AGCO CORP /DE
10-Q, 1998-05-15
FARM MACHINERY & EQUIPMENT
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- --------------------------------------------------------------------------------
                                 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
- ------
         EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 1998

                                       OR

- ------
         TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ------
         EXCHANGE ACT OF 1934

For the transition period from                       to
                               ---------------------     ----------------------

                         Commission file number 1-12930
                                                -------

                               -----------------

                                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: 62,991,311 shares outstanding as of
March 31, 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 - March 31, 1998 and December 31, 1997 . . . . . . . . . . . . . . . . . . . . .  3

                      Condensed Consolidated Statements
                      of Income for the Three Months
                      Ended March 31, 1998 and 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  4

                      Condensed Consolidated Statements
                      of Cash Flows for the Three Months
                      Ended March 31, 1998 and 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  5

                      Notes to Condensed Consolidated
                      Financial Statements .  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  6

        Item 2.       Management's Discussion and Analysis
                      of Financial Condition and Results
                      of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  9

        Item 3.       Quantitative and Qualitative Disclosures about Market Risk. . . . . . . . . . . . . . . 14

 PART II.  OTHER INFORMATION:

        Item 6.       Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

      SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

</TABLE>









                                                            2
<PAGE>


Part I.  Financial Information
Item 1.  Financial Statements

                        AGCO CORPORATION AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                  (in millions)

<TABLE>
<CAPTION>
                                                                                        March 31,          December 31,
                                                                                          1998                1997
                                                                                   -----------------    -----------------
    ASSETS                                                                           (Unaudited)
<S>                                                                                   <C>                   <C>
    Current Assets:
       Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . .      $     6.4             $    31.2
       Accounts and notes receivable, net of allowances  . . . . . . . . . . . .        1,072.3                 978.7
       Receivables from affiliates . . . . . . . . . . . . . . . . . . . . . . .           24.4                  18.5
       Inventories, net  . . . . . . . . . . . . . . . . . . . . . . . . . . . .          709.5                 622.7
       Other current assets. . . . . . . . . . . . . . . . . . . . . . . . . . .           64.7                  63.7
                                                                                    ----------------     ----------------
        Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . .        1,877.3               1,714.8

    Property, plant and equipment, net . . . . . . . . . . . . . . . . . . . . .          400.1                 403.7
    Investments in affiliates. . . . . . . . . . . . . . . . . . . . . . . . . .           91.5                  87.6
    Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .           77.9                  75.8
    Intangible assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . .          336.8                 339.0
                                                                                    ----------------     ----------------
            Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .      $ 2,783.6             $ 2,620.9
                                                                                    ================     ================

    LIABILITIES AND STOCKHOLDERS' EQUITY
    Current Liabilities:
       Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . .      $   303.5             $   350.1
       Payables to affiliates. . . . . . . . . . . . . . . . . . . . . . . . . .           16.3                  17.4
       Accrued expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . .          402.9                 430.0
       Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . .           31.8                  33.0
                                                                                    ----------------     ----------------
        Total current liabilities. . . . . . . . . . . . . . . . . . . . . . . .          754.5                 830.5
                                                                                    ----------------     ----------------
    Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          957.4                 727.4
    Postretirement health care benefits. . . . . . . . . . . . . . . . . . . . .           24.5                  24.5
    Other noncurrent liabilities . . . . . . . . . . . . . . . . . . . . . . . .           48.4                  46.9
                                                                                    ----------------     ----------------
            Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . . .        1,784.8               1,629.3
    Stockholders' Equity :
       Common Stock: $0.01 par value, 150,000,000 shares
           authorized, and 62,991,311 and 62,972,423 shares issued and
           outstanding at March 31, 1998 and December 31, 1997,
           respectively. . . . . . . . . . . . . . . . . . . . . . . . . . . . .            0.6                   0.6
       Additional paid-in capital. . . . . . . . . . . . . . . . . . . . . . . .          515.2                 515.0
       Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . .          609.7                 577.6
       Unearned compensation.  . . . . . . . . . . . . . . . . . . . . . . . . .          (17.6)                (20.0)
       Cumulative translation adjustment . . . . . . . . . . . . . . . . . . . .         (109.1)                (81.6)
                                                                                    ----------------     ----------------
        Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . . .          998.8                 991.6
                                                                                    ----------------     ----------------
        Total liabilities and stockholders' equity . . . . . . . . . . . . . . .      $ 2,783.6             $ 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 March 31,
                                                                                  ------------------------------------
                                                                                      1998                1997
                                                                                  --------------     --------------
<S>                                                                                  <C>                <C>


Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      $ 701.5            $ 704.3
Cost of goods sold. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        557.0              570.0
                                                                                  --------------     --------------
      Gross margin. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        144.5              134.3

Engineering expenses  . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         13.6               13.2
Selling, general and administrative expenses. . . . . . . . . . . . . . . . . .         63.0               61.9
Nonrecurring expenses. . . . . . . . . . . . . . .  . . . . . . . . . . . . . .           -                 2.6
                                                                                  --------------     --------------
      Income from operations. . . . . . . . . . . . . . . . . . . . . . . . . .         67.9               56.6

Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         15.0               13.2
Other expense, net  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          5.4                4.6
                                                                                  --------------     --------------
Income before income taxes, equity in net earnings of
     affiliates and extraordinary loss. . . . . . . . . . . . . . . . . . . . .         47.5               38.8

Provision for income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . .         17.6               13.6
                                                                                  --------------     --------------
Income before equity in net earnings of affiliates
     and extraordinary loss . . . . . . . . . . . . . . . . . . . . . . . . . .         29.9               25.2

Equity in net earnings of affiliates. . . . . . . . . . . . . . . . . . . . . .          2.8                2.6
                                                                                  --------------     --------------
Income before extraordinary loss. . . . . . . . . . . . . . . . . . . . . . . .         32.7               27.8

Extraordinary loss, net of taxes. . . . . . . . . . . . . . . . . . . . . . . .          -                 (2.1)
                                                                                  --------------     --------------
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       $ 32.7            $  25.7
                                                                                  ==============     ==============
Net income per common share:
   Basic:
       Income before extraordinary loss . . . . . . . . . . . . . . . . . . . .       $.0.53            $  0.49
       Extraordinary loss . . . . . . . . . . . . . . . . . . . . . . . . . . .          -                (0.04)
                                                                                  --------------     --------------
       Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       $ 0.53            $  0.45
                                                                                  ==============     ==============
   Diluted:
       Income before extraordinary loss . . . . . . . . . . . . . . . . . . . .       $ 0.52            $  0.47
       Extraordinary loss . . . . . . . . . . . . . . . . . . . . . . . . . . .          -                (0.03)
                                                                                  --------------     --------------
       Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       $ 0.52            $  0.44
                                                                                  ==============     ==============
Weighted average number of common and common equivalent shares outstanding:
       Basic. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         61.5               57.3
                                                                                  ==============     ==============
       Diluted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         63.3               59.0
                                                                                  ==============     ==============
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 CASH FLOWS
                           (unaudited and in millions)


<TABLE>
<CAPTION>
                                                                                    Three Months Ended March 31,
                                                                                 ----------------------------------
                                                                                     1998               1997
                                                                                 ---------------    ---------------
<S>                                                                                <C>                 <C>
Cash flows from operating activities:
     Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    $ 32.7              $ 25.7
                                                                                 ---------------    ---------------
     Adjustments  to  reconcile  net  income  to net  cash  used  for  operating
     activities:
         Extraordinary loss, net of taxes . . . . . . . . . . . . . . . . . . .      -                    2.1
         Depreciation and amortization. . . . . . . . . . . . . . . . . . . . .      13.8                12.3
         Equity in net earnings of
            affiliates, net of cash received. . . . . . . . . . . . . . . . . .      (2.8)               (2.6)
         Deferred income tax provision  . . . . . . . . . . . . . . . . . . . .       0.1                 4.1
         Amortization of intangibles. . . . . . . . . . . . . . . . . . . . . .       3.0                 3.1
         Amortization of unearned compensation  . . . . . . . . . . . . . . . .       2.4                 1.9
         Changes in  operating  assets  and  liabilities,  net of  effects  from
            purchase of businesses:
            Accounts and notes receivable, net. . . . . . . . . . . . . . . . .    (119.5)              (79.2)
            Inventories, net. . . . . . . . . . . . . . . . . . . . . . . . . .     (91.9)              (90.5)
            Other current and noncurrent assets . . . . . . . . . . . . . . . .      (8.7)                2.2
            Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . .     (44.9)               (8.5)
            Accrued expenses. . . . . . . . . . . . . . . . . . . . . . . . . .     (31.7)              (45.8)
            Other current and noncurrent liabilities. . . . . . . . . . . . . .       1.1                 5.7
                                                                                 ---------------    ---------------
              Total adjustments. . . . . .  . . . . . . . . . . . . . . . . . .    (279.1)             (195.2)
                                                                                  ---------------    ---------------
              Net cash used for operating activities. . . . . . . . . . . . . .    (246.4)             (169.5)
                                                                                 ---------------    ---------------
Cash flows from investing activities:
     Purchase of businesses, net of cash acquired . . . . . . . . . . . . . . .       -                (283.8)
     Proceeds from sale of businesses. . . . . . .  . . . . . . . . . . . . . .       9.3                  -
     Purchase of property, plant and equipment. . . . . . . . . . . . . . . . .     (13.8)               (7.6)
                                                                                 ---------------    ---------------
            Net cash used for investing activities. . . . . . . . . . . . . . .      (4.5)             (291.4)
                                                                                 ---------------    ---------------
Cash flows from financing activities:
     Proceeds from long-term debt, net  . . . . . . . . . . . . . . . . . . . .     227.0               310.8
     Payment of debt issuance costs . . . . . . . . . . . . . . . . . . . . . .        -                 (3.4)
     Proceeds from issuance of common stock. . . . . .  . . . . . . . . . . . .       0.1               141.4
     Dividends paid on common stock . . . . . . . . . . . . . . . . . . . . . .      (0.6)               (0.6)
                                                                                 ---------------    ---------------
            Net cash provided by financing activities . . . . . . . . . . . . .     226.5               448.2
                                                                                 ---------------    ---------------
Effect of exchange rate changes on cash and cash equivalents. . . . . . . . . .      (0.4)               (3.4)
Decrease  in cash and cash equivalents. . . . . . . . . . . . . . . . . . . . .     (24.8)              (16.1)
Cash and cash equivalents, beginning of period. . . . . . . . . . . . . . . . .      31.2                41.7
                                                                                 ---------------    ---------------
Cash and cash equivalents, end of period. . . . . . . . . . . . . . . . . . . .    $  6.4              $ 25.6
                                                                                 ===============    ===============

</TABLE>

         See accompanying notes to condensed consolidated financial statements.

                                             5



<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  for the three  months  ended March 31, 1997
included a charge for nonrecurring  expenses of $2.6 million, or $.03 per common
share on a diluted basis. The nonrecurring  charge included $1.4 million related
to the  restructuring  of the  Company's  European  operations,  acquired in the
acquisition of Massey Ferguson (the "Massey Acquisition") in June 1994, and $1.2
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  March  31,  1998 and
December 31, 1997 (in millions):
<TABLE>
<CAPTION>

                                                                                  March 31,              December 31,
                                                                                    1998                    1997
<S>                                                                               <C>                     <C>
                                                                                ---------------    --------------------
Revolving credit facility . . . . . . . . . . . . . . . . . . . . . . . . . .     $    691.2              $    460.7
Senior subordinated notes . . . . . . . . . . . . . . . . . . . . . . . . . .          248.1                   248.1
Other long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . .           18.1                    18.6
                                                                                ---------------    --------------------
                                                                                  $    957.4              $    727.4
                                                                                ===============    ====================
</TABLE>
                                                                        6
<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 March 31, 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 March 31,  1998,  approximately  $691.2  million was
outstanding  under the revolving  credit facility and available  borrowings were
approximately $365.8 million.

4.       EXTRAORDINARY LOSS

         During the first  quarter 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  months  ended March 31, 1998 and 1997 is as follows
(in millions, except per share data): <TABLE> <CAPTION>

Basic Earnings Per Share                                                           Three Months Ended
                                                                                       March 31,
                                                                                  1998           1997
                                                                                ----------     ----------
<S>                                                                              <C>             <C>
Weighted average number of common shares outstanding . . . . . . . . . . .           61.5          57.3
                                                                                ==========     ==========
Income before extraordinary loss . . . . . . . . . . . . . . . . . . . . .       $   32.7        $ 27.8
Extraordinary loss . . . . . . . . . . . . . . . . . . . . . . . . . . . .           -             (2.1)
                                                                                ----------     ----------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       $   32.7        $ 25.7
Net income per common share:
  Income before extraordinary loss . . . . . . . . . . . . . . . . . . . .       $   0.53        $ 0.49
  Extraordinary loss.  . . . . . . . . . . . . . . . . . . . . . . . . . .           -           (0.04)
                                                                                ----------     ----------
  Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        $  0.53        $ 0.45
                                                                                ==========     ==========
Diluted Earnings Per Share

Weighted average number of common shares outstanding . . . . . . . . . . .          61.5          57.3
Shares issued upon assumed vesting of restricted stock . . . . . . . . . .           1.5           1.3
Shares issued upon assumed exercise of outstanding stock options . . . . .           0.3           0.4
                                                                                ----------     ----------
Weighted average number of common and common equivalent shares
  outstanding. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          63.3          59.0
                                                                                ==========     ==========
Income before extraordinary loss . . . . . . . . . . . . . . . . . . . . .        $ 32.7        $ 27.8
Extraordinary loss . . . . . . . . . . . . . . . . . . . . . . . . . . . .           -            (2.1)
                                                                                ----------     ----------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        $ 32.7        $ 25.7
Net income per common share:
  Income before extraordinary loss . . . . . . . . . . . . . . . . . . . .        $ 0.52        $ 0.47
  Extraordinary loss . . . . . . . . . . . . . . . . . . . . . . . . . . .          -            (0.03)
                                                                                ----------     ----------
  Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        $ 0.52        $ 0.44
                                                                                ==========     ==========
</TABLE>
                                                                    7
<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 March 31,  1998 and  December  31, 1997 were as
follows (in millions):
<TABLE>
<CAPTION>

                                                                                March 31,        December 31,
                                                                                  1998              1997
                                                                                -----------      -------------
<S>                                                                             <C>               <C>

Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      $  318.0          $    267.7
Repair and replacement parts . . . . . . . . . . . . . . . . . . . . . . .         257.9               250.2
Work in process, production parts and raw materials. . . . . . . . . . . .         213.7               184.5
                                                                                -----------      -------------
     Gross inventories . . . . . . . . . . . . . . . . . . . . . . . . . .         789.6               702.4
Allowance for surplus and obsolete inventories . . . . . . . . . . . . . .         (80.1)              (79.7)
                                                                                -----------      -------------
     Inventories, net  . . . . . . . . . . . . . . . . . . . . . . . . . .      $  709.5          $    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  months ended March 31, 1998
and 1997 was as follows (in millions):
<TABLE>
<CAPTION>
                                                                                  Three Months Ended
                                                                                        March 31,
                                                                                  1998         1997
                                                                                ---------     -------
<S>                                                                             <C>           <C>

Net income. . . . . . . . . . . . . . . . . . . . . . . . . . .                 $  32.7       $  25.7
Other comprehensive income, net of tax:
     Foreign currency translation adjustments. . . . . . . . . .                  (17.3)        (20.5)
                                                                                ----------    --------
Total comprehensive income. . . . . . . . . . . . . . . . . . .                 $  15.4       $   5.2
                                                                                ==========    ========
</TABLE>
                                                                     8
<PAGE>

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
result, 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 March 31, 1998
of $32.7  million  compared to $25.7  million  for the same period in 1997.  Net
income  per  common  share on a diluted  basis was $0.52 and $0.44 for the first
quarter of 1998 and 1997,  respectively.  Net income for the three  months ended
March 31, 1997  included  nonrecurring  expenses of $2.6  million,  or $0.03 per
share on a diluted basis, 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 quarter 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  Company's  improved  results in 1998
primarily  reflected  improved  operating  margins,  which  resulted  from  cost
reduction activities,  particularly in South America, new products introduced in
North   America   and   the   acquisition   of   Dronningborg   Industries   a/s
("Dronningborg") in December 1997, partially offset by the translation effect of
the strengthening dollar against most European currencies.

         RETAIL SALES

         In the  United  States  and  Canada,  industry  unit  retail  sales  of
tractors, combines and hay and forage equipment for the three months ended March
31, 1998 increased  approximately 10%, 39% and 14%, respectively,  over the same
period in 1997. The Company  believes general market  conditions  continue to be
positive  due  to  favorable  economic  conditions.  The  Company  believes  the
significant increase in the retail sales of combines was
                                                                     9
<PAGE>

partially  due to the timing of shipments in 1997 by certain  competitors  which
diverted their first quarter production to international  markets.  Company unit
retail  sales of tractors in the United  States and Canada  increased 7% for the
first three months of 1998 compared to 1997 primarily due to increased  sales of
Massey Ferguson midrange and high horsepower tractors. Company unit retail sales
of combines increased 3% for the first quarter of 1998 compared to 1997. Company
unit retail sales of hay and forage  equipment  decreased 2% for the first three
months of 1998 compared to the prior year primarily due to aggressive competitor
discount programs during the first quarter of 1998.

         In Western  Europe,  industry  unit retail sales of tractors  decreased
approximately  5% for the three months ended March 31, 1998 compared to the same
period in the prior year  resulting  from  decreases in retail sales in the U.K,
France, and Spain primarily a result of farm consolidation in Western Europe and
the strength of the British  pound against other  European  currencies.  Company
unit retail sales of tractors in Western Europe increased  approximately 2%. The
Company  experienced  increases in retail sales in France and Germany which were
partially offset by declines in most other Western European markets.

         Industry  unit  retail  sales of tractors  in South  America  increased
approximately  17% for the  first  quarter  of 1998 over the  prior  year.  This
increase was primarily due to a recovery in Brazil  resulting from  increasingly
favorable  economic  conditions.  Company retail unit sales of tractors in South
America  remained flat  compared to the same period in 1997 and were  negatively
impacted by competitor discounting which the Company chose not to match.

         In other international markets,  industry unit retail sales of tractors
decreased compared to the prior year, particularly in East Asia/Pacific markets,
due to the recent  economic  crisis in the region,  and in the Middle East.  The
Company also experienced decreases in retail sales in the these regions.

         NET SALES

         Net sales for the first quarter of 1998 were $701.5 million compared to
net sales of $704.3  million  for the same period in 1997.  The  decrease in net
sales for the first quarter  reflects the sale of the Fendt Caravan  business in
December 1997, the disposition of 50% of the Deutz Argentina  engine business in
December 1997, and the negative  translation effect of the strengthening  dollar
against most European currencies. Excluding the impact of these items, net sales
for the  first  quarter  of 1998  increased  approximately  7% over  1997.  On a
regional basis,  net sales in North America  increased $43.0 million,  or 23.3%,
for the three  months  ended March 31, 1998  compared to the same period in 1997
primarily due to favorable industry conditions and the successful  acceptance of
new products.  Net sales in South America  increased $6.3 million,  or 8.5%, for
the three months  ended March 31, 1998  compared to the same period in the prior
year  primarily due to improved  sales of combines.  Net sales  decreased  $30.4
million,  or 8.6%,  in Western  Europe for the three months ended March 31, 1998
compared to the same period in 1997  primarily due to the  unfavorable  industry
conditions  in the region and due to the sale of the Fendt  caravan  business in
December 1997. In the remaining international markets, net sales decreased $21.7
million, or 24.0%,  compared to the three months ended March 31, 1997, primarily
due to  decreased  sales  in the  Asian  markets  due  to  the  recent  economic
difficulties in the region.

                                                                     10
<PAGE>

         COSTS AND EXPENSES

         Gross  profit  was  $144.5  million  (20.6% of net sales) for the first
quarter of 1998  compared  to $134.3  million  (19.1% of net sales) for the same
period  in the  prior  year.  Gross  margins  were  favorably  impacted  by cost
reduction efforts,  particularly in the Company's South American operations, new
products  introduced in North America and the  acquisition  of  Dronningborg  in
December 1997 which resulted in improved combine margins in Western Europe.

         Selling,  general and administrative  expenses for the first quarter of
1998 were $63.0 million  (9.0% of net sales)  compared to $61.9 million (8.8% of
net sales) for the same period in 1997.  The  increase  in selling,  general and
administrative  expenses  as a  percentage  of net sales  compared  to the first
quarter of 1997 was primarily due to increased operating expenses resulting from
the acquisition of Dronningborg.  Engineering  expenses were $13.6 million (1.9%
of net sales) for the first  quarter of 1998  compared to $13.2 million (1.9% of
net sales) for the same period in 1997.

         The  nonrecurring  charge recorded in the first 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 $67.9 million
(9.7% of net sales)  for the first  quarter of 1998  compared  to $59.2  million
(8.4% of net sales)  for the same  period in 1997.  The  increase  in  operating
income as a percentage  of net sales was  primarily  due to the  improvement  in
gross margins as discussed above.

         Interest  expense,  net was $15.0 million for the first quarter of 1998
compared to $13.2  million  for the same  period in the prior  year.  The higher
interest  expense,  net for the three  months  ended  March 31,  1998  primarily
resulted  from the higher level of  borrowings at March 31, 1998 compared to the
prior  year to fund  both the  Dronningborg  acquisition  and  higher  levels of
working capital.

         Other  expense,  net was $5.4  million  for the first  quarter  of 1998
compared to $4.6 million for the same period in 1997. The Company experienced an
increase in other expense, net relating to foreign exchange losses.

         The Company recorded an income tax provision of $17.6 million and $13.6
million  for the first  quarter of 1998 and 1997,  respectively.  The  Company's
effective  tax rate  increased  during the first quarter 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 $2.8 million and $2.6 million
for the first quarter of 1998 and 1997, respectively.  The increase in equity in
net  earnings of  affiliates  primarily  related to  increased  earnings for the
Company's retail finance affiliates.

                                                                     11
<PAGE>

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 March 31, 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 March 31, 1998,  approximately  $691.2  million was  outstanding
under the Company's  revolving  credit  facility and available  borrowings  were
approximately $365.8 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 March 31,  1998,  the
Company had $1,122.8 million of working  capital,  an increase of $238.5 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
Dronningborg  aquisition  and  normal  seasonal  requirements,  particularly  in
receivables and inventories.

         Cash flow used for operating  activities  was $246.4 million and $169.5
million for the three  months ended March 31, 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  inventories and decreases in
accounts  payable.  The increase in  receivables  compared to the prior year was
primarily the result of higher levels of dealer inventories in North America due
to the delivery of new products in the first quarter of 1998 prior to the retail
selling season.  The increase in inventory  compared to the prior year primarily
resulted from seasonal  increases in combine  inventory related to production at
Dronningborg.  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.

         Capital  expenditures  for the three  months  ended March 31, 1998 were
$13.8 million  compared to $7.6 million for the same period in 1997. The Company
anticipates that additional capital  expenditures for the remainder of 1998 will
range from  approximately  $50.0 million to $60.0 million and will  primarily be
used to support the development and enhancement of new and existing products.

         In April 1998, the Company's Board of Directors  declared a dividend of
$0.01 per share of common stock for the second 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.

                                                                     12
<PAGE>

         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 $2.6 million of nonrecurring  expenses during the
three months ended March 31, 1997 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. While the Company
believes that cost savings from its  restructuring  and integration plans can be
attained, there can be no assurance that all objectives will be achieved.

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.

                                                                     13
<PAGE>

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  foreign  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.


                                                                     14

<PAGE>

PART II. OTHER INFORMATION


ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

                  (a)      Exhibits

                           27.1   -  Financial  Data  Schedule - March 31,  1998
                                  (electronic filing purposes only).

                           27.2   - Restated Financial Data Schedule - March 31,
                                  1997 (electronic filing purposes only)

                  (b)      Reports on Form 8-K

                           None


                                                                     15
<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:    May 15, 1998                       /s/ Chris E. Perkins
      -----------------                    ----------------------
                                           Chris E. Perkins
                                           Vice President and Chief
                                           Financial Officer




                                                                     16
<PAGE>


                                 EXHIBIT INDEX


                                  Sequentially
Exhibit                                              Numbered
Number            Description                          Page
- -------      --------------------------------      -------------

  27.1       Financial Data Schedule March 31, 1998 (electronic  filing purposes
             only).

  27.2       Restated  Financial Data Schedule March 31, 1997 (electronic filing
             purposes only).



                                                                     17



<TABLE> <S> <C>

<ARTICLE>                                                             5
<MULTIPLIER>                                                  1,000,000
       
<S>                                        <C>
<PERIOD-TYPE>                                                         3-MOS
<FISCAL-YEAR-END>                                                DEC-31-1998
<PERIOD-START>                                                   JAN-01-1998
<PERIOD-END>                                                     MAR-31-1998
<CASH>                                                                  6
<SECURITIES>                                                            0
<RECEIVABLES>                                                       1,072
<ALLOWANCES>                                                            0
<INVENTORY>                                                           709
<CURRENT-ASSETS>                                                    1,877
<PP&E>                                                                400
<DEPRECIATION>                                                          0
<TOTAL-ASSETS>                                                      2,784
<CURRENT-LIABILITIES>                                                 755
<BONDS>                                                               957
                                                   0
                                                             0
<COMMON>                                                                1
<OTHER-SE>                                                            998
<TOTAL-LIABILITY-AND-EQUITY>                                        2,784
<SALES>                                                               702
<TOTAL-REVENUES>                                                      702
<CGS>                                                                 557
<TOTAL-COSTS>                                                         557
<OTHER-EXPENSES>                                                       14
<LOSS-PROVISION>                                                       (1)
<INTEREST-EXPENSE>                                                     15
<INCOME-PRETAX>                                                        48
<INCOME-TAX>                                                           18
<INCOME-CONTINUING>                                                    33
<DISCONTINUED>                                                          0
<EXTRAORDINARY>                                                         0
<CHANGES>                                                               0
<NET-INCOME>                                                           33
<EPS-PRIMARY>                                                         0.53<F1>
<EPS-DILUTED>                                                         0.52
<FN>
<F1> (EPS - Primary) denotes Basic EPS
</FN>

        


</TABLE>

<TABLE> <S> <C>

<ARTICLE>                                           5
<RESTATED>
<MULTIPLIER>                                        1,000
       
<S>                                                 <C>
<PERIOD-TYPE>                                       3-MOS
<FISCAL-YEAR-END>                                   DEC-31-1997
<PERIOD-START>                                      JAN-01-1997
<PERIOD-END>                                        MAR-31-1997
<CASH>                                                 25,629
<SECURITIES>                                                0
<RECEIVABLES>                                         996,991
<ALLOWANCES>                                                0
<INVENTORY>                                           620,933
<CURRENT-ASSETS>                                    1,729,626
<PP&E>                                                319,873
<DEPRECIATION>                                              0
<TOTAL-ASSETS>                                      2,597,220
<CURRENT-LIABILITIES>                                 721,514
<BONDS>                                               893,183
                                       0
                                                 0
<COMMON>                                                  624
<OTHER-SE>                                            910,872
<TOTAL-LIABILITY-AND-EQUITY>                        2,597,220
<SALES>                                               704,329
<TOTAL-REVENUES>                                      704,329
<CGS>                                                 569,980
<TOTAL-COSTS>                                         569,980
<OTHER-EXPENSES>                                       13,253
<LOSS-PROVISION>                                        1,317
<INTEREST-EXPENSE>                                     13,147
<INCOME-PRETAX>                                        38,854
<INCOME-TAX>                                           13,634
<INCOME-CONTINUING>                                    27,807
<DISCONTINUED>                                              0
<EXTRAORDINARY>                                        (2,080)
<CHANGES>                                                   0
<NET-INCOME>                                           25,727
<EPS-PRIMARY>                                            0.45<F1>
<EPS-DILUTED>                                            0.44
<FN>
<F1> (EPS - Primary) Denotes Basic EPS
</FN>
        


</TABLE>


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