- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
- ------
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
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EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
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EXCHANGE ACT OF 1934
For the transition period from to
--------------------- ----------------------
Commission file number 1-12930
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-----------------
AGCO CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 58-1960019
(State of incorporation) (I.R.S. Employer Identification No.)
4205 River Green Parkway
Duluth, Georgia 30096
(Address of principal executive
offices including zip code)
Registrant's telephone number, including area code: (770) 813-9200
-----------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
--- ---
Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of the latest practicable date.
Common stock par value $.01 per share: 59,521,071 shares outstanding as of
June 30, 1998.
- --------------------------------------------------------------------------------
<PAGE>
AGCO CORPORATION AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page
Numbers
----------
<S> <C> <C>
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Condensed Consolidated Balance
Sheets - June 30, 1998 and December 31, 1997 . . . . . . . . . . . . . . . . . . . . . 3
Condensed Consolidated Statements
of Income for the Three Months
Ended June 30, 1998 and 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Condensed Consolidated Statements
of Income for the Six Months
Ended June 30, 1998 and 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Condensed Consolidated Statements
of Cash Flows for the Six Months
Ended June 30, 1998 and 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Notes to Condensed Consolidated
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Item 3. Quantitative and Qualitative Disclosures about Market Risk . . . . . . . . . . . . . . 16
PART II. OTHER INFORMATION:
Item 4. Submission of Matters to a Vote of Security Holders. . . . . . . . . . . . . . . . . . 17
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
</TABLE>
2
<PAGE>
Part I. Financial Information
Item 1. Financial Statements
AGCO CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions, except share data)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
----------------- -----------------
ASSETS (Unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . $ 27.5 $ 31.2
Accounts and notes receivable, net of allowances . . . . . . . . . . . 1,089.5 978.7
Receivables from affiliates. . . . . . . . . . . . . . . . . . . . . . 27.6 18.5
Inventories, net . . . . . . . . . . . . . . . . . . . . . . . . . . . 728.8 622.7
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . 73.6 63.7
----------------- -------------------
Total current assets. . . . . . . . . . . . . . . . . . . . . . . . 1,947.0 1,714.8
Property, plant and equipment, net. . . . . . . . . . . . . . . . . . . . 399.5 403.7
Investments in affiliates . . . . . . . . . . . . . . . . . . . . . . . . 95.8 87.6
Other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79.3 75.8
Intangible assets, net. . . . . . . . . . . . . . . . . . . . . . . . . . 341.4 339.0
------------------ -------------------
Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,863.0 $ 2,620.9
================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 312.0 $ 350.1
Payables to affiliates . . . . . . . . . . . . . . . . . . . . . . . . 13.2 17.4
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 454.4 430.0
Other current liabilities . . . . . . . . . . . . . . . . . . . . . . 36.5 33.0
------------------ -------------------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . 816.1 830.5
------------------ -------------------
Long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,029.8 727.4
Postretirement health care benefits . . . . . . . . . . . . . . . . . . . 24.5 24.5
Other noncurrent liabilities . . . . . . . . . . . . . . . . . . . . . . 48.5 46.9
------------------ -------------------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 1,918.9 1,629.3
Stockholders' Equity:
Common Stock: $0.01 par value, 150,000,000 shares authorized,
59,521,071 and 62,972,423 shares issued and outstanding
at June 30, 1998 and December 31, 1997, respectively . . . . . . . . 0.6 0.6
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . 427.3 515.0
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . 641.5 577.6
Unearned compensation . . . . . . . . . . . . . . . . . . . . . . . . (15.2) (20.0)
Cumulative translation adjustment . . . . . . . . . . . . . . . . . . (110.1) (81.6)
------------------ -------------------
Total stockholders' equity . . . . . . . . . . . . . . . . . . . . 944.1 991.6
------------------ -------------------
Total liabilities and stockholders' equity . . . . . . . . . . . . $ 2,863.0 $ 2,620.9
================== ===================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
AGCO CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited and in millions, except per share data)
<TABLE>
<CAPTION>
Three Months Ended June 30,
------------------------------------
1998 1997
-------------- --------------
<S> <C> <C>
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 816.1 $ 871.9
Cost of goods sold. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 659.6 696.1
-------------- --------------
Gross profit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 156.5 175.8
Selling, general and administrative expenses. . . . . . . . . . . . . . . . . . 68.7 67.3
Engineering expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.6 14.1
Nonrecurring expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 5.2
-------------- --------------
Income from operations. . . . . . . . . . . . . . . . . . . . . . . . . . 73.2 89.2
Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.3 14.0
Other expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.1 4.4
-------------- --------------
Income before income taxes and equity in net earnings of
affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45.8 70.8
Provision for income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . 17.0 25.1
-------------- --------------
Income before equity in net earnings of affiliates . . . . . . . . . . . . . . 28.8 45.7
Equity in net earnings of affiliates. . . . . . . . . . . . . . . . . . . . . . 3.5 3.1
-------------- --------------
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 32.3 $ 48.8
============== ==============
Net income per common share:
Basic. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.53 $ 0.80
============== ==============
Diluted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.52 $ 0.77
============== ==============
Weighted average number of common and common equivalent shares outstanding:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60.5 61.3
============== ==============
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62.1 63.0
============== ==============
Dividends declared per common share . . . . . . . . . . . . . . . . . . . . . . $ 0.01 $ 0.01
============== ==============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
AGCO CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited and in millions, except per share data)
<TABLE>
<CAPTION>
Six Months Ended June 30,
------------------------------------
1998 1997
-------------- --------------
<S> <C> <C>
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,517.6 $ 1,576.3
Cost of goods sold. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,216.6 1,266.2
-------------- --------------
Gross profit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 301.0 310.1
Selling, general and administrative expenses. . . . . . . . . . . . . . . . . . 131.7 129.2
Engineering expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28.2 27.3
Nonrecurring expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 7.8
-------------- --------------
Income from operations. . . . . . . . . . . . . . . . . . . . . . . . . . 141.1 145.8
Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33.3 27.2
Other expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.5 9.0
-------------- --------------
Income before income taxes, equity in net earnings of
affiliates and extraordinary loss . . . . . . . . . . . . . . . . . . . . 93.3 109.6
Provision for income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . 34.5 38.8
-------------- --------------
Income before equity in net earnings of affiliates
and extraordinary loss . . . . . . . . . . . . . . . . . . . . . . . . . . 58.8 70.8
Equity in net earnings of affiliates. . . . . . . . . . . . . . . . . . . . . . 6.3 5.8
-------------- --------------
Income before extraordinary loss . . . . . . . . . . . . . . . . . . . . . . . 65.1 76.6
Extraordinary loss, net of taxes . . . . . . . . . . . . . . . . . . . . . . . - (2.1)
-------------- --------------
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 65.1 $ 74.5
============== ==============
Net income per common share:
Basic:
Income before extraordinary loss . . . . . . . . . . . . . . . . . . . . $ 1.07 $ 1.29
Extraordinary loss . . . . . . . . . . . . . . . . . . . . . . . . . . - (0.03)
-------------- --------------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1.07 $ 1.26
============== ==============
Diluted:
Income before extraordinary loss. . . . . . . . . . . . . . . . . . . . . $ 1.04 $ 1.25
Extraordinary loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . - (0.03)
-------------- --------------
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1.04 $ 1.22
============== ==============
Weighted average number of common and common equivalent shares outstanding:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61.0 59.3
============== ==============
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62.7 61.0
============== ==============
Dividends declared per common share . . . . . . . . . . . . . . . . . . . . . . $ 0.02 $ 0.02
============== ==============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
AGCO CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited and in millions)
<TABLE>
<CAPTION>
Six Months Ended June 30,
----------------------------------
1998 1997
--------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 65.1 $ 74.5
-------------- -------------
Adjustments to reconcile net income to net cash used for operating
activities:
Extraordinary loss, net of taxes. . . . . . . . . . . . . . . . . . . . - 2.1
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . 28.1 24.6
Equity in net earnings of
affiliates, net of cash received . . . . . . . . . . . . . . . . . . (6.3) (5.8)
Deferred income tax provision . . . . . . . . . . . . . . . . . . . . . 2.1 9.9
Amortization of intangibles. . . . . . . . . . . . . . . . . . . . . . . 6.1 6.2
Amortization of unearned compensation . . . . . . . . . . . . . . . . . 4.8 5.5
Changes in operating assets and liabilities, net of effects from
purchase of businesses:
Accounts and notes receivable, net. . . . . . . . . . . . . . . . . . (133.8) (115.8)
Inventories, net. . . . . . . . . . . . . . . . . . . . . . . . . . . (105.8) (121.7)
Other current and noncurrent assets . . . . . . . . . . . . . . . . . (13.3) (7.1)
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . (41.1) 16.2
Accrued expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . 9.2 4.6
Other current and noncurrent liabilities . . . . . . . . . . . . . . (2.3) (9.0)
-------------- -------------
Total adjustments. . . . . . . . . . . . . . . . . . . . . . . . . . (252.3) (190.3)
-------------- -------------
Net cash used for operating activities. . . . . . . . . . . . . . . . (187.2) (115.8)
-------------- -------------
Cash flows from investing activities:
(Purchase)/sale of businesses . . . . . . . . . . . . . . . . . . . . . . (1.5) (284.2)
Purchase of property, plant and equipment. . . . . . . . . . . . . . . . . (26.0) (20.1)
-------------- -------------
Net cash used for investing activities. . . . . . . . . . . . . . . . (27.5) (304.3)
-------------- -------------
Cash flows from financing activities:
Proceeds from long-term debt, net . . . . . . . . . . . . . . . . . . . . 300.1 286.9
Payment of debt issuance costs . . . . . . . . . . . . . . . . . . . . . . - (3.5)
Proceeds from issuance of common stock. . . . . . . . . . . . . . . . . . 0.4 141.4
Repurchases of common stock. . . . . . . . . . . . . . . . . . . . . . . . (88.1) -
Dividends paid on common stock . . . . . . . . . . . . . . . . . . . . . . (1.2) (1.2)
-------------- -------------
Net cash provided by financing activities . . . . . . . . . . . . . . 211.2 423.6
-------------- -------------
Effect of exchange rate changes on cash and cash equivalents . . . . . . . . . . (0.2) (4.1)
Decrease in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . (3.7) (0.6)
Cash and cash equivalents, beginning of period . . . . . . . . . . . . . . . . . 31.2 41.7
-------------- -------------
Cash and cash equivalents, end of period . . . . . . . . . . . . . . . . . . . $ 27.5 $ 41.1
============== =============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
6
<PAGE>
AGCO CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. BASIS OF PRESENTATION
The condensed consolidated financial statements of AGCO Corporation and
subsidiaries (the "Company" or "AGCO") included herein have been prepared by the
Company pursuant to the rules and regulations of the Securities and Exchange
Commission. In the opinion of management, the accompanying unaudited condensed
consolidated financial statements reflect all adjustments, which are of a normal
recurring nature, to present fairly the Company's financial position, results of
operations and cash flows at the dates and for the periods presented. These
condensed consolidated financial statements should be read in conjunction with
the Company's audited financial statements and notes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1997.
Interim results of operations are not necessarily indicative of results to be
expected for the fiscal year.
2. CHARGES FOR NONRECURRING EXPENSES
The results of operations included a charge for nonrecurring expenses
of $5.2 million, or $.05 per common share on a diluted basis, and $7.8 million,
or $.08 per common share on a diluted basis, for the three and six months ended
June 30, 1997, respectively. The nonrecurring charge for the six months ended
June 30, 1997 included $5.1 million related to the restructuring of the
Company's European operations and $2.7 million for the integration of the
operations of Deutz Argentina S.A. ("Deutz Argentina") and Xaver Fendt GmbH &
Co. KG ("Fendt"), which were acquired in December 1996 and January 1997,
respectively. The nonrecurring charge consisted primarily of employee related
costs.
3. LONG-TERM DEBT
Long-term debt consisted of the following at June 30, 1998 and December
31, 1997 (in millions):
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
<S> <C> <C>
--------------------- --------------
Revolving credit facility . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 765.4 $ 460.7
Senior subordinated notes . . . . . . . . . . . . . . . . . . . . . . . . . . . 248.2 248.1
Other long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.2 18.6
--------------------- -------------
$ 1,029.8 $ 727.4
===================== =============
</TABLE>
7
<PAGE>
The Company's revolving credit facility allows for borrowings of up to
$1.1 billion. Lending commitments under the revolving credit facility reduce
from the current commitment of $1.1 billion as of June 30, 1998 to $1.0 billion
on January 1, 1999. In addition, borrowings under the revolving credit facility
may not exceed the sum of 90% of eligible accounts receivable and 60% of
eligible inventory. As of June 30, 1998, approximately $765.4 million was
outstanding under the revolving credit facility and available borrowings were
approximately $290.6 million.
4. EXTRAORDINARY LOSS
During the first six months of 1997, as part of the refinancing of the
Company's revolving credit facility in January 1997, the Company recorded an
extraordinary loss of $2.1 million, net of taxes of $1.4 million, for the
write-off of unamortized debt costs.
5. NET INCOME PER COMMON SHARE
Effective December 31, 1997, the Company adopted Statement of Financial
Accounting Standards No. 128 ("SFAS 128"), "Earnings per Share" which specifies
the computation, presentation and disclosure requirements for earnings per
share. All prior period earnings per share data has been restated to conform
with the provisions of SFAS 128. The per share amounts reported under SFAS 128
are not materially different than those calculated and presented under the
previous method of calculation as specified under Accounting Principles Board
Opinion No. 15.
Basic earnings per common share is computed by dividing net income by
the weighted average number of common shares outstanding during each period.
Diluted earnings per common share assumes exercise of outstanding stock options
and vesting of restricted stock.
A reconciliation of net income and the weighted average number of
common shares outstanding used to calculate basic and diluted earnings per
common share for the three and six months ended June 30, 1998 and 1997 is as
follows (in millions, except per share data):
<TABLE>
<CAPTION>
Basic Earnings Per Share Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
-------- --------- -------- -------
<S> <C> <C> <C> <C>
Weighted average number of common shares outstanding. . . . . . . . . . . . . . 60.5 61.3 61.0 59.3
======== ========= ========= ========
Income before extraordinary loss . . . . . . . . . . . . . . . . . . . . . . . $ 32.3 $ 48.8 $ 65.1 $ 76.6
Extraordinary loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - - - (2.1)
-------- --------- --------- --------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 32.3 $ 48.8 $ 65.1 $ 74.5
======== ========= ========= ========
Net income per common share:
Income before extraordinary loss. . . . . . . . . . . . . . . . . . . . . . . $ 0.53 $ 0.80 $ 1.07 $ 1.29
Extraordinary loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - - - (0.03)
-------- --------- --------- --------
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.53 $ 0.80 $ 1.07 $ 1.26
======== ========= ========= ========
Diluted Earnings Per Share
Weighted average number of common shares outstanding. . . . . . . . . . . . . . 60.5 61.3 61.0 59.3
Assumed vesting of restricted stock. . . . . . . . . . . . . . . . . . . . . . 1.4 1.3 1.4 1.3
Assumed exercise of outstanding stock options . . . . . . . . . . . . . . . . . 0.2 0.4 0.3 0.4
-------- --------- --------- --------
Weighted average number of common and common equivalent
shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62.1 63.0 62.7 61.0
======== ========= ========= ========
Income before extraordinary loss . . . . . . . . . . . . . . . . . . . . . . . $ 32.3 $ 48.8 $ 65.1 $ 76.6
Extraordinary loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - - - (2.1)
-------- --------- --------- --------
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 32.3 $ 48.8 $ 65.1 $ 74.5
======== ========= ========= ========
Net income per common share:
Income before extraordinary loss . . . . . . . . . . . . . . . . . . . . . . $ 0.52 $ 0.77 $ 1.04 $ 1.25
Extraordinary loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - - - (0.03)
-------- --------- --------- --------
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.52 $ 0.77 $ 1.04 $ 1.22
======== ========= ========= ========
</TABLE>
<PAGE>
6. INVENTORIES
Inventories are valued at the lower of cost or market using the
first-in, first-out method. Market is net realizable value for finished goods
and repair and replacement parts. For work in process, production parts and raw
materials, market is replacement cost.
Inventory balances at June 30, 1998 and December 31, 1997
were as follows (in millions):
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
------------- ------------------
<S> <C> <C>
Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 298.7 $ 267.7
Repair and replacement parts . . . . . . . . . . . . . . . . . . . . . . . . . . 269.2 250.2
Work in process, production parts and raw materials. . . . . . . . . . . . . . . 235.4 184.5
------------ ------------------
Gross inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 803.3 702.4
Allowance for surplus and obsolete inventories . . . . . . . . . . . . . . . . (74.5) (79.7)
------------ ------------------
Inventories, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 728.8 $ 622.7
============ ==================
</TABLE>
7. COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income," which requires
companies to disclose components of comprehensive income, defined as the total
of net income and all other nonowner changes in equity. This statement requires
disclosure only; therefore, its adoption had no effect on the Company's
financial position or results of operations.
Total comprehensive income for the three and six months ended June 30,
1998 and 1997 was as follows (in millions):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------- ----------------------
1998 1997 1998 1997
----------- ------------ -------- -----------
<S> <C> <C> <C> <C>
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 32.3 $ 48.8 $ 65.1 $ 74.5
Other comprehensive income, net of tax:
Foreign currency translation adjustments . . . . . . . . . . . . . . . . . (0.6) (15.3) (17.9) (35.8)
=========== ============= ======== ============
Total comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 31.7 $ 33.5 $ 47.2 $ 38.7
=========== ============= ======== ============
</TABLE>
8. COMMON STOCK
In December 1997, the Company's Board of Directors authorized the
repurchase of up to $150.0 million of its outstanding common stock. As of June
30, 1998, the Company has repurchased approximately 3.5 million shares of its
common stock at a cost of approximately $88.1 million. The purchases are made
through open market transactions, and the timing and number of shares purchased
depend on various factors, such as price and other market conditions.
<PAGE>
16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The Company's operations are subject to the cyclical nature of the
agricultural industry. Sales of the Company's equipment have been affected by
changes in net cash farm income, farm land values, weather conditions, the
demand for agricultural commodities and general economic conditions. The
Company's operations are expected to be subject to such conditions in the
future. Sales are recorded by the Company when equipment and replacement parts
are shipped by the Company to its independent dealers, distributors or other
customers. To the extent possible, the Company attempts to ship products to its
dealers and distributors on a level basis throughout the year to reduce the
effect of seasonal demands on its manufacturing operations and to minimize its
investment in inventory. Retail sales by dealers to farmers are highly seasonal
and are a function of the timing of the planting and harvesting seasons. As a
esult, the Company's net sales and operating results have historically been the
lowest in the first quarter and have increased in subsequent quarters.
RESULTS OF OPERATIONS
NET INCOME
The Company recorded net income for the three months ended June 30, 1998 of
$32.3 million compared to $48.8 million for the same period in 1997. Net income
per common share on a diluted basis was $0.52 and $0.77 for the second quarter
of 1998 and 1997, respectively. Net income for the first six months of 1998 was
$65.1 million compared to $74.5 million for the same period in 1997. Net income
per common share on a diluted basis was $1.04 and $1.22 for the first six months
of 1998 and 1997, respectively. Net income for the three and six months ended
June 30, 1997 included nonrecurring expenses of $5.2 million, or $0.05 per share
on a diluted basis, and $7.8 million, or $0.08 per share on a diluted basis,
respectively, related to the restructuring of the Company's European operations
and the integration of the Deutz Argentina and Fendt operations, acquired in
December 1996 and January 1997, respectively (see "Charges for Nonrecurring
Expenses"). In addition, net income for the first six months of 1997 included an
extraordinary after-tax charge of $2.1 million, or $0.03 per share on a diluted
basis, for the write-off of unamortized debt costs related to the refinancing in
January 1997 of the Company's revolving credit facility (see "Liquidity and
Capital Resources"). The unfavorable results for the second quarter and first
six months of 1998 primarily resulted from unfavorable industry conditions which
reduced net sales, the negative impact of currency exchange and lower gross
margins in the second quarter of 1998. <PAGE>
RETAIL SALES
In the United States and Canada, industry unit retail sales of
tractors, combines and hay and forage equipment for the six months ended June
30, 1998 increased approximately 12%, 25% and 6%, respectively, over the same
period in 1997. The Company believes general market conditions were strong
during the first six months of 1998 due to favorable economic conditions. The
Company believes the significant increase in the retail sales of combines was
partially due to the timing of shipments by certain competitors which diverted
their first six months of 1997 production to international markets as well as
new product introductions by competitors in 1998. Company unit retail sales of
tractors in the United States and Canada increased 11% for the first six months
of 1998 compared to 1997 primarily due to favorable acceptance of new models of
utility and high horsepower tractors. Company unit retail sales of hay and
forage equipment also increased in line with the industry for the first six
months of 1998 compared to the prior year. Company unit retail sales of combines
decreased 12% for the first six months of 1998 compared to 1997 primarily due to
lower 1998 pre-season sales.
In Western Europe, industry unit retail sales of tractors experienced
mixed results with an overall decrease of approximately 2% for the six months
ended June 30, 1998 compared to the same period in the prior year. Industry
retail sales in the large markets of the U.K and France continue to be
depressed, primarily a result of farm consolidation and reduced farm income.
These declines were offset to some extent by increases in Germany and Italy.
Company unit retail sales of tractors in Western Europe decreased slightly less
than the industry. The Company experienced ncreases in retail sales in Germany,
Italy and Spain which were offset by declines in most other Western European
markets. The Company improved its market position in the Massey Ferguson utility
tractor range as well as the Fendt brand. These gains were offset by declines in
the Massey Ferguson high horsepower range due to the product line lacking
certain competitive features.
Industry unit retail sales of tractors in South America increased
approximately 12% for the first six months of 1998 over the prior year primarily
due to a 35% increase in unit retail sales in the major market of Brazil
resulting from improving economic conditions. Company unit retail sales of
tractors in Brazil increased approximately 17% compared to the same period in
1997, trailing the industry due to competitor discounting which the Company
chose not to match. Outside of Brazil, Company unit retail sales of tractors in
South America performed slightly better than the industry for the first six
months of 1998.
In most other international markets, industry unit retail sales of
tractors decreased significantly compared to the prior year. The Company also
experienced significant declines in retail sales, particularly in the East
Asia/Pacific markets due to the recent economic crisis in the region, in Africa
due to political and economic instability affecting the market, and in Central
and Eastern Europe due to difficulties in securing financing.
<PAGE>
NET SALES
Net sales for the second quarter of 1998 were $816.1 million compared
to $871.9 million for the same period in 1997. Net sales for the first six
months of 1998 were $1,517.6 million compared to $1,576.3 million for the prior
year. The decrease in net sales for the second quarter and the first six months
of 1998 primarily reflects the sale of the Fendt caravan business in December
1997 (the "Fendt Caravan Sale"), the disposition of 50% of the Deutz Argentina
engine business in December 1997 (the "Engine Joint Venture"), and the negative
translation effect of the strengthening dollar against most European currencies.
Excluding the impact of these items, net sales for the second quarter of 1998
decreased approximately 1% compared to the second quarter of 1997 and net sales
for the first six months of 1998 increased 2.6% compared to the same period in
1997. On a regional basis, net sales in North America increased $36.3 million,
or 15.8%, and $79.3 million, or 19.1%, for the three and six months ended June
30, 1998, respectively, compared to the same periods in 1997 primarily due to
favorable industry conditions and the successful acceptance of new products. Net
sales in South America increased $5.3 million, or 6.4%, and $11.7 million, or
7.4%, for the three and six months ended June 30, 1998, respectively, compared
to the same periods in the prior year due to improved sales of both tractors and
combines in Brazil offset by the impact of the Engine Joint Venture. In Western
Europe, net sales declined $60.0 million, or 13.5%, and $90.5 million, or 11.3%,
for the three and six months ended June 30, 1998, respectively, compared to the
same periods in 1997 primarily due to the unfavorable industry conditions in the
region, the negative impact of currency translation and the Fendt Caravan Sale.
In the remaining international markets, net sales decreased $37.4 million, or
32.4%, and $59.2 million, or 28.7%, for the three and six months ended June 30,
1998, respectively, compared to the same periods in 1997 primarily due to
decreased sales in the Asia/Pacific region, Africa, and Central and Eastern
Europe due to unfavorable market conditions.
COSTS AND EXPENSES
Gross profit was $156.5 million (19.2% of net sales) for the second
quarter of 1998 compared to $175.8 million (20.2% of net sales) for the same
period in the prior year. Gross profit for the first six months of 1998 was
$301.0 million (19.8% of net sales) compared to $310.1 million (19.7% of net
sales). Gross margins for the second quarter of 1998 were negatively impacted by
(1) increased discounting in both North America and Western Europe resulting
from the competitive market environment, (2) unfavorable market and product
sales mix, particularly related to decreased sales in higher margin markets such
as the U.K., France, Central and Eastern Europe and the Asia/Pacific region, (3)
lower production volumes which resulted in lower overhead absorption, and (4)
unfavorable currency exchange relating to the weak Canadian dollar and the
strength of the British pound. These factors were offset to some extent by
higher gross margins on new products introduced in North America and the
acquisition of Dronningborg Industries a/s ("Dronningborg" and the "Dronningborg
Acquisition") in December 1997 which resulted in improved combine margins in
Western Europe. For the first six months of 1998, gross margin improvements
experienced in the first quarter relating to new products and the Dronningborg
Acquisition were offset by the gross margin declines in the second quarter.
<PAGE>
Selling, general and administrative expenses for the second quarter of
1998 were $68.7 million (8.4% of net sales) compared to $67.3 million (7.7% of
net sales) for the same period in 1997. For the first six months of 1998,
selling, general and administrative expenses were $131.7 million (8.7% of net
sales) compared to $129.2 million (8.2% of net sales). The increase in selling,
general and administrative expenses as a percentage of net sales for both
periods was primarily due to lower sales volumes compared to the same periods in
the prior year. Engineering expenses were $14.6 million (1.8% of net sales) for
the second quarter of 1998 compared to $14.1 million (1.6% of net sales) for the
same period in 1997. Engineering expenses for the first six months of 1998 were
$28.2 million (1.9% of net sales) compared to $27.3 million (1.7% of net sales)
for the same period in 1997. Engineering expenses as a percentage of net sales
were higher for both periods primarily due to lower sales volume in addition to
higher engineering expenses relating to the Dronningborg Acquisition.
The nonrecurring charge recorded in the second quarter of 1997 related
to the restructuring of the Company's European operations and the integration of
the Deutz Argentina and Fendt operations, acquired in December 1996 and January
1997, respectively. See "Charges for Nonrecurring Expenses" for further
discussion.
Operating income, excluding nonrecurring charges, was $73.2 million
(9.0% of net sales) for the second quarter of 1998 compared to $94.4 million
(10.8% of net sales) for the same period in 1997. For the first six months of
1998, operating income was $141.1 million (9.3% of net sales) compared to $153.6
million (9.7% of net sales). Operating income as a percentage of net sales was
unfavorable compared to the prior year periods primarily due to the decline in
gross margins for the second quarter of 1998 and the negative effect of lower
sales volumes on selling, general and administrative expenses as discussed above
for both the second quarter and first six months of 1998.
Interest expense, net was $18.3 million for the second quarter of 1998
compared to $14.0 million for the same period in the prior year. For the first
six months of 1998, interest expense, net was $33.3 million compared to $27.2
million for the same period in the prior year. The higher interest expense, net
for both periods primarily resulted from the higher level of borrowings at June
30, 1998 compared to the prior year to fund the Dronningborg Acquisition, common
stock repurchases made during the second quarter of 1998 and higher levels of
working capital.
Other expense, net was $9.1 million for the second quarter of 1998
compared to $4.4 million for the same period in 1997. For the first six months
of 1998, other expense, net, was $14.5 million compared to $9.0 million for the
same period in the prior year. The Company experienced an increase in other
expense, net relating to higher hedging costs on sales of U.K. sourced products
and foreign exchange losses compared to gains reported in the same periods in
1997. <PAGE>
The Company recorded an income tax provision of $17.0 million and $25.1
million for the second quarter of 1998 and 1997, respectively. For the first six
months of 1998 and 1997, the Company recorded an income tax provision of $34.5
million and $38.8 million, respectively. The Company's effective tax rate
increased during the first six months of 1998 compared to the same period in
1997 due to a change in the mix of income to jurisdictions with higher tax
rates.
Equity in net earnings of affiliates was $3.5 million and $3.1 million
for the second quarter of 1998 and 1997, respectively. For the first six months
of 1998 and 1997, equity in net earnings of affiliates was $6.3 million and $5.8
million, respectively. The increase in equity in net earnings of affiliates for
both periods primarily related to increased earnings for the Company's retail
finance affiliates. In addition, the Company recognized 50% of the net income of
the Engine Joint Venture during the second quarter and first six months of 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company's financing requirements are subject to variations due to
seasonal changes in inventory and dealer receivable levels. Internally generated
funds are supplemented when necessary from external sources, primarily the
Company's revolving credit facility. Lending commitments under the Company's
revolving credit facility reduce from the current commitment of $1.1 billion as
of June 30, 1998 to $1.0 billion on January 1, 1999. In addition, borrowings
under the Company's revolving credit facility may not exceed the sum of 90% of
eligible accounts receivable and 60% of eligible inventory. As receivables and
inventories fluctuate, borrowings under the revolving credit facility fluctuate
as well. As of June 30, 1998, approximately $765.4 million was outstanding under
the Company's revolving credit facility and available borrowings were
approximately $290.6 million.
The Company's working capital requirements are seasonal, with
investments in working capital typically building in the first half of the year
and then reducing in the second half of the year. As of June 30, 1998, the
Company had $1,130.9 million of working capital, an increase of $246.6 million
over working capital of $884.3 million as of December 31, 1997. The increase in
working capital was primarily due to working capital acquired in the
acquisitions of Dronningborg and the distribution rights of Massey Ferguson
Argentina, higher inventories in North America and South America reflecting the
sales growth in these regions and normal seasonal requirements particularly in
receivables and inventories.
Cash flow used for operating activities was $187.2 million and $115.8
million for the six months ended June 30, 1998 and 1997, respectively. The
increase in cash flow used for operating activities compared to the prior year
was primarily due to increases in receivables and decreases in accounts payable.
The increase in receivables compared to the prior year was primarily the result
of increased North American sales which carry longer sales terms than other
regions of the world. The decrease in payables primarily related to lower
production in the Company's European production facilities in order to
compensate for relatively high levels of inventory at December 31, 1997.
<PAGE>
As a result of the negative market conditions which have adversely
affected demand in several regions, the Company has reduced production levels
for the remainder of 1998 at the Company's manufacturing facilities in North
America, the U.K. and France. In order to reduce dealer and company inventory
levels, the Company has cut production in these facilities by a total of 17% of
standard aggregate working hours compared to the prior year.
Capital expenditures for the six months ended June 30, 1998 were $26.0
million compared to $20.1 million for the same period in 1997.
The Company anticipates that additional capital expenditures for the remainder
of 1998 will range from approximately $40.0 million to $50.0 million and will
primarily be used to support the development and enhancement of new and existing
products.
In December 1997, the Company's Board of Directors authorized the
repurchase of up to $150.0 million of its outstanding common stock. As of June
30, 1998, the Company has repurchased approximately 3.5 million shares of its
common stock at a cost of approximately $88.1 million. The purchases are made
through open market transactions, and the timing and number of shares purchased
depend on various factors, such as price and other market conditions.
In July 1998, the Company's Board of Directors declared a dividend of
$0.01 per share of common stock for the third quarter of 1998. The declaration
and payment of future dividends will be at the sole discretion of the Board of
Directors and will depend upon the Company's results of operations, financial
condition, cash requirements, future prospects, limitations imposed by the
Company's credit facilities and other factors deemed relevant by the Company's
Board of Directors.
The Company believes that available borrowings under the Company's
revolving credit facility, available cash and internally generated funds will be
sufficient to support its working capital, capital expenditures and debt service
requirements for the foreseeable future.
The Company from time to time reviews and will continue to review
acquisition and joint venture opportunities as well as changes in the capital
markets. If the Company were to consummate a significant acquisition or elect to
take advantage of favorable opportunities in the capital markets, the Company
may supplement availability or revise the terms under its credit facilities or
complete public or private offerings of equity or debt securities.
CHARGES FOR NONRECURRING EXPENSES
The Company recorded $5.2 million and $7.8 million of nonrecurring
expenses during the three and six months ended June 30, 1997, respectively,
related to the restructuring of the Company's European operations and the
integration of the operations of Deutz Argentina and Fendt, acquired in December
1996 and January 1997, respectively, (see Note 2 of the Notes to the Condensed
Consolidated Financial Statements). The costs related to the restructuring of
the Company's European operations primarily related to the centralization of
certain administrative functions. The costs related to the integration of the
Deutz Argentina and Fendt operations primarily related to the rationalization of
manufacturing and administrative functions. <PAGE>
FORWARD LOOKING STATEMENTS
Certain information included in Management's Discussion and Analysis of
Financial Condition and Results of Operations constitute forward looking
statements within the meaning of Section 21E of the Securities Exchange Act of
1934. Although the Company believes that the expectations reflected in such
forward looking statements are based upon reasonable assumptions, it can give no
assurance that its expectations will be achieved. Additionally, the Company's
financial results are sensitive to movement in interest rates and foreign
currencies, as well as general economic conditions, pricing and product actions
taken by competitors, production disruptions and changes in environmental,
international trade and other laws which impact the way in which it conducts its
business.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
FOREIGN CURRENCY RISK MANAGEMENT
The Company has significant manufacturing operations in the United
States, the United Kingdom, France, Germany, Denmark, Brazil and Argentina, and
it purchases a portion of its tractors, combines and components from third party
foreign suppliers primarily in various European countries and in Japan. The
Company also sells products in over 140 countries throughout the world.
Fluctuations in the value of foreign currencies create exposures which can
adversely affect the Company's results of operations.
The Company attempts to manage its oreign exchange exposure by hedging
identifiable foreign currency commitments arising from receivables, payables,
and expected purchases and sales. Where naturally offsetting currency positions
do not occur, the Company hedges certain of its exposures through the use of
foreign currency forward contracts. The Company's hedging policy prohibits
foreign currency forward contracts for speculative trading purposes.
<PAGE>
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's annual meeting of stockholders was held
on April 29, 1998. The following matters were voted
upon and the results of the voting were as follows:
(1) To elect four directors to serve for the ensuing three
years or until their successors have been duly elected
and qualified. The nominees, Messrs. Fike, Johanneson,
McDowell and Ratliff were elected to the Company's
board of directors. There were 52,432,838
votes for and 489,606 votes withheld for each nominee.
(2) To approve an amendment to the AGCO Corporation 1991
Stock Option Plan, as amended. The votes of the
stockholders on this plan were as follows:
49,777,559 in favor, 3,064,190 opposed and
80,695 abstained.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 - Financial Data Schedule - June 30, 1998
(electronic filing purposes only).
27.2 - Restated Financial Data Schedule - June 30,
1997 (electronic filing purposes
only)
(b) Reports on Form 8-K
None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on behalf by the
undersigned thereunto duly authorized.
AGCO CORPORATION
Registrant
Date: August 14, 1998 /s/ Patrick S. Shannon
---------------- ------------------------
Patrick S. Shannon
Vice President and Chief
Financial Officer
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Description Page
- -------- ---------------------------------------- ------------
<S> <C>
27.1 Financial Data Schedule - June 30, 1998
(electronic filing purposes only).
27.2 Restated Financial Data Schedule - June 30, 1997
(electronic filing purposes only).
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 28
<SECURITIES> 0
<RECEIVABLES> 1,090
<ALLOWANCES> 0
<INVENTORY> 729
<CURRENT-ASSETS> 1,947
<PP&E> 399
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,863
<CURRENT-LIABILITIES> 816
<BONDS> 1,030
0
0
<COMMON> 1
<OTHER-SE> 943
<TOTAL-LIABILITY-AND-EQUITY> 2,863
<SALES> 1,518
<TOTAL-REVENUES> 1,518
<CGS> 1,217
<TOTAL-COSTS> 1,217
<OTHER-EXPENSES> 28
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 33
<INCOME-PRETAX> 93
<INCOME-TAX> 35
<INCOME-CONTINUING> 65
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 65
<EPS-PRIMARY> 1.07
<EPS-DILUTED> 1.04
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 41,100
<SECURITIES> 0
<RECEIVABLES> 1,032,043
<ALLOWANCES> 0
<INVENTORY> 645,209
<CURRENT-ASSETS> 1,804,294
<PP&E> 319,199
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,680,717
<CURRENT-LIABILITIES> 804,499
<BONDS> 867,738
0
0
<COMMON> 629
<OTHER-SE> 939,060
<TOTAL-LIABILITY-AND-EQUITY> 2,680,717
<SALES> 1,576,261
<TOTAL-REVENUES> 1,576,261
<CGS> 1,266,142
<TOTAL-COSTS> 1,266,142
<OTHER-EXPENSES> 27,321
<LOSS-PROVISION> 2,938
<INTEREST-EXPENSE> 27,219
<INCOME-PRETAX> 109,643
<INCOME-TAX> 38,809
<INCOME-CONTINUING> 76,554
<DISCONTINUED> 0
<EXTRAORDINARY> (2,080)
<CHANGES> 0
<NET-INCOME> 74,474
<EPS-PRIMARY> 1.26<F1>
<EPS-DILUTED> 1.22
<FN>
<F1> (EPS - Primary) Denotes Basic EPS
</FN>
</TABLE>
