M a S S E Y

Q1

The net sales was recorded as an increase from U.S.$2,973 million in 1979 to U.S.$3,132 million. However, the operating profit and net income were recorded as a decrease from the loss of U.S.$30 million to the loss of U.S.$139 million and the profit of U.S.$37 million to the loss of U.S.$225 million. The negative growth of the net income and income from continuing operations were credited to the financial difficulties faced by Massey-Ferguson in 1980.

One is high interest rate, it made the negative impact on Massey’s short-term debt. The corporate needed to pay a higher interest rate expense to the creditors. The interest expense rose from U.S.$128.8 million in 1979 to U.S.$229.9 million in 1980. Also, customers of the farm and industrial machinery would like to defer or stop to purchase machines due to high interest rates, which led to drop the purchasing power of customers. This poor situation harmed Massey’s net sales in 1980.

Another is the rough regional alignment. The heavily dependence of the engine production in the United Kingdom made the cost of products closely relating to the exchange rate of the British pound. Due to the influx of North Sea oil in 1980, the pound rose rapidly and this currency risk led to the increase of the cost of Massey’s products. And, Massey’s production sites in Canada were not competitive as those sites were close to competitors’ one. The cost of production was not an advantage of Massey’s operations. Those unfavorable factors were shown on the cost of goods sold, recording from U.S.$2,381.8 million in 1979 to U.S.$2,568.5 million in 1980. It worsened the net income of Massey so much.

Q2

One of the obstacles to taking an equity issue to pay down its debt is the action of Argus Corporation. Canadian corporate rejected to inject the capital into Massey through the issuance of the preferred shares in April 1980. It shows the pessimistic view towards Massey’s future as Massey lost the support from its largest...