans also provide expedited amendment process replacement libor established company’s former revolving credit term loan facility consisted 8000 million multicurrency revolving credit facility €3120 million term loan facility maturity date former credit facility june 26 2020 fully described note 10 company entered interest rate swap 2015 convert term loan facility’s floating interest rate fixed interest rate 033 plus applicable margin remaining life term loan facility connection closing new credit facility october 2018 company repaid outstanding €3120 million approximately 3608 million term loan former revolving credit term loan facility company recorded approximately 09 million “interest expense net” associated writeoff deferred debt issuance costs associated repayment company also recorded loss approximately 39 million recorded “interest expense net” year ended december 31 2018 associated termination interest rate swap instrument 1002 senior term loan december 2018 company entered term loan european investment bank “eib” provided company ability borrow €2500 million €2500 million approximately 3067 million december 31 2020 funding received january 25 2019 maturity date january 24 2025 company permitted prepay term loan maturity date interest payable term loan 1002 per annum payable semiannually arrears term loan contains covenants regarding among things incurrence indebtedness making certain payments well commitments regarding amounts future research development expenses agco corporation notes consolidated financial statements continued europe subject acceleration events default company also fulfill financial covenants respect net leverage ratio interest coverage ratio senior term loans due 2021 2028 october 2016 company borrowed aggregate amount €3750 million group seven related term loan agreements august 2018 company borrowed additional aggregate amount €3380 million group another seven related term loan agreements 2016 term loans aggregate amount €560 million approximately 611 million repaid upon maturity two term loan agreements october 2019 aggregate company indebtedness €6570 million approximately 8060 million december 31 2020 group twelve related term loan agreements four term loan agreements aggregate amount €2640 million approximately 32360 million net debt issuance costs december 31 2020 mature august october 2021 provisions term loan agreements substantially identical exception interest rate terms maturities company permitted prepay term loans maturity dates term loans fixed interest rate interest payable arrears annual basis interest rates ranging 070 226 maturity date august 2021 august 2028 term loans floating interest rate interest payable arrears semiannual basis interest rates based euribor plus margin ranging 070 125 maturity date august 2021 august 2025 term loans contain covenants restricting among things incurrence indebtedness making certain payments including dividends subject acceleration event default former indebtedness 1056 senior term loan december 2014 company entered term loan eib provided company ability borrow €2000 million €2000 million funding received january 15 2015 maturity date january 15 2020 company repaid €2000 million approximately 2200 million term loan december 2019 senior term loans due 2021 april 2016 company entered two term loan agreements rabobank amount €1000 million €2000 million respectively provisions two term loans identical nature december 2017 company repaid €2000 million approximately 2398 million term loan october 2018 connection term loan agreement due 2022 rabobank discussed company repaid €1000 million approximately 1132 million term loan 578 senior notes company’s 578 senior notes due december 1 2021 constituted senior unsecured indebtedness time prior september 1 2021 company could redeem notes whole part time option redemption price equal greater 100 principal amount plus accrued unpaid interest including additional interest excluding redemption date ii sum present values remaining scheduled payments principal interest exclusive interest accrued date redemption discounted redemption date treasury rate plus 05 plus accrued unpaid interest including additional interest may 2018 company completed cash tender offer purchase outstanding 578 senior notes cash purchase price 107750 per 100000 senior notes result tender offer company repurchased approximately 1859 million principal amount senior notes approximately 2003 million plus accrued interest october 2018 company repurchased remaining principal amount senior notes approximately 1141 million approximately 1225 million plus accrued interest repurchases resulted total losses extinguishment debt approximately 245 million including associated fees result repurchase 578 senior notes company recorded cumulative amount approximately 47 million accelerated amortization deferred gain related terminated interest rate swap instrument associated senior notes losses extinguishment well accelerated amortization reflected “interest expense net” year ended december 31 2018 agco corporation notes consolidated financial statements continued shortterm borrowings december 31 2020 2019 company shortterm borrowings due within one year approximately 338 million 1505 million respectively standby letters credit similar instruments company arrangements various banks issue standby letters credit similar instruments guarantee company’s obligations purchase sale certain inventories potential claims exposure insurance coverage december 31 2020 2019 outstanding letters credit totaled 144 million 139 million respectively 7 employee benefit plans company sponsors defined benefit pension plans covering certain employees principally united kingdom united states germany switzerland finland france norway argentina company also provides certain postretirement health care life insurance benefits certain employees principally united states brazil company also maintains executive nonqualified pension plan “enpp” provides certain senior executives retirement income period 15 years lifetime annuity certain requirements met benefits enpp vest participant attained age 50 least ten years service including five years participant enpp payable participant reaches age 65 lifetime annuity benefit generally available vested participants retire reaching age 65 enpp unfunded nonqualified defined benefit pension plan net annual pension costs years ended december 31 2020 2019 2018 company’s defined benefit pension plans enpp set forth millions components net periodic pension postretirement benefits cost service cost component included “other expense net” company’s consolidated statements operations agco corporation notes consolidated financial statements continued weighted average assumptions used determine net annual pension costs company’s defined benefit pension plans enpp years ended december 31 2020 2019 2018 follows 1 applicable us funded qualified plans 2 applicable us unfunded nonqualified plan company’s swiss cash balance plan interest crediting rate 10 2020 2019 set equal current annual minimum rate set government mandatory portion account balance mandatory amounts interest crediting rate 00 2020 025 2019 net annual postretirement benefit costs weighted average discount rate used determine years ended december 31 2020 2019 2018 set forth millions except percentages agco corporation notes consolidated financial statements continued following tables set forth reconciliations changes benefit obligation plan assets funded status december 31 2020 2019 millions agco corporation notes consolidated financial statements continued following table summarizes activity accumulated comprehensive loss related company’s enpp defined pension postretirement benefit plans years ended december 31 2020 2019 millions unrecognized net actuarial losses included accumulated comprehensive loss related company’s defined benefit pension plans enpp december 31 2020 2019 set forth millions increase unrecognized net actuarial losses years primarily resulted lower discount rates december 31 2020 compared december 31 2019 unrecognized net actuarial losses impacted future periods actual asset returns discount rate changes currency exchange rate fluctuations actual demographic experience certain factors company’s defined benefit pension plans losses extent exceed 10 greater plan’s liabilities fair value assets “the gainloss corridor” amortized straightline basis periods discussed follows company’s us salaried us hourly uk defined benefit pension plans population covered predominantly inactive participants losses related plans extent exceed gainloss corridor amortized average remaining lives participants covered respective plan company’s enpp population predominantly active participants losses related plan amortized average future working lifetime active participants expected receive benefits december 31 2020 average amortization periods follows following table summarizes unrecognized prior service cost related company’s defined benefit pension plans december 31 2020 2019 millions decrease unrecognized prior service cost years due primarily amortization unrecognized prior service cost related prior plan amendments amortization unrecognized prior service cost 2020 also included initial amortization impacts amendment company’s enpp 2019 agco corporation notes consolidated financial statements continued following table summarizes unrecognized net actuarial losses included company’s accumulated comprehensive loss related company’s us brazilian postretirement health care benefit plans december 31 2020 2019 millions 1 includes loss approximately 10 million 16 million respectively related company’s us postretirement benefit plans decrease unrecognized net actuarial losses related company’s us brazilian postretirement benefit plans primarily due liability gain due experience plans december 31 2020 compared december 31 2019 unrecognized net actuarial gains losses impacted future periods discount rate changes actual demographic experience actual health care inflation certain factors gains losses extent exceed gainloss corridor amortized straightline basis average remaining service period active employees expected receive benefits average remaining lives inactive participants covered postretirement benefit plans december 31 2020 average amortization period 10 years company’s us postretirement benefit plans december 31 2020 2019 net prior service cost related company’s us brazilian postretirement health care benefit plans follows millions following table summarizes fair value plan assets aggregate projected benefit obligation accumulated benefit obligation december 31 2020 2019 defined benefit pension plans enpp postretirement plans accumulated benefit obligations excess plan assets millions 2020 amounts disclosed include balances related company’s uk plan company’s uk plan’s fair value plan assets excess plan’s accumulated benefit obligation december 31 2020 amounts 2019 disclosed include fair value plan assets projected benefit obligation accumulated benefit obligation related company’s uk plan company’s uk plan’s fair value plan assets excess plan’s accumulated benefit obligation december 31 2019 agco corporation notes consolidated financial statements continued company’s accumulated comprehensive loss december 31 2020 2019 reflects reduction equity related following items millions 1 primarily related company’s uk pension plan 2 amounts represented 50 gima’s unrecognized net actuarial losses unrecognized prior service cost associated pension plan addition gima recognized net actuarial loss due settlements approximately 01 million 2020 2019 respectively company’s defined benefit pension obligation reflected based manner defined benefit plans administered obligation resulting liability calculated employing actuarial legal assumptions include limited future inflation return pension assets discount rates life expectancy potential salary increases also assumptions related manner individual benefit plan benefits calculated legal nature include limited member eligibility years service uniformity guaranteed minimum pension benefits member normal retirement ages men women assumptions also subject outcome certain legal cases currently unknown event assumptions administration approach proven different company’s current interpretations approach could material increases company’s defined benefit pension obligation related amounts timing future contributions paid company weighted average assumptions used determine benefit obligation company’s defined benefit pension plans enpp december 31 2020 2019 follows 1 applicable us unfunded nonqualified plan weighted average discount rate used determine benefit obligation company’s postretirement benefit plans years ended december 31 2020 2019 38 45 respectively years ended december 31 2020 2019 2018 company used globally consistent methodology set discount rate countries largest benefit obligations exist united states united kingdom euro zone company constructed hypothetical bond portfolio highquality corporate bonds applied cash flows company’s benefit plans bond yields derive discount rate bond portfolio planspecific cash flows vary country methodology portfolio constructed consistent united states bond portfolio large enough result taking “settlement approach” derive discount rate highquality corporate bonds assumed purchased resulting coupon payments maturities used satisfy company’s us pension plans’ projected benefit payments united kingdom euro zone discount rate derived using “yield curve approach” individual spot rate zero coupon bond yield future annual period developed discount future benefit payment thereby determine present value future payments company uses spot yield curve determine discount rate applicable united kingdom measure uk pension plan’s service cost interest cost settlement yield curve approaches discount rate set equal single discount rate produces present value future payments agco corporation notes consolidated financial statements continued measuring expected us postretirement benefit obligation december 31 2020 company assumed 70 health care cost trend rate 2021 decreasing 50 2029 measuring expected us postretirement benefit obligation december 31 2019 company assumed 625 health care cost trend rate 2020 decreasing 50 2025 measuring brazilian postretirement benefit plan obligation december 31 2020 company assumed 996 health care cost trend rate 2021 decreasing 428 2032 measuring brazilian postretirement benefit plan obligation december 31 2019 company assumed 1055 health care cost trend rate 2020 decreasing 48 2031 company currently estimates minimum contributions benefit payments usbased underfunded defined benefit pension plans unfunded enpp 2021 aggregate approximately 44 million company currently estimates minimum contributions underfunded plans benefit payments unfunded plans 2021 nonusbased defined benefit pension plans aggregate approximately 313 million approximately 209 million relates uk pension plan company currently estimates benefit payments 2021 usbased postretirement health care life insurance benefit plans aggregate approximately 15 million benefit payments 2021 brazilian postretirement health care benefit plans aggregate less 01 million 2020 approximately 449 million benefit payments made related company’s defined benefit pension plans enpp december 31 2020 aggregate expected benefit payments company’s defined benefit pension plans enpp follows millions 2020 approximately 15 million benefit payments made related company’s us brazilian postretirement benefit plans december 31 2020 aggregate expected benefit payments company’s us brazilian postretirement benefit plans follows millions agco corporation notes consolidated financial statements continued investment strategy concentration risk weighted average asset allocation company’s us pension benefit plans december 31 2020 2019 follows weighted average asset allocation company’s nonus pension benefit plans december 31 2020 2019 follows company categorizes pension plan assets one three levels based assumptions used valuing asset see note 12 discussion fair value hierarchy per guidance asc 820 “fair value measurements” “asc 820” company’s valuation techniques designed maximize use observable inputs minimize use unobservable inputs company uses following valuation methodologies measure fair value pension plan assets •equity securities equity securities valued basis closing price per unit business day reported applicable exchange equity funds valued using net asset value fund based fair value underlying securities •fixed income fixed income securities valued using closing prices active market fixed income investment trades fixed income funds valued using net asset value fund based fair value underlying securities •cash investments primarily consist shortterm investment funds valued using net asset value •alternative investments reported fair value determined general partner alternative investment “market approach” valuation technique used value investments funds typically openend funds generally offer subscription redemption options investors frequency subscriptions redemptions dictated fund’s governing documents amount liquidity provided investors particular fund generally consistent liquidity risk associated underlying portfolio ie liquid investments portfolio greater liquidity provided investors liquidity individual funds varies based various factors may include “gates” “holdbacks” “side pockets” imposed manager fund well redemption fees may also apply investments funds typically valued utilizing net asset valuations provided underlying investment managers general partners administrators funds consider subscription redemption rights including restrictions disposition interest determination fair value •insurance contracts insurance contracts valued using current prevailing interest rates agco corporation notes consolidated financial statements continued fair value company’s pension assets december 31 2020 follows millions 1 44 “fixed income” securities investmentgrade corporate bonds 20 government treasuries 11 highyield securities 10 foreign securities 6 assetbacked mortgagebacked securities 9 various fixed income securities 2 42 “alternative investments” relative value funds 25 longshort equity funds 14 eventdriven funds 14 credit funds 5 distributed hedged nonhedged funds 3 “miscellaneous funds” comprised insurance contracts finland norway switzerland 4 certain investments measured fair value using net asset value per share equivalent practical expedient categorized fair value hierarchy following reconciliation level 3 assets december 31 2020 millions agco corporation notes consolidated financial statements continued fair value company’s pension assets december 31 2019 follows millions 1 43 “fixed income” securities investmentgrade corporate bonds 18 government treasuries 14 highyield securities 10 foreign securities 9 assetbacked mortgagebacked securities 6 various fixed income securities 2 42 “alternative investments” relative value funds 24 longshort equity funds 21 eventdriven funds 7 distributed hedged nonhedged funds 6 credit funds 3 “miscellaneous funds” comprised insurance contracts finland norway switzerland 4 certain investments measured fair value using net asset value per share equivalent practical expedient categorized fair value hierarchy following reconciliation level 3 assets december 31 2019 millions taxqualified pension fund investments united states held agco corporation master pension trust company’s global pension fund strategy diversify investments across broad categories equity fixed income securities appropriate use alternative investment categories minimize risk volatility primary investment objective company’s pension plans secure participant retirement benefits key objective pension plans’ financial management promote stability extent appropriate growth funded status investment strategy plans’ portfolio assets balances requirement generate returns need control risk asset mix recognized primary mechanism influence reward risk structure pension fund investments effort accomplish plans’ funding objectives overall investment strategies target allocations retirement fund investments company’s usbased pension plans nonus based pension plans follow agco corporation notes consolidated financial statements continued 1 majority company’s nonus pension fund investments related company’s pension plan united kingdom 2 overall us nonus pension funds invest broad diversification assets types company noted long periods mix investments would achieve average return usbased pension plans approximately 55 arriving choice expected return assumption 50 us plans year ended december 31 2021 company tempered historical indicator lower expectations returns changes investments future well administrative costs plans company noted long periods mix investments would achieve average return nonus based pension plans approximately 425 arriving choice expected return assumption 40 ukbased plans year ended december 31 2021 company tempered historical indicator lower expectations returns changes investments future well administrative costs plans equity securities primarily include investments largecap smallcap companies located across globe fixed income securities include corporate bonds companies diversified industries mortgagebacked securities agency mortgages assetbacked securities government securities alternative assets include investments hedge fund funds follow diversified investment strategies date company invested pension funds stock intention future within asset class careful consideration given balancing portfolio among industry sectors geographies interest rate sensitivity dependence economic growth currency factors affecting investment returns assets managed professional investment firms bound precise mandates measured specific benchmarks among asset managers consideration given among others balancing security concentration issuer concentration investment style reliance particular active investment strategies company participates small number multiemployer plans netherlands sweden company assessed determined none multiemployer plans participates individually aggregate significant company’s consolidated financial statements company expect incur withdrawal liability expect significantly increase contributions remainder multiemployer plans’ contract periods company maintains separate defined contribution plans covering certain employees primarily united states united kingdom brazil plans company contributes specified percentage eligible employee’s compensation company contributed approximately 154 million year ended december 31 2020 158 million years ended december 31 2019 2018 agco corporation notes consolidated financial statements continued 8 stockholders’ equity common stock december 31 2020 company 150000000 authorized shares common stock par value 001 per share approximately 74962231 shares common stock outstanding approximately 3853244 shares reserved issuance company’s 2006 longterm incentive plan “plan” see note 9 share repurchase program three months ended march 31 2020 throughout 2019 company repurchased approximately 970141 1794256 shares common stock respectively approximately 550 million 1300 million respectively either accelerated share repurchase agreements financial institutions open market transactions shares received retired upon receipt excess purchase price par value per share recorded combination “additional paidin capital” “retained earnings” within company’s consolidated balance sheets company suspended share repurchases subsequent march 31 2020 light covid19 pandemic repurchased shares since period december 31 2020 remaining amount authorized repurchased boardapproved share repurchase authorizations approximately 2450 million expiration date dividends company’s board directors declared company paid quarterly cash dividends per common share generally beginning first quarter following years 1 company’s board directors declared company paid quarterly cash dividends 016 per common share beginning second quarter 2019 015 per common share first quarter 2019 january 21 2021 company’s board directors approved quarterly dividend 016 per common share commencing first quarter 2021 agco corporation notes consolidated financial statements continued accumulated comprehensive loss following table sets forth changes accumulated comprehensive loss component net tax attributed agco corporation subsidiaries years ended december 31 2020 2019 millions following table sets forth reclassification adjustments accumulated comprehensive loss component attributed agco corporation subsidiaries years ended december 31 2020 2019 millions 1 gains losses included within consolidated statements operations years ended december 31 2020 2019 respectively 2 accumulated comprehensive loss components included computation net periodic pension postretirement benefit cost see note 7 company’s consolidated financial statements agco corporation notes consolidated financial statements continued 9 stock incentive plan 10000000 shares agco’s common stock may issued december 31 2020 10000000 shares reserved issuance plan approximately 3853244 shares remained available grant assuming maximum number shares earned related performance award grants discussed plan allows company direction board directors’ compensation committee make grants performance shares stock appreciation rights restricted stock units restricted stock awards employees officers nonemployee directors company longterm incentive plan related performance awards company’s primary longterm incentive plan performance share plan provides awards shares company’s common stock based achieving financial targets earnings per share return invested capital operating margins determined company’s board directors stock awards plan earned performance period number shares earned determined based annual cumulative average results specified period depending measurement performance periods company’s primary longterm incentive plan consecutive overlapping threeyear cycles performance targets set beginning cycle primary longterm incentive plan provides participants earn 33 200 target awards depending actual performance achieved shares earned performance established minimum target awards earned plan paid shares common stock end threeyear performance period percentage level achievement determined annually ultimate award earned determined based upon average three annual percentages compensation expense associated awards amortized ratably vesting performance period based company’s projected assessment level performance achieved earned compensation expense recorded 2020 2019 2018 respect awards granted based upon stock price grant date weighted average grantdate fair value performance awards granted plan 2020 2019 2018 follows 2020 company granted 425440 performance awards related varying performance periods awards granted assume maximum target levels performance achieved compensation expense associated awards granted plan amortized ratably vesting performance period based company’s projected assessment level performance achieved performance award transactions 2020 follows presented company achieve maximum levels performance plan based level performance achieved december 31 2020 553084 shares earned related performance period 233668 shares issued february 2021 net 149434 shares withheld taxes related earned awards plan allows participant option forfeiting portion shares awarded lieu cash payment contributed participant’s tax withholding satisfy participant’s statutory minimum federal state employment taxes would payable time grant addition 169982 shares earned december 31 2020 related certain retirees individuals issued end relevant performance periods based ultimate level performance achieved respect periods agco corporation notes consolidated financial statements continued december 31 2020 total compensation cost related unearned performance awards yet recognized assuming company’s current projected assessment level performance achieved approximately 171 million weighted average period expected recognized approximately one onehalf years estimate based current projected levels performance outstanding awards compensation cost yet recognized could higher lower based actual achieved levels performance restricted stock units year ended december 31 2020 company granted 95593 restricted stock unit “rsu” awards entitle participant receive one share company’s common stock rsu granted vest onethird per year threeyear requisite service period 2020 grant rsu’s certain executives threeyear cliff vesting requirement compensation expense associated rsu awards amortized ratably requisite service period awards expected vest weighted average grantdate fair value rsus granted plan years ended december 31 2020 2019 2018 7083 6101 6399 respectively rsu transactions year ended december 31 2020 follows december 31 2020 total compensation cost related unvested rsus yet recognized approximately 51 million weighted average period expected recognized approximately one onehalf years stocksettled appreciation rights certain executives key managers eligible receive grants ssars year ended december 31 2020 ssars provide participant right receive aggregate appreciation stock price market price company’s common stock date grant payable shares company’s common stock participant may exercise ssars time grant vested later seven years date grant ssars vest ratably fouryear period date grant ssar awards made certain executives key managers plan made base price equal price company’s common stock date grant company recorded stock compensation expense approximately 19 million 24 million 24 million associated ssar awards 2020 2019 2018 respectively compensation expense associated awards amortized ratably vesting period company estimated fair value grants using blackscholes option pricing model weighted average grantdate fair value ssar awards granted plan weighted average assumptions blackscholes option model follows years ended december 31 2020 2019 2018 agco corporation notes consolidated financial statements continued ssar transactions year ended december 31 2020 follows december 31 2020 weighted average remaining contractual life ssars outstanding approximately four years december 31 2020 total compensation cost related unvested ssars yet recognized approximately 17 million weightedaverage period expected recognized approximately two onehalf years following table sets forth exercise price range number shares weighted average exercise price remaining contractual lives groups similar price december 31 2020 total fair value ssars vested 2020 approximately 31 million 233025 ssars vested december 31 2020 total intrinsic value outstanding exercisable ssars december 31 2020 148 million 67 million respectively total intrinsic value ssars exercised 2020 approximately 102 million excess tax benefit realized tax deductions united states related exercise ssars vesting rsu awards vesting performance awards plan approximately 25 million year ended december 31 2020 excess tax benefit realized tax deductions united states related exercise ssars vesting rsu awards vesting performance awards plan approximately 27 million year ended december 31 2019 excess tax benefit realized tax deductions united states related exercise ssars vesting rsu awards vesting performance awards plan approximately 16 million year ended december 31 2018 company realized insignificant tax benefit exercise ssars vesting performance awards vesting rsu awards certain foreign jurisdictions years ended december 31 2020 2019 2018 agco corporation notes consolidated financial statements continued january 20 2021 company granted 134754 performance award shares subject company achieving future target levels performance 89775 rsus plan 2021 grant performance award shares subject total shareholder return modifier director restricted stock grants pursuant plan nonemployee directors receive annual restricted stock grants company’s common stock restricted stock grants made company’s directors restricted transferability period one year event director departs company’s board directors nontransferability period expires immediately plan allows director option forfeiting portion shares awarded lieu cash payment contributed participant’s tax withholding satisfy statutory minimum federal state employment taxes would payable time grant 2020 grant made april 30 2020 equated 25542 shares common stock 19862 shares common stock issued shares withheld taxes company recorded stock compensation expense approximately 14 million 2020 associated grants 10 derivative instruments hedging activities company attempts manage transactional foreign exchange exposure hedging foreign currency cash flow forecasts commitments arising anticipated settlement receivables payables future purchases sales naturally offsetting currency positions occur company hedges certain exposures use foreign currency contracts company’s translation exposure resulting translating financial statements foreign subsidiaries united states dollars may partially hedged time practical translation impact reduced financing local operations local borrowings company uses floating rate fixed rate debt finance operations floating rate debt obligations expose company variability interest payments due changes euribor libor benchmark interest rates company believes prudent limit variability portion interest payments meet objective company periodically enters interest rate swaps manage interest rate risk associated company’s borrowings company designates interest rate contracts used convert interest rate exposure portion company’s debt portfolio floating rate fixed rate cash flow hedges contracts converting company’s interest rate exposure fixed rate floating rate designated fair value hedges protect value company’s investment foreign operations adverse changes foreign currency exchange rates company time may hedge portion company’s net investment foreign subsidiaries using cross currency swap component gains losses company’s net investment designated foreign operations driven changes foreign exchange rates economically offset movements fair value cross currency swap contracts company exposed commodity risk steel raw material purchases portion contractual purchase price linked variable rate based publicly available market data time company enters cash flow hedges mitigate exposure variability commodity prices company’s senior management establishes company’s foreign currency interest rate risk management policies reviewed periodically finance committee company’s board directors policies allow use derivative instruments hedge exposures movements foreign currency interest rates company’s policies prohibit use derivative instruments speculative purposes derivatives recognized company’s consolidated balance sheets fair value date derivative contract entered company designates derivative either 1 cash flow hedge forecasted transaction 2 fair value hedge recognized liability 3 hedge net investment foreign operation 4 nondesignated derivative instrument company categorizes derivative assets liabilities one three levels based assumptions used valuing asset liability see note 12 discussion fair value hierarchy per guidance asc 820 company’s valuation techniques designed maximize use observable inputs minimize use unobservable inputs agco corporation notes consolidated financial statements continued counterparty risk company regularly monitors counterparty risk credit ratings counterparties derivative instruments company believes exposures appropriately diversified across counterparties creditworthy financial institutions company perceives risk counterparty company would cease business counterparty negative impacts company nonperformance counterparties derivative transactions designated hedging instruments cash flow hedges foreign currency contracts company uses cash flow hedges minimize variability cash flows assets liabilities forecasted transactions caused fluctuations foreign currency exchange rates changes fair values cash flow hedges recorded accumulated comprehensive loss subsequently reclassified “cost goods sold” period sales purchases recognized amounts offset effect changes foreign currency rates related sale purchase transactions 2020 2019 2018 company designated certain foreign currency contracts cash flow hedges expected future sales purchases total notional value derivatives designated cash flow hedges 3958 million 3327 million december 31 2020 2019 respectively steel commodity contracts december 2020 company designated certain steel commodity contracts cash flow hedges expected future purchases steel total notional value derivatives designated cash flow hedges approximately 147 million december 31 2020 agco corporation notes consolidated financial statements continued following table summarizes aftertax impact changes fair value derivatives designated cash flow hedges accumulated comprehensive loss net income 2020 2019 2018 millions 1 outstanding contracts december 31 2020 range maturity december 2021 2 outstanding contracts december 31 2020 range maturity may 2021 following table summarizes activity accumulated comprehensive loss related derivatives held company years ended december 31 2020 2019 2018 millions net investment hedges company uses nonderivative derivative instruments hedge portion net investment foreign operations adverse movements exchange rates instruments designated hedges net investments foreign operations changes fair value derivative instruments recorded foreign currency translation adjustments component accumulated comprehensive loss offset changes value net investments hedged net investment foreign operations sold substantially liquidates amounts recorded accumulated comprehensive loss reclassified earnings extent foreign currency denominated debt dedesignated agco corporation notes consolidated financial statements continued net investment hedge relationship changes value foreign currency denominated debt recorded earnings maturity date january 2018 company entered cross currency swap contract hedge net investment foreign operations offset foreign currency translation gains losses net investment cross currency swap expired january 19 2021 maturity cross currency swap contract company delivered notional amount approximately €2457 million approximately 2971 million january 19 2021 received 3000 million counterparties resulting gain approximately 29 million recognized accumulated comprehensive loss company received quarterly interest payments counterparties based fixed interest rate maturity cross currency swap january 29 2021 company entered new cross currency swap contract hedge net investment foreign operations offset foreign currency translation gains losses net investment cross currency swap expiration date january 29 2028 maturity cross currency swap contract company deliver notional amount approximately €2479 million approximately 3009 million january 29 2021 receive 3000 million counterparties company receive quarterly interest payments counterparties based fixed interest rate maturity cross currency swap three months ended march 31 2020 company designated €1100 million multicurrency revolving credit facility maturity date october 17 2023 hedge net investment foreign operations offset foreign currency translation gains losses net investment may 2020 company repaid designated amount outstanding multicurrency revolving credit facility foreign currency denominated debt dedesignated net investment hedge january 2019 september 2019 company designated €1600 million €300 million respectively multicurrency revolving credit facility maturity date october 17 2023 hedge net investment foreign operations offset foreign currency translation gains losses net investment september 2019 company repaid designated amount outstanding multicurrency revolving credit facility foreign currency denominated debt dedesignated net investment hedge following table summarizes notional values instrument designated net investment hedge millions following table summarizes aftertax impact changes fair value instrument designated net investment hedge millions derivative transactions designated hedging instruments 2020 2019 2018 company entered foreign currency contracts economically hedge receivables payables company subsidiaries’ balance sheets denominated foreign currencies functional currency contracts classified nondesignated derivative instruments gains losses contracts substantially offset losses gains remeasurement underlying asset liability hedged immediately recognized earnings december 31 2020 2019 company outstanding foreign currency contracts notional amount approximately 33266 million 28003 million respectively agco corporation notes consolidated financial statements continued following table summarizes impact changes fair value derivatives designated hedging instruments net income millions table sets forth fair value derivative instruments december 31 2020 millions table sets forth fair value derivative instruments december 31 2019 millions former interest rate swap contract company monitors mix shortterm longterm debt regularly time company manages risk interest rate fluctuations use derivative financial instruments 2015 company entered interest rate swap instrument notional amount €3120 million expiration date june 26 2020 swap designated accounted cash flow hedge swap agreement company paid fixed interest rate 033 plus applicable margin counterparty agreement paid floating interest rate based threemonth euribor changes fair value interest rate swap recorded accumulated comprehensive loss subsequently reclassified “interest expense net” rate adjustment period related interest company’s floating rate term loan facility affected earnings result company’s credit facility agreement entered october 2018 repayment €3120 million approximately 3608 million term loan company’s former revolving credit facility well change mix company’s shortterm longterm debt company agco corporation notes consolidated financial statements continued terminated interest rate swap instrument recorded loss approximately 39 million recorded “interest expense net” year ended december 31 2018 refer note 6 information 11 commitments contingencies future payments required company’s significant commitments excluding indebtedness december 31 2020 follows millions 1 estimated interest payments calculated assuming current interest rates minimum maturity periods specified debt agreements debt may repaid sooner later minimum maturity periods unaudited refer note 6 information companys commitments respect indebtedness 2 unconditional purchase obligations exclude routine purchase orders entered normal course business 3 shortterm longterm obligations include estimates future minimum contribution requirements company’s us nonus defined benefit pension postretirement plans estimates based current legislation countries company operates within subject change shortterm longterm obligations also include income tax liabilities related uncertain income tax positions connected ongoing income tax audits various jurisdictions based years statutory expiration uncertain income tax positions included gross certain indirect favorable effects relate tax jurisdictions unaudited see note 5 information offbalance sheet arrangements guarantees company maintains remarketing agreement us finance joint venture agco finance llc whereby company obligated repurchase 60 million repossessed equipment calendar year company believes losses might incurred resale equipment materially impact company’s financial position results operations due fair value underlying equipment december 31 2020 company outstanding guarantees indebtedness owed related third parties approximately 179 million primarily related dealer enduser financing equipment guarantees generally obligate company repay outstanding finance obligations owed financial institutions dealers end users default loans 2026 losses guarantees historically insignificant addition company generally would expect able recover significant portion amounts paid guarantees sale underlying financed farm equipment fair value equipment expected sufficient offset substantial portion amounts paid company also obligations guarantee indebtedness owed certain finance joint ventures dealers end users default loans losses guarantees historically insignificant guarantees material company believes credit risk associated guarantees material addition december 31 2020 company accrued approximately 253 million outstanding guarantees minimum residual values may owed finance joint ventures united states canada due upon expiration certain eligible operating leases finance joint ventures end users maximum potential amount future payments guarantee approximately 854 million agco corporation notes consolidated financial statements continued december 31 2020 company outstanding designated nondesignated foreign exchange contracts gross notional amount approximately 37224 million outstanding contracts december 31 2020 range maturity december 2021 company also outstanding designated steel commodity contracts gross notional amount approximately 147 million range maturity may 2021 see note 10 company sells majority wholesale receivables north america europe brazil us canadian european brazilian finance joint ventures company also sells certain accounts receivable factoring arrangements financial institutions around world company reviewed sale receivables determined facilities accounted offbalance sheet transactions contingencies august 2008 part routine audits brazilian taxing authorities disallowed deductions relating amortization certain goodwill recognized connection reorganization company’s brazilian operations related transfer certain assets company’s brazilian subsidiaries amount tax disallowance december 31 2020 including interest penalties approximately 1315 million brazilian reais approximately 253 million amount ultimately dispute significantly greater interest penalties company advised legal tax advisors position respect deductions allowable tax laws brazil company contesting disallowance believes likely assessment interest penalties required paid however ultimate outcome determined brazilian tax appeal process complete could take several years company party various legal claims actions incidental business company believes none claims actions either individually aggregate material business financial statements whole including results operations financial condition agco corporation notes consolidated financial statements continued 12 fair value financial instruments company categorizes assets liabilities one three levels based assumptions used valuing asset liability estimates fair value financial assets liabilities based fair value hierarchy prioritizes inputs valuation techniques used measure fair value observable inputs highest level reflect market data obtained independent sources unobservable inputs lowest level reflect internally developed market assumptions accordance guidance fair value measurements classified following hierarchy •level 1 quoted prices active markets identical assets liabilities •level 2 quoted prices similar assets liabilities active markets quoted prices identical similar assets liabilities markets active modelderived valuations significant inputs observable corroborated observable market data substantially full term assets liabilities •level 3 modelderived valuations one significant inputs unobservable company categorizes pension plan assets one three levels fair value hierarchy see note 7 discussion valuation methods used measure fair value company’s pension plan assets company enters foreign currency commodity interest rate swap contracts fair values company’s derivative instruments determined using discounted cash flow valuation models significant inputs used models readily available public markets derived observable market transactions therefore classified level 2 inputs used discounted cash flow valuation models derivative instruments include applicable exchange rates forward rates interest rates models used option contracts also use implied volatility see note 10 discussion company’s derivative instruments hedging activities assets liabilities measured fair value recurring basis december 31 2020 2019 summarized millions cash equivalents accounts notes receivable net accounts payable valued carrying amounts company’s consolidated balance sheets due immediate shortterm maturity financial instruments carrying amounts longterm debt company’s senior term loan due 2022 1002 senior term loan due 2025 senior term loans due 2021 2028 approximate fair value based borrowing rates currently available company loans similar terms average maturities see note 6 additional information company’s longterm debt agco corporation notes consolidated financial statements continued 13 related party transactions rabobank financial institution based netherlands 51 owner company’s finance joint ventures located united states canada europe brazil argentina australia rabobank also principal agent participant company’s revolving credit facility see note 6 majority assets company’s finance joint ventures represents finance receivables majority liabilities represents notes payable accrued interest various joint venture agreements rabobank affiliates provide financing joint venture companies primarily lines credit 2020 company made total approximately 19 million additional investments finance joint venture netherlands 2019 2018 company make additional investments finance joint ventures 2020 company receive dividends finance joint ventures 2019 2018 company received approximately 405 million 294 million respectively dividends certain finance joint ventures company’s finance joint ventures provide retail financing wholesale financing dealers terms financing arrangements offered company’s dealers similar arrangements finance joint ventures provide unaffiliated third parties addition company transfers ongoing basis majority wholesale receivables north america europe brazil us canadian european brazilian finance joint ventures see note 3 company maintains remarketing agreement us finance joint venture outstanding guarantees minimum residual values may owed finance joint ventures us canada upon expiration certain eligible operating leases guarantees finance joint ventures material see note 11 addition part sales incentives provided end users company may time subsidize interest rates retail financing provided finance joint ventures cost programs recognized time sale company’s dealers see note 1 company minority equity interest tractors farm equipment limited “tafe” manufactures sells massey fergusonbranded equipment primarily india also supplies tractors components company sale markets october 15 2020 tafe repurchased 461000 shares common stock company approximately 339 million resulting approximate remaining 207 ownership interest mallika srinivasan chairman managing director tafe currently member company’s board directors december 31 2020 tafe beneficially owned 12150152 shares company’s common stock including shares company’s common stock received ms srinivasan service director company tafe parties agreement pursuant among things tafe agreed purchase excess 12150152 shares company’s common stock subject certain adjustments company agreed annually nominate tafe representative board directors 2020 2019 2018 company purchased approximately 789 million 927 million 1096 million respectively tractors components tafe 2020 2019 2018 company sold approximately 13 million 15 million 18 million respectively parts tafe company received dividends tafe approximately 18 million 20 million 18 million 2020 2019 2018 respectively 2020 2019 2018 company paid approximately 33 million 44 million 35 million respectively ppg industries inc painting materials used company’s manufacturing processes company’s chairman president chief executive officer retired effective december 31 2020 serves member board directors ppg industries inc 2020 2019 2018 company paid approximately 56 million 62 million 16 million respectively linde plc parent company praxair inc propane gas welding laser consumables used company’s manufacturing processes company’s chairman president chief executive officer retired effective december 31 2020 served member board directors praxair inc business combination praxair inc linde ag currently member board directors linde plc holding company combined business agco corporation notes consolidated financial statements continued 14 segment reporting company’s four reportable segments distribute full range agricultural equipment related replacement parts company evaluates segment performance primarily based income operations sales segment based location thirdparty customer company’s selling general administrative expenses engineering expenses generally charged segment based region division expenses incurred result components income operations one segment may comparable another segment results years ended december 31 2020 2019 2018 based company’s reportable segments follows millions agco corporation notes consolidated financial statements continued reconciliation segment information consolidated balances income operations total assets set forth millions property plant equipment rightofuse lease assets amortizable intangible assets country december 31 2020 2019 follows millions agco corporation notes consolidated financial statements continued 15 revenue contract liabilities contract liabilities relate following 1 unrecognized revenues advance payment consideration precedes company’s performance respect extended warranty maintenance contracts performance obligation satisfied time 2 unrecognized revenues advance payment consideration precedes company’s performance respect certain grain storage protein production systems performance obligation satisfied time 3 unrecognized revenues advance payment consideration precedes company’s performance respect precision technology services performance obligation satisfied time significant changes balance contract liabilities years ended december 31 2020 2019 follows millions contract liabilities classified either “other current liabilities” noncurrent liabilities “accrued expenses” company’s consolidated balance sheets remaining performance obligations estimated revenues expected recognized future related performance obligations unsatisfied partially unsatisfied december 31 2020 524 million 2021 462 million 2022 276 million 2023 119 million 2024 38 million thereafter relate primarily extended warranty contracts company applied practical expedient asu 201409 disclosed information remaining performance obligations original expected durations 12 months less agco corporation notes consolidated financial statements continued disaggregated revenue net sales year ended december 31 2020 disaggregated primary geographical markets major products consisted following millions agco corporation notes consolidated financial statements continued net sales year ended december 31 2019 disaggregated primary geographical markets major products consisted following millions agco corporation notes consolidated financial statements continued net sales year ended december 31 2018 disaggregated primary geographical markets major products consisted following millions 1rounding may impact summation amounts agco corporation notes consolidated financial statements continued 16 leases company leases certain land buildings machinery equipment vehicles office computer equipment finance operating leases company adopted asu 201602 “leases” effective january 1 2019 new standard lessees required record asset rou asset finance lease asset lease liability new standard continues allow two types leases income statement recognition purposes operating leases finance leases operating leases result recognition single lease expense straightline basis lease term similar treatment operating leases previous us gaap finance leases result accelerated expense also similar previous us gaap asu 201602 also contains amended guidance regarding identification embedded leases service supply contracts well identification lease nonlease components arrangement rou assets represent company’s right use underlying asset lease term lease liabilities represent company’s obligation make lease payments lease term leases greater 12 months result recognition rou asset liability lease commencement date based present value lease payments lease term present value lease payments calculated using applicable weightedaverage discount rate weightedaverage discount rate based discount rate implicit lease implicit rate readily determinable lease company estimates applicable incremental borrowing rate incremental borrowing rate estimated using currency denomination lease contractual lease term company’s applicable borrowing rate company recognize rou asset lease liability respect operating leases initial term 12 months less recognizes expense leases straightline basis lease term company accounts lease components separately nonlease components real estate office equipment company evaluated supplier agreements existence leases determined leases comprised insignificant portion supplier agreements leases material company’s consolidated balance sheets company certain leases contain one options terminate renew extend lease term 17 years options company reasonably certain exercise included lease term depreciable life rou assets leasehold improvements limited expected lease term company certain lease agreements include variable rental payments adjusted periodically inflation based index rate defined applicable government authority generally company’s lease agreements contain residual value guarantees restrictive covenants total lease assets liabilities december 31 2020 2019 follows millions 1 finance lease assets recorded net accumulated depreciation 156 million 152 million december 31 2020 2019 respectively agco corporation notes consolidated financial statements continued total lease cost 2020 2019 set forth millions 1 depreciation expense included cost sales selling general administrative expenses lease payment amounts operating finance leases remaining terms greater one year december 31 2020 follows millions 1 calculated using implicit interest rate lease payment amounts operating finance leases remaining terms greater one year december 31 2019 follows millions 1 calculated using implicit interest rate lease agco corporation notes consolidated financial statements continued following table summarizes weightedaverage remaining lease term weightedaverage discount rate following table summarizes supplemental cash flow information 2020 2019 millions item 9item 8 financial statements supplementary data following financial statements registrant subsidiaries included pages 28 50 annual report stockholders year ended december 31 1996 incorporated herein reference consolidated statements income years ended december 31 1996 1995 1994 consolidated balance sheets december 31 1996 1995 consolidated statements stockholders equity years ended december 31 1996 1995 1994 consolidated statements cash flows years ended december 31 1996 1995 1994 notes consolidated financial statements report independent public accountants information heading quarterly results pages 24 25 annual report stockholders year ended december 31 1996 incorporated herein reference item 9item 8 financial statements supplementary data following consolidated financial statements agco subsidiaries years threeyear period ended december 31 2018 included item information heading “quarterly results” item 7 form 10k incorporated herein reference report independent registered public accounting firm stockholders board directors agco corporation opinion consolidated financial statements audited accompanying consolidated balance sheets agco corporation subsidiaries company december 31 2018 2017 related consolidated statements operations comprehensive income loss stockholders’ equity cash flows years threeyear period ended december 31 2018 related notes financial statement schedule collectively consolidated financial statements opinion consolidated financial statements present fairly material respects financial position company december 31 2018 2017 results operations cash flows years threeyear period ended december 31 2018 conformity us generally accepted accounting principles also audited accordance standards public company accounting oversight board united states pcaob company’s internal control financial reporting december 31 2018 based criteria established internal control integrated framework 2013 issued committee sponsoring organizations treadway commission report dated march 1 2019 expressed unqualified opinion effectiveness company’s internal control financial reporting change accounting principle discussed note 1 consolidated financial statements company changed method accounting revenue recognition 2018 due adoption accounting standards codification 606 revenue contracts customers basis opinion consolidated financial statements responsibility company’s management responsibility express opinion consolidated financial statements based audits public accounting firm registered pcaob required independent respect company accordance us federal securities laws applicable rules regulations securities exchange commission pcaob conducted audits accordance standards pcaob standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement whether due error fraud audits included performing procedures assess risks material misstatement consolidated financial statements whether due error fraud performing procedures respond risks procedures included examining test basis evidence regarding amounts disclosures consolidated financial statements audits also included evaluating accounting principles used significant estimates made management well evaluating overall presentation consolidated financial statements believe audits provide reasonable basis opinion kpmg llp served company’s auditor since 2002 atlanta georgia march 1 2019 agco corporation consolidated statements operations millions except per share data see accompanying notes consolidated financial statements agco corporation consolidated statements comprehensive income loss millions see accompanying notes consolidated financial statements agco corporation consolidated balance sheets millions except share amounts see accompanying notes consolidated financial statements agco corporation consolidated statements stockholders’ equity millions except share amounts see accompanying notes consolidated financial statements agco corporation consolidated statements cash flows millions see accompanying notes consolidated financial statements agco corporation notes consolidated financial statements 1 operations summary significant accounting policies business agco corporation subsidiaries “agco” “company” leading manufacturer distributor agricultural equipment related replacement parts throughout world company sells full range agricultural equipment including tractors combines hay tools sprayers forage equipment seeding tillage equipment implements grain storage protein production systems company’s products widely recognized agricultural equipment industry marketed number wellknown brand names including challenger® fendt® gsi® massey ferguson® valtra® company distributes products combination approximately 4050 independent dealers distributors well company utilizes associates licensees provide distribution channel products addition company provides retail financing finance joint ventures coöperatieve centrale raiffeisenboerenleenbank ba “rabobank” basis presentation consolidation company’s consolidated financial statements represent consolidation whollyowned companies majorityowned companies joint ventures company determined primary beneficiary company consolidates variable interest entity “vie” company determines primary beneficiary primary beneficiary vie party power direct activities significantly impact entity’s economic performance obligation absorb losses right receive benefits potentially could significant vie company also consolidates entities considered vies determined company controlling voting interest direct activities significantly impact joint venture entity company records investments affiliate companies using equity method accounting significant influence investments including representing ownership interest less 20 recorded cost significant intercompany balances transactions eliminated consolidated financial statements certain prior period amounts reclassified conform current period presentation use estimates preparation financial statements conformity us generally accepted accounting principles “gaap” requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ estimates made management primarily relate accounts notes receivable inventories deferred income tax valuation allowances uncertain tax positions goodwill identifiable intangible assets certain accrued liabilities principally relating reserves volume discounts sales incentives warranty obligations product liability workers’ compensation obligations pensions postretirement benefits foreign currency translation financial statements company’s foreign subsidiaries translated united states currency accordance accounting standards codification “asc” 830 “foreign currency matters” assets liabilities translated united states dollars periodend exchange rates income expense items translated average rates exchange prevailing period translation adjustments included “accumulated comprehensive loss” stockholders’ equity within company’s consolidated balance sheets gains losses result foreign currency transactions included accompanying consolidated statements operations company whollyowned subsidiary argentina manufactures distributes agricultural equipment replacement parts within argentina june 30 2018 basis currently available data related inflation indices result devaluation argentine peso relative united states dollar argentinian economy determined highly inflationary highly inflationary economy one cumulative inflation rate three years preceding beginning reporting period including interim reporting periods excess 100 percent result designation based guidance asc 830 company changed functional currency whollyowned subsidiary argentinian peso us dollar effective july 1 2018 yearended ended december 31 2018 company’s whollyowned subsidiary argentina net sales approximately 926 million total assets agco corporation notes consolidated financial statements continued approximately 1045 million december 31 2018 monetary assets liabilities denominated argentine peso approximately 280 million approximately 136 million respectively december 31 2018 monetary assets liabilities remeasured based current published exchange rates cash equivalents cash december 31 2018 2017 2905 million 3170 million respectively consisted primarily cash hand bank deposits company considers investments original maturity three months less cash equivalents cash equivalents december 31 2018 2017 356 million 507 million respectively consisted primarily money market deposits certificates deposits overnight investments accounts notes receivable accounts notes receivable arise sale equipment replacement parts independent dealers distributors customers united states canada amounts due sales dealers immediately due upon retail sale underlying equipment dealer exception sales grain storage protein production systems discussed previously paid dealer united states canada installment payments required generally beginning interestfree period remaining outstanding equipment balance generally due within 12 months shipment delivery interestfree periods vary product generally range one 12 months limited circumstances company provides sales terms cases interestfree periods longer 12 months certain products typically specified programs predominately united states canada allow interestfree periods due dates 24 months certain products depending year sale dealer distributor’s ordering sales volume preceding year interest generally charged prime lending rates outstanding receivable balances shipment delivery interestfree periods sales terms highly seasonal products provide payment due dates based specified date year regardless shipment date equipment sold dealers united states canada paid full average within 12 months shipment sales replacement parts generally payable within 30 days shipment terms larger seasonal stock orders generally requiring payment within six months shipment normal circumstances equipment may returned certain regions respect equipment sales including united states canada company obligated repurchase equipment replacement parts upon cancellation dealer distributor contract obligations required national state provincial laws require company repurchase dealer distributor’s unsold inventory including inventories receivable already paid actual interestfree periods shorter described equipment receivable dealers distributors countries united states canada generally due immediately upon sale equipment retail customer discussed receivables also paid prior terms specified sales agreements normal circumstances interest forgiven interestfree periods extended international markets equipment sales generally payable full within 30 180 days shipment delivery payment terms highly seasonal products specified due date year regardless shipment delivery date sales markets outside united states canada company generally charge interest outstanding receivables dealers distributors sales replacement parts generally payable within 30 90 days shipment terms larger seasonal stock orders generally payable within six months shipment certain markets time lag varies based timing level retail demand date company records sale dealer sells equipment retail customer sales grain storage protein production systems generally payable within 30 days shipment certain countries sales systems company responsible construction installation may contingent upon customer acceptance payment terms vary market product fixed payment schedules sales agco corporation notes consolidated financial statements continued following summarizes geographic region percentage consolidated net sales amounts maximum interestfree periods presented millions company agreement permit transferring ongoing basis majority wholesale interestbearing noninterest bearing accounts receivable north america europe brazil us canadian european brazilian finance joint ventures qualified dealers may obtain additional financing company’s us canadian european brazilian finance joint ventures joint ventures’ discretion company provides various volume bonus sales incentive programs respect products sales incentive programs include reductions invoice prices reductions retail financing rates dealer commissions dealer incentive allowances cases incentive programs established communicated company’s dealers quarterly basis incentives paid either time cash settlement receivable generally time retail sale time retail financing time warranty registration subsequent time based dealer purchase volumes incentive programs productline specific generally vary dealer cost sales incentives associated dealer commissions dealer incentive allowances estimated based upon terms programs historical experience based percentage sales price estimates sales incentives made recorded time sale existing incentive programs using expected value method estimates reassessed reporting period revised event subsequent modifications incentive programs communicated dealers related provisions accruals made product productline basis monitored adequacy revised least quarterly event subsequent modifications programs interest rate subsidy payments reduction retail finance rates recorded manner dealer commissions dealer incentive allowances volume discounts estimated recognized based historical experience related reserves monitored adjusted based actual dealer purchase volumes dealer’s progress towards achieving specified cumulative target levels incentive programs recorded presented reduction revenue due fact company receive distinct good service exchange consideration provided united states canada reserves incentive programs related accounts receivable sold company’s us canadian finance joint ventures recorded “accounts receivable allowances” within company’s consolidated balance sheets due fact incentives paid reduction future cash settlement receivable globally reserves incentive programs paid cash credit memos case company’s volume discount programs well sales incentives associated accounts receivable sold finance joint ventures recorded within “accrued expenses” within company’s consolidated balance sheets accounts notes receivable shown net allowances sales incentive discounts available dealers doubtful accounts cash flows related collection receivables reported within “cash flows operating activities” within company’s consolidated statements cash flows accounts notes receivable allowances december 31 2018 2017 follows millions united states canada sales incentives paid future cash settlements receivables credit memos company’s dealers reductions retail financing rates paid company’s finance joint ventures outside united states canada sales incentives paid cash credit memos company’s dealers reductions retail financing rates paid company’s finance joint ventures company transfers certain accounts receivable accounts receivable sales agreements finance joint ventures note 4 company records transfers sales accounts receivable considered surrendered control agco corporation notes consolidated financial statements continued receivables provisions accounting standards update “asu” 200916 “transfers servicing topic 860 accounting transfers financial assets” cash payments made company’s finance joint ventures sales incentive discounts provided dealers related outstanding accounts receivables sold recorded within “accrued expenses” inventories valued lower cost market using firstin firstout method market current replacement cost purchase reproduction dependent type inventory cases market exceeds net realizable value ie estimated selling price less reasonably predictable costs completion disposal inventories stated net realizable value market considered less net realizable value reduced allowance approximately normal profit margin december 31 2018 2017 company recorded 1566 million 1657 million respectively adjustment surplus obsolete inventories adjustments reflected within “inventories net” within company’s consolidated balance sheets inventories net december 31 2018 2017 follows millions cash flows related sale inventories reported within “cash flows operating activities” within company’s consolidated statements cash flows recoverable indirect taxes company’s brazilian operations incur value added taxes “vat” certain purchases raw materials components services taxes accumulated tax credits create assets reduced vat collected company’s sales brazilian market company regularly assesses recoverability tax credits establishes reserves necessary analyses include amongst others history realization transfer tax credits third parties authorized government anticipated changes supply chain future expectation tax debits company’s ongoing operations company believes tax credits net established reserves realizable company recorded approximately 1560 million 1523 million respectively vat tax credits net reserves december 31 2018 2017 property plant equipment property plant equipment recorded cost less accumulated depreciation amortization depreciation provided straightline basis estimated useful lives ten 40 years buildings improvements three 15 years machinery equipment three ten years furniture fixtures expenditures maintenance repairs charged expense incurred agco corporation notes consolidated financial statements continued property plant equipment net december 31 2018 2017 consisted following millions goodwill intangible assets longlived assets company tests goodwill impairment reporting unit level annually events circumstances indicate fair value reporting unit may carrying value reporting unit operating segment one level operating segment example component company combines aggregates two components operating segment single reporting unit components similar economic characteristics company’s reportable segments reporting units goodwill evaluated annually october 1 impairment using qualitative assessment quantitative twostep assessment company elects perform qualitative assessment determines fair value reporting units likely exceed carrying value evaluation necessary reporting units company performs twostep quantitative assessment first step requires company compare fair value reporting unit determined based combination discounted cash flow valuation approach market multiple valuation approach respective carrying value including goodwill fair value reporting unit exceeds carrying value goodwill considered impaired carrying value higher fair value reporting unit second step quantitative process required measure amount impairment second step quantitative assessment results calculation implied fair value reporting unit’s goodwill determined excess fair value reporting unit fair values assigned assets liabilities implied fair value goodwill less carrying value reporting unit’s goodwill difference recognized impairment loss company reviews longlived assets include intangible assets subject amortization impairment whenever events changes circumstances indicate carrying amount asset may recoverable evaluation recoverability performed level independent cash flows may attributed either asset group company determines carrying amount asset group recoverable based expected undiscounted future cash flows asset group impairment loss recorded equal excess carrying amounts estimated fair value longlived assets estimates future cash flows based many factors including current operating results expected market trends competitive influences company also evaluates amortization periods assigned intangible assets determine whether events changes circumstances warrant revised estimates useful lives assets disposed sale reported lower carrying amount fair value less estimated costs sell results company’s goodwill longlived assets impairment analyses conducted october 1 2018 2017 2016 indicated reduction carrying amount company’s goodwill longlived assets required company’s accumulated goodwill impairment approximately 1805 million related impairment charges company recorded 2012 2006 pertaining chinese harvesting reporting unit former sprayer reporting unit respectively chinese harvesting business operates within asiapacificafrica geographical reportable segment former sprayer reporting unit operates within north american geographical reportable segment agco corporation notes consolidated financial statements continued changes carrying amount goodwill years ended december 31 2018 2017 2016 summarized follows millions company amortizes certain acquired identifiable intangible assets primarily straightline basis estimated useful lives range three 50 years acquired intangible assets weighted average useful life follows years ended december 31 2018 2017 2016 acquired intangible asset amortization 647 million 570 million 512 million respectively company estimates amortization existing intangible assets 612 million 2019 603 million 2020 583 million 2021 578 million 2022 556 million 2023 company previously determined two trademarks indefinite useful life massey ferguson trademark existence since 1952 formed merger masseyharris established 1890’s ferguson established 1930’s massey ferguson brand currently sold approximately 110 countries worldwide making one widely sold tractor brands world company also identified valtra trademark indefinitelived asset valtra trademark existence since late 1990’s derivative valmet trademark existence since 1951 valmet name transitioned valtra name period time marketplace valtra brand currently sold 75 countries around world massey ferguson brand valtra brand primary product lines company’s business company plans use trademarks indefinite period time company plans continue make investments product development enhance value brands future legal regulatory contractual competitive economic factors company aware company believes would limit useful lives trademarks massey ferguson valtra trademark registrations renewed nominal cost countries company operates agco corporation notes consolidated financial statements continued changes carrying amount acquired intangible assets 2018 2017 summarized follows millions accrued expenses accrued expenses december 31 2018 2017 consisted following millions agco corporation notes consolidated financial statements continued warranty reserves warranty reserve activity years ended december 31 2018 2017 2016 consisted following millions company’s agricultural equipment products generally warranty defects materials workmanship period one four years company accrues future warranty costs time sale based historical warranty experience approximately 523 million 424 million warranty reserves included “other noncurrent liabilities” company’s consolidated balance sheets december 31 2018 2017 respectively company recognizes recoveries costs associated warranties provides collection probable specifics recovery agreed upon company’s suppliers confirmation liability recovery company records recovery within “accounts notes receivable net” estimates amount warranty claim recoveries received company’s suppliers based upon contractual supplier arrangements recorded within “other current assets” insurance reserves company’s insurance programs coverage obtained significant liability limits well risks required insured law contract policy company selfinsure portion certain expected losses primarily related workers’ compensation comprehensive general liability product vehicle liability provisions losses expected programs recorded based company’s estimates aggregate liabilities claims incurred stock incentive plans stock compensation expense recorded follows millions refer note 10 additional information regarding company’s stock incentive plans 2018 2017 2016 research development expenses research development expenses expensed incurred included engineering expenses company’s consolidated statements operations advertising costs company expenses advertising costs incurred cooperative advertising costs normally expensed time revenue earned advertising expenses years ended december 31 2018 2017 2016 totaled approximately 423 million 400 million 449 million respectively agco corporation notes consolidated financial statements continued shipping handling expenses shipping handling fees charged customers included component net sales shipping handling costs included part cost goods sold exception certain handling costs included selling general administrative expenses amount 379 million 354 million 305 million years ended december 31 2018 2017 2016 respectively interest expense net interest expense net years ended december 31 2018 2017 2016 consisted following millions company repurchased 578 senior notes due december 1 2021 2018 result recorded approximately 245 million loss extinguishment debt reflected “interest expense net” offset approximately 47 million accelerated amortization deferred gain related terminated interest rate swap agreement associated senior notes refer note 7 information income taxes income taxes accounted asset liability method deferred tax assets liabilities recognized future tax consequences attributable differences financial statement carrying amounts existing assets liabilities respective tax bases operating loss tax credit carryforwards deferred tax assets liabilities measured using enacted tax rates expected apply taxable income years temporary differences expected recovered settled effect deferred tax assets liabilities change tax rates recognized income period includes enactment date refer note 6 additional information regarding company’s income taxes net income per common share basic net income per common share computed dividing net income weighted average number common shares outstanding period diluted net income per common share assumes exercise outstanding stocksettled stock appreciation rights “ssars” vesting performance share awards restricted stock units using treasury stock method effects assumptions dilutive reconciliation net income attributable agco corporation subsidiaries weighted average common shares outstanding purposes calculating basic diluted net income per share years ended december 31 2018 2017 2016 follows millions except per share data agco corporation notes consolidated financial statements continued ssars purchase 05 million shares 03 million shares 11 million shares company’s common stock outstanding years ended december 31 2018 2017 2016 respectively included calculation weighted average common equivalent shares outstanding antidilutive impact comprehensive income loss company reports comprehensive income loss defined total net income loss nonowner changes equity components thereof consolidated statements stockholders’ equity consolidated statements comprehensive income components comprehensive loss income related tax effects years ended december 31 2018 2017 2016 follows millions derivatives company uses foreign currency contracts hedge foreign currency exposure certain receivables payables contracts periods consistent exposure hedged generally maturities one year less contracts classified nondesignated derivative instruments company also enters foreign currency contracts designated cash flow hedges expected sales company’s foreign currency contracts mitigate risk due exchange rate fluctuations gains losses contracts generally offset losses gains exposure hedged notional amounts foreign currency contracts represent amounts exchanged parties therefore measure company’s risk amounts exchanged calculated basis notional amounts terms contracts credit market risks contracts considered significant agco corporation notes consolidated financial statements continued company’s interest expense part sensitive general level interest rates company manages exposure interest rate risk mix floating rate fixed rate debt time company enters interest rate swap agreements order manage company’s exposure interest rate fluctuations company uses nonderivative periodically derivative instruments hedge portion company’s net investment foreign operations adverse movements exchange rates company’s hedging policy prohibits entering foreign currency contracts speculative trading purposes refer note 11 additional information regarding company’s derivative instruments hedging activities recent accounting pronouncements august 2018 financial accounting standards board “fasb” issued accounting standards update “asu” 201814 “disclosure framework changes disclosure requirements defined benefit plans” “asu 201814” standard revises annual disclosure requirements removing disclosures longer considered cost beneficial clarifying specific requirements disclosures adding certain disclosures identified relevant asu 201814 effective annual periods beginning december 15 2020 standard applied retrospective basis periods presented early adoption permitted company early adopted standard year ended december 31 2018 standard impact company’s results operations financial condition cash flows august 2018 fasb issued asu 201813 “disclosure framework changes disclosure requirements fair value measurement” “asu 201813” standard revises disclosure requirements removing disclosures longer considered cost beneficial modifying specific requirements disclosures adding certain disclosures identified relevant asu 201813 effective annual periods beginning december 15 2019 interim periods within annual periods early adoption permitted certain amendments standard applied prospectively recent interim annual period presented initial fiscal year adoption amendments standard applied retrospectively periods presented standard impact company’s results operations financial condition cash flows february 2018 fasb issued asu 201802 “reclassification certain tax effects accumulated comprehensive income” “asu 201802” allows election reclassify disproportionate income tax effects tax cuts jobs act “2017 tax act” items within accumulated comprehensive income loss retained earnings disproportionate income tax effect items referred “stranded tax effects” amendments within asu 201802 relate reclassification income tax effects 2017 tax act certain disclosures required period adoption whether entity elected reclassify stranded tax effects asu 201802 effective annual periods beginning december 15 2018 interim periods within annual periods standard applied either period adoption retrospectively period effect change us corporate income tax rate 2017 tax act recognized early adoption permitted interim annual period company currently evaluating impact adopting standard company’s results operations financial condition cash flows expect impact material august 2017 fasb issued asu 201712 “targeted improvements accounting hedging activities” “asu 201712” aligns entity’s risk management activities financial reporting hedge relationships changes designation measurement guidance qualifying hedging relationships presentation hedge results amendments include 1 ability apply hedge accounting risk components hedging relationships involving nonfinancial risk interest rate risk 2 new alternatives measuring hedged item fair value hedges interest rate risk 3 elimination requirement separately measure report hedge ineffectiveness 4 requirement present earnings effect hedging instrument income statement line earnings effect hedged item reported 5 less stringent requirements effectiveness testing hedge documentation applying critical terms match method asu 201712 effective annual periods beginning december 15 2018 interim periods within annual periods using prospective approach early adoption permitted interim annual period amendments applied existing hedging relationships date adoption company adopted standard january 1 2018 standard material impact company’s results operations financial condition cash flows agco corporation notes consolidated financial statements continued march 2017 fasb issued asu 201707 “improving presentation net periodic pension cost net periodic postretirement benefit cost” “asu 201707” requires service cost component net periodic pension postretirement benefit cost included line item compensation costs arising services rendered employees components net periodic pension postretirement benefit cost required classified outside subtotal income operations components net periodic pension postretirement benefit cost service cost component eligible asset capitalization asu 201707 effective annual periods beginning december 15 2017 interim periods within annual periods using retrospective approach presentation service cost component components net periodic pension postretirement benefit cost statement operations prospective approach capitalization service cost component net periodic pension postretirement benefit cost assets early adoption permitted interim annual period asu 201707 allows practical expedient applying retrospective presentation requirementsthe company adopted asu 201707 january 1 2018 restrospectively applied standard presentation components net periodic pension postretirement benefit costs company’s consolidated statements operations part adoption company elected use practical expedient allowed company use information previously disclosed basis applying retrospective presentation requirements standard year ended december 31 2017 2016 company reclassified approximately 11 million expense 14 million income related components net periodic pension postretirement costs “selling general administrative expenses” “engineering expenses” “other expenses net” result retrospective application asu 201707 january 2017 fasb issued asu 201704 “simplifying test goodwill impairment” “asu 201704” eliminates step 2 goodwill impairment test standard entity perform goodwill impairment test comparing fair value reporting unit carrying amount resulting impairment charge amount carrying amount exceeds reporting unit’s fair value impairment charge however exceed total amount goodwill allocated reporting unit impairment assessment asu 201704 applies reporting units including zero negative carrying amount asu 201704 effective annual periods beginning december 15 2019 interim periods within annual periods using prospective approach early adoption permitted interim annual goodwill impairment test performed testing dates january 1 2017 company expects adopt asu 201704 effective january 1 2020 apply standard impairment tests performed thereafter november 2016 fasb issued asu 201618 “restricted cash” “asu 201618” requires statement cash flows explain change period total cash equivalents amounts generally described restricted cash restricted cash equivalents result amounts generally described restricted cash restricted cash equivalents included cash equivalents reconciling beginningofperiod endofperiod total amounts shown statement cash flows asu 201618 effective annual periods beginning december 15 2017 interim period within annual periods using retrospective approach early adoption permitted interim annual period company adopted asu 201618 january 1 2018 adoption material impact cash flows october 2016 fasb issued asu 201616 “intraentity transfers assets inventory” “asu 201616” requires recognition income tax consequences intraentity transfer asset inventory transfer occurs consequently standard eliminates exception recognition current deferred income taxes intraentity asset transfer inventory asset sold outside party asu 201616 effective annual periods beginning december 15 2017 interim periods within annual periods using modified retrospective approach early adoption permitted interim annual period company adopted asu 201616 january 1 2018 adoption material impact results operations financial condition cash flows june 2016 fasb issued asu 201613 “measurement credit losses financial instruments” “asu 201613” requires measurement recognition expected versus incurred credit losses financial assets held asu 201613 effective annual periods beginning december 15 2019 interim periods within annual periods adoption standard relates company however standard adopted company’s finance joint ventures annual periods beginning december 15 2020 interim periods within annual periods standard likely impact results operations financial condition company’s finance joint ventures result likely impact company’s “investment affiliates” “equity net earnings affiliates” agco corporation notes consolidated financial statements continued upon adoption company’s finance joint ventures currently evaluating standard’s impact results operations financial condition february 2016 fasb issued asu 201602 “leases” “asu 201602” superseded existing lease guidance current us gaap asu 201602 based principle entities recognize assets liabilities arising leases new standard significantly change lessees’ recognition measurement presentation expenses cash flows previous accounting standard leases continue classified finance operating asu 201602’s primary change requirement entities recognize lease liability payments rightofuse “rou” asset representing right use leased asset term operating lease arrangement lessees permitted make accounting policy election recognize asset liability leases term 12 months less lessors’ accounting new standard largely unchanged previous accounting standard addition asu 201602 expanded disclosure requirements lease arrangements new standard effective reporting periods beginning december 15 2018 interim periods within annual periods upon adoption lessees lessors required recognize measure leases beginning earliest period presented using modified retrospective approach july 2018 fasb issued asu 201811 “targeted improvements” allowed new optional transition method provided option use effective date initial application transition option comparative periods would continue apply legacy guidance asc 840 including disclosure requirements cumulative effect adjustment would recognized period adoption rather earliest period presented transition option comparative reporting would required provisions standard would applied prospectively leases effect date adoption company completed design new processes internal controls included implementation software solution evaluation company’s population leased assets assess effect new guidance company’s financial statements company adopted new guidance effective january 1 2019 using modified retrospective approach cumulative effect adjustment “retained earnings” beginning period adoption new standard provided number optional practical expedients transition company elected “package practical expedients” permitted company reassess new standard prior conclusions lease identification lease classification initial direct costs new standard material impact company’s consolidated balance sheets related recognition new rou assets lease liabilities operating leases well providing new disclosures company’s leasing activities company expect material changes leasing activities subsequent adoption based company’s current lease portfolio adoption standard january 1 2019 expected result rou assets liabilities ranging 1950 million 2150 million company elected shortterm lease exemption leases term 12 months less existing ongoing leases company elected practical expedient separate lease nonlease components majority leases real estate office equipment leases may 2014 fasb issued asu 201409 “revenue contracts customers” “asu 201409” provides single comprehensive revenue recognition model contracts customers fivestep analysis determining revenue recognized new model requires revenue recognition depict transfer promised goods services customers amount reflects consideration expected received exchange goods services additional disclosures also required enable users understand nature amount timing uncertainty revenue cash flows arising contracts customers including significant judgments changes judgments entities option apply new standard full retrospective approach prior reporting period presented modified retrospective approach cumulative effect initial adoption application within consolidated statement stockholders’ equity company adopted asu 201409 application date january 1 2018 using modified retrospective approach method company recognized cumulative effect initially applying asu 201409 adjustment opening balance stockholders’ equity january 1 2018 within “retained earnings” cumulative effect approximately 04 million related recognition contract assets contract liabilities value expected replacement parts returns comparative information adjusted continues reported asu 200913 “revenue recognition” details significant changes quantitative impact changes discussed company enhanced accounting policies practices business processes systems controls well designed implemented specific internal controls implementation adherence standard including new disclosure requirements company various promotional annual return programs respect sale replacement parts whereby company’s dealers distributors customers return specified replacement parts pursuant programs company previously recognized revenue sale replacement parts recorded corresponding provision amount expected returns time sale pursuant adoption asu 201409 company recognized contract asset right recover returned replacement parts cost reflected within “other current assets” agco corporation notes consolidated financial statements continued company’s consolidated balance sheets conversely provision expected returns recorded sales value expected returns reflected contract liability within “accrued expenses” company’s estimates returns based terms promotional annual return programs anticipated returns future following table summarizes impact adopting asu 201409 company’ consolidated balance sheet december 31 2018 millions impact adopting asu 201409 consolidated statement operations consolidated statement cash flows year ended december 31 2018 material agco corporation notes consolidated financial statements continued 2 acquisitions october 2 2017 company acquired hay forage division lely group “lely” approximately €802 million approximately 946 million net cash acquired approximately €101 million approximately 119 million lely acquisition manufacturing locations northern germany allow company expand product offering hay forage equipment including balers loader wagons acquisition financed company’s credit facility note 7 fair values assets acquired liabilities assumed acquisition date presented following table millions acquired identifiable intangible assets lely date acquisition summarized following table millions results operations lely included company’s consolidated financial statements date acquisition associated goodwill included company’s europemiddle east geographical reportable segment proforma results related acquisition material september 1 2017 company acquired precision planting llc “precision planting” approximately 1981 million net cash acquired approximately 16 million precision planting headquartered tremont illinois leading manufacturer hightech planting equipment acquisition precision planting provided company opportunity expand precision farming technology offerings global basis acquisition financed company’s credit facility note 7 agco corporation notes consolidated financial statements continued fair values assets acquired liabilities assumed acquisition date presented following table millions acquired identifiable intangible assets precision planting date acquisition summarized following table millions results operations precision planting included company’s consolidated financial statements date acquisition associated tax deductible goodwill included company’s north america geographical reportable segment proforma results related acquisition material september 12 2016 company acquired cimbria holdings limited “cimbria” dkk 22349 million approximately 3375 million net cash acquired approximately dkk 834 million approximately 126 million cimbria headquartered thisted denmark leading manufacturer products solutions processing handling storage seed grain acquisition financed company’s credit facility note 7 fair values assets acquired liabilities assumed acquisition date presented following table millions agco corporation notes consolidated financial statements continued acquired identifiable intangible assets cimbria date acquisition summarized following table millions results operations cimbria included company’s consolidated financial statements date acquisition associated goodwill included company’s europemiddle east asiapacificafrica geographical reportable segments february 2 2016 company acquired tecno poultry equipment spa “tecno” approximately €587 million approximately 638 million company acquired cash approximately €176 million approximately 191 million associated acquisition tecno headquartered ronchi di villafranca italy manufactures supplies poultry housing related products including egg collection equipment trolley feeding systems acquisition financed company’s credit facility note 7 company allocated purchase price assets acquired liabilities assumed based fair values acquisition date acquired net assets primarily consisted accounts receivable inventories accounts payable accrued expenses deferred revenue property plant equipment customer relationship technology trademark identifiable intangible assets company recorded approximately 275 million customer relationship technology trademark identifiable intangible assets approximately 204 million goodwill associated acquisition results operations tecno included company’s consolidated financial statements date acquisition associated goodwill included company’s europemiddle east north america geographical reportable segments acquired identifiable intangible assets tecno date acquisition summarized following table millions agco corporation notes consolidated financial statements continued 3 restructuring expenses beginning 2014 2018 company announced initiated several actions rationalize employee headcount various manufacturing facilities various administrative offices located europe south america china united states order reduce costs response softening global market demand lower production volumes aggregate headcount reduction approximately 3370 employees 2014 2017 2018 company recorded severance related costs associated rationalizations connection termination approximately 520 employees components restructuring expenses summarized follows millions agco corporation notes consolidated financial statements continued 4 accounts receivable sales agreements december 31 2018 2017 company accounts receivable sales agreements permit sale ongoing basis majority wholesale receivables north america europe brazil us canadian european brazilian finance joint ventures december 31 2018 2017 cash received receivables sold us canadian european brazilian accounts receivable sales agreements approximately 14 billion 13 billion respectively terms accounts receivable sales agreements north america europe brazil company pays annual servicing fee related servicing receivables sold company also pays respective agco finance entities interest payment calculated based upon libor plus margin noninterest bearing accounts receivable outstanding sold sales agreements fees reflected within losses sales receivables included within “other expense net” company’s consolidated statements operations company service receivables sale occurs maintain direct retained interest receivables company reviewed accounting accounts receivable sales agreements determined facilities accounted offbalance sheet transactions losses sales receivables associated accounts receivable financing facilities discussed reflected within “other expense net” company’s consolidated statements operations approximately 360 million 392 million 195 million 2018 2017 2016 respectively company’s finance joint ventures europe brazil australia also provide wholesale financing directly company’s dealers receivables associated arrangements without recourse company service receivables sale occurs maintain direct retained interest receivables december 31 2018 2017 finance joint ventures approximately 825 million 416 million respectively outstanding accounts receivable associated arrangements company reviewed accounting arrangements determined arrangements accounted offbalance sheet transactions addition company sells certain trade receivables factoring arrangements financial institutions around world company reviewed sale receivables determined arrangements accounted offbalance sheet transactions 5 investments affiliates investments affiliates december 31 2018 2017 follows millions company’s finance joint ventures located united states canada europe brazil argentina australia provide retail financing wholesale financing company’s retail customers dealers respectively refer note 14 information company’s manufacturing joint ventures consist groupement international de mecanique agricole sa “gima” joint venture thirdparty manufacturer purchase design manufacture components agricultural equipment france joint venture thirdparty manufacturer assemble tractors algeria joint venture thirdparty manufacturer manufacture protein production equipment china joint ventures represent investments farm equipment manufacturers electronic software system manufacturer distributors licensees agco corporation notes consolidated financial statements continued company’s equity net earnings affiliates years ended december 31 2018 2017 2016 follows millions summarized combined financial information company’s finance joint ventures december 31 2018 2017 years ended december 31 2018 2017 2016 follows millions majority assets company’s finance joint ventures represent finance receivables majority liabilities represent notes payable accrued interest various joint venture agreements rabobank affiliates provide financing joint venture companies agco 49 interest company’s finance joint ventures note 14 december 31 2018 2017 company’s receivables affiliates approximately 129 million 234 million respectively receivables affiliates reflected within “accounts notes receivable net” within company’s consolidated balance sheets portion company’s retained earnings balance represents undistributed retained earnings equity method investees approximately 3269 million 3219 million december 31 2018 2017 respectively 6 income taxes sources income taxes equity net earnings affiliates follows years ended december 31 2018 2017 2016 millions agco corporation notes consolidated financial statements continued provision benefit income taxes location taxing jurisdiction years ended december 31 2018 2017 2016 consisted following millions december 22 2017 tax cuts jobs act “the 2017 tax act” enacted united states three months ended december 31 2017 company recorded tax provision approximately 420 million accordance staff accounting bulletin 118 provided sec staff guidance application asc 740 “income taxes” reporting period 2017 tax act enacted 420 million tax provision recorded included provisional income tax charge related onetime transition tax associated mandatory deemed repatriation unremitted foreign earnings tax provision also included provisional income tax charge associated income tax consequences related expected future repatriation certain underlying foreign earnings historically company considered permanently reinvested remaining balance tax provision primarily related remeasurement certain net deferred tax assets using lower enacted us corporate tax rate well miscellaneous related impacts three months ended december 31 2018 company finalized calculations related 2017 tax act recorded income tax benefit approximately 85 million reconciliation income taxes computed united states federal statutory income tax rate 21 2018 35 percent 21 percent 35 2017 2016 provision income taxes reflected company’s consolidated statements operations years ended december 31 2018 2017 2016 follows millions agco corporation notes consolidated financial statements continued significant components deferred tax assets liabilities december 31 2018 2017 follows millions company recorded net deferred tax liability 114 million 183 million december 31 2018 december 31 2017 respectively reflected preceding table company valuation allowance gross deferred tax assets approximately 839 million 819 million december 31 2018 2017 respectively company maintains valuation allowance fully reserve net deferred tax assets united states certain foreign jurisdictions valuation allowance established likely portion deferred tax assets realized company assessed likelihood deferred tax assets would recovered estimated future taxable income available tax planning strategies determined adjustments valuation allowance appropriate making assessment available evidence considered including current economic climate well reasonable tax planning strategies company believes likely company realize remaining net deferred tax assets net valuation allowance future years company net operating loss carryforwards 2496 million december 31 2018 expiration dates follows 2019 195 million 2020 188 million 2021 229 million thereafter unlimited 1884 million net operating loss carryforwards 2496 million entirely tax jurisdictions outside united states company paid income taxes 1016 million 1112 million 1062 million years ended december 31 2018 2017 2016 respectively december 31 2018 2017 company 1661 million 1634 million respectively unrecognized income tax benefits would affect company’s effective tax rate recognized december 31 2018 2017 company approximately 585 million 618 million respectively accrued deferred taxes related uncertain income tax positions connected ongoing income tax audits various jurisdictions expects settle pay next 12 months company accrued approximately 56 million 46 million interest penalties related unrecognized agco corporation notes consolidated financial statements continued tax benefits provision income taxes 2018 2017 respectively december 31 2018 2017 company accrued interest penalties related unrecognized tax benefits 272 million 230 million respectively reconciliation beginning ending balances total amounts gross unrecognized tax benefits years ended december 31 2018 2017 follows millions company subsidiaries file income tax returns united states various state local foreign jurisdictions company subsidiaries routinely examined tax authorities jurisdictions december 31 2018 number income tax examinations foreign jurisdictions ongoing possible certain ongoing examinations may resolved within 12 months due potential resolution federal state foreign examinations expiration various statutes limitation reasonably possible company’s gross unrecognized income tax benefits balance may materially change within next 12 months due number jurisdictions issues involved uncertainty regarding timing settlements company unable time provide reasonable estimate change may occur within next 12 months although ongoing examinations various federal state jurisdictions 2015 2018 tax years generally remain subject examination united states applicable authorities company’s significant foreign jurisdictions primarily united kingdom france germany switzerland finland brazil 2013 2018 tax years generally remain subject examination respective tax authorities brazil company contesting disallowed deductions related amortization certain goodwill amounts note 12 agco corporation notes consolidated financial statements continued 7 indebtedness longterm debt consisted following december 31 2018 2017 millions 1 maturity dates reflected december 31 2018 december 31 2018 aggregate scheduled maturities longterm debt excluding current portion longterm debt follows millions cash payments interest approximately 352 million 552 million 588 million years ended december 31 2018 2017 2016 respectively current indebtedness 1056 senior term loan december 2014 company entered term loan european investment bank “eib” provided company ability borrow €2000 million €2000 million approximately 2287 million december 31 2018 funding received january 15 2015 maturity date january 15 2020 company ability prepay term loan maturity date interest payable term loan 1056 per annum payable quarterly arrears term loan contain covenants regarding among things incurrence indebtedness making certain payments well commitments regarding amounts future research development expenses europe subject acceleration events default company also fulfill financial covenants respect net leverage ratio interest coverage ratio senior term loan due 2022 october 2018 company entered term loan agreement rabobank amount €1500 million approximately 1715 million december 31 2018 company ability prepay term loan maturity date october 28 2022 interest payable term loan quarterly arrears annual rate equal euribor plus margin ranging 0875 1875 based company’s credit rating company also fulfill financial covenants respect total debt ebitda ratio interest coverage ratio agco corporation notes consolidated financial statements continued credit facility october 2018 company entered multicurrency revolving credit facility 8000 million maturity date credit facility october 17 2023 interest accrues amounts outstanding credit facility company’s option either 1 libor plus margin ranging 0875 1875 based company’s credit rating 2 base rate equal higher administrative agent’s base lending rate applicable currency ii federal funds rate plus 05 iii onemonth libor loans denominated us dollars plus 10 plus margin ranging 00 0875 based company’s credit rating credit facility contains covenants restricting among things incurrence indebtedness making certain payments including dividends company also fulfill financial covenants respect total debt ebitda ratio interest coverage ratio december 31 2018 company approximately 1144 million outstanding borrowings credit facility ability borrow approximately 6856 million facility company’s former revolving credit term loan facility consisted 8000 million multicurrency revolving credit facility €3120 million term loan facility maturity date former credit facility june 26 2020 former credit facility agreement interest accrued amounts outstanding company’s option depending currency borrowed either 1 libor euribor plus margin ranging 10 175 based company’s leverage ratio 2 base rate equal higher administrative agent’s base lending rate applicable currency ii federal funds rate plus 05 iii onemonth libor loans denominated us dollars plus 10 plus margin ranging 00 025 based company’s leverage ratio credit facility contained covenants restricting among things incurrence indebtedness making certain payments including dividends subject acceleration event default company also fulfill financial covenants respect total debt ebitda ratio interest coverage ratio fully described note 11 company entered interest rate swap 2015 convert term loan facility’s floating interest rate fixed interest rate 033 plus applicable margin remaining life term loan facility connection closing new credit facility october 2018 company repaid outstanding €3120 million approximately 3608 million term loan former revolving credit term loan facility company recorded approximately 09 million “interest expense net”associated writeoff deferred debt issuance costs associated repayment december 31 2017 4712 million outstanding company’s former multicurrency revolving credit facility approximately 970 million outstanding multicurrency revolving credit facility €3120 million approximately 3742 million outstanding term loan facility 2015 company designated €3120 million term loan facility hedge net investment foreign operations offset foreign currency translation gains losses net investment see note 11 additional information net investment hedge senior term loans due 2019 2028 october 2016 company borrowed aggregate amount €3750 million group seven related term loan agreements august 2018 company borrowed additional aggregate amount indebtedness €3380 million group another seven related term loan agreements proceeds borrowings used repay borrowings company’s former revolving credit facility aggregate company indebtedness €7130 million approximately 8153 million december 31 2018 group fourteen related term loan agreements discussed provisions term loan agreements identical nature exception interest rate terms maturities company ability prepay term loans maturity dates term loans fixed interest rate interest payable arrears annual basis interest rates ranging 070 226 maturity date october 2019 august 2028 term loans floating interest rate interest payable arrears semiannual basis interest rates based euribor plus margin ranging 070 125 maturity date october 2019 august 2025 term loans contain covenants restricting among things incurrence indebtedness making certain payments including dividends subject acceleration event default agco corporation notes consolidated financial statements continued former indebtedness april 2016 company entered two term loan agreements rabobank amount €1000 million €2000 million respectively provisions two term loans identical nature december 2017 company repaid €2000 million approximately 2398 million term loan october 2018 connection new term loan agreement rabobank discussed company repaid €1000 million approximately 1132 million term loan company ability prepay term loans maturity date april 26 2021 interest payable term loans per annum paid quarterly arrears equal euribor plus margin ranging 10 175 based company’s net leverage ratio company also fulfill financial covenants respect total debt ebitda ratio interest coverage ratio 578 senior notes company’s 578 senior notes due december 1 2021 constituted senior unsecured indebtedness interest payable notes semiannually arrears time prior september 1 2021 company could redeem notes whole part time option redemption price equal greater 100 principal amount plus accrued unpaid interest including additional interest excluding redemption date ii sum present values remaining scheduled payments principal interest exclusive interest accrued date redemption discounted redemption date treasury rate plus 05 plus accrued unpaid interest including additional interest beginning september 1 2021 company could redeem notes whole part time option redemption price equal 100 principal amount plus accrued unpaid interest including additional interest fully described note 11 company entered interest rate swap 2015 convert senior notes’ fixed interest rate floating interest rate remaining life senior notes second quarter 2016 company terminated interest rate swap result company recorded deferred gain approximately 73 million associated termination amortized reduction “interest expense net” remaining term 578 senior notes december 1 2021 may 2018 company completed cash tender offer purchase outstanding 578 senior notes cash purchase price 107750 per 100000 senior notes result tender offer company repurchased approximately 1859 million principal amount senior notes approximately 2003 million plus accrued interest repurchase resulted loss extinguishment debt approximately 157 million including associated fees october 2018 company repurchased remaining principal amount senior notes approximately 1141 million approximately 1225 million plus accrued interest repurchase resulted loss extinguishment debt approximately 88 million including associated fees result repurchase 578 senior notes company recorded cumulative amount approximately 47 million accelerated amortization deferred gain related terminated interest rate swap instrument associated senior notes losses extinguishment well accelerated amortization reflected “interest expense net” year ended december 31 2018 december 31 2017 unamortized portion deferred gain approximately 53 million amortization 2018 2017 approximately 53 million 13 million respectively subsequent indebtedness december 2018 company entered term loan eib provided company ability borrow €2500 million €2500 million approximately 2846 million funding received january 25 2019 maturity date january 24 2025 company ability prepay term loan maturity date interest payable term loan 1002 per annum payable semiannually arrears term loan contain covenants regarding among things incurrence indebtedness making certain payments well commitments regarding amounts future research development expenses europe subject acceleration events default company also fulfill financial covenants respect net leverage ratio interest coverage ratio agco corporation notes consolidated financial statements continued standby letters credit similar instruments company arrangements various banks issue standby letters credit similar instruments guarantee company’s obligations purchase sale certain inventories potential claims exposure insurance coverage december 31 2018 2017 outstanding letters credit totaled 141 million 152 million respectively 8 employee benefit plans company sponsors defined benefit pension plans covering certain employees principally united kingdom united states germany switzerland finland france norway argentina company also provides certain postretirement health care life insurance benefits certain employees principally united states brazil company also maintains executive nonqualified pension plan “enpp” provides certain usbased senior executives retirement income period 15 years lifetime annuity certain requirements met benefits enpp vest participant attained age 50 least ten years service five years include years participation enpp payable participant reaches age 65 lifetime annuity benefit generally available participants retire reaching normal retirement age otherwise vested benefit enpp unfunded nonqualified defined benefit pension plan net annual pension costs years ended december 31 2018 2017 2016 company’s defined benefit pension plans enpp set forth millions components net periodic pension postretirement benefits cost service cost component included “other expense net” company’s consolidated statements operations refer note 1 information agco corporation notes consolidated financial statements continued weighted average assumptions used determine net annual pension costs company’s defined benefit pension plans enpp years ended december 31 2018 2017 2016 follows 1 applicable us funded qualified plans 2 applicable us unfunded nonqualified plan company’s cash balance plans promised interest crediting rates weightedaverage interest crediting rate 10 075 2018 2017 respectively net annual postretirement benefit costs weighted average discount rate used determine years ended december 31 2018 2017 2016 set forth millions except percentages agco corporation notes consolidated financial statements continued following tables set forth reconciliations changes benefit obligation plan assets funded status december 31 2018 2017 millions agco corporation notes consolidated financial statements continued following table summarizes activity accumulated comprehensive loss related company’s enpp defined pension postretirement benefit plans years ended december 31 2018 2017 millions december 31 2018 company’s accumulated comprehensive loss included unrecognized net actuarial losses approximately 3567 million compared 3601 million december 31 2017 related company’s defined benefit pension plans enpp decrease unrecognized net actuarial losses years primarily resulted higher discount rates december 31 2018 compared december 31 2017 unrecognized net actuarial losses impacted future periods actual asset returns discount rate changes currency exchange rate fluctuations actual demographic experience certain factors company’s defined benefit pension plans losses extent exceed 10 greater plan’s liabilities fair value assets “the gainloss corridor” amortized straightline basis periods discussed follows company’s us salaried us hourly uk defined benefit pension plans population covered predominantly inactive participants losses related plans extent exceed gainloss corridor amortized average remaining lives participants covered respective plan december 31 2018 average amortization period 16 years company’s us defined benefit pension plans 19 years company’s uk defined benefit pension plan company’s enpp population predominantly active participants losses related plan amortized average future working lifetime active participants expected receive benefits december 31 2018 average amortization period eight company’s enpp unrecognized prior service cost related company’s defined benefit pension plans approximately 195 million december 31 2018 compared approximately 122 million december 31 2017 increase unrecognized prior service cost years due primarily newly required uniformity guaranteed minimum pension benefits men women related company’s uk defined benefit plan resulted estimation increased benefits prior participant service requirement result judgment uk high court october 2018 provided clarity need provide uniformity benefits cost estimated impact amortized straightline basis average remaining service period active employees expected receive benefits average remaining lives inactive participants covered uk defined benefit plan december 31 2018 company’s accumulated comprehensive loss related company’s us brazilian postretirement health care benefit plans included unrecognized net actuarial gains approximately 06 million december 31 2018 compared unrecognized net actuarial losses approximately 38 million december 31 2017 loss approximately 03 million approximately 34 million respectively related company’s us postretirement benefit plans change unrecognized net actuarial gains december 31 2018 unrecognized net actuarial losses prior year related company’s brazilian postretirement health care benefit plans primarily due lower discount rates well plan experience decrease unrecognized net actuarial losses related company’s us postretirement benefit plans primarily due higher discount rates december 31 2018 compared previous year unrecognized net actuarial gains losses impacted future periods discount rate changes actual demographic experience actual health care inflation certain factors gains losses extent exceed gainloss corridor amortized straightline basis average remaining service period active employees expected receive benefits average remaining lives inactive participants covered agco corporation notes consolidated financial statements continued postretirement benefit plans december 31 2018 average amortization period 12 years company’s us postretirement benefit plans december 31 2018 net prior service cost related company’s us brazilian postretirement health care benefit plans approximately 31 million compared approximately 32 million december 31 2017 aggregate projected benefit obligation accumulated benefit obligation fair value plan assets defined benefit pension plans enpp postretirement plans accumulated benefit obligations excess plan assets 8473 million 7985 million 6160 million respectively december 31 2018 9460 million 8912 million 6908 million respectively december 31 2017 projected benefit obligation accumulated benefit obligation fair value plan assets company’s usbased defined benefit pension plans enpp accumulated benefit obligations excess plan assets 1247 million 1078 million 368 million respectively december 31 2018 1296 million 1115 million 366 million respectively december 31 2017 company’s accumulated comprehensive loss december 31 2018 reflects reduction equity 3787 million net taxes 970 million primarily related company’s uk pension plan projected benefit obligation exceeded plan assets addition company’s accumulated comprehensive loss december 31 2018 reflects reduction equity approximately 11 million net taxes 04 million related company’s gima joint venture amount represents 50 gima’s unrecognized net actuarial losses unrecognized prior service cost associated pension plan addition gima recognized net actuarial loss due settlements 2018 approximately 01 million company’s accumulated comprehensive loss december 31 2017 reflected reduction equity 3793 million net taxes 950 million primarily related company’s uk pension plan projected benefit obligation exceeded plan assets addition company’s accumulated comprehensive loss december 31 2017 reflected reduction equity approximately 13 million net taxes 05 million related company’s gima joint venture amount represented 50 gima’s unrecognized net actuarial losses unrecognized prior service cost associated pension plan addition gima recognized net actuarial loss due settlements 2017 approximately 01 million company’s defined benefit pension obligation reflected based manner defined benefit plans administered obligation resulting liability calculated employing actuarial legal assumptions include limited future inflation return pension assets discount rates life expectancy potential salary increases also assumptions related manner individual benefit plan benefits calculated legal nature include limited member eligibility years service uniformity guaranteed minimum pension benefits member normal retirement ages men women event assumptions administration approach proven different company’s current interpretations approach could material increases company’s defined benefit pension obligation related amounts timing future contributions paid company weighted average assumptions used determine benefit obligation company’s defined benefit pension plans enpp december 31 2018 2017 follows 1 applicable us unfunded nonqualified plan weighted average discount rate used determine benefit obligation company’s postretirement benefit plans years ended december 31 2018 2017 52 49 respectively years ended december 31 2018 2017 2016 company used globally consistent methodology set discount rate countries largest benefit obligations exist united states united kingdom euro zone company constructed hypothetical bond portfolio highquality corporate bonds applied cash flows company’s benefit plans bond yields derive discount rate bond portfolio planspecific cash flows vary country methodology portfolio constructed consistent united states bond agco corporation notes consolidated financial statements continued portfolio large enough result taking “settlement approach” derive discount rate highquality corporate bonds assumed purchased resulting coupon payments maturities used satisfy company’s us pension plans’ projected benefit payments united kingdom euro zone discount rate derived using “yield curve approach” individual spot rate zero coupon bond yield future annual period developed discount future benefit payment thereby determine present value future payments company uses spot yield curve determine discount rate applicable united kingdom measure uk pension plan’s service cost interest cost settlement yield curve approaches discount rate set equal single discount rate produces present value future payments measuring expected us postretirement benefit obligation december 31 2018 company assumed 65 health care cost trend rate 2019 decreasing 50 2025 measuring expected us postretirement benefit obligation december 31 2017 company assumed 675 health care cost trend rate 2018 decreasing 50 2025 measuring brazilian postretirement benefit plan obligation december 31 2018 company assumed 108 health care cost trend rate 2019 decreasing 50 2030 measuring brazilian postretirement benefit plan obligation december 31 2017 company assumed 110 health care cost trend rate 2018 decreasing 53 2029 company currently estimates minimum contributions benefit payments usbased underfunded defined benefit pension plans unfunded enpp 2019 aggregate approximately 16 million company currently estimates minimum contributions underfunded plans benefit payments unfunded plans 2019 nonusbased defined benefit pension plans aggregate approximately 289 million approximately 199 million relates uk pension plan company currently estimates benefit payments 2019 usbased postretirement health care life insurance benefit plans aggregate approximately 15 million benefit payments 2019 brazilian postretirement health care benefit plans aggregate less 01 million 2018 approximately 474 million benefit payments made related company’s defined benefit pension plans enpp december 31 2018 aggregate expected benefit payments company’s defined benefit pension plans enpp follows millions 2018 approximately 14 million benefit payments made related company’s us brazilian postretirement benefit plans december 31 2018 aggregate expected benefit payments company’s us brazilian postretirement benefit plans follows millions agco corporation notes consolidated financial statements continued investment strategy concentration risk weighted average asset allocation company’s us pension benefit plans december 31 2018 2017 follows weighted average asset allocation company’s nonus pension benefit plans december 31 2018 2017 follows company categorizes pension plan assets one three levels based assumptions used valuing asset see note 13 discussion fair value hierarchy per guidance asc 820 “fair value measurements” “asc 820” company’s valuation techniques designed maximize use observable inputs minimize use unobservable inputs company uses following valuation methodologies measure fair value pension plan assets equity securities equity securities valued basis closing price per unit business day reported applicable exchange fixed income fixed income securities valued using closing prices active market fixed income investment trades fixed income funds valued using net asset value fund based fair value underlying securities cash investments primarily consist shortterm investment funds valued using net asset value alternative investments reported fair value determined general partner alternative investment “market approach” valuation technique used value investments funds typically openend funds generally offer subscription redemption options investors frequency subscriptions redemptions dictated fund’s governing documents amount liquidity provided investors particular fund generally consistent liquidity risk associated underlying portfolio ie liquid investments portfolio greater liquidity provided investors liquidity individual funds varies based various factors may include “gates” “holdbacks” “side pockets” imposed manager fund well redemption fees may also apply investments funds typically valued utilizing net asset valuations provided underlying investment managers general partners administrators funds consider subscription redemption rights including restrictions disposition interest determination fair value insurance contracts insurance contracts valued using current prevailing interest rates agco corporation notes consolidated financial statements continued fair value company’s pension assets december 31 2018 follows millions 1 36 “fixed income” securities investmentgrade corporate bonds 27 government treasuries 17 foreign securities 13 highyield securities 7 various fixed income securities 2 44 “alternative investments” relative value funds 22 longshort equity funds 22 eventdriven funds 7 distributed hedged nonhedged funds 5 credit funds 3 “miscellaneous funds” comprised insurance contracts finland norway switzerland 4 certain investments measured fair value using net asset value per share equivalent practical expedient categorized fair value hierarchy following reconciliation level 3 assets december 31 2018 millions agco corporation notes consolidated financial statements continued fair value company’s pension assets december 31 2017 follows millions 1 30 “fixed income” securities investmentgrade corporate bonds 29 government treasuries 15 foreign securities 13 highyield securities 13 various fixed income securities 2 39 “alternative investments” relative value funds 26 longshort equity funds 21 eventdriven funds 8 distributed hedged nonhedged funds 6 credit funds 3 “miscellaneous funds” comprised insurance contracts finland norway switzerland 4 certain investments measured fair value using net asset value per share equivalent practical expedient categorized fair value hierarchy following reconciliation level 3 assets december 31 2017 millions taxqualified pension fund investments united states held agco corporation master pension trust company’s global pension fund strategy diversify investments across broad categories equity fixed income securities appropriate use alternative investment categories minimize risk volatility primary investment objective company’s pension plans secure participant retirement benefits key objective pension plans’ financial management promote stability extent appropriate growth funded status investment strategy plans’ portfolio assets balances requirement generate returns need control risk asset mix recognized primary mechanism influence reward risk structure pension fund investments effort accomplish plans’ funding objectives overall investment strategy usbased pension plans achieve mix approximately 15 assets nearterm benefit payments 85 longerterm agco corporation notes consolidated financial statements continued growth overall us pension funds invest broad diversification asset types company’s us target allocation retirement fund investments 215 large smallcap domestic equity securities 85 international equity securities 55 broad fixed income securities 10 alternative investments 5 cash equivalents company noted long periods mix investments would achieve average return approximately 575 arriving choice expected return assumption 55 us plans year ended december 31 2019 company tempered historical indicator lower expectations returns changes investments future well administrative costs plans overall investment strategy nonus based pension plans achieve mix approximately 30 assets nearterm benefit payments 70 longerterm growth overall nonus pension funds invest broad diversification asset types company’s nonus target allocation retirement fund investments 40 equity securities 55 broad fixed income investments 5 alternative investments majority company’s nonus pension fund investments related company’s pension plan united kingdom company noted long periods mix investments would achieve average return approximately 52 arriving choice expected return assumption 475 ukbased plans year ended december 31 2019 company tempered historical indicator lower expectations returns changes investments future well administrative costs plans equity securities primarily include investments largecap smallcap companies located across globe fixed income securities include corporate bonds companies diversified industries mortgagebacked securities agency mortgages assetbacked securities government securities alternative assets include investments hedge fund funds follow diversified investment strategies date company invested pension funds stock intention future within asset class careful consideration given balancing portfolio among industry sectors geographies interest rate sensitivity dependence economic growth currency factors affecting investment returns assets managed professional investment firms bound precise mandates measured specific benchmarks among asset managers consideration given among others balancing security concentration issuer concentration investment style reliance particular active investment strategies company participates small number multiemployer plans netherlands sweden company assessed determined none multiemployer plans participates individually aggregate significant company’s consolidated financial statements company expect incur withdrawal liability expect significantly increase contributions remainder multiemployer plans’ contract periods company maintains separate defined contribution plans covering certain employees primarily united states united kingdom brazil plans company contributes specified percentage eligible employee’s compensation company contributed approximately 158 million 151 million 143 million years ended december 31 2018 2017 2016 respectively 9 stockholders’ equity common stock december 31 2018 company 150000000 authorized shares common stock par value 001 per share approximately 76536755 shares common stock outstanding approximately 3436426 shares reserved issuance company’s 2006 longterm incentive plan “plan” note 10 share repurchase program 2012 2016 company’s board directors approved several share repurchase authorizations company permitted repurchase 13500 million shares common stock 2018 2016 company repurchased 3120184 4413250 shares common stock respectively approximately 1843 million 2125 million respectively either accelerated share repurchase “asr” agreements financial institutions open market transactions 2017 company received approximately 70464 shares associated remaining balance shares delivered asr agreement completed november 2016 shares received asr agreements retired upon receipt excess purchase price par value per share recorded “additional paidin capital” within company’s consolidated balance sheets agco corporation notes consolidated financial statements continued 2019 company entered asr agreement financial institution repurchase aggregate 300 million shares common stock company received approximately 379927 shares date transaction specific number shares company ultimately repurchase determined completion term asr based daily volumeweighted average share price company’s common stock less agreedupon discount upon settlement asr company may entitled receive additional shares common stock certain circumstances required remit settlement amount company expects additional shares received company upon final settlement current asr agreement expires second quarter 2019 shares received asr agreement discussed retired upon receipt excess purchase price par value per share recorded “additional paidin capital” within company’s consolidated balance sheets december 31 2018 remaining amount authorized repurchased approximately 1471 million 1157 million expires december 2019 314 million expiration date dividends company’s board directors declared company paid quarterly cash dividends 013 per common share beginning first quarter 2016 014 per common share beginning first quarter 2017 015 per common share beginning first quarter 2018 respectively january 25 2019 company’s board directors approved quarterly dividend 015 per common share beginning first quarter 2019 following table sets forth changes accumulated comprehensive loss component net tax attributed agco corporation subsidiaries years ended december 31 2018 2017 millions agco corporation notes consolidated financial statements continued following table sets forth reclassification adjustments accumulated comprehensive loss component attributed agco corporation subsidiaries years ended december 31 2018 2017 millions 1 losses gains included within consolidated statements operations years ended december 31 2018 2017 respectively 2 accumulated comprehensive loss components included computation net periodic pension postretirement benefit cost see note 8 company’s consolidated financial statements agco corporation notes consolidated financial statements continued 10 stock incentive plan 10000000 shares agco common stock may issued december 31 2018 10000000 shares reserved issuance plan approximately 3436426 shares available grant assuming maximum number shares earned related performance award grants discussed plan allows company direction board directors’ compensation committee make grants performance shares stock appreciation rights stock options restricted stock units restricted stock awards employees officers nonemployee directors company longterm incentive plan related performance awards company’s primary longterm incentive plan performance share plan provides awards shares company’s common stock based achieving financial targets earnings per share return invested capital operating margins selling general administrative expenses overhead levels determined company’s board directors stock awards plan earned performance period number shares earned determined based annual cumulative average results specified period depending measurement performance periods company’s primary longterm incentive plan consecutive overlapping threeyear cycles performance targets set beginning cycle primary longterm incentive plan provides participants earn 33 200 target awards depending actual performance achieved shares earned performance established minimum target awards earned plan paid shares common stock end threeyear performance period percentage level achievement determined annually ultimate award earned determined based upon average three annual percentages compensation expense associated awards amortized ratably vesting performance period based company’s projected assessment level performance achieved earned compensation expense recorded 2018 2017 2016 respect awards granted based upon stock price grant date weighted average grantdate fair value performance awards granted plan 2018 2017 2016 follows 2018 company granted 441740 performance awards related varying performance periods assuming maximum target level performance achieved performance award transactions 2018 follows presented company achieve maximum levels performance plan based level performance achieved december 31 2018 839090 shares earned related performance period 521888 shares issued february 2019 net 317202 shares withheld taxes related earned awards plan allows participant option forfeiting portion shares awarded lieu cash payment contributed participant’s tax withholding satisfy participant’s statutory minimum federal state employment taxes would payable time grant 2017 company recorded approximately 48 million accelerated stock compensation expense associated stock award declined company’s chief executive officer agco corporation notes consolidated financial statements continued december 31 2018 total compensation cost related unearned performance awards yet recognized assuming company’s current projected assessment level performance achieved earned approximately 316 million weighted average period expected recognized approximately two years estimate based current projected levels performance outstanding awards compensation cost yet recognized could higher lower based actual achieved levels performance restricted stock units year ended december 31 2018 company granted 247404 restricted stock unit “rsu” awards entitle participant receive one share company’s common stock rsu granted vest onethird per year threeyear requisite service period compensation expense associated awards amortized ratably requisite service period awards expected vest weighted average grantdate fair value rsus granted plan year ended december 31 2018 2017 6399 6199 respectively rsu transactions year ended december 31 2018 follows december 31 2018 total compensation cost related unvested rsus yet recognized approximately 142 million weighted average period expected recognized approximately two years stocksettled appreciation rights addition performance share plans certain executives key managers eligible receive grants ssars provide participant right receive aggregate appreciation stock price market price company’s common stock date grant payable shares company’s common stock participant may exercise ssars time grant vested later seven years date grant ssars vest ratably fouryear period date grant ssar awards made certain executives key managers plan made base price equal price company’s common stock date grant company recorded stock compensation expense approximately 24 million 30 million 38 million associated ssar awards 2018 2017 2016 respectively compensation expense associated awards amortized ratably vesting period company estimated fair value grants using blackscholes option pricing model weighted average grantdate fair value ssar awards granted plan weighted average assumptions blackscholes option model follows years ended december 31 2018 2017 2016 agco corporation notes consolidated financial statements continued ssar transactions year ended december 31 2018 follows december 31 2018 weighted average remaining contractual life ssars outstanding approximately four years december 31 2018 total compensation cost related unvested ssars yet recognized approximately 38 million weightedaverage period expected recognized approximately two years following table sets forth exercise price range number shares weighted average exercise price remaining contractual lives groups similar price december 31 2018 total fair value ssars vested 2018 approximately 28 million 578725 ssars vested december 31 2018 total intrinsic value outstanding exercisable ssars december 31 2018 52 million 31 million respectively total intrinsic value ssars exercised 2018 approximately 15 million excess tax benefit realized tax deductions united states related exercise ssars vesting rsu awards vesting performance awards plan approximately 16 million year ended december 31 2018 excess tax benefit realized tax deductions united states related exercise ssars vesting rsu awards plan approximately 01 million year ended december 31 2017 excess tax benefit realized tax deductions united states related exercise ssars vesting rsu awards plan less 01 million year ended december 31 2016 company realized insignificant tax benefit exercise ssars vesting performance awards vesting rsu awards certain foreign jurisdictions years ended december 31 2018 2017 2016 january 22 2019 company granted 273665 performance award shares subject company achieving future target levels performance 243600 ssars 131116 rsus plan agco corporation notes consolidated financial statements continued director restricted stock grants pursuant plan nonemployee directors receive annual restricted stock grants company’s common stock restricted stock grants made company’s directors restricted transferability period one year event director departs company’s board directors nontransferability period expires immediately plan allows director option forfeiting portion shares awarded lieu cash payment contributed participant’s tax withholding satisfy statutory minimum federal state employment taxes would payable time grant 2018 grant made april 26 2018 equated 17226 shares common stock 12629 shares common stock issued shares withheld taxes company recorded stock compensation expense approximately 11 million 2018 associated grants 11 derivative instruments hedging activities company significant manufacturing operations united states france germany finland brazil purchases portion tractors combines components thirdparty foreign suppliers primarily various european countries japan company also sells products approximately 140 countries throughout world company’s significant transactional foreign currency exposures euro brazilian real canadian dollar relation united states dollar british pound relation euro company attempts manage transactional foreign exchange exposure hedging foreign currency cash flow forecasts commitments arising anticipated settlement receivables payables future purchases sales naturally offsetting currency positions occur company hedges certain exposures use foreign currency contracts company’s translation exposure resulting translating financial statements foreign subsidiaries united states dollars may partially hedged time company’s significant translation exposures euro british pound brazilian real relation united states dollar practical translation impact reduced financing local operations local borrowings company uses floating rate fixed rate debt finance operations floating rate debt obligations expose company variability interest payments due changes euribor libor benchmark interest rates company believes prudent limit variability portion interest payments meet objective company periodically enters interest rate swaps manage interest rate risk associated company’s borrowings company designates interest rate contracts used convert interest rate exposure portion company’s debt portfolio floating rate fixed rate cash flow hedges contracts converting company’s interest rate exposure fixed rate floating rate designated fair value hedges protect value company’s investment foreign operations adverse changes foreign currency exchange rates company time may hedge portion company’s net investment foreign subsidiaries using cross currency swap component gains losses company’s net investment designated foreign operations driven changes foreign exchange rates economically offset movements fair value cross currency swap contracts company’s senior management establishes company’s foreign currency interest rate risk management policies reviewed periodically finance committee company’s board directors policies allow use derivative instruments hedge exposures movements foreign currency interest rates company’s policies prohibit use derivative instruments speculative purposes derivatives recognized company’s consolidated balance sheets fair value date derivative contract entered company designates derivative either 1 cash flow hedge forecasted transaction 2 fair value hedge recognized liability 3 hedge net investment foreign operation 4 nondesignated derivative instrument company formally documents relationships hedging instruments hedged items well risk management objectives strategy undertaking various hedge transactions company formally assesses hedge’s inception ongoing basis whether derivatives used hedging transactions highly effective offsetting changes fair values cash flow hedged items net investment hedges foreign operations determined derivative longer highly effective hedge accounting discontinued prospective basis agco corporation notes consolidated financial statements continued company categorizes derivative assets liabilities one three levels based assumptions used valuing asset liability see note 13 discussion fair value hierarchy per guidance asc 820 company’s valuation techniques designed maximize use observable inputs minimize use unobservable inputs counterparty risk company regularly monitors counterparty risk credit ratings counterparties derivative instruments company believes exposures appropriately diversified across counterparties creditworthy financial institutions company perceives risk counterparty company would cease business counterparty negative impacts company nonperformance counterparties derivative transactions designated hedging instruments cash flow hedges foreign currency contracts company uses cash flow hedges minimize variability cash flows assets liabilities forecasted transactions caused fluctuations foreign currency exchange rates changes fair values cash flow hedges recorded accumulated comprehensive loss subsequently reclassified “cost goods sold” period sales purchases recognized amounts offset effect changes foreign currency rates related sale purchase transactions 2018 2017 2016 company designated certain foreign currency contracts cash flow hedges expected future sales purchases total notional value derivatives designated cash flow hedges 1270 million 968 million december 31 2018 2017 respectively interest rate swap contract company monitors mix shortterm longterm debt regularly time company manages risk interest rate fluctuations use derivative financial instruments 2015 company entered interest rate swap instrument notional amount €3120 million expiration date june 26 2020 swap designated accounted cash flow hedge swap agreement company paid fixed interest rate 033 plus applicable margin counterparty agreement paid floating interest rate based threemonth euribor changes fair value interest rate swap recorded accumulated comprehensive loss subsequently reclassified “interest expense net” rate adjustment period related interest company’s floating rate term loan facility affected earnings result company’s new credit facility agreement entered october 2018 repayment €3120 million approximately 3608 million term loan company’s former revolving credit facility well change mix company’s shortterm longterm debt company terminated interest rate swap instrument recorded loss approximately 39 million recorded “interest expense net” year ended december 31 2018 refer note 7 information agco corporation notes consolidated financial statements continued following table summarizes aftertax impact changes fair value derivatives designated cash flow hedges accumulated comprehensive loss net income 2018 2017 2016 millions 1 outstanding contracts december 31 2018 range maturity december 2019 following table summarizes activity accumulated comprehensive loss related derivatives held company years ended december 31 2018 2017 2016 millions agco corporation notes consolidated financial statements continued fair value hedges company uses interest rate swap agreements designated fair value hedges minimize exposure changes fair value fixedrate debt results fluctuations benchmark interest rates 2016 company terminated interest rate swap transaction notional amount 3000 million received cash proceeds approximately 73 million resulting gain deferred amortized reduction “interest expense net” remaining term company’s 578 senior notes december 1 2021 2018 remaining unamortized gain recognized primarily accelerated amortization due repurchase 578 senior notes fully described note 7 net investment hedges company uses nonderivative derivative instruments hedge portion net investment foreign operations adverse movements exchange rates instruments designated hedges net investments foreign operations changes fair value derivative instruments recorded foreign currency translation adjustments component accumulated comprehensive loss offset changes value net investments hedged net investment foreign operations sold substantially liquidates amounts recorded accumulated comprehensive loss reclassified earnings extent foreign currency denominated debt dedesignated net investment hedge relationship changes value foreign currency denominated debt recorded earnings maturity date 2015 company designated €3120 million term loan facility maturity date june 26 2020 hedge net investment foreign operations offset foreign currency translation gains losses net investment october 2018 company repaid term loan facility foreign currency denominated debt dedesignated net investment hedge refer note 7 information january 2018 company entered cross currency swap contract hedge net investment foreign operations offset foreign currency translation gains losses net investment cross currency swap expiration date january 19 2021 maturity cross currency swap contract company deliver notional amount approximately €2457 million approximately 2810 million december 31 2018 receive 3000 million counterparties company receive quarterly interest payments counterparties based fixed interest rate maturity cross currency swap following table summarizes notional values instrument designated net investment hedge millions following table summarizes aftertax impact changes fair value instrument designated net investment hedge millions agco corporation notes consolidated financial statements continued derivative transactions designated hedging instruments 2018 2017 2016 company entered foreign currency contracts economically hedge receivables payables company subsidiaries’ balance sheets denominated foreign currencies functional currency contracts classified nondesignated derivative instruments gains losses contracts substantially offset losses gains remeasurement underlying asset liability hedged immediately recognized earnings december 31 2018 2017 company outstanding foreign currency contracts notional amount approximately 13358 million 17014 million respectively following table summarizes impact changes fair value derivatives designated hedging instruments net income millions table sets forth fair value derivative instruments december 31 2018 millions table sets forth fair value derivative instruments december 31 2017 millions agco corporation notes consolidated financial statements continued 12 commitments contingencies future payments required company’s significant commitments excluding indebtedness december 31 2018 follows millions 1 estimated interest payments calculated assuming current interest rates minimum maturity periods specified debt agreements debt may repaid sooner later minimum maturity periods unaudited 2 unconditional purchase obligations exclude routine purchase orders entered normal course business 3 shortterm longterm obligations include estimates future minimum contribution requirements company’s us nonus defined benefit pension postretirement plans estimates based current legislation countries company operates within subject change shortterm longterm obligations also include income tax liabilities related uncertain income tax positions connected ongoing income tax audits various jurisdictions unaudited offbalance sheet arrangements guarantees company maintains remarketing agreement us finance joint venture agco finance llc whereby company obligated repurchase 60 million repossessed equipment calendar year company believes losses might incurred resale equipment materially impact company’s financial position results operations due fair value underlying equipment december 31 2018 company outstanding guarantees indebtedness owed third parties approximately 406 million primarily related dealer enduser financing equipment guarantees generally obligate company repay outstanding finance obligations owed financial institutions dealers end users default loans 2023 losses guarantees historically insignificant addition company generally would expect able recover significant portion amounts paid guarantees sale underlying financed farm equipment fair value equipment expected sufficient offset substantial portion amounts paid company believes credit risk associated guarantees material financial position results operations addition december 31 2018 company accrued approximately 136 million outstanding guarantees minimum residual values may owed finance joint ventures united states canada due upon expiration certain eligible operating leases finance joint ventures end users december 31 2018 company outstanding designated nondesignated foreign exchange contracts gross notional amount approximately 14628 million outstanding contracts december 31 2018 range maturity december 2018 note 11 agco corporation notes consolidated financial statements continued company sells majority wholesale receivables north america europe brazil us canadian european brazilian finance joint ventures company also sells certain accounts receivable factoring arrangements financial institutions around world company reviewed sale receivables determined facilities accounted offbalance sheet transactions total lease expense noncancelable operating leases 721 million 730 million 768 million years ended december 31 2018 2017 2016 respectively contingencies august 2008 part routine audits brazilian taxing authorities disallowed deductions relating amortization certain goodwill recognized connection reorganization company’s brazilian operations related transfer certain assets company’s brazilian subsidiaries amount tax disallowance december 31 2018 including interest penalties approximately 1315 million brazilian reais approximately 339 million amount ultimately dispute significantly greater interest penalties company advised legal tax advisors position respect deductions allowable tax laws brazil company contesting disallowance believes likely assessment interest penalties required paid however ultimate outcome determined brazilian tax appeal process complete could take several years company party various legal claims actions incidental business company believes none claims actions either individually aggregate material business financial statements whole including results operations financial condition 13 fair value financial instruments company categorizes assets liabilities one three levels based assumptions used valuing asset liability estimates fair value financial assets liabilities based fair value hierarchy prioritizes inputs valuation techniques used measure fair value observable inputs highest level reflect market data obtained independent sources unobservable inputs lowest level reflect internally developed market assumptions accordance guidance fair value measurements classified following hierarchy level 1 quoted prices active markets identical assets liabilities level 2 quoted prices similar assets liabilities active markets quoted prices identical similar assets liabilities markets active modelderived valuations significant inputs observable corroborated observable market data substantially full term assets liabilities level 3 modelderived valuations one significant inputs unobservable company categorizes pension plan assets one three levels fair value hierarchy see note 8 discussion valuation methods used measure fair value company’s pension plan assets company enters foreign currency interest rate swap contracts fair values company’s derivative instruments determined using discounted cash flow valuation models significant inputs used models readily available public markets derived observable market transactions therefore classified level 2 inputs used discounted cash flow valuation models derivative instruments include applicable exchange rates forward rates interest rates models used option contracts also use implied volatility see note 11 discussion company’s derivative instruments hedging activities agco corporation notes consolidated financial statements continued assets liabilities measured fair value recurring basis december 31 2018 2017 summarized millions cash equivalents accounts notes receivable accounts payable valued carrying amounts company’s consolidated balance sheets due immediate shortterm maturity financial instruments carrying amounts longterm debt company’s 1056 senior term loan senior term loans due 2022 credit facility senior term loans due 2019 2028 note 7 approximate fair value based borrowing rates currently available company loans similar terms average maturities 14 related party transactions rabobank financial institution based netherlands 51 owner company’s finance joint ventures located united states canada europe brazil argentina australia rabobank also principal agent participant company’s revolving credit facility note 7 majority assets company’s finance joint ventures represents finance receivables majority liabilities represents notes payable accrued interest various joint venture agreements rabobank affiliates provide financing joint venture companies primarily lines credit 2018 2017 company make additional investments finance joint ventures 2016 company made total approximately 28 million additional investments retail finance joint venture netherlands primarily related additional capital required result increased retail finance portfolios 2016 2018 2017 company received dividends approximately 294 million 785 million respectively certain company’s finance joint ventures company’s finance joint ventures provide retail financing wholesale financing dealers terms financing arrangements offered company’s dealers similar arrangements finance joint ventures provide unaffiliated third parties addition company transfers ongoing basis majority wholesale receivables north america europe brazil us canadian european brazilian finance joint ventures note 4 company maintains remarketing agreement us finance joint venture note 12 addition part sales incentives provided end users company may time subsidize interest rates retail financing provided finance joint ventures cost programs recognized time sale company’s dealers tractors farm equipment limited “tafe” company holds 2375 interest manufactures sells massey fergusonbranded equipment primarily india also supplies tractors components company sale markets mallika srinivasan chairman chief executive officer tafe currently member company’s board directors december 31 2018 tafe owned 12150152 shares company’s common stock company tafe parties agreement pursuant among things tafe agreed purchase excess 12170290 shares company’s common stock subject certain adjustments company agreed annually nominate tafe representative board directors 2018 2017 2016 company purchased approximately 1096 million 1020 million 1285 million respectively tractors components tafe 2018 2017 2016 company sold approximately 18 million 12 million 11 million respectively parts tafe company received dividends tafe approximately 18 million 2018 2017 16 million 2016 agco corporation notes consolidated financial statements continued 2018 2017 2016 company paid approximately 35 million 72 million 31 million respectively ppg industries inc painting materials used company’s manufacturing processes company’s chairman president chief executive officer currently member board directors ppg industries inc 2018 2017 2016 company paid approximately 16 million 15 million 20 million respectively praxair inc propane gas welding laser consumables used company’s manufacturing processes company’s chairman president chief executive officer currently member board directors praxair inc 15 segment reporting effective january 1 2017 company modified system reporting resulting changes internal management organizational structure changed reportable segments north america south america europeafricamiddle east asiapacific north america south america europemiddle east asiapacificafrica reportable segment includes regions africa asia australia new zealand europemiddle east segment longer includes certain markets africa effective january 1 2017 reportable segments reflective company’s chief operating decision maker reviews operating results purposes allocating resources assessing performance disclosures years ended december 31 2018 2017 2016 adjusted reflect change reportable segments company’s four reportable segments distribute full range agricultural equipment related replacement parts company evaluates segment performance primarily based income operations sales segment based location thirdparty customer company’s selling general administrative expenses engineering expenses charged segment based region division expenses incurred result components income operations one segment may comparable another segment results years ended december 31 2018 2017 2016 based company’s current reportable segments follows millions agco corporation notes consolidated financial statements continued reconciliation segment information consolidated balances income operations total assets set forth millions property plant equipment amortizable intangible assets country december 31 2018 2017 follows millions 16 revenue recognized company satisfies performance obligation transferring control goods services dealer distributor customer amount revenue recognized measured consideration company expects receive exchange goods services pursuant contract customer contract exists company receives accepts purchase order dealer sales agreement company enters contract end user company recognize revenue cases collectability probable defers recognition collection probable payment received company generates revenue manufacture distribution agricultural equipment replacement parts sales equipment replacement parts represents majority company’s net sales recorded company point time title control transferred independent dealer distributor customer title generally passes dealer distributor upon shipment specified delivery risk loss upon damage theft destruction equipment responsibility dealer distributor designated thirdparty carrier company believes control passes performance obligation satisfied point stated shipping delivery term respect sales amount consideration company receives revenue recognized varies certain sales incentives company offers dealers distributors estimates sales incentives made time sale existing incentive agco corporation notes consolidated financial statements continued programs using expected value method estimates revised event subsequent modification incentive program incentive programs recorded presented reduction revenue due fact company receive distinct good service exchange consideration provided dealers distributors may return equipment replacement parts contract company force except established promotional annual replacement parts return programs time sale company estimates amount returns based terms promotional annual return programs anticipated returns future sales related taxes excluded transaction price shipping handling costs associated freight accounted fulfillment costs expensed time revenue recognized “cost goods sold” “selling general administrative expenses” company’s consolidated statements operations company applied practical expedient asu 201409 adjust amount revenue recognized contract dealer distributor customer time value money difference receipt payment recognition revenue less one year although substantially revenue recognized point time relatively insignificant amount installation revenue associated sale grain storage protein production systems recognized “over time” basis discussed company also recognizes revenue “over time” respect extended warranty maintenance contracts certain technology services generally contracts customers relate “over time” revenue recognition contract durations less 12 months grain storage protein production systems installation revenue certain countries company sells grain storage protein production systems company responsible construction installation sale contingent upon customer acceptance conditions revenues recognized term contract company objectively determine control transferred customer accordance agreedupon specifications contract contracts company may entitled receive advance payment recognized contract liability amount excess revenue recognized company uses input method using costs incurred date relative total estimated costs completion measure progress toward satisfaction performance obligation revenues recorded proportionally costs incurred costs include labor material overhead estimation progress toward completion subject various assumptions part estimation process company reviews length time complete performance obligation cost materials labor productivity significant change one assumptions occurs company recognize adjustment cumulative catchup method impact adjustment revenue recorded date recognized period adjustment identified extended warranty contracts company sells separately priced extended warranty contracts extends coverage beyond base warranty period revenue recognized extended warranty contract straightline basis company believes approximates costs expected incurred satisfying obligations extended warranty period extended warranty period ranges one five years payment received inception extended warranty contract recognized contract liability amount excess revenue recognized revenue associated sale extended warranty contracts insignificant technology services revenue company sells combination technology products services bundled package technology products services sold portion consideration received related services component recognized time company satisfies future performance obligation revenue recognized hardware component control transferred dealer distributor revenue associated sale technology services insignificant contract assets liabilities contract assets relate company’s right recover returned replacement parts refund returned replacement part settled dealer distributor contract asset transferred inventory contract liabilities relate following 1 obligation refund dealers distributors expected return replacement parts 2 unrecognized revenues advance payment consideration precedes company’s performance respect extended warranty contracts performance obligation satisfied time 3 unrecognized revenues advance agco corporation notes consolidated financial statements continued payment consideration precedes company’s performance respect certain grain storage protein production systems performance obligation satisfied time 4 unrecognized revenues advance payment consideration precedes company’s performance respect technology services performance obligation satisfied time significant changes balance contract assets liabilities year ended december 31 2018 follows millions 1 beginning period date adoption asu 201409 january 1 2018 contract assets classified “other current assets” “other assets” contract liabilities classified either “other current noncurrent liabilities” “accrued expenses” company’s consolidated balance sheets remaining performance obligations estimated revenues expected recognized future related performance obligations unsatisfied partially unsatisfied december 31 2018 296 million 2019 211 million 2020 118 million 2021 58 million 2022 18 million thereafter relate primarily extended warranty contracts company applied practical expedient asu 201409 disclosed information remaining performance obligations original expected durations 12 months less agco corporation notes consolidated financial statements continued disaggregated revenue net sales year ended december 31 2018 disaggregated primary geographical markets major products consisted following millions 1 rounding may impact summation amounts agco corporation notes consolidated financial statements continued net sales year ended december 31 2017 disaggregated primary geographical markets major products consisted following millions 1 rounding may impact summation amounts agco corporation notes consolidated financial statements continued net sales year ended december 31 2016 disaggregated primary geographical markets major products consisted following millions 1 rounding may impact summation amounts item 9item 8 financial statements supplementary data following consolidated financial statements agco subsidiaries years threeyear period ended december 31 2019 included item information heading “quarterly results” item 7 form 10k incorporated herein reference report independent registered public accounting firm stockholders board directors agco corporation opinion consolidated financial statements audited accompanying consolidated balance sheets agco corporation subsidiaries company december 31 2019 2018 related consolidated statements operations comprehensive income loss stockholders’ equity cash flows years threeyear period ended december 31 2019 related notes financial statement schedule ii valuation qualifying accounts collectively consolidated financial statements opinion consolidated financial statements present fairly material respects financial position company december 31 2019 2018 results operations cash flows years threeyear period ended december 31 2019 conformity us generally accepted accounting principles also audited accordance standards public company accounting oversight board united states pcaob company’s internal control financial reporting december 31 2019 based criteria established internal control integrated framework 2013 issued committee sponsoring organizations treadway commission report dated february 28 2020 expressed unqualified opinion effectiveness company’s internal control financial reporting changes accounting principles discussed note 1 consolidated financial statements company changed method accounting revenue recognition 2018 due adoption accounting standards codification 606 revenue contracts customers discussed note 1 consolidated financial statements company changed method accounting leases 2019 due adoption accounting standards codification 842 leases basis opinion consolidated financial statements responsibility company’s management responsibility express opinion consolidated financial statements based audits public accounting firm registered pcaob required independent respect company accordance us federal securities laws applicable rules regulations securities exchange commission pcaob conducted audits accordance standards pcaob standards require plan perform audit obtain reasonable assurance whether consolidated financial statements free material misstatement whether due error fraud audits included performing procedures assess risks material misstatement consolidated financial statements whether due error fraud performing procedures respond risks procedures included examining test basis evidence regarding amounts disclosures consolidated financial statements audits also included evaluating accounting principles used significant estimates made management well evaluating overall presentation consolidated financial statements believe audits provide reasonable basis opinion critical audit matters critical audit matters communicated matters arising current period audit consolidated financial statements communicated required communicated audit committee 1 relate accounts disclosures material consolidated financial statements 2 involved especially challenging subjective complex judgments communication critical audit matters alter way opinion consolidated financial statements taken whole communicating critical audit matters providing separate opinions critical audit matters accounts disclosures relate assessment reserve allowance volume discounts sales incentive programs certain geographic regions discussed note 1 consolidated financial statements company provides various volume discount sales incentive programs respect products sales incentive programs include reductions invoice prices reduction retail financial rates dealer commissions dealer incentive allowances volume discounts sales incentives recorded time sale reduction revenue using expected value method december 31 2019 company accrued volume discounts sales incentives approximately 5804 million allowance sales incentive discounts approximately 257 million identified assessment reserve allowance volume discounts sales incentive programs certain geographic regions critical audit matter auditor judgment required evaluate certain assumptions higher degree measurement uncertainty key assumptions included estimated incentive rates estimated rates programs applied eligible products estimated achievement dealers specified cumulative target levels primary procedures performed address critical audit matter included following tested certain internal controls company’s reserve allowance volume discounts sales incentive process including controls related development key assumptions certain volume discounts sales incentive programs compared program details dealer communications key assumptions historical results similar programs assessed company’s historical ability estimate key assumptions comparing prior year estimated amounts actual discounts sales incentives realized customers evaluated company’s key assumptions comparing actual results including results transactions occurring yearend assessment gross unrecognized income tax benefits certain jurisdictions discussed note 6 consolidated financial statements company recorded liability gross unrecognized income tax benefits approximately 2107 million december 31 2019 company recognizes income tax benefits uncertain tax positions 50 likelihood tax positions sustained upon examination taxing authorities based technical merits positions identified assessment gross unrecognized income tax benefits certain jurisdictions critical audit matter complex auditor judgment specialized skills required evaluating company’s interpretation application tax law estimate amount tax benefits expected realized primary procedures performed address critical audit matter included following tested certain internal controls company’s gross unrecognized income tax benefit process included controls related company’s consideration information could affect recognition measurement income tax benefits uncertain tax positions interpretation application tax laws involved tax professionals specialized skills knowledge assisted •inspecting correspondence assessments taxing authorities •evaluating company’s interpretation application tax laws • performing independent assessment company’s tax positions comparing results company’s assessment goodwill impairment grain storage protein production systems europemiddle east reporting unit discussed note 1 consolidated financial statements company evaluates goodwill impairment october 1 events circumstances indicate fair value reporting unit may carrying value company performs goodwill impairment analysis using either qualitative quantitative assessment based company’s quantitative analysis grain storage protein production systems europemiddle east reporting unit company determined carrying value reporting unit exceeded fair value result company recorded excess goodwill impairment charge approximately 1736 million identified assessment goodwill impairment grain storage protein production systems europemiddle east reporting unit critical audit matter high degree subjective auditor judgment required evaluate fair value reporting unit fair value estimation methodology used following key assumptions limited observable market information future cash flows market multiples revenue growth rates discount rate determined fair value directly impacted goodwill impairment charge sensitive changes key assumptions primary procedures performed address critical audit matter included following tested certain internal controls company’s goodwill impairment process including controls key assumptions performed sensitivity analyses key assumptions assess impact company’s determination carrying value grain storage protein production systems europemiddle east reporting unit exceeded fair value compared company’s future cash flows revenue growth rates used valuation model underlying business strategies growth plans compared company’s historical revenue forecasts actual results assess company’s ability forecast addition involved valuation professionals specialized skills knowledge assisted • comparing company’s discount rate inputs market multiples market data publicly available information comparable entities test selected discount rate market multiples • testing estimate fair value grain storage protein production systems europemiddle east reporting unit using company’s cash flow forecast discount rate comparing results company’s fair value estimate kpmg llp served company’s auditor since 2002 atlanta georgia february 28 2020 agco corporation consolidated statements operations millions except per share data see accompanying notes consolidated financial statements agco corporation consolidated statements comprehensive income loss millions see accompanying notes consolidated financial statements agco corporation consolidated balance sheets millions except share amounts see accompanying notes consolidated financial statements agco corporation consolidated statements stockholders’ equity millions except share amounts see accompanying notes consolidated financial statements agco corporation consolidated statements cash flows millions see accompanying notes consolidated financial statements agco corporation notes consolidated financial statements 1 operations summary significant accounting policies business agco corporation subsidiaries “agco” “company” leading manufacturer distributor agricultural equipment related replacement parts throughout world company sells full range agricultural equipment including tractors combines hay tools sprayers forage equipment seeding tillage equipment implements grain storage protein production systems company’s products widely recognized agricultural equipment industry marketed number wellknown brand names including challenger® fendt® gsi® massey ferguson® valtra® company distributes products combination approximately 3275 independent dealers distributors well company utilizes associates licensees provide distribution channel products addition company provides retail financing finance joint ventures coöperatieve centrale raiffeisenboerenleenbank ba “rabobank” basis presentation consolidation company’s consolidated financial statements represent consolidation whollyowned companies majorityowned companies joint ventures company determined primary beneficiary company consolidates variable interest entity “vie” company determines primary beneficiary primary beneficiary vie party power direct activities significantly impact entity’s economic performance obligation absorb losses right receive benefits potentially could significant vie company also consolidates entities considered vies determined company controlling voting interest direct activities significantly impact joint venture entity company records investments affiliate companies using equity method accounting significant influence investments including representing ownership interest less 20 recorded cost significant intercompany balances transactions eliminated consolidated financial statements certain prior period amounts reclassified conform current period presentation use estimates preparation financial statements conformity us generally accepted accounting principles “gaap” requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ estimates made management primarily relate accounts notes receivable inventories deferred income tax valuation allowances uncertain tax positions goodwill identifiable intangible assets certain accrued liabilities principally relating reserves volume discounts sales incentives warranty obligations product liability workers’ compensation obligations pensions postretirement benefits foreign currency translation financial statements company’s foreign subsidiaries translated united states currency accordance accounting standards codification “asc” 830 “foreign currency matters” assets liabilities translated united states dollars periodend exchange rates income expense items translated average rates exchange prevailing period translation adjustments included “accumulated comprehensive loss” stockholders’ equity within company’s consolidated balance sheets gains losses result foreign currency transactions included accompanying consolidated statements operations company changed functional currency whollyowned subsidiary argentinian peso us dollar effective july 1 2018 agco corporation notes consolidated financial statements continued cash equivalents restricted cash equivalents reported consolidated balance sheets december 31 2019 2018 2017 cash equivalents restricted cash shown consolidated statements cash flows years ended december 31 2019 2018 2017 follows millions 1 consisted primarily cash hand bank deposits 2 consisted primarily money market deposits certificates deposits overnight investments company considers investments original maturity three months less cash equivalents 3 consisted primarily cash escrow held guarantee support specific requirements accounts notes receivable accounts notes receivable arise sale equipment replacement parts independent dealers distributors customers united states canada amounts due sales dealers immediately due upon retail sale underlying equipment dealer exception sales grain storage protein production systems discussed previously paid dealer united states canada installment payments required generally beginning interestfree period remaining outstanding equipment balance generally due within 12 months shipment delivery interestfree periods vary product generally range one 12 months limited circumstances company provides sales terms cases interestfree periods longer 12 months certain products typically specified programs predominately united states canada allow interestfree periods due dates 24 months certain products depending year sale dealer distributor’s ordering sales volume preceding year interest generally charged prime lending rates outstanding receivable balances shipment delivery interestfree periods sales terms highly seasonal products provide payment due dates based specified date year regardless shipment date equipment sold dealers united states canada paid full average within 12 months shipment sales replacement parts generally payable within 30 days shipment terms larger seasonal stock orders generally requiring payment within six months shipment normal circumstances equipment may returned certain regions respect equipment sales including united states canada company obligated repurchase equipment replacement parts upon cancellation dealer distributor contract obligations required national state provincial laws require company repurchase dealer distributor’s unsold inventory including inventories receivable already paid actual interestfree periods shorter described equipment receivable dealers distributors countries united states canada generally due immediately upon sale equipment retail customer discussed receivables also paid prior terms specified sales agreements normal circumstances interest forgiven interestfree periods extended international markets equipment sales generally payable full within 30 days 180 days shipment delivery payment terms highly seasonal products specified due date year regardless shipment delivery date sales markets outside united states canada company generally charge interest outstanding receivables dealers distributors sales replacement parts generally payable within 30 days 90 days shipment terms larger seasonal stock orders generally payable within six months shipment certain markets time lag varies based timing level retail demand date company records sale dealer sells equipment retail customer sales grain storage protein production systems generally payable within 30 days shipment certain countries sales systems company responsible construction installation may contingent upon customer acceptance payment terms vary market product fixed payment schedules sales agco corporation notes consolidated financial statements continued following summarizes geographic region percentage consolidated net sales amounts maximum interestfree periods presented millions company agreement permit transferring ongoing basis majority wholesale interestbearing noninterest bearing accounts receivable north america europe brazil us canadian european brazilian finance joint ventures qualified dealers may obtain additional financing company’s us canadian european brazilian finance joint ventures joint ventures’ discretion company provides various volume bonus sales incentive programs respect products sales incentive programs include reductions invoice prices reductions retail financing rates dealer commissions dealer incentive allowances cases incentive programs established communicated company’s dealers quarterly basis incentives paid either time cash settlement receivable generally time retail sale time retail financing time warranty registration subsequent time based dealer purchase volumes incentive programs productline specific generally vary dealer cost sales incentives associated dealer commissions dealer incentive allowances estimated based upon terms programs historical experience based percentage sales price estimates sales incentives made recorded time sale expected incentive programs using expected value method estimates reassessed reporting period revised event subsequent modifications incentive programs communicated dealers related provisions accruals made product productline basis monitored adequacy revised least quarterly event subsequent modifications programs interest rate subsidy payments reduction retail finance rates recorded manner dealer commissions dealer incentive allowances volume discounts estimated recognized based historical experience related reserves monitored adjusted based actual dealer purchase volumes dealer’s progress towards achieving specified cumulative target levels incentive programs recorded presented reduction revenue due fact company receive distinct good service exchange consideration provided united states canada reserves incentive programs related accounts receivable sold company’s us canadian finance joint ventures recorded “accounts receivable allowances” within company’s consolidated balance sheets due fact incentives paid reduction future cash settlement receivable globally reserves incentive programs paid cash credit memos case company’s volume discount programs well sales incentives associated accounts receivable sold finance joint ventures recorded within “accrued expenses” within company’s consolidated balance sheets accounts notes receivable shown net allowances sales incentive discounts available dealers doubtful accounts cash flows related collection receivables reported within “cash flows operating activities” within company’s consolidated statements cash flows accounts notes receivable allowances december 31 2019 2018 follows millions united states canada sales incentives paid future cash settlements receivables credit memos company’s dealers reductions retail financing rates paid company’s finance joint ventures outside united states canada sales incentives paid cash credit memos company’s dealers reductions retail financing rates paid company’s finance joint ventures company transfers certain accounts receivable accounts receivable sales agreements finance joint ventures see note 4 company records transfers sales accounts receivable considered surrendered control agco corporation notes consolidated financial statements continued receivables provisions accounting standards update “asu” 200916 “transfers servicing topic 860 accounting transfers financial assets” cash payments made company’s finance joint ventures sales incentive discounts provided dealers related outstanding accounts receivables sold recorded within “accrued expenses” inventories valued lower cost net realizable value using firstin firstout method net realizable value estimated selling price ordinary course business less reasonably predictable costs completion disposal transportation december 31 2019 2018 company recorded 1786 million 1566 million respectively adjustment surplus obsolete inventories adjustments reflected within “inventories net” within company’s consolidated balance sheets inventories net december 31 2019 2018 follows millions cash flows related sale inventories reported within “cash flows operating activities” within company’s consolidated statements cash flows recoverable indirect taxes company’s brazilian operations incur value added taxes “vat” certain purchases raw materials components services taxes accumulated tax credits create assets reduced vat collected company’s sales brazilian market company regularly assesses recoverability tax credits establishes reserves necessary analyses include amongst others history realization transfer tax credits third parties authorized government anticipated changes supply chain future expectation tax debits company’s ongoing operations company believes tax credits net established reserves realizable company recorded approximately 1423 million 1560 million respectively vat tax credits net reserves december 31 2019 2018 property plant equipment property plant equipment recorded cost less accumulated depreciation amortization depreciation provided straightline basis estimated useful lives ten 40 years buildings improvements three 15 years machinery equipment three ten years furniture fixtures expenditures maintenance repairs charged expense incurred property plant equipment net december 31 2019 2018 consisted following millions agco corporation notes consolidated financial statements continued goodwill intangible assets longlived assets company tests goodwill impairment reporting unit level annually events circumstances indicate fair value reporting unit may carrying value reporting unit operating segment one level operating segment example component company combines aggregates two components operating segment single reporting unit components similar economic characteristics company’s reportable segments reporting units goodwill evaluated annually october 1 impairment using qualitative assessment quantitative onestep assessment company elects perform qualitative assessment determines fair value reporting units likely exceed carrying value net assets evaluation necessary reporting units company performs onestep quantitative assessment company compares fair value reporting unit determined based combination discounted cash flow valuation approach market multiple valuation approach respective carrying value net assets including goodwill fair value reporting unit exceeds carrying value net assets goodwill considered impaired carrying value net assets higher fair value reporting unit impairment charge amount carrying value exceeds reporting unit’s fair value accordance asu 201704 company reviews longlived assets include intangible assets subject amortization impairment whenever events changes circumstances indicate carrying amount asset may recoverable evaluation recoverability performed level independent cash flows may attributed either asset group company determines carrying amount asset group recoverable based expected undiscounted future cash flows asset group impairment loss recorded equal excess carrying amounts estimated fair value longlived assets estimates future cash flows based many factors including current operating results expected market trends competitive influences company also evaluates amortization periods assigned intangible assets determine whether events changes circumstances warrant revised estimates useful lives assets disposed sale reported lower carrying amount fair value less estimated costs sell company’s goodwill impairment analysis conducted october 1 2019 indicated carrying value net assets company’s grain storage protein production systems operations europemiddle east excess fair value reporting unit therefore company recorded noncash impairment charge approximately 1736 million within “impairment charges” company’s consolidated statements operations response weakening market conditions resulting operating results new management put place grain storage protein productions systems business tasked conducting full strategic review business including europemiddle east reporting unit full strategic review completed fourth quarter 2019 along revised forecasts include updated market conditions strategic operating decisions three months ended december 31 2019 company also recorded noncash impairment charge approximately 30 million within “impairment charges” company’s consolidated statements operations impairment charge related certain longlived intangible assets associated company’s grain storage protein production systems operations within north america due discontinuation certain brand name related product customers results company’s goodwill longlived assets impairment analyses conducted october 1 2018 2017 indicated reduction carrying amount company’s goodwill longlived assets required company’s accumulated goodwill impairment approximately 3541 million related impairment charges company recorded 2019 2012 2006 pertaining grain storage protein production systems business europemiddle east chinese harvesting reporting unit former sprayer reporting unit respectively company’s grain storage protein production systems europemiddle east reporting unit operates within europemiddle east geographical reportable segment chinese harvesting business operates within asiapacificafrica geographical reportable segment former sprayer reporting unit operates within north american geographical reportable segment agco corporation notes consolidated financial statements continued changes carrying amount goodwill years ended december 31 2019 2018 2017 summarized follows millions company amortizes certain acquired identifiable intangible assets primarily straightline basis estimated useful lives range five 50 years acquired intangible assets weighted average useful life follows years ended december 31 2019 2018 2017 acquired intangible asset amortization 611 million 647 million 570 million respectively company estimates amortization existing intangible assets 596 million 2020 568 million 2021 563 million 2022 538 million 2023 523 million 2024 company previously determined two trademarks indefinite useful life massey ferguson trademark existence since 1952 formed merger masseyharris established 1890’s ferguson established 1930’s massey ferguson brand currently sold approximately 110 countries worldwide making one widely sold tractor brands world company also identified valtra trademark indefinitelived asset valtra trademark existence since late 1990’s derivative valmet trademark existence since 1951 valmet name transitioned valtra name period time marketplace valtra brand currently sold 75 countries around world massey ferguson brand valtra brand primary product lines company’s business company plans use trademarks indefinite period time company plans continue make investments product development enhance value brands future legal regulatory contractual competitive economic factors company aware company believes would limit useful lives trademarks massey ferguson valtra trademark registrations renewed nominal cost countries company operates agco corporation notes consolidated financial statements continued changes carrying amount acquired intangible assets 2019 2018 summarized follows millions accrued expenses accrued expenses december 31 2019 2018 consisted following millions agco corporation notes consolidated financial statements continued warranty reserves warranty reserve activity years ended december 31 2019 2018 2017 consisted following millions company’s agricultural equipment products generally warranty defects materials workmanship period one four years company accrues future warranty costs time sale based historical warranty experience approximately 609 million 523 million warranty reserves included “other noncurrent liabilities” company’s consolidated balance sheets december 31 2019 2018 respectively company recognizes recoveries costs associated warranties provides collection probable specifics recovery agreed upon company’s suppliers confirmation liability recovery company records recovery within “accounts notes receivable net” estimates amount warranty claim recoveries received company’s suppliers based upon contractual supplier arrangements recorded within “other current assets” insurance reserves company’s insurance programs coverage obtained significant liability limits well risks required insured law contract policy company selfinsure portion certain expected losses primarily related workers’ compensation comprehensive general liability product vehicle liability provisions losses expected programs recorded based company’s estimates aggregate liabilities claims incurred revenue company adopted asu 201409 “revenue contracts customers” effective january 1 2018 using modified retrospective approach revenue recognized company satisfies performance obligation transferring control goods services dealer distributor customer amount revenue recognized measured consideration company expects receive exchange goods services pursuant contract customer contract exists company receives accepts purchase order dealer sales agreement company enters contract end user company recognize revenue cases collectability probable defers recognition collection probable payment received company generates revenue manufacture distribution agricultural equipment replacement parts sales equipment replacement parts represents majority company’s net sales recorded company point time title control transferred independent dealer distributor customer title generally passes dealer distributor upon shipment specified delivery risk loss upon damage theft destruction equipment responsibility dealer distributor designated thirdparty carrier company believes control passes performance obligation satisfied point stated shipping delivery term respect sales previously discussed amount consideration company receives revenue recognized varies certain sales incentives company offers dealers distributors estimates sales incentives made time sale expected incentive programs using expected value method estimates revised event subsequent agco corporation notes consolidated financial statements continued modification incentive program incentive programs recorded presented reduction revenue due fact company receive distinct good service exchange consideration provided dealers distributors may return equipment replacement parts contract company force except established promotional annual replacement parts return programs time sale company estimates amount returns based terms promotional annual return programs anticipated returns future sales related taxes excluded transaction price shipping handling costs associated freight activities customer obtained control accounted fulfillment costs expensed accrued time revenue recognized “cost goods sold” “selling general administrative expenses” company’s consolidated statements operations company applied practical expedient asu 201409 adjust amount revenue recognized contract dealer distributor customer time value money difference receipt payment recognition revenue less one year although substantially revenue recognized point time relatively insignificant amount installation revenue associated sale grain storage protein production systems recognized “over time” basis discussed company also recognizes revenue “over time” respect extended warranty maintenance contracts certain technology services generally contracts customers relate “over time” revenue recognition contract durations less 12 months grain storage protein production systems installation revenue certain countries company sells grain storage protein production systems company responsible construction installation sale contingent upon customer acceptance conditions revenues recognized term contract company objectively determine control transferred customer accordance agreedupon specifications contract contracts company may entitled receive advance payment recognized contract liability amount excess revenue recognized company uses input method using costs incurred date relative total estimated costs completion measure progress toward satisfaction performance obligation revenues recorded proportionally costs incurred costs include labor material overhead estimation progress toward completion subject various assumptions part estimation process company reviews length time complete performance obligation cost materials labor productivity significant change one assumptions occurs company recognize adjustment cumulative catchup method impact adjustment revenue recorded date recognized period adjustment identified extended warranty contracts company sells separately priced extended warranty contracts extends coverage beyond base warranty period revenue recognized extended warranty contract straightline basis company believes approximates costs expected incurred satisfying obligations extended warranty period extended warranty period ranges one five years payment received inception extended warranty contract recognized contract liability amount excess revenue recognized revenue associated sale extended warranty contracts insignificant technology services revenue company sells combination technology products services bundled package technology products services sold portion consideration received related services component recognized time company satisfies future performance obligation revenue recognized hardware component control transferred dealer distributor revenue associated sale technology services insignificant agco corporation notes consolidated financial statements continued stock incentive plans stock compensation expense recorded follows millions refer note 10 additional information regarding company’s stock incentive plans 2019 2018 2017 research development expenses research development expenses expensed incurred included engineering expenses company’s consolidated statements operations advertising costs company expenses advertising costs incurred cooperative advertising costs normally expensed time revenue earned advertising expenses years ended december 31 2019 2018 2017 totaled approximately 423 million 424 million 420 million respectively shipping handling expenses shipping handling fees charged customers included component net sales associated freight activities customer obtained control shipping handling costs accounted fulfillment costs expensed accrued time revenue recognized within “cost goods sold” exception certain handling costs included “selling general administrative expenses” amount 389 million 379 million 354 million years ended december 31 2019 2018 2017 respectively interest expense net interest expense net years ended december 31 2019 2018 2017 consisted following millions 2018 company repurchased 578 senior notes due december 1 2021 result recorded approximately 245 million loss extinguishment debt reflected “interest expense net” offset approximately 47 million accelerated amortization deferred gain related terminated interest rate swap agreement associated senior notes refer note 7 information income taxes income taxes accounted asset liability method deferred tax assets liabilities recognized future tax consequences attributable differences financial statement carrying amounts existing assets liabilities respective tax bases operating loss tax credit carryforwards deferred tax assets liabilities measured using enacted tax rates expected apply taxable income years temporary differences expected recovered settled effect deferred tax assets liabilities change tax rates recognized income period includes enactment date see note 6 additional information regarding company’s income taxes agco corporation notes consolidated financial statements continued net income per common share basic net income per common share computed dividing net income weighted average number common shares outstanding period diluted net income per common share assumes exercise outstanding stocksettled stock appreciation rights “ssars” vesting performance share awards restricted stock units using treasury stock method effects assumptions dilutive reconciliation net income attributable agco corporation subsidiaries weighted average common shares outstanding purposes calculating basic diluted net income per share years ended december 31 2019 2018 2017 follows millions except per share data ssars purchase approximately 02 million shares 05 million shares 03 million shares company’s common stock years ended december 31 2019 2018 2017 respectively outstanding included calculation weighted average common equivalent shares outstanding antidilutive impact comprehensive income loss company reports comprehensive income loss defined total net income loss nonowner changes equity components thereof consolidated statements stockholders’ equity consolidated statements comprehensive income loss components comprehensive loss income related tax effects years ended december 31 2019 2018 2017 follows millions agco corporation notes consolidated financial statements continued derivatives company uses foreign currency contracts hedge foreign currency exposure certain receivables payables contracts periods consistent exposure hedged generally maturities one year less contracts classified nondesignated derivative instruments company also enters foreign currency contracts designated cash flow hedges expected sales company’s foreign currency contracts mitigate risk due exchange rate fluctuations gains losses contracts generally offset losses gains exposure hedged notional amounts foreign currency contracts represent amounts exchanged parties therefore measure company’s risk amounts exchanged calculated basis notional amounts terms contracts credit market risks contracts considered significant company’s interest expense part sensitive general level interest rates company manages exposure interest rate risk mix floating rate fixed rate debt time company enters interest rate swap agreements order manage company’s exposure interest rate fluctuations company uses nonderivative periodically derivative instruments hedge portion company’s net investment foreign operations adverse movements exchange rates company’s hedging policy prohibits entering foreign currency contracts speculative trading purposes see note 11 additional information regarding company’s derivative instruments hedging activities recent accounting pronouncements january 2017 fasb issued asu 201704 “simplifying test goodwill impairment” “asu 201704” eliminates step 2 goodwill impairment test standard entity perform goodwill impairment test comparing fair value reporting unit carrying amount resulting impairment charge amount carrying amount exceeds reporting unit’s fair value impairment charge however exceed total amount goodwill allocated reporting unit impairment assessment asu 201704 applies reporting units including zero negative carrying amount asu 201704 effective annual periods beginning december 15 2019 interim periods within annual periods using prospective approach early adoption permitted interim annual goodwill impairment test performed testing dates january 1 2017 company adopted asu 201704 fourth quarter 2019 applied standard annual impairment test performed october 1 2019 agco corporation notes consolidated financial statements continued february 2016 fasb issued asu 201602 “leases” “asu 201602” superseded existing lease guidance current us gaap asu 201602 based principle entities recognize assets liabilities arising leases new standard significantly change lessees’ recognition measurement presentation expenses cash flows previous accounting standard leases continue classified finance operating primary change asu 201602 requirement entities recognize lease liability payments rightofuse “rou” asset representing right use leased asset term operating lease arrangement lessees permitted make accounting policy election recognize asset liability leases term 12 months less lessors’ accounting new standard largely unchanged previous accounting standard addition asu 201602 expanded disclosure requirements lease arrangements upon adoption lessees lessors required recognize measure leases beginning earliest period presented using modified retrospective approach july 2018 fasb issued asu 201811 “targeted improvements” allowed new optional transition method provided option use effective date initial application transition option comparative periods continued apply legacy guidance asc 840 including disclosure requirements cumulative effect adjustment recognized period adoption rather earliest period presented transition option comparative reporting required provisions standard applied prospectively leases effect date adoption company adopted new guidance effective january 1 2019 using modified retrospective approach cumulative effect adjustment recorded upon adoption based company’s current lease portfolio adoption standard january 1 2019 resulted recognition date rou assets operating lease liabilities amount approximately 1942 million 1964 million respectively company’s consolidated balance sheets adoption new standard materially impact company’s consolidated statements operations consolidated statements cash flows asu 201602 provided number optional practical expedients transition company elected “package practical expedients” permitted company reassess prior conclusions lease identification lease classification initial direct costs company elected shortterm lease exemption leases term 12 months less existing ongoing operating leases company elected practical expedient separate lease nonlease components majority operating leases real estate office equipment leases connection adoption asu 201602 january 1 2019 company completed design new processes internal controls included implementation software solution cataloging company’s existing ongoing population leased assets see note 17 additional information related disclosures june 2016 fasb issued asu 201613 “measurement credit losses financial instruments” “asu 201613” requires measurement recognition expected versus incurred credit losses financial assets held asu 201613 effective annual periods beginning december 15 2019 interim periods within annual periods adoption standard relates company april 2019 fasb issued asu 201904 “codification improvements topic 326 financial instruments credit losses topic 815 derivatives hedging topic 825 financial instruments” “asu 201904” provides among things targeted improvements certain aspects accounting credit losses addressed asu 201613 november 2019 fasb issued asu 201911 “codification improvements topic 326 financial instruments credit losses” clarifies treatment expected recoveries amounts previously writtenoff purchased receivables provides transition relief troubled debt restructurings allows certain disclosure simplifications accrued interest effective dates asu 201904 asu 201911 effective dates asu 201613 company adopted standard subsequent modifications january 1 2020 adoption material impact company’s results operations financial condition cash flows company also adopted following pronouncements 2019 none material effect results operations financial condition cash flows • asu 201802 “reclassification certain tax effects accumulated comprehensive income” • asu 201813 “disclosure framework changes disclosure requirements fair value measurement” agco corporation notes consolidated financial statements continued new accounting pronouncements adopted december 2019 fasb issued asu 201912 “simplifying accounting income taxes” simplifies various aspects related accounting income taxes removing certain exceptions investments intraperiod allocations interim calculations adding guidance reduce complexity accounting income taxes asu 201912 effective annual periods beginning december 15 2020 interim periods within annual periods using prospective approach early adoption permitted depending amendment adoption may applied retrospective modified retrospective prospective basis standard material impact companys results operations financial condition cash flows discussed june 2016 fasb issued asu 201613 requires measurement recognition expected versus incurred credit losses financial assets held november 2019 fasb issued asu 201910 “financial instruments credit losses topic 326 derivatives hedging topic 815 leases topic 842 effective dates” delays effective date asu 201613 smaller reporting companies nonsec reporting entities applies company’s equity method finance joint ventures required adopt asu 201613 annual periods beginning december 15 2022 interim periods within annual periods standard subsequent modification likely impact results operations financial condition company’s finance joint ventures therefore adoption standard company’s finance joint ventures likely impact company’s “investment affiliates” “equity net earnings affiliates” company’s finance joint ventures currently evaluating impact asu 201613 results operations financial condition 2 acquisitions october 2 2017 company acquired hay forage division lely group “lely” approximately €802 million approximately 946 million net cash acquired approximately €101 million approximately 119 million lely acquisition manufacturing locations northern germany allowed company expand product offering hay forage equipment including balers loader wagons acquisition financed company’s credit facility see note 7 fair values assets acquired liabilities assumed acquisition date presented following table millions acquired identifiable intangible assets lely date acquisition summarized following table millions agco corporation notes consolidated financial statements continued results operations lely included company’s consolidated financial statements date acquisition associated goodwill included company’s europemiddle east geographical reportable segment proforma results related acquisition material september 1 2017 company acquired precision planting llc “precision planting” approximately 1981 million net cash acquired approximately 16 million precision planting headquartered tremont illinois leading manufacturer hightech planting equipment acquisition precision planting provided company opportunity expand precision farming technology offerings global basis acquisition financed company’s credit facility see note 7 fair values assets acquired liabilities assumed acquisition date presented following table millions acquired identifiable intangible assets precision planting date acquisition summarized following table millions results operations precision planting included company’s consolidated financial statements date acquisition associated tax deductible goodwill included company’s north america geographical reportable segment proforma results related acquisition material 3 restructuring expenses 2014 2019 company announced initiated several actions rationalize employee headcount various manufacturing facilities various administrative offices located europe south america africa china united states reduce costs response softening global market demand lower production volumes aggregate headcount reduction approximately 3890 employees 2014 2018 addition three months ended december 31 2019 company initiated various restructuring activities effort rationalize grain storage protein production system operations company recorded severance related costs associated rationalizations connection termination approximately 270 employee 2019 agco corporation notes consolidated financial statements continued components restructuring expenses summarized follows millions addition three months ended december 31 2019 company exited sold 50 interest usc llc joint venture joint venture partner approximately 51 million company recorded loss approximately 21 million associated sale reflected within “restructuring expenses” company’s consolidated statements operations agco corporation notes consolidated financial statements continued 4 accounts receivable sales agreements company accounts receivable sales agreements permit sale ongoing basis majority wholesale receivables north america europe brazil us canadian european brazilian finance joint ventures december 31 2019 2018 cash received receivables sold us canadian european brazilian accounts receivable sales agreements approximately 16 billion 14 billion respectively terms accounts receivable sales agreements north america europe brazil company pays annual fee related servicing receivables sold company also pays respective agco finance entities subsidized interest payment respect accounts receivable sales agreements calculated based upon libor plus margin noninterest bearing accounts receivable outstanding sold accounts receivables sales agreements fees reflected within losses sales receivables included within “other expense net” company’s consolidated statements operations company service receivables sale occurs maintain direct retained interest receivables company reviewed accounting accounts receivable sales agreements determined facilities accounted offbalance sheet transactions losses sales receivables associated accounts receivable financing facilities discussed reflected within “other expense net” company’s consolidated statements operations approximately 424 million 360 million 392 million 2019 2018 2017 respectively company’s finance joint ventures europe brazil australia also provide wholesale financing directly company’s dealers receivables associated arrangements without recourse company service receivables sale occurs maintain direct retained interest receivables december 31 2019 2018 finance joint ventures approximately 1043 million 825 million respectively outstanding accounts receivable associated arrangements company reviewed accounting arrangements determined arrangements accounted offbalance sheet transactions addition company sells certain trade receivables factoring arrangements financial institutions around world company reviewed sale receivables determined arrangements accounted offbalance sheet transactions 5 investments affiliates investments affiliates december 31 2019 2018 follows millions company’s finance joint ventures located united states canada europe brazil argentina australia provide retail financing wholesale financing company’s retail customers dealers respectively see note 14 information company’s finance joint ventures company’s manufacturing joint ventures consist groupement international de mecanique agricole sa “gima” joint venture thirdparty manufacturer purchase design manufacture components agricultural equipment france joint venture thirdparty manufacturer manufacture protein production equipment china joint ventures represent investments farm equipment manufacturers electronic software system manufacturer distributors licensees agco corporation notes consolidated financial statements continued company’s equity net earnings affiliates years ended december 31 2019 2018 2017 follows millions summarized combined financial information company’s finance joint ventures december 31 2019 2018 years ended december 31 2019 2018 2017 follows millions majority assets company’s finance joint ventures represent finance receivables majority liabilities represent notes payable accrued interest various joint venture agreements rabobank affiliates provide financing joint venture companies agco 49 interest company’s finance joint ventures note 14 december 31 2019 2018 company’s receivables affiliates approximately 152 million 129 million respectively receivables affiliates reflected within “accounts notes receivable net” within company’s consolidated balance sheets portion company’s retained earnings balance represents undistributed retained earnings equity method investees approximately 3108 million 3269 million december 31 2019 2018 respectively 6 income taxes sources income taxes equity net earnings affiliates follows years ended december 31 2019 2018 2017 millions agco corporation notes consolidated financial statements continued provision income taxes location taxing jurisdiction years ended december 31 2019 2018 2017 consisted following millions swiss tax reform enacted 2019 eliminates certain preferential tax items well implements new tax rates federal cantonal levels three months ended december 31 2019 company recognized onetime income tax gain approximately 218 million associated changing swiss federal cantonal tax rates well recognition deferred tax asset associated estimated value tax basis stepup company’s swiss subsidiary’s assets december 22 2017 tax cuts jobs act “the 2017 tax act” enacted united states three months ended december 31 2017 company recorded tax provision approximately 420 million accordance staff accounting bulletin 118 provided sec staff guidance application asc 740 “income taxes” reporting period 2017 tax act enacted 420 million tax provision included provisional income tax charge related onetime transition tax associated mandatory deemed repatriation unremitted foreign earnings tax provision also included provisional income tax charge associated income tax consequences related expected future repatriation certain underlying foreign earnings historically company considered permanently reinvested remaining balance tax provision primarily related remeasurement certain net deferred tax assets using lower enacted us corporate tax rate well miscellaneous related impacts three months ended december 31 2018 company finalized calculations related 2017 tax act recorded income tax benefit approximately 84 million reconciliation income taxes computed united states federal statutory income tax rate 21 2019 21 2018 35 21 35 2017 provision income taxes reflected company’s consolidated statements operations years ended december 31 2019 2018 2017 follows millions agco corporation notes consolidated financial statements continued significant components deferred tax assets liabilities december 31 2019 2018 follows millions reflected preceding table company recorded net deferred tax liability 132 million 114 million december 31 2019 december 31 2018 respectively valuation allowance gross deferred tax assets approximately 1691 million 839 million december 31 2019 2018 respectively three months ended september 30 2019 company recorded noncash deferred income tax charge approximately 537 million establish valuation allowance brazilian net deferred income tax assets addition company maintains valuation allowance fully reserve net deferred tax assets united states certain foreign jurisdictions valuation allowance established likely portion deferred tax assets realized company assessed likelihood deferred tax assets would recovered estimated future taxable income available tax planning strategies determined adjustments valuation allowance appropriate making assessment available evidence considered including current economic climate well reasonable tax planning strategies company believes likely realize remaining net deferred tax assets net valuation allowance future years company net operating loss carryforwards 2364 million december 31 2019 expiration dates follows 2020 244 million 2021 213 million 2022 143 million thereafter unlimited 1764 million net operating loss carryforwards 2364 million entirely tax jurisdictions outside united states company material us state net operating loss carryforwards company paid income taxes 1444 million 1016 million 1112 million years ended december 31 2019 2018 2017 respectively company recognizes income tax benefits uncertain tax positions 50 likelihood tax positions sustained upon examination taxing authorities based technical merits positions december 31 2019 2018 company 2107 million 1661 million respectively agco corporation notes consolidated financial statements continued unrecognized income tax benefits would affect company’s effective tax rate recognized december 31 2019 2018 company approximately 510 million 585 million respectively accrued deferred taxes related uncertain income tax positions connected ongoing income tax audits various jurisdictions expects settle pay next 12 months company accrued approximately 18 million 56 million interest penalties related unrecognized tax benefits provision income taxes 2019 2018 respectively december 31 2019 2018 company accrued interest penalties related unrecognized tax benefits 284 million 272 million respectively reconciliation beginning ending balances total amounts gross unrecognized tax benefits years ended december 31 2019 2018 follows millions reconciliation gross unrecognized tax benefits 2019 excludes certain indirect favorable effects relate tax jurisdictions approximately 449 million company subsidiaries file income tax returns united states various state local foreign jurisdictions company subsidiaries routinely examined tax authorities jurisdictions december 31 2019 number income tax examinations foreign jurisdictions ongoing possible certain ongoing examinations may resolved within 12 months due potential resolution federal state foreign examinations expiration various statutes limitation reasonably possible company’s gross unrecognized income tax benefits balance may materially change within next 12 months certain foreign jurisdictions either statutory expirations settlement expectations approximately 510 million could concluded within next 12 months although ongoing examinations various federal state jurisdictions 2016 2019 tax years generally remain subject examination united states applicable authorities company’s significant foreign jurisdictions primarily united kingdom france germany switzerland finland brazil 2014 2019 tax years generally remain subject examination respective tax authorities brazil company contesting disallowed deductions related amortization certain goodwill amounts see note 12 agco corporation notes consolidated financial statements continued 7 indebtedness longterm debt consisted following december 31 2019 2018 millions 1 maturity dates reflected december 31 2019 december 31 2019 aggregate scheduled maturities longterm debt excluding current portion longterm debt follows millions cash payments interest approximately 263 million 352 million 552 million years ended december 31 2019 2018 2017 respectively current indebtedness senior term loan due 2022 october 2018 company entered term loan agreement rabobank amount €1500 million approximately 1681 million december 31 2019 company permitted prepay term loan maturity date october 28 2022 interest payable term loan quarterly arrears annual rate equal euribor plus margin ranging 0875 1875 based company’s credit rating company also fulfill financial covenants respect total debt ebitda ratio interest coverage ratio credit facility october 2018 company entered multicurrency revolving credit facility 8000 million maturity date credit facility october 17 2023 interest accrues amounts outstanding credit facility company’s option either 1 libor plus margin ranging 0875 1875 based company’s credit rating 2 base rate equal higher administrative agent’s base lending rate applicable currency ii federal funds rate plus 05 iii onemonth libor loans denominated us dollars plus 10 plus margin ranging 00 0875 based company’s credit rating credit facility contains covenants restricting among things incurrence indebtedness making certain payments including dividends company also fulfill financial covenants respect total debt ebitda ratio interest coverage ratio december 31 2019 company outstanding borrowings credit facility ability borrow approximately 8000 million agco corporation notes consolidated financial statements continued facility december 31 2018 company approximately 1144 million outstanding borrowings credit facility ability borrow approximately 6856 million facility interest us dollar borrowings companys credit facility calculated based upon libor event libor longer published interest calculated upon base rate credit facility also provides expedited amendment process replacement libor established company’s former revolving credit term loan facility consisted 8000 million multicurrency revolving credit facility €3120 million term loan facility maturity date former credit facility june 26 2020 former credit facility agreement interest accrued amounts outstanding company’s option depending currency borrowed either 1 libor euribor plus margin ranging 10 175 based company’s leverage ratio 2 base rate equal higher administrative agent’s base lending rate applicable currency ii federal funds rate plus 05 iii onemonth libor loans denominated us dollars plus 10 plus margin ranging 00 025 based company’s leverage ratio credit facility contained covenants restricting among things incurrence indebtedness making certain payments including dividends subject acceleration event default company also fulfill financial covenants respect total debt ebitda ratio interest coverage ratio fully described note 11 company entered interest rate swap 2015 convert term loan facility’s floating interest rate fixed interest rate 033 plus applicable margin remaining life term loan facility connection closing new credit facility october 2018 company repaid outstanding €3120 million approximately 3608 million term loan former revolving credit term loan facility company recorded approximately 09 million “interest expense net” associated writeoff deferred debt issuance costs associated repayment company also recorded loss approximately 39 million recorded “interest expense net” year ended december 31 2018 associated termination interest rate swap instrument 1002 senior term loan december 2018 company entered term loan european investment bank “eib” provided company ability borrow €2500 million €2500 million approximately 2802 million december 31 2019 funding received january 25 2019 maturity date january 24 2025 company permitted prepay term loan maturity date interest payable term loan 1002 per annum payable semiannually arrears term loan contains covenants regarding among things incurrence indebtedness making certain payments well commitments regarding amounts future research development expenses europe subject acceleration events default company also fulfill financial covenants respect net leverage ratio interest coverage ratio senior term loans due 2021 2028 october 2016 company borrowed aggregate amount €3750 million group seven related term loan agreements august 2018 company borrowed additional aggregate amount €3380 million group another seven related term loan agreements 2016 term loans aggregate amount €560 million approximately 611 million repaid upon maturity october 2019 aggregate company indebtedness €6570 million approximately 7362 million december 31 2019 group twelve related term loan agreements provisions term loan agreements substantially identical exception interest rate terms maturities company permitted prepay term loans maturity dates term loans fixed interest rate interest payable arrears annual basis interest rates ranging 070 226 maturity date august 2021 august 2028 term loans floating interest rate interest payable arrears semiannual basis interest rates based euribor plus margin ranging 070 125 maturity date august 2021 august 2025 term loans contain covenants restricting among things incurrence indebtedness making certain payments including dividends subject acceleration event default agco corporation notes consolidated financial statements continued former indebtedness 1056 senior term loan december 2014 company entered term loan eib provided company ability borrow €2000 million €2000 million funding received january 15 2015 maturity date january 15 2020 company repaid €2000 million approximately 2200 million term loan december 2019 interest payable term loan 1056 per annum payable quarterly arrears term loan contained covenants regarding among things incurrence indebtedness making certain payments well commitments regarding amounts future research development expenses europe subject acceleration events default company also fulfill financial covenants respect net leverage ratio interest coverage ratio senior term loans due 2021 april 2016 company entered two term loan agreements rabobank amount €1000 million €2000 million respectively provisions two term loans identical nature december 2017 company repaid €2000 million approximately 2398 million term loan october 2018 connection term loan agreement due 2022 rabobank discussed company repaid €1000 million approximately 1132 million term loan company ability prepay term loans maturity date april 26 2021 interest payable term loans per annum paid quarterly arrears equal euribor plus margin ranging 10 175 based company’s net leverage ratio company also fulfill financial covenants respect total debt ebitda ratio interest coverage ratio 578 senior notes company’s 578 senior notes due december 1 2021 constituted senior unsecured indebtedness interest payable notes semiannually arrears time prior september 1 2021 company could redeem notes whole part time option redemption price equal greater 100 principal amount plus accrued unpaid interest including additional interest excluding redemption date ii sum present values remaining scheduled payments principal interest exclusive interest accrued date redemption discounted redemption date treasury rate plus 05 plus accrued unpaid interest including additional interest beginning september 1 2021 company could redeem notes whole part time option redemption price equal 100 principal amount plus accrued unpaid interest including additional interest may 2018 company completed cash tender offer purchase outstanding 578 senior notes cash purchase price 107750 per 100000 senior notes result tender offer company repurchased approximately 1859 million principal amount senior notes approximately 2003 million plus accrued interest october 2018 company repurchased remaining principal amount senior notes approximately 1141 million approximately 1225 million plus accrued interest repurchases resulted total losses extinguishment debt approximately 245 million including associated fees result repurchase 578 senior notes company recorded cumulative amount approximately 47 million accelerated amortization deferred gain related terminated interest rate swap instrument associated senior notes losses extinguishment well accelerated amortization reflected “interest expense net” year ended december 31 2018 shortterm borrowings december 31 2019 2018 company shortterm borrowings due within one year approximately 1505 million 1380 million respectively standby letters credit similar instruments company arrangements various banks issue standby letters credit similar instruments guarantee company’s obligations purchase sale certain inventories potential claims exposure insurance coverage december 31 2019 2018 outstanding letters credit totaled 139 million 141 million respectively agco corporation notes consolidated financial statements continued 8 employee benefit plans company sponsors defined benefit pension plans covering certain employees principally united kingdom united states germany switzerland finland france norway argentina company also provides certain postretirement health care life insurance benefits certain employees principally united states brazil company also maintains executive nonqualified pension plan “enpp” provides certain senior executives retirement income period 15 years lifetime annuity certain requirements met benefits enpp vest participant attained age 50 least ten years service including five years participant enpp payable participant reaches age 65 lifetime annuity benefit generally available vested participants retire reaching age 65 enpp unfunded nonqualified defined benefit pension plan net annual pension costs years ended december 31 2019 2018 2017 company’s defined benefit pension plans enpp set forth millions components net periodic pension postretirement benefits cost service cost component included “other expense net” company’s consolidated statements operations weighted average assumptions used determine net annual pension costs company’s defined benefit pension plans enpp years ended december 31 2019 2018 2017 follows 1 applicable us funded qualified plans 2 applicable us unfunded nonqualified plan company’s swiss cash balance plan interest crediting rate 10 2019 2018 set equal current annual minimum rate set government mandatory portion account balance amounts interest crediting rate 025 agco corporation notes consolidated financial statements continued net annual postretirement benefit costs weighted average discount rate used determine years ended december 31 2019 2018 2017 set forth millions except percentages agco corporation notes consolidated financial statements continued following tables set forth reconciliations changes benefit obligation plan assets funded status december 31 2019 2018 millions agco corporation notes consolidated financial statements continued following table summarizes activity accumulated comprehensive loss related company’s enpp defined pension postretirement benefit plans years ended december 31 2019 2018 millions unrecognized net actuarial losses included accumulated comprehensive loss related company’s defined benefit pension plans enpp december 31 2019 2018 set forth millions increase unrecognized net actuarial losses years primarily resulted lower discount rates december 31 2019 compared december 31 2018 unrecognized net actuarial losses impacted future periods actual asset returns discount rate changes currency exchange rate fluctuations actual demographic experience certain factors company’s defined benefit pension plans losses extent exceed 10 greater plan’s liabilities fair value assets “the gainloss corridor” amortized straightline basis periods discussed follows company’s us salaried us hourly uk defined benefit pension plans population covered predominantly inactive participants losses related plans extent exceed gainloss corridor amortized average remaining lives participants covered respective plan company’s enpp population predominantly active participants losses related plan amortized average future working lifetime active participants expected receive benefits december 31 2019 average amortization periods follows following table summarizes unrecognized prior service cost related companys defined benefit pension plans december 31 2019 2018 millions increase unrecognized prior service cost years due primarily plan amendment related companys enpp agco corporation notes consolidated financial statements continued following table summarizes unrecognized net actuarial losses gains included companys accumulated comprehensive loss related company’s us brazilian postretirement health care benefit plans december 31 2019 2018 millions 1 includes loss approximately 16 million 03 million respectively related company’s us postretirement benefit plans increase unrecognized net actuarial losses related company’s us brazilian postretirement benefit plans primarily due lower discount rates december 31 2019 compared december 31 2018 unrecognized net actuarial gains losses impacted future periods discount rate changes actual demographic experience actual health care inflation certain factors gains losses extent exceed gainloss corridor amortized straightline basis average remaining service period active employees expected receive benefits average remaining lives inactive participants covered postretirement benefit plans december 31 2019 average amortization period 12 years company’s us postretirement benefit plans december 31 2019 2018 net prior service cost related company’s us brazilian postretirement health care benefit plans follows millions following table summarizes fair value plan assets aggregate projected benefit obligation accumulated benefit obligation december 31 2019 2018 defined benefit pension plans enpp postretirement plans accumulated benefit obligations excess plan assets millions amounts 2019 disclosed include fair value plan assets projected benefit obligation accumulated benefit obligation related companys uk plan 2018 amounts disclosed include balances related companys uk plan company’s uk plans fair value plan assets excess plan’s accumulated benefit obligation december 31 2019 agco corporation notes consolidated financial statements continued company’s accumulated comprehensive loss december 31 2019 2018 reflects reduction equity related following items millions 1 primarily related company’s uk pension plan 2 amounts represented 50 gima’s unrecognized net actuarial losses unrecognized prior service cost associated pension plan addition gima recognized net actuarial loss due settlements approximately 01 million 2019 2018 company’s defined benefit pension obligation reflected based manner defined benefit plans administered obligation resulting liability calculated employing actuarial legal assumptions include limited future inflation return pension assets discount rates life expectancy potential salary increases also assumptions related manner individual benefit plan benefits calculated legal nature include limited member eligibility years service uniformity guaranteed minimum pension benefits member normal retirement ages men women assumptions also subject outcome certain legal cases currently unknown event assumptions administration approach proven different company’s current interpretations approach could material increases company’s defined benefit pension obligation related amounts timing future contributions paid company weighted average assumptions used determine benefit obligation company’s defined benefit pension plans enpp december 31 2019 2018 follows 1 applicable us unfunded nonqualified plan weighted average discount rate used determine benefit obligation company’s postretirement benefit plans years ended december 31 2019 2018 45 52 respectively years ended december 31 2019 2018 2017 company used globally consistent methodology set discount rate countries largest benefit obligations exist united states united kingdom euro zone company constructed hypothetical bond portfolio highquality corporate bonds applied cash flows company’s benefit plans bond yields derive discount rate bond portfolio planspecific cash flows vary country methodology portfolio constructed consistent united states bond portfolio large enough result taking “settlement approach” derive discount rate highquality corporate bonds assumed purchased resulting coupon payments maturities used satisfy company’s us pension plans’ projected benefit payments united kingdom euro zone discount rate derived using “yield curve approach” individual spot rate zero coupon bond yield future annual period developed discount future benefit payment thereby determine present value future payments company uses spot yield curve determine discount rate applicable united kingdom measure uk pension plan’s service cost interest cost settlement yield curve approaches discount rate set equal single discount rate produces present value future payments measuring expected us postretirement benefit obligation december 31 2019 company assumed 625 health care cost trend rate 2020 decreasing 50 2025 measuring expected us postretirement benefit agco corporation notes consolidated financial statements continued obligation december 31 2018 company assumed 650 health care cost trend rate 2019 decreasing 50 2025 measuring brazilian postretirement benefit plan obligation december 31 2019 company assumed 1055 health care cost trend rate 2020 decreasing 48 2031 measuring brazilian postretirement benefit plan obligation december 31 2018 company assumed 108 health care cost trend rate 2019 decreasing 50 2030 company currently estimates minimum contributions benefit payments usbased underfunded defined benefit pension plans unfunded enpp 2020 aggregate approximately 36 million company currently estimates minimum contributions underfunded plans benefit payments unfunded plans 2020 nonusbased defined benefit pension plans aggregate approximately 300 million approximately 202 million relates uk pension plan company currently estimates benefit payments 2020 usbased postretirement health care life insurance benefit plans aggregate approximately 16 million benefit payments 2020 brazilian postretirement health care benefit plans aggregate less 01 million 2019 approximately 456 million benefit payments made related company’s defined benefit pension plans enpp december 31 2019 aggregate expected benefit payments company’s defined benefit pension plans enpp follows millions 2019 approximately 15 million benefit payments made related company’s us brazilian postretirement benefit plans december 31 2019 aggregate expected benefit payments company’s us brazilian postretirement benefit plans follows millions investment strategy concentration risk weighted average asset allocation company’s us pension benefit plans december 31 2019 2018 follows agco corporation notes consolidated financial statements continued weighted average asset allocation company’s nonus pension benefit plans december 31 2019 2018 follows company categorizes pension plan assets one three levels based assumptions used valuing asset see note 13 discussion fair value hierarchy per guidance asc 820 “fair value measurements” “asc 820” company’s valuation techniques designed maximize use observable inputs minimize use unobservable inputs company uses following valuation methodologies measure fair value pension plan assets • equity securities equity securities valued basis closing price per unit business day reported applicable exchange equity funds valued using net asset value fund based fair value underlying securities • fixed income fixed income securities valued using closing prices active market fixed income investment trades fixed income funds valued using net asset value fund based fair value underlying securities • cash investments primarily consist shortterm investment funds valued using net asset value • alternative investments reported fair value determined general partner alternative investment “market approach” valuation technique used value investments funds typically openend funds generally offer subscription redemption options investors frequency subscriptions redemptions dictated fund’s governing documents amount liquidity provided investors particular fund generally consistent liquidity risk associated underlying portfolio ie liquid investments portfolio greater liquidity provided investors liquidity individual funds varies based various factors may include “gates” “holdbacks” “side pockets” imposed manager fund well redemption fees may also apply investments funds typically valued utilizing net asset valuations provided underlying investment managers general partners administrators funds consider subscription redemption rights including restrictions disposition interest determination fair value • insurance contracts insurance contracts valued using current prevailing interest rates agco corporation notes consolidated financial statements continued fair value company’s pension assets december 31 2019 follows millions 1 43 “fixed income” securities investmentgrade corporate bonds 18 government treasuries 14 highyield securities 10 foreign securities 9 assetbacked mortgagebacked securities 6 various fixed income securities 2 42 “alternative investments” relative value funds 24 longshort equity funds 21 eventdriven funds 7 distributed hedged nonhedged funds 6 credit funds 3 “miscellaneous funds” comprised insurance contracts finland norway switzerland 4 certain investments measured fair value using net asset value per share equivalent practical expedient categorized fair value hierarchy following reconciliation level 3 assets december 31 2019 millions agco corporation notes consolidated financial statements continued fair value company’s pension assets december 31 2018 follows millions 1 36 “fixed income” securities investmentgrade corporate bonds 27 government treasuries 17 foreign securities 13 highyield securities 7 various fixed income securities 2 44 “alternative investments” relative value funds 22 longshort equity funds 22 eventdriven funds 7 distributed hedged nonhedged funds 5 credit funds 3 “miscellaneous funds” comprised insurance contracts finland norway switzerland 4 certain investments measured fair value using net asset value per share equivalent practical expedient categorized fair value hierarchy following reconciliation level 3 assets december 31 2018 millions taxqualified pension fund investments united states held agco corporation master pension trust company’s global pension fund strategy diversify investments across broad categories equity fixed income securities appropriate use alternative investment categories minimize risk volatility primary investment objective company’s pension plans secure participant retirement benefits key objective pension plans’ financial management promote stability extent appropriate growth funded status investment strategy plans’ portfolio assets balances requirement generate returns need control risk asset mix recognized primary mechanism influence reward risk structure pension fund investments effort accomplish plans’ funding objectives overall investment strategies target agco corporation notes consolidated financial statements continued allocations retirement fund investments company’s usbased pension plans nonus based pension plans follow 1 majority company’s nonus pension fund investments related company’s pension plan united kingdom 2 overall us nonus pension funds invest broad diversification assets types company noted long periods mix investments would achieve average return usbased pension plans approximately 550 arriving choice expected return assumption 50 us plans year ended december 31 2020 company tempered historical indicator lower expectations returns changes investments future well administrative costs plans company noted long periods mix investments would achieve average return nonus based pension plans approximately 475 arriving choice expected return assumption 425 ukbased plans year ended december 31 2020 company tempered historical indicator lower expectations returns changes investments future well administrative costs plans equity securities primarily include investments largecap smallcap companies located across globe fixed income securities include corporate bonds companies diversified industries mortgagebacked securities agency mortgages assetbacked securities government securities alternative assets include investments hedge fund funds follow diversified investment strategies date company invested pension funds stock intention future within asset class careful consideration given balancing portfolio among industry sectors geographies interest rate sensitivity dependence economic growth currency factors affecting investment returns assets managed professional investment firms bound precise mandates measured specific benchmarks among asset managers consideration given among others balancing security concentration issuer concentration investment style reliance particular active investment strategies company participates small number multiemployer plans netherlands sweden company assessed determined none multiemployer plans participates individually aggregate significant company’s consolidated financial statements company expect incur withdrawal liability expect significantly increase contributions remainder multiemployer plans’ contract periods company maintains separate defined contribution plans covering certain employees primarily united states united kingdom brazil plans company contributes specified percentage eligible employee’s compensation company contributed approximately 158 million years ended december 31 2019 2018 approximately 151 million year ended december 31 2017 agco corporation notes consolidated financial statements continued 9 stockholders’ equity common stock december 31 2019 company 150000000 authorized shares common stock par value 001 per share approximately 75471562 shares common stock outstanding approximately 3581614 shares reserved issuance company’s 2006 longterm incentive plan “plan” see note 10 share repurchase program 2019 2018 company repurchased 1794256 3120184 shares common stock respectively approximately 1300 million 1843 million respectively either accelerated share repurchase “asr” agreements financial institutions open market transactions shares received retired upon receipt excess purchase price par value per share recorded combination “additional paidin capital” “retained earnings” within company’s consolidated balance sheets december 31 2019 remaining amount authorized repurchased boardapproved share repurchase authorizations approximately 3000 million expiration date february 2020 company entered asr agreement financial institution repurchase aggregate 250 million shares common stock company received approximately 297000 shares date transaction upon settlement asr company may entitled receive additional shares common stock certain circumstances required remit settlement amount company expects additional shares received company upon final settlement current asr agreement expires second quarter 2020 dividends company’s board directors declared company paid quarterly cash dividends per common share generally beginning first quarter following years 1 companys board directors declared company paid quarterly cash dividends 016 per common share beginning second quarter 2019 015 per common share first quarter 2019 january 23 2020 company’s board directors approved quarterly dividend 016 per common share beginning first quarter 2020 agco corporation notes consolidated financial statements continued accumulated comprehensive loss following table sets forth changes accumulated comprehensive loss component net tax attributed agco corporation subsidiaries years ended december 31 2019 2018 millions agco corporation notes consolidated financial statements continued following table sets forth reclassification adjustments accumulated comprehensive loss component attributed agco corporation subsidiaries years ended december 31 2019 2018 millions 1 gains losses included within consolidated statements operations years ended december 31 2019 2018 respectively 2 accumulated comprehensive loss components included computation net periodic pension postretirement benefit cost see note 8 company’s consolidated financial statements agco corporation notes consolidated financial statements continued 10 stock incentive plan 10000000 shares agco common stock may issued december 31 2019 approximately 3581614 shares remained available grant assuming maximum number shares earned related performance award grants discussed plan allows company direction board directors’ compensation committee make grants performance shares stock appreciation rights restricted stock units restricted stock awards employees officers nonemployee directors company longterm incentive plan related performance awards company’s primary longterm incentive plan performance share plan provides awards shares company’s common stock based achieving financial targets earnings per share return invested capital operating margins determined company’s board directors stock awards plan earned performance period number shares earned determined based annual cumulative average results specified period depending measurement performance periods company’s primary longterm incentive plan consecutive overlapping threeyear cycles performance targets set beginning cycle primary longterm incentive plan provides participants earn 33 200 target awards depending actual performance achieved shares earned performance established minimum target awards earned plan paid shares common stock end threeyear performance period percentage level achievement determined annually ultimate award earned determined based upon average three annual percentages compensation expense associated awards amortized ratably vesting performance period based company’s projected assessment level performance achieved earned compensation expense recorded 2019 2018 2017 respect awards granted based upon stock price grant date weighted average grantdate fair value performance awards granted plan 2019 2018 2017 follows 2019 company granted 542180 performance awards related varying performance periods awards granted assume maximum target levels performance achieved compensation expense associated awards granted plan amortized ratably vesting performance period based company’s projected assessment level performance achieved performance award transactions 2019 follows presented company achieve maximum levels performance plan based level performance achieved december 31 2019 492314 shares earned related performance period 302009 shares issued february 2020 net 190305 shares withheld taxes related earned awards plan allows participant option forfeiting portion shares awarded lieu cash payment contributed participant’s tax withholding satisfy participant’s statutory minimum federal state employment taxes would payable time grant 2017 company recorded approximately 48 million accelerated stock compensation expense associated stock award declined company’s chief executive officer agco corporation notes consolidated financial statements continued december 31 2019 total compensation cost related unearned performance awards yet recognized assuming company’s current projected assessment level performance achieved approximately 240 million weighted average period expected recognized approximately one onehalf years estimate based current projected levels performance outstanding awards compensation cost yet recognized could higher lower based actual achieved levels performance restricted stock units year ended december 31 2019 company granted 165160 restricted stock unit “rsu” awards entitle participant receive one share company’s common stock rsu granted vest onethird per year threeyear requisite service period subject adjustment certain cases based performance metric relative companys peer group commencing 2020 compensation expense associated awards amortized ratably requisite service period awards expected vest weighted average grantdate fair value rsus granted plan years ended december 31 2019 2018 2017 6101 6399 6199 respectively rsu transactions year ended december 31 2019 follows december 31 2019 total compensation cost related unvested rsus yet recognized approximately 126 million weighted average period expected recognized approximately one onehalf years stocksettled appreciation rights certain executives key managers eligible receive grants ssars provide participant right receive aggregate appreciation stock price market price company’s common stock date grant payable shares company’s common stock participant may exercise ssars time grant vested later seven years date grant ssars vest ratably fouryear period date grant ssar awards made certain executives key managers plan made base price equal price company’s common stock date grant company recorded stock compensation expense approximately 24 million 24 million 30 million associated ssar awards 2019 2018 2017 respectively compensation expense associated awards amortized ratably vesting period company estimated fair value grants using blackscholes option pricing model weighted average grantdate fair value ssar awards granted plan weighted average assumptions blackscholes option model follows years ended december 31 2019 2018 2017 agco corporation notes consolidated financial statements continued ssar transactions year ended december 31 2019 follows december 31 2019 weighted average remaining contractual life ssars outstanding approximately 46 years december 31 2019 total compensation cost related unvested ssars yet recognized approximately 39 million weightedaverage period expected recognized approximately two onehalf years following table sets forth exercise price range number shares weighted average exercise price remaining contractual lives groups similar price december 31 2019 total fair value ssars vested 2019 approximately 31 million 550050 ssars vested december 31 2019 total intrinsic value outstanding exercisable ssars december 31 2019 81 million 43 million respectively total intrinsic value ssars exercised 2019 approximately 127 million excess tax benefit realized tax deductions united states related exercise ssars vesting rsu awards vesting performance awards plan approximately 27 million year ended december 31 2019 excess tax benefit realized tax deductions united states related exercise ssars vesting rsu awards vesting performance awards plan approximately 16 million year ended december 31 2018 excess tax benefit realized tax deductions united states related exercise ssars vesting rsu awards plan less 01 million year ended december 31 2017 company realized insignificant tax benefit exercise ssars vesting performance awards vesting rsu awards certain foreign jurisdictions years ended december 31 2019 2018 2017 january 22 2020 company granted 212720 performance award shares subject company achieving future target levels performance 187100 ssars 95820 rsus plan agco corporation notes consolidated financial statements continued director restricted stock grants pursuant plan nonemployee directors receive annual restricted stock grants company’s common stock restricted stock grants made company’s directors restricted transferability period one year event director departs company’s board directors nontransferability period expires immediately plan allows director option forfeiting portion shares awarded lieu cash payment contributed participant’s tax withholding satisfy statutory minimum federal state employment taxes would payable time grant 2019 grant made april 25 2019 equated 19386 shares common stock 14105 shares common stock issued shares withheld taxes company recorded stock compensation expense approximately 14 million 2019 associated grants 11 derivative instruments hedging activities company attempts manage transactional foreign exchange exposure hedging foreign currency cash flow forecasts commitments arising anticipated settlement receivables payables future purchases sales naturally offsetting currency positions occur company hedges certain exposures use foreign currency contracts company’s translation exposure resulting translating financial statements foreign subsidiaries united states dollars may partially hedged time practical translation impact reduced financing local operations local borrowings company uses floating rate fixed rate debt finance operations floating rate debt obligations expose company variability interest payments due changes euribor libor benchmark interest rates company believes prudent limit variability portion interest payments meet objective company periodically enters interest rate swaps manage interest rate risk associated company’s borrowings company designates interest rate contracts used convert interest rate exposure portion company’s debt portfolio floating rate fixed rate cash flow hedges contracts converting company’s interest rate exposure fixed rate floating rate designated fair value hedges protect value company’s investment foreign operations adverse changes foreign currency exchange rates company time may hedge portion company’s net investment foreign subsidiaries using cross currency swap component gains losses company’s net investment designated foreign operations driven changes foreign exchange rates economically offset movements fair value cross currency swap contracts company’s senior management establishes company’s foreign currency interest rate risk management policies reviewed periodically finance committee company’s board directors policies allow use derivative instruments hedge exposures movements foreign currency interest rates company’s policies prohibit use derivative instruments speculative purposes derivatives recognized company’s consolidated balance sheets fair value date derivative contract entered company designates derivative either 1 cash flow hedge forecasted transaction 2 fair value hedge recognized liability 3 hedge net investment foreign operation 4 nondesignated derivative instrument company categorizes derivative assets liabilities one three levels based assumptions used valuing asset liability see note 13 discussion fair value hierarchy per guidance asc 820 company’s valuation techniques designed maximize use observable inputs minimize use unobservable inputs counterparty risk company regularly monitors counterparty risk credit ratings counterparties derivative instruments company believes exposures appropriately diversified across counterparties creditworthy financial institutions company perceives risk counterparty company would cease business counterparty negative impacts company nonperformance counterparties agco corporation notes consolidated financial statements continued derivative transactions designated hedging instruments cash flow hedges foreign currency contracts company uses cash flow hedges minimize variability cash flows assets liabilities forecasted transactions caused fluctuations foreign currency exchange rates changes fair values cash flow hedges recorded accumulated comprehensive loss subsequently reclassified “cost goods sold” period sales purchases recognized amounts offset effect changes foreign currency rates related sale purchase transactions 2019 2018 2017 company designated certain foreign currency contracts cash flow hedges expected future sales purchases total notional value derivatives designated cash flow hedges 3327 million 1270 million december 31 2019 2018 respectively following table summarizes aftertax impact changes fair value derivatives designated cash flow hedges accumulated comprehensive loss net income 2019 2018 2017 millions 1 outstanding contracts december 31 2019 range maturity december 2020 agco corporation notes consolidated financial statements continued following table summarizes activity accumulated comprehensive loss related derivatives held company years ended december 31 2019 2018 2017 millions net investment hedges company uses nonderivative derivative instruments hedge portion net investment foreign operations adverse movements exchange rates instruments designated hedges net investments foreign operations changes fair value derivative instruments recorded foreign currency translation adjustments component accumulated comprehensive loss offset changes value net investments hedged net investment foreign operations sold substantially liquidates amounts recorded accumulated comprehensive loss reclassified earnings extent foreign currency denominated debt dedesignated net investment hedge relationship changes value foreign currency denominated debt recorded earnings maturity date january 2018 company entered cross currency swap contract hedge net investment foreign operations offset foreign currency translation gains losses net investment cross currency swap expiration date january 19 2021 maturity cross currency swap contract company deliver notional amount approximately €2457 million approximately 2753 million december 31 2019 receive 3000 million counterparties company receive quarterly interest payments counterparties based fixed interest rate maturity cross currency swap january 2019 september 2019 company designated €1600 million €300 million respectively multicurrency revolving credit facility maturity date october 17 2023 hedge net investment foreign operations offset foreign currency translation gains losses net investment september 2019 company repaid designated amount outstanding multicurrency revolving credit facility foreign currency denominated debt dedesignated net investment hedge following table summarizes notional values instrument designated net investment hedge millions agco corporation notes consolidated financial statements continued following table summarizes aftertax impact changes fair value instrument designated net investment hedge millions derivative transactions designated hedging instruments 2019 2018 2017 company entered foreign currency contracts economically hedge receivables payables company subsidiaries’ balance sheets denominated foreign currencies functional currency contracts classified nondesignated derivative instruments gains losses contracts substantially offset losses gains remeasurement underlying asset liability hedged immediately recognized earnings december 31 2019 2018 company outstanding foreign currency contracts notional amount approximately 28003 million 13358 million respectively following table summarizes impact changes fair value derivatives designated hedging instruments net income millions table sets forth fair value derivative instruments december 31 2019 millions agco corporation notes consolidated financial statements continued table sets forth fair value derivative instruments december 31 2018 millions former interest rate swap contract company monitors mix shortterm longterm debt regularly time company manages risk interest rate fluctuations use derivative financial instruments 2015 company entered interest rate swap instrument notional amount €3120 million expiration date june 26 2020 swap designated accounted cash flow hedge swap agreement company paid fixed interest rate 033 plus applicable margin counterparty agreement paid floating interest rate based threemonth euribor changes fair value interest rate swap recorded accumulated comprehensive loss subsequently reclassified “interest expense net” rate adjustment period related interest company’s floating rate term loan facility affected earnings result company’s new credit facility agreement entered october 2018 repayment €3120 million approximately 3608 million term loan company’s former revolving credit facility well change mix company’s shortterm longterm debt company terminated interest rate swap instrument recorded loss approximately 39 million recorded “interest expense net” year ended december 31 2018 refer note 7 information agco corporation notes consolidated financial statements continued 12 commitments contingencies future payments required company’s significant commitments excluding indebtedness december 31 2019 follows millions 1 estimated interest payments calculated assuming current interest rates minimum maturity periods specified debt agreements debt may repaid sooner later minimum maturity periods unaudited 2 refer note 7 information companys commitments respect indebtedness 3 unconditional purchase obligations exclude routine purchase orders entered normal course business 4 shortterm longterm obligations include estimates future minimum contribution requirements company’s us nonus defined benefit pension postretirement plans estimates based current legislation countries company operates within subject change shortterm longterm obligations also include income tax liabilities related uncertain income tax positions connected ongoing income tax audits various jurisdictions unaudited offbalance sheet arrangements guarantees company maintains remarketing agreement us finance joint venture agco finance llc whereby company obligated repurchase 60 million repossessed equipment calendar year company believes losses might incurred resale equipment materially impact company’s financial position results operations due fair value underlying equipment december 31 2019 company outstanding guarantees indebtedness owed third parties approximately 476 million primarily related dealer enduser financing equipment guarantees generally obligate company repay outstanding finance obligations owed financial institutions dealers end users default loans 2025 losses guarantees historically insignificant addition company generally would expect able recover significant portion amounts paid guarantees sale underlying financed farm equipment fair value equipment expected sufficient offset substantial portion amounts paid company also obligations guarantee indebtedness owed certain finance joint ventures dealers end users default loans losses guarantees historically insignificant guarantees material company believes credit risk associated guarantees material financial position results operations addition december 31 2019 company accrued approximately 189 million outstanding guarantees minimum residual values may owed finance joint ventures united states canada due upon expiration certain eligible operating leases finance joint ventures end users maximum potential amount future payments guarantee approximately 267 million december 31 2019 company outstanding designated nondesignated foreign exchange contracts gross notional amount approximately 31330 million outstanding contracts december 31 2019 range maturity december 2020 see note 11 agco corporation notes consolidated financial statements continued company sells majority wholesale receivables north america europe brazil us canadian european brazilian finance joint ventures company also sells certain accounts receivable factoring arrangements financial institutions around world company reviewed sale receivables determined facilities accounted offbalance sheet transactions contingencies august 2008 part routine audits brazilian taxing authorities disallowed deductions relating amortization certain goodwill recognized connection reorganization company’s brazilian operations related transfer certain assets company’s brazilian subsidiaries amount tax disallowance december 31 2019 including interest penalties approximately 1315 million brazilian reais approximately 326 million amount ultimately dispute significantly greater interest penalties company advised legal tax advisors position respect deductions allowable tax laws brazil company contesting disallowance believes likely assessment interest penalties required paid however ultimate outcome determined brazilian tax appeal process complete could take several years company party various legal claims actions incidental business company believes none claims actions either individually aggregate material business financial statements whole including results operations financial condition 13 fair value financial instruments company categorizes assets liabilities one three levels based assumptions used valuing asset liability estimates fair value financial assets liabilities based fair value hierarchy prioritizes inputs valuation techniques used measure fair value observable inputs highest level reflect market data obtained independent sources unobservable inputs lowest level reflect internally developed market assumptions accordance guidance fair value measurements classified following hierarchy • level 1 quoted prices active markets identical assets liabilities • level 2 quoted prices similar assets liabilities active markets quoted prices identical similar assets liabilities markets active modelderived valuations significant inputs observable corroborated observable market data substantially full term assets liabilities • level 3 modelderived valuations one significant inputs unobservable company categorizes pension plan assets one three levels fair value hierarchy see note 8 discussion valuation methods used measure fair value company’s pension plan assets company enters foreign currency interest rate swap contracts fair values company’s derivative instruments determined using discounted cash flow valuation models significant inputs used models readily available public markets derived observable market transactions therefore classified level 2 inputs used discounted cash flow valuation models derivative instruments include applicable exchange rates forward rates interest rates models used option contracts also use implied volatility see note 11 discussion company’s derivative instruments hedging activities agco corporation notes consolidated financial statements continued assets liabilities measured fair value recurring basis december 31 2019 2018 summarized millions cash equivalents accounts notes receivable net accounts payable valued carrying amounts company’s consolidated balance sheets due immediate shortterm maturity financial instruments carrying amounts longterm debt company’s senior term loan due 2022 1002 senior term loan due 2025 senior term loans due 2021 2028 approximate fair value based borrowing rates currently available company loans similar terms average maturities see note 7 additional information company’s longterm debt 14 related party transactions rabobank financial institution based netherlands 51 owner company’s finance joint ventures located united states canada europe brazil argentina australia rabobank also principal agent participant company’s revolving credit facility see note 7 majority assets company’s finance joint ventures represents finance receivables majority liabilities represents notes payable accrued interest various joint venture agreements rabobank affiliates provide financing joint venture companies primarily lines credit 2019 2018 2017 company make additional investments finance joint ventures 2019 2018 company received dividends approximately 405 million 294 million respectively certain company’s finance joint ventures company’s finance joint ventures provide retail financing wholesale financing dealers terms financing arrangements offered company’s dealers similar arrangements finance joint ventures provide unaffiliated third parties addition company transfers ongoing basis majority wholesale receivables north america europe brazil us canadian european brazilian finance joint ventures see note 4 company maintains remarketing agreement us finance joint venture guarantees finance joint ventures material see note 12 addition part sales incentives provided end users company may time subsidize interest rates retail financing provided finance joint ventures cost programs recognized time sale company’s dealers see note 1 tractors farm equipment limited “tafe” company holds 2375 interest manufactures sells massey fergusonbranded equipment primarily india also supplies tractors components company sale markets mallika srinivasan chairman chief executive officer tafe currently member company’s board directors december 31 2019 tafe beneficially owned 12150152 shares company’s common stock including shares companys common stock received ms srinivasan service director company tafe parties agreement pursuant among things tafe agreed purchase excess 12150152 shares company’s common stock subject certain adjustments company agreed annually nominate tafe representative board directors 2019 2018 2017 company purchased approximately 927 million 1096 million 1020 million respectively tractors components tafe 2019 2018 2017 company sold approximately 15 million 18 million 12 million respectively parts tafe company received dividends tafe approximately 20 million 2019 18 million 2018 2017 agco corporation notes consolidated financial statements continued 2019 2018 2017 company paid approximately 44 million 35 million 72 million respectively ppg industries inc painting materials used company’s manufacturing processes company’s chairman president chief executive officer currently member board directors ppg industries inc 2019 2018 2017 company paid approximately 62 million 16 million 15 million respectively linde plc parent company praxair inc propane gas welding laser consumables used company’s manufacturing processes company’s chairman president chief executive officer served member board directors praxair inc business combination praxair inc linde ag currently member board directors linde plc holding company combined business 15 segment reporting company’s four reportable segments distribute full range agricultural equipment related replacement parts company evaluates segment performance primarily based income operations sales segment based location thirdparty customer company’s selling general administrative expenses engineering expenses generally charged segment based region division expenses incurred result components income operations one segment may comparable another segment results years ended december 31 2019 2018 2017 based company’s reportable segments follows millions agco corporation notes consolidated financial statements continued reconciliation segment information consolidated balances income operations total assets set forth millions property plant equipment amortizable intangible assets country december 31 2019 2018 follows millions agco corporation notes consolidated financial statements continued 16 revenue contract liabilities contract liabilities relate following 1 unrecognized revenues advance payment consideration precedes company’s performance respect extended warranty contracts performance obligation satisfied time 2 unrecognized revenues advance payment consideration precedes company’s performance respect certain grain storage protein production systems performance obligation satisfied time 3 unrecognized revenues advance payment consideration precedes company’s performance respect technology services performance obligation satisfied time significant changes balance contract liabilities years ended december 31 2019 2018 follows millions 1 beginning period date adoption asu 201409 january 1 2018 contract liabilities classified either “other current liabilities” noncurrent liabilities “accrued expenses” company’s consolidated balance sheets remaining performance obligations estimated revenues expected recognized future related performance obligations unsatisfied partially unsatisfied december 31 2019 377 million 2020 274 million 2021 162 million 2022 82 million 2023 22 million thereafter relate primarily extended warranty contracts company applied practical expedient asu 201409 disclosed information remaining performance obligations original expected durations 12 months less agco corporation notes consolidated financial statements continued disaggregated revenue net sales year ended december 31 2019 disaggregated primary geographical markets major products consisted following millions agco corporation notes consolidated financial statements continued net sales year ended december 31 2018 disaggregated primary geographical markets major products consisted following millions 1 rounding may impact summation amounts agco corporation notes consolidated financial statements continued net sales year ended december 31 2017 disaggregated primary geographical markets major products consisted following millions 1 rounding may impact summation amounts agco corporation notes consolidated financial statements continued 17 leases company leases certain land buildings machinery equipment vehicles office computer equipment finance operating leases previously discussed note 1 company adopted asu 201602 effective january 1 2019 new standard lessees required record asset rou asset finance lease asset lease liability new standard continues allow two types leases income statement recognition purposes operating leases finance leases operating leases result recognition single lease expense straightline basis lease term similar treatment operating leases previous us gaap finance leases result accelerated expense also similar previous us gaap asu 201602 also contains amended guidance regarding identification embedded leases service supply contracts well identification lease nonlease components arrangement rou assets represent company’s right use underlying asset lease term lease liabilities represent company’s obligation make lease payments lease term leases greater 12 months result recognition rou asset liability lease commencement date based present value lease payments lease term present value lease payments calculated using applicable weightedaverage discount rate weightedaverage discount rate based discount rate implicit lease implicit rate readily determinable lease company estimates applicable incremental borrowing rate incremental borrowing rate estimated using currency denomination lease contractual lease term company’s applicable borrowing rate company recognize rou asset lease liability respect operating leases initial term 12 months less recognizes expense leases straightline basis lease term company accounts lease components separately nonlease components real estate office equipment company evaluated supplier agreements existence leases determined leases comprised insignificant portion supplier agreements leases material company’s consolidated balance sheets company certain leases include one options renew renewal terms extend lease term six months 10 years exercise lease renewal options company’s discretion included determination rou asset lease liability option reasonably certain exercised depreciable life rou assets leasehold improvements limited expected lease term company certain lease agreements include variable rental payments adjusted periodically inflation based index rate defined applicable government authority generally company’s lease agreements contain residual value guarantees restrictive covenants total lease assets liabilities december 31 2019 follows millions 1 finance lease assets recorded net accumulated depreciation 152 million december 31 2019 agco corporation notes consolidated financial statements continued total lease cost 2019 set forth millions 1 depreciation expense included cost sales selling general administrative expenses total lease expense noncancelable operating leases approximately 721 million year ended december 31 2018 aggregate future minimum lease payments noncancelable operating finance leases remaining terms greater one year december 31 2019 follows millions 1 operating lease payments include 114 million related options extend leases reasonably certain exercised 2 calculated using implicit interest rate lease agco corporation notes consolidated financial statements continued aggregate future minimum lease payments noncancelable operating finance leases remaining terms greater one year december 31 2018 follows millions 1 imputed interest operating leases december 31 2018 applicable company adopted asc 842 january 1 2019 2 determined asc 840 “leases” following table summarizes weightedaverage remaining lease term weightedaverage discount rate following table summarizes supplemental cash flow information 2019 millions item 9item 8 financial statements supplementary data following consolidated financial statements agco subsidiaries years threeyear period ended december 31 2015 included item information heading “quarterly results” item 7 form 10k incorporated herein reference report independent registered public accounting firm board directors stockholders agco corporation audited accompanying consolidated balance sheets agco corporation subsidiaries december 31 2015 2014 related consolidated statements operations comprehensive income loss stockholders’ equity cash flows years threeyear period ended december 31 2015 connection audits consolidated financial statements also audited financial statement schedule listed item 15a2 consolidated financial statements financial statement schedule responsibility company’s management responsibility express opinion consolidated financial statements financial statement schedule based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements referred present fairly material respects financial position agco corporation subsidiaries december 31 2015 2014 results operations cash flows years threeyear period ended december 31 2015 conformity us generally accepted accounting principles also opinion related financial statement schedule considered relation basic consolidated financial statements taken whole presents fairly material respects information set forth therein also audited accordance standards public company accounting oversight board united states agco corporation’s internal control financial reporting december 31 2015 based criteria established internal control integrated framework 2013 issued committee sponsoring organizations treadway commission coso report dated february 26 2016 expressed unqualified opinion effectiveness company’s internal control financial reporting kpmg llp atlanta georgia february 26 2016 agco corporation consolidated statements operations millions except per share data see accompanying notes consolidated financial statements agco corporation consolidated statements comprehensive income loss millions see accompanying notes consolidated financial statements agco corporation consolidated balance sheets millions except share amounts see accompanying notes consolidated financial statements agco corporation consolidated statements stockholders’ equity millions except share amounts see accompanying notes consolidated financial statements agco corporation consolidated statements cash flows millions see accompanying notes consolidated financial statements agco corporation notes consolidated financial statements 1 operations summary significant accounting policies business agco corporation subsidiaries “agco” “company” leading manufacturer distributor agricultural equipment related replacement parts throughout world company sells full range agricultural equipment including tractors combines hay tools sprayers forage equipment tillage implements grain storage protein production systems company’s products widely recognized agricultural equipment industry marketed number wellknown brand names including challenger® fendt® gsi® massey ferguson® valtra® company distributes products combination approximately 3000 independent dealers distributors well company utilizes associates licensees provide distribution channel products addition company provides retail financing finance joint ventures coöperatieve centrale raiffeisenboerenleenbank ba “rabobank” basis presentation consolidation company’s consolidated financial statements represent consolidation whollyowned companies majorityowned companies joint ventures company determined primary beneficiary company consolidates variable interest entity “vie” company determines primary beneficiary primary beneficiary vie party power direct activities significantly impact entity’s economic performance obligation absorb losses right receive benefits potentially could significant vie company also consolidates entities considered vies determined company controlling voting interest direct activities significantly impact joint venture entity company records investments affiliate companies using equity method accounting significant influence investments including representing ownership interest less 20 recorded cost significant intercompany balances transactions eliminated consolidated financial statements certain prior period amounts reclassified conform current period presentation use estimates preparation financial statements conformity us generally accepted accounting principles “gaap” requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ estimates made management primarily relate accounts notes receivable inventories deferred income tax valuation allowances uncertain tax positions goodwill identifiable intangible assets certain accrued liabilities principally relating reserves volume discounts sales incentives warranty obligations product liability workers’ compensation obligations pensions postretirement benefits revenue recognition sales equipment replacement parts recorded company title risks ownership transferred independent dealer distributor customer certain countries sales certain grain storage protein production systems company responsible construction installation may contingent upon customer acceptance recorded completion project payment terms vary market product fixed payment schedules sales terms sale generally require purchase order confirmation accompany shipments title generally passes dealer distributor upon shipment specified delivery risk loss upon damage theft destruction equipment responsibility dealer distributor thirdparty carrier point stated shipping delivery term certain foreign countries company retains form title goods delivered dealers dealer makes payment company recover goods event customer default payment occurs laws foreign countries provide seller’s retention security interest goods manner established united states uniform commercial code right company retains respect title enabling recovery goods event customer default payment dealer distributor may return equipment replacement parts contract company force replacement parts may returned promotional annual return programs provisions returns programs made time sale based terms program historical returns experience company may provide certain sales incentives agco corporation notes consolidated financial statements continued dealers distributors provisions sales incentives made time sale existing incentive programs provisions revised event subsequent modification incentive program see “accounts notes receivable” discussion united states canada amounts due sales dealers immediately due upon retail sale underlying equipment dealer exception sales grain storage protein production systems previously paid dealer united states canada installment payments required generally beginning interestfree period remaining outstanding equipment balance generally due within 12 months shipment delivery specified programs united states canada may allow interestfree periods due dates 24 months certain products interest generally charged outstanding balance six 12 months shipment delivery sales terms highly seasonal products provide payment due dates based specified date year regardless shipment date equipment sold dealers united states canada paid full average within 12 months shipment sales replacement parts generally payable within 30 days shipment terms larger seasonal stock orders generally requiring payment within six months shipment sales grain storage protein production systems generally payable within 30 days shipment international markets equipment sales generally payable full within 30 180 days shipment delivery payment terms highly seasonal products specified due date year regardless shipment delivery date sales replacement parts generally payable within 30 90 days shipment terms larger seasonal stock orders generally payable within six months shipment certain markets particularly north america time lag varies based timing level retail demand date company records sale dealer sells equipment retail customer foreign currency translation financial statements company’s foreign subsidiaries translated united states currency accordance accounting standards codification “asc” 830 “foreign currency matters” assets liabilities translated united states dollars periodend exchange rates income expense items translated average rates exchange prevailing period translation adjustments included “accumulated comprehensive loss” stockholders’ equity within company’s consolidated balance sheets gains losses result foreign currency transactions included accompanying consolidated statements operations cash equivalents cash december 31 2015 2014 3446 million 2153 million respectively consisted primarily cash hand bank deposits company considers investments original maturity three months less cash equivalents cash equivalents december 31 2015 2014 821 million 1484 million respectively consisted primarily money market deposits certificates deposits overnight investments accounts notes receivable accounts notes receivable arise sale equipment replacement parts independent dealers distributors customers payments due company’s terms sale generally range one 12 months contingent upon sale equipment dealer distributor retail customer normal circumstances payment terms extended equipment may returned certain regions respect equipment sales including united states canada company obligated repurchase equipment replacement parts upon cancellation dealer distributor contract obligations required national state provincial laws require company repurchase dealer distributor’s unsold inventory including inventories receivable already paid company offers various sales terms respect products sales markets outside united states canada company generally charge interest outstanding receivables dealers distributors sales certain dealers distributors united states canada interest charged prime lending rates outstanding receivable balances interestfree periods interestfree periods vary product generally range one 12 months previously discussed limited circumstances company provides sales terms cases interestfree periods longer 12 months certain products typically specified programs agco corporation notes consolidated financial statements continued predominantly united states canada interest charged period 24 months depending year sale dealer distributor’s ordering sales volume preceding year actual interestfree periods shorter described equipment receivable dealers distributors countries united states canada generally due immediately upon sale equipment retail customer receivables also paid prior terms specified sales agreements normal circumstances interest forgiven interestfree periods extended following summarizes geographic region percentage consolidated net sales amounts maximum interestfree periods presented millions company agreement permit transferring ongoing basis majority wholesale interestbearing noninterest bearing accounts receivable north america europe us canadian european finance joint ventures 2015 company entered agreement permit transferring ongoing basis portion accounts receivable brazil brazilian finance joint venture qualified dealers may obtain additional financing company’s us canadian european brazilian finance joint ventures joint ventures’ discretion company provides various volume bonus sales incentive programs respect products sales incentive programs include reductions invoice prices reductions retail financing rates dealer commissions dealer incentive allowances cases incentive programs established communicated company’s dealers quarterly basis incentives paid either time invoice reduction invoice price time settlement receivable time retail financing time warranty registration subsequent time based dealer purchases incentive programs productline specific generally vary dealer cost sales incentives associated dealer commissions dealer incentive allowances estimated based upon terms programs historical experience based percentage sales price recorded later date related revenue recognized b date sales incentive offered related provisions accruals made product productline basis monitored adequacy revised least quarterly event subsequent modifications programs volume discounts estimated recognized based historical experience related reserves monitored adjusted based actual dealer purchases dealer’s progress towards achieving specified cumulative target levels company records cost interest subsidy payments reduction retail financing rates later date related revenue recognized b date sales incentive offered estimates incentives based terms programs historical experience incentive programs recorded presented reduction revenue due fact company receive identifiable benefit exchange consideration provided reserves incentive programs paid either reduction future invoices credit memos recorded “accounts receivable allowances” within company’s consolidated balance sheets reserves incentive programs paid cash case company’s volume discount programs well sales incentives associated accounts receivable sold us canadian finance joint ventures recorded within “accrued expenses” within company’s consolidated balance sheets agco corporation notes consolidated financial statements continued accounts notes receivable shown net allowances sales incentive discounts available dealers doubtful accounts cash flows related collection receivables reported within “cash flows operating activities” within company’s consolidated statements cash flows accounts notes receivable allowances december 31 2015 2014 follows millions company transfers certain accounts receivable accounts receivable sales agreements finance joint ventures note 4 company records transfers sales accounts receivable considered surrendered control receivables provisions accounting standards update “asu” 200916 “transfers servicing topic 860 accounting transfers financial assets” cash payments made company’s us canadian finance joint ventures sales incentive discounts provided dealers related outstanding accounts receivables sold balances sales discount reserves recorded within “accrued expenses” december 31 2015 2014 approximately 2295 million 2365 million respectively inventories valued lower cost market using firstin firstout method market current replacement cost purchase reproduction dependent type inventory cases market exceeds net realizable value ie estimated selling price less reasonably predictable costs completion disposal inventories stated net realizable value market considered less net realizable value reduced allowance approximately normal profit margin december 31 2015 2014 company recorded 1346 million 1265 million respectively adjustment surplus obsolete inventories adjustments reflected within “inventories net” within company’s consolidated balance sheets inventories net december 31 2015 2014 follows millions cash flows related sale inventories reported within “cash flows operating activities” within company’s consolidated statements cash flows agco corporation notes consolidated financial statements continued property plant equipment property plant equipment recorded cost less accumulated depreciation amortization depreciation provided straightline basis estimated useful lives ten 40 years buildings improvements three 15 years machinery equipment three ten years furniture fixtures expenditures maintenance repairs charged expense incurred property plant equipment net december 31 2015 2014 consisted following millions goodwill intangible assets longlived assets company tests goodwill impairment reporting unit level annually events circumstances indicate fair value reporting unit may carrying value reporting unit operating segment one level operating segment example component company combines aggregates two components operating segment single reporting unit components similar economic characteristics company’s reportable segments reporting units goodwill evaluated annually october 1 impairment using qualitative assessment quantitative twostep assessment company elects perform qualitative assessment determines fair value reporting units likely exceed carrying value evaluation necessary reporting units company performs twostep quantitative assessment first step requires company compare fair value reporting unit determined based combination discounted cash flow valuation approach market multiple valuation approach respective carrying value including goodwill fair value reporting unit exceeds carrying value goodwill considered impaired carrying value higher fair value reporting unit second step quantitative process required measure amount impairment second step quantitative assessment results calculation implied fair value reporting unit’s goodwill determined excess fair value reporting unit fair values assigned assets liabilities implied fair value goodwill less carrying value reporting unit’s goodwill difference recognized impairment loss company reviews longlived assets include intangible assets subject amortization impairment whenever events changes circumstances indicate carrying amount asset may recoverable evaluation recoverability performed level independent cash flows may attributed either asset group company determines carrying amount asset group recoverable based expected undiscounted future cash flows asset group impairment loss recorded equal excess carrying amounts estimated fair value longlived assets estimates future cash flows based many factors including current operating results expected market trends competitive influences company also evaluates amortization periods assigned intangible assets determine whether events changes circumstances warrant revised estimates useful lives assets disposed sale reported lower carrying amount fair value less estimated costs sell results company’s goodwill longlived assets impairment analyses conducted october 1 2015 2014 2013 indicated reduction carrying amount company’s goodwill longlived assets required agco corporation notes consolidated financial statements continued company’s accumulated goodwill impairment approximately 1805 million comprised approximately 91 million recorded 2012 related chinese harvesting reporting unit approximately 1714 million recorded 2006 related company’s former sprayer reporting unit chinese harvesting business operates within asiapacific geographical reportable segment former sprayer reporting unit operates within north american geographical reportable segment changes carrying amount goodwill years ended december 31 2015 2014 2013 summarized follows millions 2013 company reduced goodwill financial reporting purposes approximately 80 million related realization tax benefits associated excess tax basis deductible goodwill resulting company’s acquisition valtra company amortizes certain acquired identifiable intangible assets primarily straightline basis estimated useful lives range five 50 years acquired intangible assets weighted average useful life follows years ended december 31 2015 2014 2013 acquired intangible asset amortization 427 million 410 million 478 million respectively company estimates amortization existing intangible assets 421 million 2016 419 million 2017 419 million 2018 419 million 2019 413 million 2020 company previously determined two trademarks indefinite useful life massey ferguson trademark existence since 1952 formed merger masseyharris established 1890’s ferguson established 1930’s massey ferguson brand currently sold 140 countries worldwide making one widely sold tractor brands world company also identified valtra trademark indefinitelived asset valtra trademark existence since late 1990’s derivative valmet trademark existence since 1951 valmet name transitioned valtra name period time marketplace valtra brand currently sold approximately 50 countries around world massey ferguson brand valtra brand primary product lines company’s business company plans use trademarks indefinite period time company plans continue make investments product development enhance value brands future legal regulatory contractual competitive economic agco corporation notes consolidated financial statements continued factors company aware company believes would limit useful lives trademarks massey ferguson valtra trademark registrations renewed nominal cost countries company operates changes carrying amount acquired intangible assets 2015 2014 summarized follows millions agco corporation notes consolidated financial statements continued accrued expenses accrued expenses december 31 2015 2014 consisted following millions warranty reserves warranty reserve activity years ended december 31 2015 2014 2013 consisted following millions company’s agricultural equipment products generally warranty defects materials workmanship period one four years company accrues future warranty costs time sale based historical warranty experience approximately 351 million 389 million warranty reserves included “other noncurrent liabilities” company’s consolidated balance sheets december 31 2015 2014 respectively insurance reserves company’s insurance programs coverage obtained significant liability limits well risks required insured law contract policy company selfinsure portion certain expected losses primarily related workers’ compensation comprehensive general liability product vehicle liability provisions losses expected programs recorded based company’s estimates aggregate liabilities claims incurred stock incentive plans stock compensation expense credit recorded follows millions refer note 10 additional information regarding company’s stock incentive plans 2015 2014 2013 agco corporation notes consolidated financial statements continued research development expenses research development expenses expensed incurred included engineering expenses company’s consolidated statements operations advertising costs company expenses advertising costs incurred cooperative advertising costs normally expensed time revenue earned advertising expenses years ended december 31 2015 2014 2013 totaled approximately 509 million 598 million 605 million respectively shipping handling expenses shipping handling fees charged customers included component net sales shipping handling costs included part cost goods sold exception certain handling costs included selling general administrative expenses amount 266 million 292 million 293 million years ended december 31 2015 2014 2013 respectively interest expense net interest expense net years ended december 31 2015 2014 2013 consisted following millions income taxes income taxes accounted asset liability method deferred tax assets liabilities recognized future tax consequences attributable differences financial statement carrying amounts existing assets liabilities respective tax bases operating loss tax credit carryforwards deferred tax assets liabilities measured using enacted tax rates expected apply taxable income years temporary differences expected recovered settled effect deferred tax assets liabilities change tax rates recognized income period includes enactment date refer note 6 additional information regarding company’s income taxes net income per common share basic income per common share computed dividing net income weighted average number common shares outstanding period diluted income per common share assumes exercise outstanding stocksettled stock appreciation rights “ssars” vesting performance share awards restricted stock units using treasury stock method effects assumptions dilutive agco corporation notes consolidated financial statements continued 2014 2013 appreciation excess conversion value company’s former 114 contingently convertible senior subordinated notes included diluted net income per common share using treasury stock method impact assumption dilutive reconciliation net income attributable agco corporation subsidiaries weighted average common shares outstanding purposes calculating basic diluted net income per share years ended december 31 2015 2014 2013 follows millions except per share data ssars purchase 12 million shares 10 million shares 08 million shares outstanding years ended december 31 2015 2014 2013 respectively included calculation weighted average common equivalent shares outstanding antidilutive impact comprehensive income loss company reports comprehensive income loss defined total net income loss nonowner changes equity components thereof consolidated statements stockholders’ equity consolidated statements comprehensive income components comprehensive loss related tax effects years ended december 31 2015 2014 2013 follows millions agco corporation notes consolidated financial statements continued derivatives company uses foreign currency contracts hedge foreign currency exposure certain receivables payables contracts periods consistent exposure hedged generally maturities one year less contracts classified nondesignated derivative instruments company also enters foreign currency contracts designated cash flow hedges expected sales company’s foreign currency contracts mitigate risk due exchange rate fluctuations gains losses contracts generally offset losses gains exposure hedged notional amounts foreign currency contracts represent amounts exchanged parties therefore measure company’s risk amounts exchanged calculated basis notional amounts terms contracts credit market risks contracts considered significant company’s interest expense part sensitive general level interest rates company manages exposure interest rate risk mix floating rate fixed rate debt time company enters interest rate swap agreements order manage company’s exposure interest rate fluctuations company uses nonderivative periodically derivative instruments hedge portion company’s net investment foreign operations adverse movements exchange rates company’s hedging policy prohibits entering foreign currency contracts speculative trading purposes refer note 11 additional information regarding company’s derivative instruments hedging activities recent accounting pronouncements november 2015 financial accounting standards board “fasb” issued asu 201517 “balance sheet classification deferred taxes” “asu 201517” asu 201517 amends existing guidance require deferred tax liabilities assets classified noncurrent classified statement financial position standard amend existing requirement deferred tax liabilities assets taxpaying component entity offset presented single amount asu 201517 effective annual periods beginning december 15 2016 interim periods within annual periods standard may applied either prospectively deferred tax liabilities assets retrospectively periods presented early adoption permitted beginning interim annual reporting period company elected early adopt standard applied requirements asu 201517 retrospectively periods presented consolidated balance sheet december 31 2014 company reclassified approximately 2172 million decrease current deferred tax assets thereby increasing noncurrent deferred tax assets approximately 1901 million decreasing noncurrent deferred tax liabilities approximately 271 million september 2015 fasb issued asu 201516 “simplifying accounting measurementperiod adjustments” “asu 201516” asu 201516 amends existing guidance require acquirer business combination recognize adjustments provisional amounts identified measurement period reporting period adjustment amounts determined addition entity required present separately face income statement disclose notes portion amount recorded earnings line item would recorded previous reporting periods adjustments provisional amounts recognized acquisition date prior period information longer revised standard effective prospectively adjustments provisional amounts occur fiscal years interim periods within fiscal years beginning december 15 2015 early adoption permitted company expects adoption asu 201516 january 1 2016 material impact results operations financial condition agco corporation notes consolidated financial statements continued july 2015 fasb issued asu 201511 “simplifying measurement inventory” “asu 201511” changes measurement principle inventory “lower cost market” “lower cost net realizable value” new principle part fasb’s simplification initiative applies entities measure inventory using method lastin firstout “lifo” retail inventory methods entities using firstin firstout “fifo” average cost methods measuring inventory longer need consider replacement cost net realizable value less approximate normal profit margin subsequent measurement inventory net realizable value defined estimated selling price ordinary course business less reasonably predictable costs completion disposal transportation standard amend change determination cost inventory standard effective prospectively inventory measurements fiscal years interim periods within fiscal years beginning december 15 2016 early adoption permitted company expects adoption asu 201511 january 1 2017 material impact results operations financial condition april 2015 fasb issued asu 201503 “simplifying presentation debt issuance costs” “asu 201503” asu 201503 amends existing guidance require presentation debt issuance costs balance sheet direct deduction carrying amount related debt liability instead deferred charge given absence authoritative guidance within asu 201503 august 2015 fasb issued asu 201515 “presentation subsequent measurement debt issuance costs associated lineofcredit arrangements” “asu 201515” clarifies sec staff would object entity deferring presenting debt issuance costs asset subsequently amortizing deferred debt issuance costs ratably term lineofcredit arrangement regardless whether outstanding borrowings lineofcredit arrangement asu 201503 effective fiscal years interim periods within fiscal years beginning december 15 2015 early adoption permitted company expects adoption asu 201503 january 1 2016 material impact results operations financial condition may 2014 fasb issued asu 201409 “revenue contracts customers” “asu 201409” supersedes existing revenue recognition guidance current us gaap asu 201409 outlines comprehensive single revenue recognition model provides fivestep analysis determining revenue recognized new model require revenue recognition depict transfer promised goods services customers amount reflects consideration expected received exchange goods services additional disclosures also required enable users understand nature amount timing uncertainty revenue cash flows arising contracts customers asu 201409 effective reporting periods beginning december 15 2016 using either full retrospective modified retrospective approach early adoption permitted july 9 2015 fasb delayed effective date asu 201409 one year reporting periods beginning december 15 2017 early adoption permitted earlier original effective date company currently evaluating impact adopting standard company’s results operations financial condition 2 acquisitions april 17 2015 company acquired farmer automatic gmbh co kg “farmer automatic” approximately 179 million net cash acquired approximately 01 million farmer automatic headquartered laer germany manufactures supplies poultry housing related products including egg production cages broiler production equipment acquisition financed available cash hand company allocated purchase price assets acquired liabilities assumed based preliminary estimates fair values acquisition date acquired net assets primarily consisted accounts receivable inventories accounts payable accrued expenses property plant equipment customer relationship technology trademark identifiable intangible assets company recorded approximately 96 million customer relationship technology trademark identifiable intangible assets approximately 100 million goodwill associated acquisition results operations farmer automatic included company’s consolidated financial statements date acquisition agco corporation notes consolidated financial statements continued acquired identifiable intangible assets farmer automatic date acquisition summarized following table millions september 11 2014 company acquired remaining 39 interest santal equipamentos sa comércio e indústria “santal” approximately r90 million approximately 37 million santal headquartered ribeirão preto brazil manufactures distributes sugarcane planting harvesting handling transportation equipment well replacement parts across brazil due fact company seller call option put option respectively varying dates respect remaining 39 interest santal fair value redeemable noncontrolling interest previously recorded within “temporary equity” company’s consolidated balance sheets acquisition remaining interest funded available cash hand redemption related amounts settled reflected “additional paidin capital” company’s consolidated balance sheets august 1 2014 company acquired intersystems holdings inc “intersystems” approximately 1344 million net cash acquired approximately 41 million approximately 1303 million net intersystems headquartered omaha nebraska designs manufactures commercial material handling solutions primarily agricultural biofuels food feed processing industries acquisition financed available cash hand company’s credit facility note 7 company allocated purchase price assets acquired liabilities assumed based preliminary estimates fair values acquisition date acquired net assets primarily consisted accounts receivable inventories accounts payable accrued expenses property plant equipment customer relationship technology trademark identifiable intangible assets company recorded approximately 463 million customer relationship technology trademark identifiable intangible assets approximately 896 million goodwill associated acquisition goodwill reported within company’s north american geographical reportable segment results operations intersystems included company’s consolidated financial statements date acquisition acquired identifiable intangible assets intersystems date acquisition summarized following table millions 3 restructuring infrequent expenses 2015 2014 company announced initiated several actions rationalize employee headcount various manufacturing facilities located europe china brazil argentina united states well various administrative offices located europe brazil china united states aggregate headcount reduction approximately 2100 employees 2014 2015 initiated order reduce costs response softening global market demand reduced production volumes company recorded approximately 464 million restructuring infrequent expenses 2014 associated rationalizations approximately 444 million related severance related costs 2014 company paid approximately 190 million costs december 31 2014 remaining accrued balance approximately 254 million 2015 company recorded paid approximately 223 million 295 million respectively restructuring infrequent expenses associated agco corporation notes consolidated financial statements continued severance related costs remaining 169 million balance severance related costs accrued december 31 2015 inclusive approximately 13 million negative foreign currency translation impacts expected paid primarily 2016 4 accounts receivable sales agreements december 31 2015 2014 company accounts receivable sales agreements permit sale ongoing basis majority wholesale receivables north america europe 49 owned us canadian european finance joint ventures 2015 company entered accounts receivable sales agreement permits sale ongoing basis portion wholesale receivables brazil brazilian finance joint venture december 31 2015 2014 cash received receivables sold us canadian european brazilian accounts receivable sales agreements approximately 11 billion 12 billion respectively terms accounts receivable sales agreements north america europe brazil company pays annual servicing fee related servicing receivables sold company also pays respective agco finance entities interest payment calculated based upon libor plus margin noninterest bearing accounts receivable outstanding sold sales agreements fees reflected within losses sales receivables included within “other expense net” company’s consolidated statements operations company service receivables sale occurs maintain direct retained interest receivables company reviewed accounting accounts receivable sales agreements determined facilities accounted offbalance sheet transactions losses sales receivables associated accounts receivable financing facilities discussed reflected within “other expense net” company’s consolidated statements operations approximately 188 million 248 million 256 million 2015 2014 2013 respectively company’s finance joint ventures brazil australia also provide wholesale financing directly company’s dealers receivables associated arrangements without recourse company service receivables sale occurs maintain direct retained interest receivables december 31 2015 2014 finance joint ventures approximately 177 million 433 million respectively outstanding accounts receivable associated arrangements company reviewed accounting arrangements determined arrangements accounted offbalance sheet transactions addition company sells certain trade receivables factoring arrangements financial institutions around world company reviewed sale receivables determined arrangements accounted offbalance sheet transactions 5 investments affiliates investments affiliates december 31 2015 2014 follows millions company’s manufacturing joint ventures december 31 2015 consisted groupement international de mecanique agricole sa “gima” joint venture thirdparty manufacturer purchase design manufacture components agricultural equipment france joint ventures thirdparty manufacturers assemble tractors algeria engines south america joint ventures represent investments farm equipment manufacturers electronic software system manufacturer distributors licensees agco corporation notes consolidated financial statements continued company’s equity net earnings affiliates years ended december 31 2015 2014 2013 follows millions summarized combined financial information company’s finance joint ventures december 31 2015 2014 years ended december 31 2015 2014 2013 follows millions majority assets company’s finance joint ventures represents finance receivables majority liabilities represents notes payable accrued interest various joint venture agreements rabobank affiliates provide financing joint venture companies note 14 december 31 2015 2014 company’s receivables affiliates approximately 701 million 1084 million respectively receivables affiliates reflected within “accounts notes receivable net” within company’s consolidated balance sheets portion company’s retained earnings balance represents undistributed retained earnings equity method investees approximately 2968 million 2933 million december 31 2015 2014 respectively 6 income taxes sources income loss income taxes equity net earnings affiliates follows years ended december 31 2015 2014 2013 millions agco corporation notes consolidated financial statements continued provision income taxes location taxing jurisdiction years ended december 31 2015 2014 2013 consisted following millions december 31 2015 company’s foreign subsidiaries approximately 23 billion undistributed earnings considered indefinitely invested accordingly income taxes provided earnings determination amount unrecognized deferred taxes earnings practicable however unrecognized foreign tax credits would available reduce portion tax liability reconciliation income taxes computed united states federal statutory income tax rate 35 provision income taxes reflected company’s consolidated statements operations years ended december 31 2015 2014 2013 follows millions agco corporation notes consolidated financial statements continued significant components deferred tax assets liabilities december 31 2015 2014 follows millions company recorded net deferred tax asset 143 million 42 million december 31 2015 2014 respectively reflected preceding table company valuation allowance 758 million 933 million december 31 2015 2014 respectively valuation allowance established likely portion deferred tax assets realized company assessed likelihood deferred tax assets would recovered estimated future taxable income available tax planning strategies determined valuation allowance december 31 2015 2014 appropriate making assessment available evidence considered including current economic climate well reasonable tax planning strategies company believes likely company realize remaining deferred tax assets net valuation allowance future years company net operating loss carryforwards 2661 million december 31 2015 expiration dates follows 2016 130 million 2017 307 million 2018 398 million thereafter unlimited 1826 million net operating loss carryforwards 2661 million entirely tax jurisdictions outside united states company paid income taxes 976 million 2236 million 1745 million years ended december 31 2015 2014 2013 respectively december 31 2015 2014 company 1330 million 1306 million respectively unrecognized income tax benefits would affect company’s effective tax rate recognized december 31 2015 2014 company approximately 612 million 647 million respectively accrued deferred taxes related uncertain income tax positions connected ongoing income tax audits various jurisdictions expects settle pay next 12 months company accrued approximately 51 million 23 million interest penalties related unrecognized tax benefits provision income taxes 2015 2014 respectively december 31 2015 2014 company accrued interest penalties related unrecognized tax benefits 183 million 153 million respectively agco corporation notes consolidated financial statements continued reconciliation beginning ending balances total amounts gross unrecognized tax benefits years ended december 31 2015 2014 follows millions company subsidiaries file income tax returns united states various state local foreign jurisdictions company subsidiaries routinely examined tax authorities jurisdictions december 31 2015 number income tax examinations foreign jurisdictions ongoing possible certain ongoing examinations may resolved within 12 months due potential resolution federal state foreign examinations expiration various statutes limitation reasonably possible company’s gross unrecognized income tax benefits balance may materially change within next 12 months due number jurisdictions issues involved uncertainty regarding timing settlements company unable time provide reasonable estimate change may occur within next 12 months although ongoing examinations various jurisdictions 2012 2015 tax years generally remain subject examination united states federal state authorities company’s significant foreign jurisdictions primarily united kingdom france germany switzerland finland brazil 2010 2015 tax years generally remain subject examination respective tax authorities brazil company contesting disallowed deductions related amortization certain goodwill amounts note 12 7 indebtedness consisted following december 31 2015 2014 millions agco corporation notes consolidated financial statements continued december 31 2015 aggregate scheduled maturities longterm debt excluding current portion longterm debt follows millions cash payments interest approximately 630 million 684 million 664 million years ended december 31 2015 2014 2013 respectively 4 12 senior term loan company’s €2000 million approximately 2172 million december 31 2015 412 senior term loan rabobank due may 2 2016 company ability prepay term loan maturity date interest payable term loan 412 per annum payable quarterly arrears march 31 june 30 september 30 december 31 year term loan contains covenants restricting among things incurrence indebtedness making certain payments including dividends subject acceleration event default company also fulfill financial covenants respect total debt ebitda ratio interest coverage ratio credit facility company’s revolving credit term loan facility consists 8000 million multicurrency revolving credit facility €3120 million approximately 3389 million december 31 2015 term loan facility company required make quarterly payments towards term loan facility june 19 2015 company amended current credit facility agreement providing company ability replace current term loan facility denominated united states dollars equivalent amount denominated euros august 2015 company replaced outstanding term loan facility amount 3550 million denominated us dollars equivalent amount denominated euros company also extended maturity date credit facility june 28 2019 june 26 2020 amended interest rate margin amended credit facility agreement interest accrues amounts outstanding company’s option depending currency borrowed either 1 libor euribor plus margin ranging 10 175 based company’s leverage ratio 2 base rate equal higher administrative agent’s base lending rate applicable currency ii federal funds rate plus 05 iii onemonth libor loans denominated us dollars plus 10 plus margin ranging 00 025 based company’s leverage ratio previously interest accrued amounts outstanding credit facility company’s option either 1 libor plus margin ranging 10 20 based company’s leverage ratio 2 base rate equal higher administrative agent’s base lending rate applicable currency ii federal funds rate plus 05 iii onemonth libor loans denominated us dollars plus 10 plus margin ranging 00 05 based company’s leverage ratio fully described note 11 company entered interest rate swap august 2015 convert term loan facility’s floating interest rate fixed interest rate 033 plus applicable margin remaining life term loan facility credit facility contains covenants restricting among things incurrence indebtedness making certain payments including dividends subject acceleration event default company also fulfill financial covenants respect total debt ebitda ratio interest coverage ratio december 31 2015 amounts outstanding company’s multicurrency revolving credit facility company ability borrow approximately 8000 million facility approximately €3120 million approximately 3389 million outstanding term loan facility december 31 2015 december 31 2014 company 4044 million outstanding borrowings former credit facility availability borrow approximately 7506 million approximately 494 million outstanding multicurrency revolving credit facility 3550 million outstanding term loan facility december 31 2014 2015 company designated €3120 million 3389 million december 31 2015 term loan facility hedge net investment foreign operations offset foreign currency translation gains losses net investment see note 11 additional information net investment hedge agco corporation notes consolidated financial statements continued 1056 senior term loan december 2014 company entered term loan european investment bank provided company ability borrow €2000 million €2000 million approximately 2172 million december 31 2015 funding received january 15 2015 maturity date january 15 2020 company ability prepay term loan maturity date interest payable term loan 1056 per annum payable quarterly arrears january 15 april 15 july 15 october 15 year term loan contains covenants regarding among things incurrence indebtedness making certain payments well commitments regarding amounts future research development expenses europe subject acceleration event default company also fulfill financial covenants respect net leverage ratio interest coverage ratio 5 78 senior notes company’s 2974 million 578 senior notes due december 1 2021 constitute senior unsecured unsubordinated indebtedness interest payable notes semiannually arrears june 1 december 1 year time prior september 1 2021 company may redeem notes whole part time option redemption price equal greater 100 principal amount plus accrued unpaid interest including additional interest excluding redemption date ii sum present values remaining scheduled payments principal interest exclusive interest accrued date redemption discounted redemption date treasury rate plus 05 plus accrued unpaid interest including additional interest beginning september 1 2021 company may redeem notes whole part time option redemption price equal 100 principal amount plus accrued unpaid interest including additional interest fully described note 11 company entered interest rate swap august 2015 convert senior notes’ fixed interest rate floating interest rate remaining life senior notes weighted average interest rate 453 applicable date inception interest rate swap december 31 2015 former convertible senior subordinated notes first six months 2014 holders company’s former 114 convertible senior subordinated notes converted company repurchased approximately 497 million aggregate principal amount notes may 2014 company announced election redeem remaining 1515 million balance notes redemption date june 20 2014 substantially holders notes elected convert remaining notes prior redemption date redemptions settled july 2014 year ended december 31 2014 company issued total 1437465 shares common stock associated 810 million excess conversion value notes converted company reflected repayment principal notes totaling 2012 million within “repurchase conversion convertible senior subordinated notes” within company’s consolidated statements cash flows year ended december 31 2014 year ended december 31 2013 holders company’s former 114 convertible senior subordinated notes’ converted less 01 million principal amount notes company issued 286 shares common stock associated less 01 million excess conversion value notes company reflected repayment principal notes totaling less 01 million within “repurchase conversion convertible senior subordinated notes” within company’s consolidated statements cash flows year ended december 31 2013 following table sets forth interest expense recognized year ended december 31 2014 relating notes’ contractual interest coupon interest expense recognized year ended december 31 2013 relating notes’ contractual interest coupon well amortization discount liability component company’s former 114 convertible senior subordinated notes millions agco corporation notes consolidated financial statements continued standby letters credit similar instruments company arrangements various banks issue standby letters credit similar instruments guarantee company’s obligations purchase sale certain inventories potential claims exposure insurance coverage december 31 2015 2014 outstanding letters credit totaled 175 million 185 million respectively 8 employee benefit plans company sponsors defined benefit pension plans covering certain employees principally united states united kingdom germany finland norway france switzerland argentina company also provides certain postretirement health care life insurance benefits certain employees principally united states brazil company also maintains executive nonqualified pension plan “enpp” provides certain usbased senior executives retirement income period 15 years based percentage average highest three nonconsecutive years base salary bonus final ten years employment referred “threeyear average compensation” reduced senior executive’s social security benefits 401k employermatching contributions executive made maximum contribution benefit paid executives ranges 225 300 threeyear average compensation multiplied credited years service subject maximum 20 years benefits enpp vest participant attained age 50 least ten years service five years include years participation enpp payable participant reaches age 65 enpp unfunded nonqualified defined benefit pension plan 2015 company amended enpp limit participation individuals participants enpp july 31 2015 b add additional benefit commencing end current 15year benefit period providing participant lifetime annuity amount equal annual payment 15year period equivalent value joint survivor annuity selected participant c make various administrative changes new benefit generally available participants retire reaching normal retirement age otherwise vested benefit enpp net annual pension costs years ended december 31 2015 2014 2013 company’s defined benefit pension plans enpp set forth millions 1 rounding may impact summation amounts agco corporation notes consolidated financial statements continued weighted average assumptions used determine net annual pension costs company’s defined benefit pension plans enpp years ended december 31 2015 2014 2013 follows 1 applicable us funded qualified plans 2 applicable us unfunded nonqualified plan net annual postretirement benefit costs years ended december 31 2015 2014 2013 set forth millions except percentages agco corporation notes consolidated financial statements continued following tables set forth reconciliations changes benefit obligation plan assets funded status december 31 2015 2014 millions agco corporation notes consolidated financial statements continued following table summarizes activity accumulated comprehensive loss related company’s enpp defined pension postretirement benefit plans years ended december 31 2015 2014 millions december 31 2015 company’s accumulated comprehensive loss included net actuarial losses approximately 3190 million net prior service cost approximately 112 million related company’s defined benefit pension plans enpp estimated net actuarial losses net prior service cost defined benefit pension plans enpp expected amortized company’s accumulated comprehensive loss year ended december 31 2016 approximately 107 million 11 million respectively december 31 2015 company’s accumulated comprehensive loss included net actuarial losses approximately 14 million net prior service cost approximately 36 million related company’s us brazilian postretirement health care benefit plans estimated net actuarial losses net prior service cost postretirement health care benefit plans expected amortized company’s accumulated comprehensive loss year ended december 31 2016 less 01 million approximately 01 million respectively aggregate projected benefit obligation accumulated benefit obligation fair value plan assets defined benefit pension plans enpp postretirement plans accumulated benefit obligations excess plan assets 8692 million 8169 million 6279 million respectively december 31 2015 9564 million 9017 million 6772 million respectively december 31 2014 projected benefit obligation accumulated benefit obligation fair value plan assets company’s usbased defined benefit pension plans enpp accumulated benefit obligations excess plan assets 1122 million 984 million 381 million respectively december 31 2015 1029 million 902 million 415 million respectively december 31 2014 company’s accumulated comprehensive loss december 31 2015 reflects reduction equity 3352 million net taxes 871 million primarily related company’s uk pension plan projected benefit obligation exceeded plan assets addition company’s accumulated comprehensive loss december 31 2015 reflects reduction equity approximately 14 million net taxes 05 million related company’s gima joint venture amount represents 50 gima’s unrecognized net actuarial losses unrecognized prior service cost associated pension plan addition gima recognized net actuarial loss due settlements 2015 approximately 01 million company’s accumulated comprehensive loss december 31 2014 reflected reduction equity 3399 million net taxes 876 million primarily related company’s uk pension plan projected benefit obligation exceeded plan assets addition company’s accumulated comprehensive loss december 31 2014 reflected reduction equity approximately 16 million net taxes 06 million related company’s gima joint venture amount represented 50 gima’s unrecognized net actuarial losses unrecognized prior service cost associated pension plan addition gima recognized net actuarial loss due settlements 2014 approximately 02 million agco corporation notes consolidated financial statements continued weighted average assumptions used determine benefit obligation company’s defined benefit pension plans enpp december 31 2015 2014 follows 1 applicable us unfunded nonqualified plan weighted average discount rate used determine benefit obligation company’s postretirement benefit plans years ended december 31 2015 2014 51 46 respectively years ended december 31 2015 2014 2013 company used globally consistent methodology set discount rate countries largest benefit obligations exist united states united kingdom euro zone company constructed hypothetical bond portfolio highquality corporate bonds applied cash flows company’s benefit plans bond yields derive discount rate bond portfolio planspecific cash flows vary country methodology portfolio constructed consistent united states bond portfolio large enough result taking “settlement approach” derive discount rate highquality corporate bonds assumed purchased resulting coupon payments maturities used satisfy company’s us pension plans’ projected benefit payments united kingdom euro zone discount rate derived using “yield curve approach” individual spot rate zero coupon bond yield future annual period developed discount future benefit payment thereby determine present value future payments settlement yield curve approaches discount rate set equal single discount rate produces present value future payments effective january 1 2016 company adopted spot yield curve determine discount rate united kingdom measure plan’s service cost interest cost year ended december 31 2016 previously company utilized single weightedaverage discount rate derived “yield curve approach” measure plan’s benefit obligation service cost interest cost going forward company elected utilize approach discounts individual expected service cost interest cost cash flows using applicable spot rates derived yield curve projected cash flow period measuring expected us postretirement benefit obligation december 31 2015 company assumed 725 health care cost trend rate 2016 decreasing 50 2025 measuring expected us postretirement benefit obligation december 31 2014 company assumed 70 health care cost trend rate 2015 decreasing 50 2019 measuring brazilian postretirement benefit plan obligation december 31 2015 company assumed 126 health care cost trend rate 2016 decreasing 675 2026 measuring brazilian postretirement benefit plan obligation december 31 2014 company assumed 1225 health care cost trend rate 2015 decreasing 645 2025 changing assumed health care cost trend rates one percentage point year holding assumptions constant would following effect service interest cost 2015 accumulated postretirement benefit obligation us brazilian postretirement plans december 31 2015 millions company currently estimates minimum contributions benefit payments usbased underfunded defined benefit pension plans unfunded enpp 2016 aggregate approximately 11 million company currently estimates benefit payments 2016 usbased postretirement health care life insurance benefit plans aggregate approximately 15 million benefit payments 2016 brazilian postretirement health care benefit plans aggregate approximately less 01 million company currently estimates minimum contributions agco corporation notes consolidated financial statements continued underfunded plans benefit payments unfunded plans 2016 nonusbased defined benefit pension plans aggregate approximately 315 million approximately 231 million relates uk pension plan 2015 approximately 513 million benefit payments made related company’s defined benefit pension plans enpp december 31 2015 aggregate expected benefit payments company’s defined benefit pension plans enpp follows millions 2015 approximately 12 million benefit payments made related company’s us brazilian postretirement benefit plans december 31 2015 aggregate expected benefit payments company’s us brazilian postretirement benefit plans follows millions investment strategy concentration risk weighted average asset allocation company’s us pension benefit plans december 31 2015 2014 follows weighted average asset allocation company’s nonus pension benefit plans december 31 2015 2014 follows agco corporation notes consolidated financial statements continued company categorizes pension plan assets one three levels based assumptions used valuing asset see note 13 discussion fair value hierarchy per guidance accounting standards codification 820 “fair value measurements” “asc 820” company’s valuation techniques designed maximize use observable inputs minimize use unobservable inputs company uses following valuation methodologies measure fair value pension plan assets equity securities equity securities valued basis closing price per unit business day reported applicable exchange fixed income fixed income securities valued using closing prices active market fixed income investment trades fixed income funds valued using net asset value fund based fair value underlying securities cash investments primarily consist shortterm investment funds valued using net asset value alternative investments reported fair value determined general partner alternative investment “market approach” valuation technique used value investments funds typically openend funds generally offer subscription redemption options investors frequency subscriptions redemptions dictated fund’s governing documents amount liquidity provided investors particular fund generally consistent liquidity risk associated underlying portfolio ie liquid investments portfolio greater liquidity provided investors liquidity individual funds varies based various factors may include “gates” “holdbacks” “side pockets” imposed manager fund well redemption fees may also apply investments funds typically valued utilizing net asset valuations provided underlying investment managers general partners administrators funds consider subscription redemption rights including restrictions disposition interest determination fair value insurance contracts insurance contracts valued using current prevailing interest rates fair value company’s pension assets december 31 2015 follows millions 1 45 “fixed income” securities investmentgrade corporate bonds 32 government treasuries 23 various fixed income securities 2 34 “alternative investments” longshort equity funds 26 eventdriven funds 13 relative value funds 13 credit funds 12 distributed hedged nonhedged funds 2 multistrategy funds 3 “miscellaneous funds” comprised insurance contracts finland norway switzerland agco corporation notes consolidated financial statements continued following reconciliation level 3 assets december 31 2015 millions fair value company’s pension assets december 31 2014 follows millions 1 39 “fixed income” securities government treasuries 37 investmentgrade corporate bonds 24 various fixed income securities 2 34 “alternative investments” longshort equity funds 31 eventdriven funds 12 relative value funds 10 credit funds 9 distributed hedged nonhedged funds 4 multistrategy funds 3 “miscellaneous funds” comprised insurance contracts finland norway switzerland following reconciliation level 3 assets december 31 2014 millions agco corporation notes consolidated financial statements continued taxqualified pension fund investments united states held agco corporation master pension trust company’s global pension fund strategy diversify investments across broad categories equity fixed income securities appropriate use alternative investment categories minimize risk volatility primary investment objective company’s pension plans secure participant retirement benefits key objective pension plans’ financial management promote stability extent appropriate growth funded status investment strategy plans’ portfolio assets balances requirement generate returns need control risk asset mix recognized primary mechanism influence reward risk structure pension fund investments effort accomplish plans’ funding objectives overall investment strategy usbased pension plans achieve mix approximately 15 assets nearterm benefit payments 85 longerterm growth overall us pension funds invest broad diversification asset types company’s us target allocation retirement fund investments 30 large smallcap domestic equity securities 12 international equity securities 44 broad fixed income securities 14 alternative investments company noted long periods mix investments would achieve average return approximately 60 overall investment strategy nonus based pension plans achieve mix approximately 30 assets nearterm benefit payments 70 longerterm growth overall nonus pension funds invest broad diversification asset types company’s nonus target allocation retirement fund investments december 31 2015 45 equity securities 35 broad fixed income investments 20 alternative investments majority company’s nonus pension fund investments related company’s pension plan united kingdom company noted long periods mix investments would achieve average return approximately 725 arriving choice expected return assumption 70 ukbased plans year ended december 31 2016 company tempered historical indicator lower expectations returns equity investment future well administrative costs plans equity securities primarily include investments largecap smallcap companies located across globe fixed income securities include corporate bonds companies diversified industries mortgagebacked securities agency mortgages assetbacked securities government securities alternative assets include investments hedge fund funds follow diversified investment strategies date company invested pension funds stock intention future within asset class careful consideration given balancing portfolio among industry sectors geographies interest rate sensitivity dependence economic growth currency factors affecting investment returns assets managed professional investment firms bound precise mandates measured specific benchmarks among asset managers consideration given among others balancing security concentration issuer concentration investment style reliance particular active investment strategies company participates small number multiemployer plans netherlands sweden company assessed determined none multiemployer plans participates individually aggregate significant company’s consolidated financial statements company expect incur withdrawal liability expect significantly increase contributions remainder multiemployer plans’ contract periods company maintains separate defined contribution plans covering certain employees primarily united states united kingdom brazil plans company contributes specified percentage eligible employee’s compensation company contributed approximately 120 million 133 million 130 million years ended december 31 2015 2014 2013 respectively agco corporation notes consolidated financial statements continued 9 stockholders’ equity common stock december 31 2015 company 150000000 authorized shares common stock par value 001 per share approximately 83814809 shares common stock outstanding approximately 4311886 shares reserved issuance company’s 2006 longterm incentive plan “2006 plan” note 10 share repurchase program june 2012 company’s board directors approved share repurchase program company permitted repurchase 500 million shares common stock share repurchase program expiration date december 2013 company’s board directors approved second share repurchase program company permitted repurchase 5000 million shares common stock expiration date june 2015 december 2014 board directors approved third share repurchase program company repurchase additional 5000 million shares common stock december 2016 2015 company entered accelerated share repurchase “asr” agreements financial institution repurchase aggregate 2875 million shares company’s common stock company received approximately 5541930 shares year ended december 31 2015 related asr agreements 2014 company entered asr agreements financial institution repurchase aggregate 4150 million shares company’s common stock company received approximately 8248183 shares year ended december 31 2014 related asr agreements shares received asr agreements retired upon receipt excess purchase price par value per share recorded “additional paidin capital” within company’s consolidated balance sheets 2014 open market transactions company repurchased 1818139 shares common stock approximately 847 million average price paid 4660 per share 2013 open market transactions company repurchased less 01 million shares common stock approximately 10 million average price paid 4934 per share repurchased shares retired date purchase excess purchase price par value per share recorded “additional paidin capital” within company’s consolidated balance sheets december 31 2015 remaining amount authorized repurchased approximately 2442 million 2016 company entered asr agreement financial institution repurchase aggregate 600 million shares company’s common stock company received approximately 974619 shares date transaction specific number shares company ultimately repurchase determined completion term asr based daily volumeweighted average share price company’s common stock less agreedupon discount upon settlement asr company may entitled receive additional shares common stock certain circumstances required remit settlement amount company expects additional shares received company upon final settlement current asr agreement expires second quarter 2016 shares received asr agreement discussed retired upon receipt excess purchase price par value per share recorded “additional paidin capital” within company’s consolidated balance sheets dividends january 24 2013 company’s board directors approved initiation quarterly cash dividends stockholders quarterly dividend 010 per common share paid company’s stockholders 2013 january 24 2014 company’s board directors approved increase quarterly dividend 010 per common share 011 per common share beginning first quarter 2014 january 22 2015 company’s board directors approved increase quarterly dividend 011 per common share 012 per common share beginning first quarter 2015 january 28 2016 company’s board directors approved increase quarterly dividend 012 per common share 013 per common share beginning first quarter 2016 agco corporation notes consolidated financial statements continued following table sets forth changes accumulated comprehensive loss component net tax attributed agco corporation subsidiaries years ended december 31 2015 2014 millions following table sets forth reclassification adjustments accumulated comprehensive loss component attributed agco corporation subsidiaries years ended december 31 2015 2014 millions 1 losses included within consolidated statements operations years ended december 31 2015 2014 respectively 2 accumulated comprehensive loss components included computation net periodic pension postretirement benefit cost see note 8 company’s consolidated financial statements agco corporation notes consolidated financial statements continued 10 stock incentive plan 2006 plan 10000000 shares agco common stock may issued 2006 plan allows company direction board directors’ compensation committee make grants performance shares stock appreciation rights stock options restricted stock units restricted stock awards employees officers nonemployee directors company longterm incentive plan related performance awards company’s primary longterm incentive plan performance share plan provides awards shares company’s common stock based achieving financial targets earnings per share return invested capital operating margin determined company’s board directors stock awards 2006 plan earned performance period number shares earned determined based cumulative average results specified period depending measurement performance periods company’s primary longterm incentive plan consecutive overlapping threeyear cycles performance targets set beginning cycle primary longterm incentive plan provides participants earn 33 200 target awards depending actual performance achieved shares earned performance established minimum target awards earned 2006 plan paid shares common stock end performance period compensation expense associated awards amortized ratably vesting performance period based company’s projected assessment level performance achieved earned compensation expense recorded 2015 2014 2013 respect awards granted based upon stock price grant date weighted average grantdate fair value performance awards granted 2006 plan 2015 2014 2013 follows 2015 company granted 861686 performance awards related varying performance periods awards granted assume maximum target level performance achieved applicable performance award transactions 2015 follows presented company achieve maximum levels performance plan 2006 plan allows participant option forfeiting portion shares awarded lieu cash payment contributed participant’s tax withholding satisfy participant’s statutory minimum federal state employment taxes would payable time grant based level performance achieved december 31 2015 shares earned issued based level performance achieved december 31 2014 following shares earned 20122014 performance period issued subsequent year net shares withheld taxes related earned award agco corporation notes consolidated financial statements continued december 31 2015 total compensation cost related unearned performance awards yet recognized assuming company’s current projected assessment level performance achieved earned approximately 101 million weighted average period expected recognized approximately two years estimate based current projected levels performance outstanding awards compensation cost yet recognized could higher lower based actual achieved levels performance restricted stock units year ended december 31 2015 company granted 144398 restricted stock unit “rsu” awards entitle participant receive one share company’s common stock rsu granted vest onethird per year threeyear requisite service period dividends accrue unvested grants end vesting date within grant’s threeyear requisite service period january 2016 company amended rsu award agreement dividends accrue unvested grants requisite service period future rsu grants compensation expense associated awards amortized ratably requisite service period awards expected vest weighted average grantdate fair value rsus granted 2006 plan year ended december 31 2015 4403 rsu transactions year ended december 31 2015 follows december 31 2015 total compensation cost related unvested rsus yet recognized approximately 42 million weighted average period expected recognized approximately two years stocksettled appreciation rights addition performance share plans certain executives key managers eligible receive grants ssars provide participant right receive aggregate appreciation stock price market price company’s common stock date grant payable shares company’s common stock participant may exercise ssars time grant vested later seven years date grant ssars vest ratably fouryear period date grant ssar award grants made certain executives key managers 2006 plan made base price equal price company’s common stock date grant company recorded stock compensation expense approximately 50 million 52 million 47 million associated ssar award grants 2015 2014 2013 respectively compensation expense associated awards amortized ratably vesting period company estimated fair value grants using blackscholes option pricing model agco corporation notes consolidated financial statements continued weighted average grantdate fair value ssars granted 2006 plan weighted average assumptions blackscholes option model follows years ended december 31 2015 2014 2013 ssar transactions year ended december 31 2015 follows december 31 2015 weighted average remaining contractual life ssars outstanding approximately four years december 31 2015 total compensation cost related unvested ssars yet recognized approximately 59 million weightedaverage period expected recognized approximately two years following table sets forth exercise price range number shares weighted average exercise price remaining contractual lives groups similar price december 31 2015 total fair value ssars vested 2015 approximately 42 million 709771 ssars vested december 31 2015 total intrinsic value outstanding exercisable ssars december 31 2015 18 million 13 million respectively total intrinsic value ssars exercised 2015 approximately 18 million agco corporation notes consolidated financial statements continued excess tax benefit realized tax deductions united states related exercise ssars vesting rsu awards 2006 plan approximately 07 million year ended december 31 2015 shortfall tax benefit realized tax deductions united states related exercise ssars vesting performance awards 2006 plan approximately 02 million year ended december 31 2014 excess tax benefit realized tax deductions united states related exercise ssars vesting performance awards 2006 plan exercise stock options company’s 1991 stock option plan approximately 114 million year ended december 31 2013 company realized insignificant tax benefit exercise ssars vesting performance awards vesting rsu awards exercise stock options certain foreign jurisdictions years ended december 31 2015 2014 2013 january 26 2016 company granted 334199 performance award shares subject company achieving future target levels performance 296200 ssars 138975 restricted stock units 2006 plan director restricted stock grants pursuant 2006 plan nonemployee directors receive annual restricted stock grants company’s common stock restricted stock grants made company’s directors prior april 24 2014 restricted transferability period three years effective april 24 2014 shares granted date future grants made company’s directors restricted transferability period one year event director departs company’s board directors nontransferability period expires immediately plan allows director option forfeiting portion shares awarded lieu cash payment contributed participant’s tax withholding satisfy statutory minimum federal state employment taxes would payable time grant 2015 grant made april 23 2015 equated 22095 shares common stock 15711 shares common stock issued shares withheld taxes company recorded stock compensation expense approximately 11 million 2015 associated grants december 31 2015 10000000 shares reserved issuance 2006 plan approximately 4311886 shares available grant assuming maximum number shares earned related performance award grants discussed 11 derivative instruments hedging activities derivatives recognized company’s consolidated balance sheets fair value date derivative contract entered company designates derivative either 1 fair value hedge recognized liability 2 cash flow hedge forecasted transaction 3 hedge net investment foreign operation 4 nondesignated derivative instrument company formally documents relationships hedging instruments hedged items well risk management objectives strategy undertaking various hedge transactions company formally assesses hedge’s inception ongoing basis whether derivatives used hedging transactions highly effective offsetting changes fair values cash flow hedged items net investment hedges foreign operations determined derivative longer highly effective hedge accounting discontinued prospective basis company categorizes derivative assets liabilities one three levels based assumptions used valuing asset liability see note 13 discussion fair value hierarchy per guidance asc 820 company’s valuation techniques designed maximize use observable inputs minimize use unobservable inputs foreign currency risk interest rate risk company significant manufacturing operations united states france germany finland brazil purchases portion tractors combines components thirdparty foreign suppliers primarily various european countries japan company also sells products 140 countries throughout world company’s significant transactional foreign currency exposures euro brazilian real canadian dollar relation united states dollar euro relation british pound agco corporation notes consolidated financial statements continued company attempts manage transactional foreign exchange exposure hedging foreign currency cash flow forecasts commitments arising anticipated settlement receivables payables future purchases sales naturally offsetting currency positions occur company hedges certain exposures use foreign currency contracts company’s translation exposure resulting translating financial statements foreign subsidiaries united states dollars may partially hedged time company’s significant translation exposures euro british pound brazilian real relation united states dollar swiss franc relation euro practical translation impact reduced financing local operations local borrowings company uses floating rate fixed rate debt finance operations floating rate debt obligations expose company variability interest payments due changes euribor libor benchmark interest rates company believes prudent limit variability portion interest payments meet objective company periodically enters interest rate swaps manage interest rate risk associated company’s borrowings company designates interest rate contracts used convert interest rate exposure portion company’s debt portfolio floating rate fixed rate cash flow hedges contracts converting company’s interest rate exposure fixed rate floating rate designated fair value hedges company’s senior management establishes company’s foreign currency interest rate risk management policies reviewed periodically finance committee company’s board directors policies allow use derivative instruments hedge exposures movements foreign currency interest rates company’s policies prohibit use derivative instruments speculative purposes counterparty risk company regularly monitors counterparty risk credit ratings counterparties derivative instruments company believes exposures appropriately diversified across counterparties creditworthy financial institutions company perceives risk counterparty company would cease business counterparty negative impacts company nonperformance counterparties derivative transactions designated hedging instruments foreign currency contracts 2015 2014 2013 company designated certain foreign currency contracts cash flow hedges expected future sales purchases effective portion fair value gains losses cash flow hedges recorded comprehensive loss subsequently reclassified cost goods sold period sales purchases recognized amounts offset effect changes foreign currency rates related sale purchase transactions amount net loss recorded comprehensive loss reclassified cost goods sold years ended december 31 2015 2014 2013 approximately 24 million 15 million 05 million respectively aftertax basis amount unrealized loss recorded comprehensive loss related outstanding cash flow hedges december 31 2015 2014 2013 less 01 million approximately 01 million 02 million respectively aftertax basis december 31 2015 outstanding foreign currency cash flow hedge contracts december 31 2014 company outstanding foreign currency contracts notional amount approximately 238 million entered hedge forecasted sale purchase transactions interest rate swap contracts cash flow hedge 2015 company entered interest rate swap instrument notional amount €3120 million approximately 3389 million december 31 2015 expiration date june 26 2020 swap designated accounted cash flow hedge swap agreement company pays fixed interest rate 033 plus applicable margin counterparty agreement pays floating interest rate based threemonth euribor changes fair value interest rate swap recorded comprehensive loss amounts subsequently reclassified “interest expense net” rate adjustment period related interest agco corporation notes consolidated financial statements continued expense company’s floating rate term loan facility affects earnings year ended december 31 2015 effective portion unrealized change fair value net tax loss approximately 20 million recorded comprehensive loss amount net loss recorded comprehensive loss reclassified “interest expense net” year ended december 31 2015 approximately 03 million aftertax basis ineffectiveness year ended december 31 2015 fair value hedge 2015 company entered interest rate swap instrument notional amount 3000 million expiration date december 1 2021 designated fair value hedge company’s 578 senior notes note 7 interest rate swap company pays floating interest rate based threemonth libor plus spread 414 weighted average interest rate 453 date inception interest rate swap december 31 2015 counterparty agreement pays fixed interest rate 578 gains losses related changes fair value interest rate swap recorded “interest expense net” offset changes fair value underlying hedged 578 senior notes year ended december 31 2015 company recorded unrealized gains hedged debt approximately 26 million “interest expense net” consolidated statements operations unrealized losses approximately 26 million related interest rate swap instrument offset unrealized gains also recorded “interest expense net” consolidated statements operations following table summarizes activity accumulated comprehensive loss related derivatives held company years ended december 31 2015 2014 2013 millions net investment hedges company uses nonderivative time derivative instruments hedge portion net investment foreign operations adverse movements exchange rates company measures ineffectiveness derivatives based changes forward rates instruments designated hedges net investments foreign operations changes fair value derivative instruments recorded foreign currency translation adjustments component accumulated comprehensive loss offset changes value net investments hedged net investment foreign operations sold substantially liquidates amounts recorded accumulated comprehensive loss reclassified earnings extent foreign currency denominated debt dedesignated net investment hedge relationship changes value foreign currency denominated debt recorded earnings maturity date 2015 company designated €3120 million approximately 3389 million december 31 2015 term loan facility maturity date june 26 2020 hedge net investment foreign operations offset foreign currency translation gains losses net investment year ended december 31 2015 approximately 75 million agco corporation notes consolidated financial statements continued foreign currency gains included cumulative translation adjustment component accumulated comprehensive loss ineffectiveness respect net investment hedge discussed year ended december 31 2015 derivative transactions designated hedging instruments 2015 2014 2013 company entered foreign currency contracts hedge receivables payables company subsidiaries’ balance sheets denominated foreign currencies functional currency contracts classified nondesignated derivative instruments december 31 2015 2014 company outstanding foreign currency contracts notional amount approximately 15339 million 18105 million respectively entered hedge receivables payables denominated foreign currencies functional currency changes fair value contracts reported “other expense net” years ended december 31 2015 2014 2013 company recorded net loss approximately 673 million 23 million net gain approximately 95 million respectively related contracts within “other expense net” company’s consolidated statements operations gains losses contracts substantially offset losses gains remeasurement underlying asset liability hedged table sets forth fair value derivative instruments december 31 2015 millions table sets forth fair value derivative instruments december 31 2014 millions agco corporation notes consolidated financial statements continued 12 commitments contingencies future payments required company’s significant commitments excluding indebtedness december 31 2015 follows millions 1 estimated interest payments calculated assuming current interest rates minimum maturity periods specified debt agreements debt may repaid sooner later minimum maturity periods unaudited 2 unconditional purchase obligations exclude routine purchase orders entered normal course business 3 shortterm longterm obligations include estimates future minimum contribution requirements company’s us nonus defined benefit pension postretirement plans estimates based current legislation countries company operates within subject change shortterm longterm obligations also include income tax liabilities related uncertain income tax positions connected ongoing income tax audits various jurisdictions unaudited offbalance sheet arrangements guarantees company maintains remarketing agreement us finance joint venture whereby company obligated repurchase repossessed inventory market values company agreement us finance joint venture agco finance llc limits company’s purchase obligations arrangement 60 million aggregate per calendar year company believes losses might incurred resale equipment materially impact company’s financial position results operations due fair value underlying equipment december 31 2015 company guaranteed indebtedness owed third parties approximately 683 million primarily related dealer enduser financing equipment guarantees generally obligate company repay outstanding finance obligations owed financial institutions dealers end users default loans 2020 company believes credit risk associated guarantees material financial position results operations losses guarantees historically insignificant addition company generally would expect able recover significant portion amounts paid guarantees sale underlying financed farm equipment fair value equipment expected sufficient offset substantial portion amounts paid december 31 2015 company outstanding nondesignated foreign exchange contracts gross notional amount approximately 15339 million outstanding designated foreign exchange contracts december 31 2015 company sells majority wholesale accounts receivable north america europe company’s us canadian european finance joint ventures portion wholesale accounts receivable finance joint venture brazil company also sells certain accounts receivable factoring arrangements financial institutions agco corporation notes consolidated financial statements continued around world company reviewed sale receivables determined facilities accounted offbalance sheet transactions total lease expense noncancelable operating leases 772 million 914 million 836 million years ended december 31 2015 2014 2013 respectively contingencies august 2008 part routine audits brazilian taxing authorities disallowed deductions relating amortization certain goodwill recognized connection reorganization company’s brazilian operations related transfer certain assets company’s brazilian subsidiaries amount tax disallowance december 31 2015 including interest penalties approximately 1315 million brazilian reais approximately 332 million amount ultimately dispute greater interest penalties company advised legal tax advisors position respect deductions allowable tax laws brazil company contesting disallowance believes likely assessment interest penalties required paid however ultimate outcome determined brazilian tax appeal process complete could take several years company party various legal claims actions incidental business company believes none claims actions either individually aggregate material business financial statements whole including results operations financial condition 13 fair value financial instruments company categorizes assets liabilities one three levels based assumptions used valuing asset liability estimates fair value financial assets liabilities based fair value hierarchy prioritizes inputs valuation techniques used measure fair value observable inputs highest level reflect market data obtained independent sources unobservable inputs lowest level reflect internally developed market assumptions accordance guidance fair value measurements classified following hierarchy level 1 quoted prices active markets identical assets liabilities level 2 quoted prices similar assets liabilities active markets quoted prices identical similar assets liabilities markets active modelderived valuations significant inputs observable corroborated observable market data substantially full term assets liabilities level 3 modelderived valuations one significant inputs unobservable company categorizes pension plan assets one three levels fair value hierarchy see note 8 discussion valuation methods used measure fair value company’s pension plan assets company enters foreign currency interest rate swap contracts fair values company’s derivative instruments determined using discounted cash flow valuation models significant inputs used models readily available public markets derived observable market transactions therefore classified level 2 inputs used discounted cash flow valuation models derivative instruments include applicable exchange rates forward rates interest rates models used option contracts also use implied volatility see note 11 discussion company’s derivative instruments hedging activities company’s trading securities consist foreignbased government bonds fair value company’s investments trading securities classified level 2 priced using nonbinding market prices corroborated observable market data agco corporation notes consolidated financial statements continued assets liabilities measured fair value recurring basis december 31 2015 2014 summarized millions cash equivalents accounts notes receivable accounts payable valued carrying amounts company’s consolidated balance sheets due immediate shortterm maturity financial instruments carrying amounts longterm debt company’s 412 senior term loan credit facility 1056 senior term loan note 7 approximate fair value based borrowing rates currently available company loans similar terms average maturities december 31 2014 estimated fair value company’s 578 senior notes note 7 based listed market value 3376 million compared carrying value 3000 million 14 related party transactions rabobank financial institution based netherlands 51 owner company’s finance joint ventures located united states canada europe brazil argentina australia rabobank also principal agent participant company’s revolving credit facility note 7 majority assets company’s finance joint ventures represents finance receivables majority liabilities represents notes payable accrued interest various joint venture agreements rabobank affiliates provide financing joint venture companies primarily lines credit 2015 2014 company make additional investments finance joint ventures 2013 company made total approximately 155 million additional investments finance joint ventures germany netherlands primarily related additional capital required result increased retail finance portfolios 2013 company’s finance joint ventures provide retail financing wholesale financing dealers terms financing arrangements offered company’s dealers similar arrangements finance joint ventures provide unaffiliated third parties addition company transfers ongoing basis majority wholesale receivables north america europe 49 owned us canadian european finance joint ventures note 4 2015 company entered accounts receivable sales agreement permits sale ongoing basis portion wholesale receivables brazil brazilian finance joint venture company maintains remarketing agreement us finance joint venture note 12 addition part sales incentives provided end users company may time subsidize interest rates retail financing provided finance joint ventures cost programs recognized time sale company’s dealers tractors farm equipment limited “tafe” company holds 2375 interest manufactures massey fergusonbranded equipment primarily india also supplies tractors components company sale markets mallika srinivasan chairman chief executive officer tafe currently member company’s board directors december 31 2015 tafe owned 12150152 shares company’s common stock company tafe parties agreement pursuant among things tafe agreed purchase excess 12170290 shares company’s common stock subject certain adjustments company agreed annually nominate tafe representative board directors 2015 2014 2013 company purchased approximately 1292 million 1490 million 907 million respectively tractors components tafe 2015 2014 2013 company sold approximately 22 million 21 million 08 million respectively parts agco corporation notes consolidated financial statements continued tafe company received dividends tafe approximately 17 million 18 million 16 million 2015 2014 2013 respectively 2015 2014 2013 company paid approximately 30 million 34 million 33 million respectively ppg industries inc painting materials used company’s manufacturing processes company’s chairman president chief executive officer currently member board directors ppg industries inc 15 segment reporting company’s four reportable segments distribute full range agricultural equipment related replacement parts company evaluates segment performance primarily based income loss operations sales segment based location thirdparty customer company’s selling general administrative expenses engineering expenses charged segment based region division expenses incurred result components income loss operations one segment may comparable another segment results years ended december 31 2015 2014 2013 based company’s current reportable segments follows millions agco corporation notes consolidated financial statements continued reconciliation segment information consolidated balances income operations total assets set forth millions net sales customer location years ended december 31 2015 2014 2013 follows millions net sales product years ended december 31 2015 2014 2013 follows millions agco corporation notes consolidated financial statements continued property plant equipment amortizable intangible assets country december 31 2015 2014 follows millions 16 subsequent event february 2 2016 company acquired tecno poultry equipment spa “tecno” approximately €535 million approximately 584 million tecno headquartered marsango di campo san martino italy manufactures supplies poultry housing related products including egg collection equipment trolley feeding systems acquisition financed company’s credit facility note 7 company allocate purchase price assets acquired liabilities assumed based preliminary estimates fair values acquisition date acquired net assets primarily consisted accounts receivable inventories accounts payable accrued expenses property plant equipment goodwill certain identifiable intangible assets item 9 nannannannannanitem 15 exhibits financial statement schedules reports form 8k following documents filed part form 10k 1 consolidated financial statements notes consolidated financial statements independent auditors’ report agco corporation subsidiaries copy report previously issued company’s former independent public accountants presented pages 38 80 item 8 form 10k 2 financial statement schedules following report independent public accountants consolidated financial statement schedule agco corporation subsidiaries included herein pages ii1 ii3 schedules listed omitted required information contained notes consolidated financial statements schedules required applicable 3 following exhibits filed incorporated reference part report management contract compensatory plan arrangement b reports form 8k fiscal quarter ended december 31 2002 filed current report form 8k dated october 4 2002 announced workforce coventry england facility voted favor acceptance proposed severance package employees impacted closure facility form 8k reported information item 5 signatures pursuant requirements section 13 15 securities exchange act 1934 registrant duly caused report signed behalf undersigned thereto duly authorized agco corporation robert j ratliff robert j ratliff chairman president chief executive officer dated march 17 2003 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities date indicated certification pursuant § 302 sarbanesoxley act 2002 robert j ratliff certify 1 reviewed annual report form 10k agco corporation 2 based knowledge annual report contain untrue statement material fact omit state material fact necessary make statements made light circumstances statements made misleading respect period covered annual report 3 based knowledge financial statements financial information included annual report fairly present material respects financial condition results operations cash flows registrant periods presented annual report 4 registrant’s certifying officers responsible establishing maintaining disclosure controls procedures defined exchange act rules 13a14 15d14 registrant designed disclosure controls procedures ensure material information relating registrant including consolidated subsidiaries made known us others within entities particularly period annual report prepared b evaluated effectiveness registrant’s disclosure controls procedures date within 90 days prior filing date annual report “evaluation date” c presented annual report conclusions effectiveness disclosure controls procedures based evaluation date 5 registrant’s certifying officers disclosed based recent evaluation registrant’s auditors audit committee registrant’s board directors persons performing equivalent function significant deficiencies design operation internal controls could adversely affect registrant’s ability record process summarize report financial data identified registrant’s auditors material weaknesses internal controls b fraud whether material involves management employees significant role registrant’s internal controls 6 registrant’s certifying officers indicated annual report whether significant changes internal controls factors could significantly affect internal controls subsequent date recent evaluation including corrective actions regard significant deficiencies material weaknesses robert j ratliff robert j ratliff chairman president ceo date march 17 2003 certification pursuant § 302 sarbanesoxley act 2002 andrew h beck certify 1 reviewed annual report form 10k agco corporation 2 based knowledge annual report contain untrue statement material fact omit state material fact necessary make statements made light circumstances statements made misleading respect period covered annual report 3 based knowledge financial statements financial information included annual report fairly present material respects financial condition results operations cash flows registrant periods presented annual report 4 registrant’s certifying officers responsible establishing maintaining disclosure controls procedures defined exchange act rules 13a14 15d14 registrant designed disclosure controls procedures ensure material information relating registrant including consolidated subsidiaries made known us others within entities particularly period annual report prepared b evaluated effectiveness registrant’s disclosure controls procedures date within 90 days prior filing date annual report “evaluation date” c presented annual report conclusions effectiveness disclosure controls procedures based evaluation date 5 registrant’s certifying officers disclosed based recent evaluation registrant’s auditors audit committee registrant’s board directors persons performing equivalent function significant deficiencies design operation internal controls could adversely affect registrant’s ability record process summarize report financial data identified registrant’s auditors material weaknesses internal controls b fraud whether material involves management employees significant role registrant’s internal controls 6 registrant’s certifying officers indicated annual report whether significant changes internal controls factors could significantly affect internal controls subsequent date recent evaluation including corrective actions regard significant deficiencies material weaknesses andrew h beck andrew h beck senior vice president chief financial officer date march 17 2003 annual report form 10k item 14a2 financial statement schedule year ended december 31 2002 ii1 note copy report previously issued arthur andersen llp company’s former independent public accountants arthur andersen report refers certain financial information fiscal year ended december 31 1999 certain balance sheet information december 31 2000 longer included accompanying financial statements report reissued arthur andersen llp connection filing annual report form 10k report independent public accountants financial statement schedule agco corporation audited accordance auditing standards generally accepted united states financial statements agco corporation subsidiaries included annual report form 10k issued report thereon dated february 6 2002 audit made purpose forming opinion basic financial statements taken whole accompanying schedule iivaluation qualifying accounts responsibility company’s management presented purposes complying securities exchange commission’s rules part basic financial statements schedule subjected auditing procedures applied audit basic financial statements opinion fairly states material respects financial data required set forth therein relation basic financial statements taken whole arthur andersen llp atlanta georgia february 6 2002 ii2 schedule ii agco corporation subsidiaries schedule ii valuation qualifying accounts millions ii3item 15 exhibits financial statement schedules reports form 8k following documents filed part form 10k 1 consolidated financial statements notes consolidated financial statements independent auditors’ report agco corporation subsidiaries copy report previously issued company’s former independent public accountants presented pages 43 91 item 8 form 10k 2 financial statement schedules following report independent public accountants consolidated financial statement schedule agco corporation subsidiaries included herein pages ii1 ii3 schedule description copy report previously issued company’s former independent public accountants financial statement schedule ii valuation qualifying accounts schedules listed omitted required information contained notes consolidated financial statements schedules required applicable 3 following exhibits filed incorporated reference part report management contract compensation plan required filed exhibit identified asterisk b reports form 8k fiscal quarter ended december 31 2003 filed following current report form 8k dated october 3 2003 announced update expected financial results third quarter 2003 full fiscal year 2003 form 8k reported information item 12 current report form 8k dated october 10 2003 included transcript conference call regarding update expected financial results third quarter 2003 full fiscal year 2003 form 8k reported information item 12 current report form 8k dated october 22 2003 included press release reporting financial results third quarter nine months ended september 30 2003 form 8k reported information items 7 12 current report form 8k dated december 15 2003 included certain information regarding proposed acquisition valtra form 8k reported information items 5 7 signatures pursuant requirements section 13 15 securities exchange act 1934 registrant duly caused report signed behalf undersigned thereto duly authorized agco corporation robert j ratliff robert j ratliff chairman president chief executive officer dated march 15 2004 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities date indicated annual report form 10k item 15a2 financial statement schedule year ended december 31 2003 ii1 note copy report previously issued arthur andersen llp company’s former independent public accountants arthur andersen report refers certain financial information fiscal year ended december 31 2000 1999 certain balance sheet information december 31 2001 2000 longer included accompanying financial statements report reissued arthur andersen llp connection filing annual report form 10k report independent public accountants financial statement schedule agco corporation audited accordance auditing standards generally accepted united states financial statements agco corporation subsidiaries included annual report form 10k issued report thereon dated february 6 2002 audit made purpose forming opinion basic financial statements taken whole accompanying schedule ii valuation qualifying accounts responsibility company’s management presented purposes complying securities exchange commission’s rules part basic financial statements schedule subjected auditing procedures applied audit basic financial statements opinion fairly states material respects financial data required set forth therein relation basic financial statements taken whole arthur andersen llp atlanta georgia february 6 2002 ii2 schedule ii agco corporation subsidiaries schedule ii valuation qualifying accounts millions ii3item 15 exhibits financial statement schedules following documents filed part form 10k 1 consolidated financial statements notes consolidated financial statements report independent registered public accounting firm agco corporation subsidiaries presented pages 42 91 item 8 form 10k 2 financial statement schedules following consolidated financial statement schedule agco corporation subsidiaries included herein pages ii1 ii3 schedules listed omitted required information contained notes consolidated financial statements schedules required applicable 3 following exhibits filed incorporated reference part report management contract compensation plan required filed exhibit identified asterisk signatures pursuant requirements section 13 15 securities exchange act 1934 registrant duly caused report signed behalf undersigned thereto duly authorized agco corporation martin richenhagen martin richenhagen president chief executive officer dated march 16 2005 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities date indicated annual report form 10k item 15 a2 financial statement schedule year ended december 31 2004 ii1 schedule ii agco corporation subsidiaries schedule ii valuation qualifying accounts millions ii2 agco logoitem 15 exhibits financial statement schedules following documents filed part form 10k 1 consolidated financial statements notes consolidated financial statements report independent registered public accounting firm agco corporation subsidiaries presented pages 49 99 item 8 form 10k 2 financial statement schedules following consolidated financial statement schedule agco corporation subsidiaries included herein pages ii1 ii2 schedules listed omitted required information contained notes consolidated financial statements schedules required applicable 3 following exhibits filed incorporated reference part report management contract compensation plan required filed exhibit identified asterisk signatures pursuant requirements section 13 15 securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized agco corporation martin richenhagen martin richenhagen president chief executive officer dated march 9 2006 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities date indicated annual report form 10k item 15 a2 financial statement schedule year ended december 31 2005 ii1 schedule ii agco corporation subsidiaries schedule ii valuation qualifying accounts millions ii2item 15 exhibits financial statement schedules following documents filed part form 10k 1 consolidated financial statements notes consolidated financial statements report independent registered public accounting firm agco corporation subsidiaries presented pages 52 106 item 8 form 10k 2 financial statement schedules following consolidated financial statement schedule agco corporation subsidiaries included herein pages ii1 ii2 schedules listed omitted required information contained notes consolidated financial statements schedules required applicable 3 following exhibits filed incorporated reference part report management contract compensation plan required filed exhibit identified asterisk signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized agco corporation martin richenhagen martin richenhagen chairman president chief executive officer dated march 1 2007 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities date indicated annual report form 10k item 15 a2 financial statement schedule year ended december 31 2006 ii1 schedule ii agco corporation subsidiaries schedule ii valuation qualifying accounts millions amounts charged comprehensive loss years ended december 31 2006 2005 2004 11 million 06 million 10 million respectively ii2item 15 exhibits financial statement schedules following documents filed part form 10k 1 consolidated financial statements notes consolidated financial statements report independent registered public accounting firm agco corporation subsidiaries presented pages 52 110 item 8 form 10k 2 financial statement schedules following consolidated financial statement schedule agco corporation subsidiaries included herein pages ii1 ii2 schedules listed omitted required information contained notes consolidated financial statements schedules required applicable 3 following exhibits filed incorporated reference part report management contract compensation plan required filed exhibit identified asterisk signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized agco corporation martin richenhagen martin richenhagen chairman board president chief executive officer dated february 29 2008 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities date indicated annual report form 10k item 15 a2 financial statement schedule year ended december 31 2007 schedule ii agco corporation subsidiaries schedule ii valuation qualifying accounts millions amounts charged comprehensive income loss years ended december 31 2007 2006 2005 21 million 10 million 06 million respectivelyitem 15 exhibits financial statement schedules following documents filed part form 10k 1 consolidated financial statements notes consolidated financial statements report independent registered public accounting firm agco corporation subsidiaries presented item 8 form 10k 2 financial statement schedules following consolidated financial statement schedule agco corporation subsidiaries included herein follow report schedules listed omitted required information contained notes consolidated financial statements schedules required applicable 3 following exhibits filed incorporated reference part report management contract compensation plan required filed exhibit identified asterisk signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized agco corporation martin richenhagen martin richenhagen chairman board president chief executive officer dated february 27 2009 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities date indicated annual report form 10k item 15 a2 financial statement schedule year ended december 31 2008 ii1 schedule ii agco corporation subsidiaries schedule ii valuation qualifying accounts millions amounts charged comprehensive income loss years ended december 31 2008 2007 2006 77 million 21 million 10 million respectively ii2item 15 exhibits financial statement schedules following documents filed part form 10k 1 consolidated financial statements notes consolidated financial statements report independent registered public accounting firm agco corporation subsidiaries presented item 8 form 10k 2 financial statement schedules following consolidated financial statement schedule agco corporation subsidiaries included herein follow report schedules listed omitted required information contained notes consolidated financial statements schedules required applicable 3 following exhibits filed incorporated reference part report management contract compensation plan required filed exhibit identified asterisk signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized agco corporation martin richenhagen martin richenhagen chairman board president chief executive officer dated february 26 2010 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities date indicated annual report form 10k item 15 a2 financial statement schedule year ended december 31 2009 ii1 schedule ii agco corporation subsidiaries schedule ii valuation qualifying accounts millions 1 amounts charged comprehensive income loss years ended december 31 2009 2008 2007 08 million 77 million 21 million respectively 2 december 31 2009 approximately 945 million balance recorded within “accrued expenses” approximately 30 million recorded within “accounts receivable allowances” company’s consolidated balance sheets ii2item 15 exhibits financial statement schedules following documents filed part form 10k 1 consolidated financial statements notes consolidated financial statements report independent registered public accounting firm agco corporation subsidiaries presented item 8 form 10k 2 financial statement schedules following consolidated financial statement schedule agco corporation subsidiaries included herein follow report schedules listed omitted required information contained notes consolidated financial statements schedules required applicable 3 following exhibits filed incorporated reference part report management contract compensation plan required filed exhibit identified asterisk users data advised pursuant rule 406t regulation st xbrl extensible business reporting language information deemed “furnished” “filed” part registration statement prospectus purposes sections 11 12 securities act 1933 deemed “furnished” “filed” purposes section 18 securities exchange act 1934 otherwise subject liability sections signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized agco corporation martin richenhagen martin richenhagen chairman board president chief executive officer dated february 25 2011 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities date indicated annual report form 10k item 15 a2 financial statement schedule year ended december 31 2010 ii1 schedule ii agco corporation subsidiaries schedule ii valuation qualifying accounts millions 1 december 31 2010 approximately 874 million balance recorded within “accrued expenses” approximately 113 million recorded within “accounts receivable allowances” company’s consolidated balance sheets 2 amounts charged comprehensive income years ended december 31 2010 2009 2008 09 million 08 million 77 million respectively ii2item 15 exhibits financial statement schedules following documents filed part form 10k 1 consolidated financial statements notes consolidated financial statements report independent registered public accounting firm agco corporation subsidiaries presented item 8 form 10k 2 financial statement schedules following consolidated financial statement schedule agco corporation subsidiaries included herein follows report schedule description schedule ii valuation qualifying accounts schedules listed omitted required information contained notes consolidated financial statements schedules required applicable 3 following exhibits filed incorporated reference part report management contract compensation plan required filed exhibit identified asterisk users data advised pursuant rule 406t regulation st xbrl extensible business reporting language information deemed furnished filed part registration statement prospectus purposes sections 11 12 securities act 1933 deemed furnished filed purposes section 18 securities exchange act 1934 otherwise subject liability sections signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized agco corporation martin richenhagen martin richenhagen chairman board president chief executive officer dated february 27 2012 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities date indicated annual report form 10k item 15 a2 financial statement schedule year ended december 31 2011 ii1 schedule ii agco corporation subsidiaries schedule ii valuation qualifying accounts millions 1 december 31 2011 approximately 911 million balance recorded within “accrued expenses” approximately 124 million recorded within “accounts receivable allowances” company’s consolidated balance sheets december 31 2010 approximately 874 million balance recorded within “accrued expenses” approximately 113 million recorded within “accounts receivable allowances” company’s consolidated balance sheets 2 amounts charged comprehensive income years ended december 31 2011 2010 2009 64 million 09 million 08 million respectively ii2 ii3item 15 exhibits financial statement schedules following documents filed part form 10k 1 consolidated financial statements notes consolidated financial statements report independent registered public accounting firm agco corporation subsidiaries presented item 8 form 10k 2 financial statement schedules following consolidated financial statement schedule agco corporation subsidiaries included herein follows report schedule description schedule ii valuation qualifying accounts schedules listed omitted required information contained notes consolidated financial statements schedules required applicable 3 following exhibits filed incorporated reference part report management contract compensation plan required filed exhibit identified asterisk signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized agco corporation martin richenhagen martin richenhagen chairman board president chief executive officer dated february 27 2013 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities date indicated annual report form 10k item 15 a2 financial statement schedule year ended december 31 2012 ii1 schedule ii agco corporation subsidiaries schedule ii valuation qualifying accounts millions 1 december 31 2012 approximately 1437 million balance recorded within “accrued expenses” approximately 215 million recorded within “accounts receivable allowances” company’s consolidated balance sheets december 31 2011 approximately 911 million balance recorded within “accrued expenses” approximately 124 million recorded within “accounts receivable allowances” company’s consolidated balance sheets 2 amounts charged comprehensive income years ended december 31 2012 2011 2010 00 million 64 million 09 million respectively ii2 ii3item 15 exhibits financial statement schedules following documents filed part form 10k 1 consolidated financial statements notes consolidated financial statements report independent registered public accounting firm agco corporation subsidiaries presented item 8 form 10k 2 financial statement schedules following consolidated financial statement schedule agco corporation subsidiaries included herein follows report schedule description schedule ii valuation qualifying accounts schedules listed omitted required information contained notes consolidated financial statements schedules required applicable 3 following exhibits filed incorporated reference part report management contract compensation plan required filed exhibit identified asterisk signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized agco corporation martin richenhagen martin richenhagen chairman board president chief executive officer dated february 28 2014 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities date indicated annual report form 10k item 15 a2 financial statement schedule year ended december 31 2013 ii1 schedule ii agco corporation subsidiaries schedule ii valuation qualifying accounts millions 1 december 31 2013 approximately 2062 million balance recorded within “accrued expenses” approximately 304 million recorded within “accounts receivable allowances” company’s consolidated balance sheets december 31 2012 approximately 1437 million balance recorded within “accrued expenses” approximately 215 million recorded within “accounts receivable allowances” company’s consolidated balance sheets 2 amounts charged comprehensive income years ended december 31 2013 2012 2011 00 million 00 million 64 million respectively ii2 ii3item 15 exhibits financial statement schedules following documents filed part form 10k 1 consolidated financial statements notes consolidated financial statements report independent registered public accounting firm agco corporation subsidiaries presented item 8 form 10k 2 financial statement schedules following consolidated financial statement schedule agco corporation subsidiaries included herein follows report schedule description schedule ii valuation qualifying accounts schedules listed omitted required information contained notes consolidated financial statements schedules required applicable 3 following exhibits filed incorporated reference part report management contract compensation plan required filed exhibit identified asterisk signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized agco corporation martin richenhagen martin richenhagen chairman board president chief executive officer dated february 27 2015 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities date indicated annual report form 10k item 15 a2 financial statement schedule year ended december 31 2014 ii1 schedule ii agco corporation subsidiaries schedule ii valuation qualifying accounts millions 1 december 31 2014 approximately 2365 million balance recorded within “accrued expenses” approximately 185 million recorded within “accounts receivable allowances” company’s consolidated balance sheets december 31 2013 approximately 2062 million balance recorded within “accrued expenses” approximately 304 million recorded within “accounts receivable allowances” company’s consolidated balance sheets ii2 ii3item 15 exhibits financial statement schedules following documents filed part form 10k 1 consolidated financial statements notes consolidated financial statements report independent registered public accounting firm agco corporation subsidiaries presented item 8 form 10k 2 financial statement schedules following consolidated financial statement schedule agco corporation subsidiaries included herein follows report schedule description schedule ii valuation qualifying accounts schedules listed omitted required information contained notes consolidated financial statements schedules required applicable 3 following exhibits filed incorporated reference part report management contract compensation plan required filed exhibit identified asterisk item 16 form 10k summary none signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized agco corporation martin richenhagen martin richenhagen chairman board president chief executive officer dated february 28 2017 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities date indicated annual report form 10k item 15 a2 financial statement schedule year ended december 31 2016 ii1 schedule ii agco corporation subsidiaries schedule ii valuation qualifying accounts millions 1 december 31 2016 approximately 2025 million balance recorded within “accrued expenses” approximately 345 million recorded within “accounts receivable allowances” company’s consolidated balance sheets december 31 2015 approximately 2295 million balance recorded within “accrued expenses” approximately 245 million recorded within “accounts receivable allowances” company’s consolidated balance sheets ii2 ii3item 15 exhibits financial statement schedules following documents filed part form 10k 1 consolidated financial statements notes consolidated financial statements report independent registered public accounting firm agco corporation subsidiaries presented item 8 form 10k 2 financial statement schedules following consolidated financial statement schedule agco corporation subsidiaries included herein follows report schedule description schedule ii valuation qualifying accounts schedules listed omitted required information contained notes consolidated financial statements schedules required applicable 3 following exhibits filed incorporated reference part report management contract compensation plan required filed exhibit identified asterisk item 16 form 10k summary none signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized agco corporation martin richenhagen martin richenhagen chairman board president chief executive officer dated february 28 2018 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities date indicated annual report form 10k item 15 a2 financial statement schedule year ended december 31 2017 ii1 schedule ii agco corporation subsidiaries schedule ii valuation qualifying accounts millions ii2 ii3item 15 exhibits financial statement schedules following documents filed part form 10k 1 consolidated financial statements notes consolidated financial statements report independent registered public accounting firm agco corporation subsidiaries presented item 8 form 10k 2 financial statement schedules following consolidated financial statement schedule agco corporation subsidiaries included herein follows report schedule description schedule iivaluation qualifying accounts schedules listed omitted required information contained notes consolidated financial statements schedules required applicable 3 following exhibits filed incorporated reference part report management contract compensation plan required filed exhibit identified asterisk exhibits may include instruments defining rights holders longterm debt exceed 10 company’s total assets company agrees furnish copies instruments commission upon request exhibit numberdescription exhibitthe filings referenced incorporation reference agco corporation 101the following audited financial information annual report form 10k year ended december 31 2020 formatted inline xbrl consolidated statements operations ii consolidated statements comprehensive income loss iii consolidated balance sheets iv consolidated statements stockholders equity v consolidated statements cash flows vi notes consolidated financial statementsfiled herewith 104cover page interactive data file cover page annual report form 10k year ended december 31 2020 formatted inline xbrlfiled herewith item 16 form 10k summary none signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized agco corporation bys eric p hansotia eric p hansotia datedfebruary 26 2021chairman board president chief executive officer pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities date indicated annual report form 10k item 15 a2 financial statement schedule year ended december 31 2020 ii1 schedule ii agco corporation subsidiaries schedule ii valuation qualifying accounts millions 1 amounts credited charged comprehensive income years ended december 31 2020 2019 2018 124 million 25 million 183 million respectively ii2 ii3nanitem 15 exhibits financial statement schedules following documents filed part form 10k 1 consolidated financial statements notes consolidated financial statements report independent registered public accounting firm agco corporation subsidiaries presented item 8 form 10k 2 financial statement schedules following consolidated financial statement schedule agco corporation subsidiaries included herein follows report schedule description schedule ii valuation qualifying accounts schedules listed omitted required information contained notes consolidated financial statements schedules required applicable 3 following exhibits filed incorporated reference part report management contract compensation plan required filed exhibit identified asterisk exhibits may include instruments defining rights holders longterm debt exceed 10 company’s total assets company agrees furnish copies instruments commission upon request exhibit number description exhibit filings referenced incorporation reference agco corporation 101ins xbrl instance document filed herewith 101sch xbrl taxonomy extension schema filed herewith 101cal xbrl taxonomy extension calculation linkbase filed herewith 101def xbrl taxonomy extension definition linkbase filed herewith 101lab xbrl taxonomy extension label linkbase filed herewith 101pre xbrl taxonomy extension presentation linkbase filed herewith item 16 form 10k summary none signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized agco corporation martin richenhagen martin richenhagen chairman board president chief executive officer dated march 1 2019 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities date indicated annual report form 10k item 15 a2 financial statement schedule year ended december 31 2018 ii1 schedule ii agco corporation subsidiaries schedule ii valuation qualifying accounts millions 1 amount charged comprehensive income year ended december 31 2018 183 million ii2 ii3item 15 exhibits financial statement schedules following documents filed part form 10k 1 consolidated financial statements notes consolidated financial statements report independent registered public accounting firm agco corporation subsidiaries presented item 8 form 10k 2 financial statement schedules following consolidated financial statement schedule agco corporation subsidiaries included herein follows report schedule description schedule ii valuation qualifying accounts schedules listed omitted required information contained notes consolidated financial statements schedules required applicable 3 following exhibits filed incorporated reference part report management contract compensation plan required filed exhibit identified asterisk exhibits may include instruments defining rights holders longterm debt exceed 10 company’s total assets company agrees furnish copies instruments commission upon request exhibit number description exhibit filings referenced incorporation reference agco corporation following audited financial information annual report form 10k year ended december 31 2019 formatted inline xbrl consolidated statements operations ii consolidated statements comprehensive income iii consolidated balance sheets iv consolidated statements stockholders equity v consolidated statements cash flows vi notes consolidated financial statements filed herewith cover page interactive data file cover page annual report form 10k year ended december 31 2019 formatted inline xbrl filed herewith item 16 form 10k summary none signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized agco corporation martin richenhagen martin richenhagen chairman board president chief executive officer dated february 28 2020 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities date indicated annual report form 10k item 15 a2 financial statement schedule year ended december 31 2019 ii1 schedule ii agco corporation subsidiaries schedule ii valuation qualifying accounts millions 1 amounts credited charged comprehensive income years ended december 31 2019 2018 25 million 183 million respectively ii2 ii3item 15 exhibits financial statement schedules following documents filed part form 10k 1 consolidated financial statements notes consolidated financial statements report independent registered public accounting firm agco corporation subsidiaries presented item 8 form 10k 2 financial statement schedules following consolidated financial statement schedule agco corporation subsidiaries included herein follows report schedule description schedule ii valuation qualifying accounts schedules listed omitted required information contained notes consolidated financial statements schedules required applicable 3 following exhibits filed incorporated reference part report management contract compensation plan required filed exhibit identified asterisk signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized agco corporation martin richenhagen martin richenhagen chairman board president chief executive officer dated february 26 2016 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities date indicated annual report form 10k item 15 a2 financial statement schedule year ended december 31 2015 ii1 schedule ii agco corporation subsidiaries schedule ii valuation qualifying accounts millions 1 december 31 2015 approximately 2295 million balance recorded within “accrued expenses” approximately 245 million recorded within “accounts receivable allowances” company’s consolidated balance sheets december 31 2014 approximately 2365 million balance recorded within “accrued expenses” approximately 185 million recorded within “accounts receivable allowances” company’s consolidated balance sheets ii2 ii3