- --------------------------------------------------------------------------------
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 June 30, 1999
OR
- ------
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
-------
-----------------
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: 59,542,581 shares outstanding as of
June 30, 1999.
- --------------------------------------------------------------------------------
<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, 1999 and December 31, 1998 . . . . . . . . . . . . . . . . . . . . . 3
Condensed Consolidated Statements
of Income for the Three Months
Ended June 30, 1999 and 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Condensed Consolidated Statements
of Income for the Six Months
Ended June 30, 1999 and 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Condensed Colsolidated Statements
of Cash Flows for the Six Months
Ended June 30, 1999 and 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Notes to Condensed Consolidated
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Item 3. Quantitative and Qualitative Disclosures about Market Risk . . . . . . . . . . . . . . 17
PART II. OTHER INFORMATION:
Item 4. Submission of Matters to a Vote of Security Holders. . . . . . . . . . . . . . . . . . 18
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
</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,
1999 1998
----------------- -----------------
ASSETS (Unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . $ 29.9 $ 15.9
Accounts and notes receivable, net . . . . . . . . . . . . . . . . . . . . . 956.0 1,016.3
Inventories, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 672.4 671.6
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94.2 86.7
------------------ -------------------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,752.5 1,790.5
Property, plant and equipment, net . . . . . . . . . . . . . . . . . . . . . . . 348.7 417.6
Investments in affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . 98.6 95.2
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91.2 76.6
Intangible assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . 321.5 370.5
------------------ -------------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,612.5 $ 2,750.4
================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 282.8 $ 287.0
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 430.2 428.0
Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . 23.5 45.6
------------------ -------------------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . 736.5 760.6
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 935.6 924.2
Postretirement health care benefits. . . . . . . . . . . . . . . . . . . . . . . 24.7 24.5
Other noncurrent liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . 49.0 59.0
------------------ -------------------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,745.8 1,768.3
------------------ -------------------
Stockholders' Equity:
Common stock: $0.01 par value, 150,000,000 shares authorized,
59,542,581 and 59,535,921 shares issued and outstanding
at June 30, 1999 and December 31, 1998, respectively. . . . . . . . . . . . 0.6 0.6
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . 427.3 427.3
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 642.9 635.8
Unearned compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . (7.6) (11.1)
Accumulated other comprehensive income. . . . . . . . . . . . . . . . . . . . (196.5) (70.5)
------------------ -------------------
Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . . 866.7 982.1
------------------ -------------------
Total liabilities and stockholders' equity . . . . . . . . . . . . . . . . $ 2,612.5 $ 2,750.4
================== ===================
</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,
---------------------------------
1999 1998
-------------- --------------
<S> <C> <C>
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 683.5 $ 816.1
Cost of goods sold. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 572.4 659.6
-------------- --------------
Gross profit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111.1 156.5
Selling, general and administrative expenses. . . . . . . . . . . . . . . . . . 56.4 68.7
Engineering expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.1 14.6
-------------- --------------
Income from operations. . . . . . . . . . . . . . . . . . . . . . . . . . 43.6 73.2
Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.2 18.3
Other expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.3 9.1
-------------- --------------
Income before income taxes and equity in net earnings of
affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.1 45.8
Provision for income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . 7.8 17.0
-------------- --------------
Income before equity in net earnings of affiliates. . . . . . . . . . . . . . . 13.3 28.8
Equity in net earnings of affiliates. . . . . . . . . . . . . . . . . . . . . . 2.2 3.5
-------------- --------------
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 15.5 $ 32.3
============== ==============
Net income per common share:
Basic. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.27 $ 0.53
============== ==============
Diluted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.26 $ 0.52
============== ==============
Weighted average number of common and common equivalent shares outstanding:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58.5 60.5
============== ==============
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59.6 62.1
============== ==============
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,
---------------------------------
1999 1998
-------------- --------------
<S> <C> <C>
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,245.1 $1,517.6
Cost of goods sold. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,055.0 1,216.6
-------------- --------------
Gross profit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 190.1 301.0
Selling, general and administrative expenses. . . . . . . . . . . . . . . . . . 114.3 131.7
Engineering expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22.9 28.2
-------------- --------------
Income from operations. . . . . . . . . . . . . . . . . . . . . . . . . . 52.9 141.1
Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31.7 33.3
Other expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.8 14.5
-------------- --------------
Income before income taxes and equity in net earnings of
affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.4 93.3
Provision for income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . 2.0 34.5
-------------- --------------
Income before equity in net earnings of affiliates. . . . . . . . . . . . . . . 3.4 58.8
Equity in net earnings of affiliates. . . . . . . . . . . . . . . . . . . . . . 4.9 6.3
-------------- --------------
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8.3 $ 65.1
============== ==============
Net income per common share:
Basic. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.14 $ 1.07
============== ==============
Diluted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.14 $ 1.04
============== ==============
Weighted average number of common and common equivalent shares outstanding:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58.5 61.0
============== ==============
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59.6 62.7
============== ==============
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,
--------------------------------
1999 1998
--------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8.3 $ 65.1
-------------- -------------
Adjustments to reconcile net income to net cash used for operating
activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . 28.8 28.1
Equity in net earnings of
affiliates, net of cash received . . . . . . . . . . . . . . . . . . (4.9) (6.3)
Deferred income tax (benefit) provision . . . . . . . . . . . . . . . . . (5.4) 2.1
Amortization of intangibles. . . . . . . . . . . . . . . . . . . . . . . 7.4 6.1
Amortization of unearned compensation . . . . . . . . . . . . . . . . . 3.5 4.8
Changes in operating assets and liabilities, net of effects from
purchase/sale of businesses:
Accounts and notes receivable, net. . . . . . . . . . . . . . . . . . (9.1) (133.8)
Inventories, net. . . . . . . . . . . . . . . . . . . . . . . . . . . (37.6) (105.8)
Other current and noncurrent assets . . . . . . . . . . . . . . . . . (29.6) (13.3)
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . 28.1 (41.1)
Accrued expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . 17.2 9.2
Other current and noncurrent liabilities . . . . . . . . . . . . . . (10.3) (2.3)
-------------- -------------
Total adjustments. . . . . . . . . . . . . . . . . . . . . . . . . (11.9) (252.3)
-------------- -------------
Net cash used for operating activities. . . . . . . . . . . . . . . (3.6) (187.2)
-------------- -------------
Cash flows from investing activities:
Purchase of property, plant and equipment. . . . . . . . . . . . . . . . . (20.6) (26.0)
(Purchase) sale of business, net . . . . . . . . . . . . . . . . . . . . . (0.5) (1.5)
-------------- -------------
Net cash used for investing activities. . . . . . . . . . . . . . . . (21.1) (27.5)
-------------- -------------
Cash flows from financing activities:
Proceeds from long-term debt, net . . . . . . . . . . . . . . . . . . . . 41.6 300.1
Proceeds from issuance of common stock. . . . . . . . . . . . . . . . . . - 0.4
Repurchases of common stock. . . . . . . . . . . . . . . . . . . . . . . . - (88.1)
Dividends paid on common stock . . . . . . . . . . . . . . . . . . . . . . (1.2) (1.2)
-------------- -------------
Net cash provided by financing activities . . . . . . . . . . . . . . 40.4 211.2
-------------- -------------
Effect of exchange rate changes on cash and cash equivalents . . . . . . . . . . (1.7) (0.2)
Increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . . . 14.0 (3.7)
Cash and cash equivalents, beginning of period . . . . . . . . . . . . . . . . . 15.9 31.2
-------------- -------------
Cash and cash equivalents, end of period . . . . . . . . . . . . . . . . . . . $ 29.9 $ 27.5
============== =============
</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,necessary 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, 1998.
Interim results of operations are not necessarily indicative of results to be
expected for the fiscal year.
2. NONRECURRING EXPENSES
In the fourth quarter of 1998, the Company recorded nonrecurring expenses
of $40.0 million primarily related to costs associated with reductions in the
Company's worldwide permanent workforce. As of June 30, 1999, the Company had
terminated approximately 1,350 of the 1,400 employees identified for
termination. Of the $40.0 million total expense, $27.2 million had been incurred
as of June 30, 1999.
3. LONG-TERM DEBT
Long-term debt consisted of the following at June 30, 1999 and December 31,
1998 (in millions):
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
--------------------- ---------------------
<S> <C> <C>
Revolving credit facility . . . . . . . . . . . . . . . . . . . . . . . . . $ 673.4 $ 661.2
Senior subordinated notes . . . . . . . . . . . . . . . . . . . . . . . . . 248.3 248.3
Other long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.9 14.7
--------------------- ---------------------
$ 935.6 $ 924.2
===================== =====================
</TABLE>
The Company's revolving credit facility allows for borrowings of up to $1.0
billion. As of June 30, 1999, $673.4 million was outstanding under the revolving
credit facility and available borrowings were $326.3 million.
7
<PAGE>
4. NET INCOME PER COMMON SHARE
The computation, presentation and disclosure requirements for earnings per
share are presented in accordance with Statement of Financial Accounting
Standards No. 128 ("SFAS 128"), "Earnings per Share." 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
when the effects of such assumptions are dilutive.
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, 1999 and 1998 is as follows (in
millions, except per share data):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
---------- ---------- ---------- --------
<S> <C> <C> <C> <C>
Basic Earnings Per Share
Weighted average number of common shares outstanding ..................... 58.5 60.5 58.5 61.0
========== ========== ========== ========
Net income ............................................................... $ 15.5 $ 32.3 $ 8.3 $ 65.1
========== ========== ========== ========
Net income per common share............................................... $ 0.27 $ 0.53 $ 0.14 $ 1.07
========== ========== ========== ========
Diluted Earnings Per Share
Weighted average number of common shares outstanding...................... 58.5 60.5 58.5 61.0
Assumed vesting of restricted stock....................................... 1.0 1.4 1.0 1.4
Assumed exercise of outstanding stock options ............................ 0.1 0.2 0.1 0.3
---------- ---------- ---------- --------
Weighted average number of common and common equivalent
shares outstanding........................................................ 59.6 62.1 59.6 62.7
========== ========== ========== ========
Net income................................................................ $ 15.5 $ 32.3 $ 8.3 $ 65.1
========== ========== ========== ========
Net income per common share............................................... $ 0.26 $ 0.52 $ 0.14 $ 1.04
========== ========== ========== ========
</TABLE>
8
<PAGE>
5. 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, 1999 and December 31, 1998 were as follows
(in millions):
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
--------------- ---------------
<S> <C> <C>
Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 290.7 $ 271.2
Repair and replacement parts . . . . . . . . . . . . . . . . . . . . . . . 248.2 256.7
Work in process, production parts and raw materials . . . . . . . . . . . 200.3 222.6
--------------- ---------------
Gross inventories. . . . . . . . . . . . . . . . . . . . . . . . . . 739.2 750.5
Allowance for surplus and obsolete inventories . . . . . . . . . . . . . . (66.8) (78.9)
--------------- ---------------
Inventories, net. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 672.4 $ 671.6
=============== ===============
</TABLE>
6. COMPREHENSIVE INCOME
The Company follows the provisions of 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. Total comprehensive income (loss) for
the three and six months ended June 30, 1999 and 1998 was as follows (in
millions):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
----------------------- --------------------
1999 1998 1999 1998
---------- --------- ---------- --------
<S> <C> <C> <C> <C>
Net income................................................................ $ 15.5 $ 32.3 $ 8.3 $ 65.1
Other comprehensive income (loss):
Foreign currency translation
adjustments..................................................... (17.7) (0.6) (126.0) (17.9)
=========== ========== ========== ========
Total comprehensive income (loss)......................................... $ (2.2) $ 31.7 $(117.7) $ 47.2
=========== ========== ========== ========
</TABLE>
9
<PAGE>
7. SEGMENT REPORTING
The Company has four geographic reportable segments: North America; South
America; Europe/Africa/Middle East; and Asia/Pacific. Each segment distributes a
full range of agricultural equipment and related replacement parts. The Company
evaluates segment performance based on income from operations. Sales for each
segment are based on the location of the third-party customer. All intercompany
transactions between the segments have been eliminated. The Company's selling,
general and administrative expenses and engineering expenses are charged to each
segment based on the region where the expenses are incurred. As a result, the
components of operating income for one segment may not be comparable to another
segment. Segment results for the three and six months ended June 30, 1999 and
1998 are as follows (in millions):
<TABLE>
<CAPTION>
Europe/
North South Africa/ Asia/
America America Middle East Pacific Consolidated
<S> <C> <C> <C> <C> <C>
------- ------- ----------- ------- ------------
Three Months ended June 30:
1999
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $178.0 $54.5 $429.9 $21.1 $ 683.5
Income from operations . . . . . . . . . . . . . . . . . . . . . . . . . . 4.4 (3.1) 42.0 2.7 46.0
1998
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $265.8 $88.9 $439.6 $21.8 $ 816.1
Income from operations . . . . . . . . . . . . . . . . . . . . . . . . . . 27.3 6.4 40.0 2.8 76.5
Six Months ended June 30:
1999
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $319.1 $103.8 $780.5 $41.7 $1,245.1
Income from operations . . . . . . . . . . . . . . . . . . . . . . . . . . (2.8) (4.6) 60.4 4.8 57.8
1998
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $493.3 $169.8 $809.9 $44.6 $1,517.6
Income from operations . . . . . . . . . . . . . . . . . . . . . . . . . . 49.8 11.0 79.6 7.2 147.6
</TABLE>
A reconciliation from the segment information to the consolidated balances
for income from operations is set forth below (in millions):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- -----------------------
1999 1998 1999 1998
--------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Segment income from operations............................................. $ 46.0 $ 76.5 $ 57.8 $ 147.6
Restricted stock compensation expense...................................... (2.4) (3.3) (4.9) (6.5)
========= ========= ========== ==========
Consolidated income from operations........................................ $ 43.6 $ 73.2 $ 52.9 $ 141.1
========= ========= ========== ==========
</TABLE>
10
<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 and are
expected to continue to be affected by changes in net cash farm income, farm
land values, weather conditions, the demand for agricultural commodities,
commodity prices and general economic conditions. The Company records sales when
the Company ships equipment and replacement parts 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 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, 1999 of
$15.5 million compared to net income of $32.3 million for the same period in
1998. Net earnings per common share on a diluted basis was $0.26 and $0.52 for
the second quarter of 1999 and 1998, respectively. Net income for the first six
months of 1999 was $8.3 million compared to $65.1 million for the same period in
1998. Net income per common share on a diluted basis was $0.14 and $1.04 for the
first six months of 1999 and 1998, respectively. The results for the three
months and six months ended June 30, 1999 were negatively impacted by
unfavorable industry conditions which resulted in lower net sales in the
majority of markets throughout the world and lower operating margins primarily
due to unfavorable absorption of fixed manufacturing overhead costs, an
unfavorable mix of products sold and lower price realization due to a more
competitive pricing environment.
RETAIL SALES
High global commodity stock levels and reduced export demand continue to
depress commodity prices, adversely affecting agricultural equipment demand in
most major markets. These unfavorable industry conditions have negatively
impacted equipment demand since the third quarter of 1998.
11
<PAGE>
In the United States and Canada, industry unit retail sales of tractors and
combines for the first six months of 1999 decreased approximately 1% and 49%,
respectively, compared to the same period in 1998. Company unit retail sales of
tractors in the United States and Canada decreased more than the industry
compared to the same period in 1998, and Company unit retail sales of combines
decreased less than the industry decrease. Retail sales declines for both the
industry and the Company were significant in the high horsepower tractor segment
offset by increases in the under 40 horsepower segment.
In Western Europe, industry unit retail sales of tractors experienced mixed
results with an overall increase of approximately 3% for the first six months of
1999 as compared to the prior year. Decreases in industry unit retail sales in
Scandinavia and Spain were offset to some extent by increases in the UK, France,
and Italy. Retail sales in Germany for the first six months were slightly below
the same period in 1998. Company unit retail sales results for the six months
ended June 30, 1999 were also mixed with an overall decrease compared to the
same period in 1998. However, the Company's retail sales for the second quarter
of 1999 improved relative to the industry due to favorable acceptance of the
Company's new Massey Ferguson high horsepower tractor line which was introduced
during 1999.
Industry unit sales of tractors in South America for the first six months
of 1999 decreased approximately 14% compared to the same period in 1998 with an
increase in the major market of Brazil offset by significant declines in
Argentina and other South American markets due to low commodity prices, economic
uncertainty and tightening credit. The increased demand in the Brazilian market
was prompted by the devaluation of the Brazilian currency, which has caused an
increase in farm income and advanced purchasing of equipment due to inflationary
fears. Company unit retail sales of tractors in South America decreased more
than the industry.
In other international markets, industry and company retail sales decreased
compared to the prior year in most markets including Africa, Australia and
Asia/Pacific.
STATEMENT OF INCOME
Net sales for the second quarter of 1999 were $683.5 million compared to
$816.1 million for the same period in 1998. Net sales for the first six months
of 1999 were $1,245.1 million compared to $1,517.6 for the prior year. The
decrease in net sales for the second quarter and the first six months primarily
reflects lower retail demand in most markets throughout the world. Net sales
were also impacted by the negative currency translation effect offset by the
1998 acquisitions of Massey Ferguson Argentina, Spra-Coupe and Willmar, which
were not included in the 1998 results. Excluding the impact of currency
translation and acquisitions, net sales for the second quarter and first six
months of 1999 decreased approximately 14.1% and 17.4%, respectively, compared
to the prior year.
Regionally, net sales in North America decreased $87.8 million, or 33.0%,
and $174.2 million, or 35.3% for the second quarter and first six months of
1999, respectively, compared to the same periods in the prior year. The decrease
is primarily due to unfavorable market conditions and the Company's planned
efforts to lower dealer inventories by reducing sales to dealers less than
12
<PAGE>
expected retail demand. The decline was partially offset by the impact of
the Spra-Coupe and Willmar acquisitions. In the Europe/Africa/Middle East
region, net sales decreased $9.7 million, or 2.2%, and $29.4 million, or 3.6%
for the second quarter and first six months of 1999, respectively, compared to
the same periods in the prior year primarily due to unfavorable market
conditions in the markets outside Western Europe and unfavorable foreign
currency translation. Net sales in South America decreased approximately $34.4
million, or 38.7%, and $66.0 million, or 38.9% for the second quarter and first
six months of 1999, respectively, compared to the same periods in the prior year
primarily due to unfavorable industry conditions and to the negative impact of
foreign currency translation due to the Brazilian currency devaluation. In the
East Asia/Pacific region, net sales decreased approximately $.7 million, or
3.2%, and $2.9 million, or 6.5% for the second quarter and first six months of
1999, respectively, compared to the same periods in the prior year primarily due
to continued unfavorable market conditions.
Gross profit was $111.1 million (16.3% of net sales) for the second quarter
of 1999 compared to $156.5 million (19.2% of net sales) for the same period in
the prior year. Gross profit for the first six months of 1999 was $190.1 million
(15.3% of net sales) compared with $301.0 million (19.8% of net sales) for the
same period in 1998. Gross margins were negatively impacted by: (1) lower
production overhead absorption resulting from lower production volumes in the
first six months of 1999 compared to the prior year; (2) unfavorable sales mix
of higher margin products; and (3) lower price realization in certain market
segments.
Selling, general and administrative expenses ("SG&A expenses") for the
second quarter of 1999 were $56.4 million (8.3% of net sales) compared to $68.7
million (8.4% of net sales) for the same period in the prior year. For the first
six months of 1999, SG&A expenses were $114.3 million (9.2% of net sales)
compared to $131.7 million (8.7% of net sales) for the same period in the prior
year. While the Company's cost reduction efforts reduced expenses by $12.3
million and $17.4 million, respectively, for the second quarter and first six
months of 1999, SG&A expenses increased as a percentage of net sales primarily
due to lower sales volumes in 1999 compared to 1998. Engineering expenses for
the three and six months ended June 30, 1999 were $11.1 million (1.6% of net
sales) and $22.9 million (1.8% of net sales), respectively, compared to $14.6
million (1.8% of net sales) and $28.2 million (1.9% of net sales), respectively,
for the same periods in the prior year.
Income from operations was $43.6 million (6.4% of net sales) and $52.9
million (4.3% of net sales) for the three and six months ended June 30, 1999,
respectively, as compared to $73.2 million (9.0% of net sales) and $141.1
million (9.3% of net sales), respectively, for the same periods in 1998.
Operating income, as a percentage of net sales, was adversely affected primarily
by lower gross profit margins.
Interest expense, net was $15.2 million and $31.7 million, respectively,
for the three and six months ended June 30, 1999 compared to $18.3 million and
$33.3 million, respectively, for the same periods in 1998. The decrease in
interest expense, net was primarily the result of lower interest rates in 1999.
13
<PAGE>
The Company recorded an income tax provision of $7.8 million and $2.0
million, respectively, for the three and six months ended June 30, 1999 compared
to $17.0 million and $34.5 million, respectively, for the same periods in 1998.
The Company's effective tax rate remained constant over the two periods.
Equity in earnings of affiliates was $2.2 million and $4.9 million,
respectively, for the three and six months ended June 30, 1999 compared to $3.5
million and $6.3 million, respectively, for the same periods in 1998. The
reduction in earnings was due to lower net income in the Company's Engine Joint
Venture in Argentina and its retail finance joint ventures due to unfavorable
market conditions.
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. The current lending commitment under the
Company's revolving credit facility is $1.0 billion with borrowings limited to
the sum of 90% of eligible accounts receivable and 60% of eligible inventory. As
of June 30, 1999, approximately $673.4 million was outstanding under the
Company's revolving credit facility and available borrowings were approximately
$326.3 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. However, the Company had $1,016.0
million of working capital at June 30, 1999, a decrease of $13.9 million over
working capital of $1,029.9 million at December 31, 1998. The decrease in
working capital was primarily due to a lower accounts receivable balance
primarily related to the reduction of net sales during 1999 compared to 1998.
Cash flow used for operating activities was $3.6 million and $187.2 million
for the six months ended June 30, 1999 and 1998, respectively. The decrease in
cash flow used for operating activities was primarily due to a lower seasonal
increase in accounts receivable and inventory and an increase in accounts
payable, compared to the prior year. The improved cash flow compared to the
prior year reflects the impact of the Company's initiatives to reduce receivable
and inventory levels during 1999.
Capital expenditures for the six months ended June 30, 1999 were $20.6
million compared to $26.0 million for the same period in 1998. The Company
anticipates that additional capital expenditures for the remainder of 1999 will
range from approximately $25.0 million to $35.0 million and will primarily be
used to support the development and enhancement of new and existing products as
well as facility and equipment maintenance.
The Company's debt to capitalization ratio was 51.9% at June 30, 1999
compared to 48.5% at December 31, 1998. The increase in the debt to
capitalization ratio was primarily due to slightly higher debt levels due to the
seasonally higher working capital needs and a negative cumulative translation
adjustment to equity of $126.0 million primarily related to the devaluation of
the Brazilian currency and a weakening of the Euro relative to the U.S. dollar.
14
<PAGE>
In July 1999, the Company's Board of Directors declared a dividend of $0.01
per share of common stock for the third quarter of 1999. 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.
YEAR 2000
The Company has assessed the impact of the Year 2000 issue on its reporting
systems and operations. Based on its assessment, the Company has developed a
Year 2000 compliance plan, in which all key information systems are being tested
and all non-compliant software or technology is being modified or replaced. This
review included all information technology systems and embedded systems located
in the Company's manufacturing equipment, facility equipment and in the
Company's products. The Company is also reviewing the Year 2000 compliance
status and compatibility of customers' and suppliers' systems which interface
with the Company's systems or could impact the Company's operations.
The Company has implemented the majority of necessary modifications to its
information technology systems and expects to complete testing of its systems
for Year 2000 compliance during 1999. During 1998, the Company reviewed a
majority of its embedded systems and identified a small percentage of systems
with Year 2000 problems. All identified critical systems and a majority of
non-critical systems with Year 2000 issues have been modified or replaced and
complete testing on the remaining non-critical systems will occur during the
remainder of 1999. Based on its reviews, the Company estimates that the required
costs to modify existing computer systems and applications will be approximately
$10 million of which $7.8 million has been incurred to date. The remaining costs
will be incurred in the remainder of 1999.
While the Company believes that its plans are adequate to ensure that the
Year 2000 issue will not materially impact future operations, the risks of these
plans not being adequate or the risk that the Company's major customers and
suppliers do not modify or replace their affected systems could have a material
adverse impact on the Company's results of operations or financial condition in
the future. Failure by the Company or its customers or suppliers to resolve the
15
<PAGE>
Year 2000 problem could result in a temporary slowdown or cessation of
manufacturing operations at one or more of the Company's facilities and a
temporary inability of the Company to process some orders and to deliver some
finished products to customers. The Company is currently identifying and
considering various contingency options, to minimize the risks of any Year 2000
problems.
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, and actual results could
differ materially from the results suggested by the forward-looking statements.
Factors that could impact results include those described above under "General."
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.
16
<PAGE>
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
FOREIGN CURRENCY RISK
The Company has significant manufacturing operations in the United States,
the United Kingdom, France, Germany, Denmark and Brazil, 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. The Company's most
significant transactional foreign currency exposures are the British pound in
relation to other European currencies and the Canadian dollar in relation to the
U.S. dollar. 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 transactional foreign exchange exposure
by hedging identifiable foreign currency cash flow 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. The Company's translation exposure resulting from translating
the financial statements of foreign subsidiaries into U.S. dollars is not
hedged. When practical, this translation impact is reduced by financing local
operations with local borrowings.
INTEREST RATE RISK
The Company manages its debt structure and interest rate risk through the
use of fixed and floating rate debt. The fixed rate debt is primarily the 8 1/2%
Senior Subordinated Notes due 2006. The floating rate debt is primarily the
January 1997 Credit Facility (see "Liquidity and Capital Resources"). The
Company's net exposure to interest rate risk consists of its floating rate debt
which is tied to changes in U.S. and European libor rates. To further minimize
the effect of potential interest rate increases on floating rate debt in a
rising interest rate environment, the Company has entered into an interest rate
swap contract, which has the effect of converting a portion of the floating rate
indebtedness to a fixed rate over a certain period of time.
17
<PAGE>
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's annual meeting of stockholders held on April 28,
1999, the following directors were elected, each of whom will serve
until the 2002 annual meeting of stockholders or until his successor
is elected and qualified:
<TABLE>
<S> <C> <C> <C>
Nominee Affirmative Votes Withheld Votes
--------- ------------------ --------------
Hamilton Robinson 35,704,342 8,922,549
Anthony D. Loehnis 35,701,710 8,925,181
John M. Shumejda 35,711,346 8,915,545
Wolfgang Deml 35,682,538 8,944,353
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 - Financial Data Schedule - June 30, 1999 (electronic filing
purposes only).
(b) Reports on Form 8-K
None
18
<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 13, 1999 /s/ Patrick S. Shannon
-----------------------
Patrick S. Shannon
Vice President and Chief
Financial Officer
19
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Description Sequentially
Number Numbered
Page
- ---------------- ------------------------------------------- -----------------
<S> <C> <C>
Financial Data Schedule - June 30, 1999
27.1 (electronic filing purposes only).
</TABLE>
20
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 30
<SECURITIES> 0
<RECEIVABLES> 956
<ALLOWANCES> 0
<INVENTORY> 672
<CURRENT-ASSETS> 1,753
<PP&E> 349
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,613
<CURRENT-LIABILITIES> 737
<BONDS> 936
0
0
<COMMON> 1
<OTHER-SE> 866
<TOTAL-LIABILITY-AND-EQUITY> 2,613
<SALES> 1,245
<TOTAL-REVENUES> 1,245
<CGS> 1,055
<TOTAL-COSTS> 1,055
<OTHER-EXPENSES> 23
<LOSS-PROVISION> 2
<INTEREST-EXPENSE> 32
<INCOME-PRETAX> 5
<INCOME-TAX> 2
<INCOME-CONTINUING> 8
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8
<EPS-BASIC> 0.14
<EPS-DILUTED> 0.14
</TABLE>
