Is this a good use of company resources?
Last year the FASB released Emerging Issues Task Force Issue No. 04-8, "The Effect of Contingently Convertible Instruments on Diluted Earnings per Share," which became effective on December 31, 2004. EITF 04-8 requires that the calculation of diluted earnings per share of common stock reflect shares issuable under contingently convertible debt regardless of whether the contingent feature has been met.
This resulted in AGCO , a global manufactucturer of ag equipment deciding that it is better to spend money getting rid of its old debt and replacing it with essentially equal debt, but debt that is not subject to EITF 04-8. Here is the important portion of the release:
May 26, 2005--AGCO Corporation (NYSE:AG - News), a global manufacturer and distributor of agricultural equipment, announced today that it has filed a registration statement with the Securities and Exchange Commission to register its offer to holders of its $201,250,000 outstanding principal amount of 1 3/4% Convertible Senior Subordinated Notes due 2033 (the "Old Notes") to exchange the Old Notes for an equivalent principal amount of its 1 3/4% Convertible Senior Subordinated Notes, Series B, due 2033 (the "New Notes"). The New Notes provide for (i) the settlement upon conversion in cash up to the principal amount of the converted New Notes with any excess conversion value settled in shares of AGCO common stock, and (ii) the conversion rate to be increased under certain circumstances if the New Notes are converted in connection with certain change of control transactions occurring prior to December 10, 2010, and otherwise are substantially the same as the Old Notes.
The conversion settlement feature of the New Notes will result in the inclusion of fewer shares in the calculation of diluted earnings per share than the Old Notes, since exercise of the conversion feature would result in a payment of cash, rather than shares, for the principal amount of the New Notes.
This type of behavior can't inspire confidence.
This resulted in AGCO , a global manufactucturer of ag equipment deciding that it is better to spend money getting rid of its old debt and replacing it with essentially equal debt, but debt that is not subject to EITF 04-8. Here is the important portion of the release:
May 26, 2005--AGCO Corporation (NYSE:AG - News), a global manufacturer and distributor of agricultural equipment, announced today that it has filed a registration statement with the Securities and Exchange Commission to register its offer to holders of its $201,250,000 outstanding principal amount of 1 3/4% Convertible Senior Subordinated Notes due 2033 (the "Old Notes") to exchange the Old Notes for an equivalent principal amount of its 1 3/4% Convertible Senior Subordinated Notes, Series B, due 2033 (the "New Notes"). The New Notes provide for (i) the settlement upon conversion in cash up to the principal amount of the converted New Notes with any excess conversion value settled in shares of AGCO common stock, and (ii) the conversion rate to be increased under certain circumstances if the New Notes are converted in connection with certain change of control transactions occurring prior to December 10, 2010, and otherwise are substantially the same as the Old Notes.
The conversion settlement feature of the New Notes will result in the inclusion of fewer shares in the calculation of diluted earnings per share than the Old Notes, since exercise of the conversion feature would result in a payment of cash, rather than shares, for the principal amount of the New Notes.
This type of behavior can't inspire confidence.
posted by Don Pagach at 1:48 PM
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