--------------------------------------------------------------------------------
UNITED STATES
SECURTIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
------
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)OF THE SECURTIES
------ EXCHANGE Act of 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000
OR
------ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURTIES
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: 59,591,961 shares outstanding as of
June 30, 2000.
<PAGE>
AGCO CORPORATION AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
<S> <C> <C>
Page
Numbers
----------
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Condensed Consolidated Balance
Sheets - June 30, 2000 and
December 31, 1999.....................................................3
Condensed Consolidated Statements
of Income for the Three Months
Ended June 30, 2000 and 1999..........................................4
Condensed Consolidated Statements
of Income for the Six Months
Ended June 30, 2000 and 1999..........................................5
Condensed Consolidated Statements
of Cash Flows for the Six Months
Ended June 30, 2000 and 1999..........................................6
Notes to Condensed Consolidated
Financial Statements..................................................7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations........................................................12
Item 3. Quantitative and Qualitative Disclosures
about Market Risk....................................................18
PART II. OTHER INFORMATION:
Item 4. Submission of Matters to a Vote of Security Holders.................19
Item 6. Exhibits and Reports on Form 8-K....................................19
SIGNATURES....................................................................20
</TABLE>
<PAGE>
AGCO CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions, except share data)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
----------------- -----------------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................................. $ 13.3 $ 19.6
Accounts and notes receivable, net........................................ 603.2 758.2
Inventories, net.......................................................... 619.8 561.1
Other current assets...................................................... 87.1 77.2
----------------- -----------------
Total current assets................................................... 1,323.4 1,416.1
Property, plant and equipment, net.............................................. 305.5 310.8
Investment in affiliates........................................................ 88.5 93.6
Other assets.................................................................... 162.3 140.1
Intangible assets, net.......................................................... 299.3 312.6
----------------- -----------------
Total assets........................................................... $ 2,179.0 $ 2,273.2
================= =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable.......................................................... $ 259.5 $ 244.2
Accrued expenses.......................................................... 436.7 408.2
Other current liabilities................................................. 15.5 29.8
----------------- -----------------
Total current liabilities.............................................. 711.7 682.2
Long-term debt.................................................................. 592.5 691.7
Postretirement health care benefits............................................. 29.9 25.4
Other noncurrent liabilities.................................................... 41.2 44.8
----------------- -----------------
Total liabilities...................................................... 1,375.3 1,444.1
----------------- -----------------
Stockholders' Equity:
Common stock: $0.01 par value, 150,000,000 shares authorized,
59,591,961 and 59,579,559 shares issued and outstanding
at June 30, 2000 and December 31, 1999, respectively.................... 0.6 0.6
Additional paid-in capital................................................ 427.8 427.7
Retained earnings......................................................... 614.1 621.9
Unearned compensation..................................................... (2.6) (5.1)
Accumulated other comprehensive income.................................... (236.2) (216.0)
----------------- -----------------
Total stockholders' equity............................................. 803.7 829.1
----------------- -----------------
Total liabilities and stockholders' equity............................. $ 2,179.0 $ 2,273.2
================= =================
See accompanying notes to condensed consolidated financial statements.
</TABLE>
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,
----------------------------------------
2000 1999
---------------- -----------------
<S> <C> <C>
Net sales....................................................................... $ 633.7 $ 683.5
Cost of goods sold.............................................................. 529.3 572.4
---------------- -----------------
Gross profit............................................................... 104.4 111.1
Selling, general and administrative expenses.................................... 54.4 56.4
Engineering expenses............................................................ 10.8 11.1
Nonrecurring expenses........................................................... 13.1 --
---------------- -----------------
Income from operations..................................................... 26.1 43.6
Interest and financing expense, net............................................. 15.6 15.2
Other expense, net.............................................................. 9.0 7.3
---------------- -----------------
Income before income taxes and equity in net earnings
of affiliates............................................................... 1.5 21.1
Income tax expense.............................................................. 0.6 7.8
---------------- -----------------
Income before equity in net earnings of affiliates.............................. 0.9 13.3
Equity in net earnings of affiliates............................................ 3.2 2.2
---------------- -----------------
Net income...................................................................... $ 4.1 $ 15.5
================ =================
Net income per common share:
Basic...................................................................... $ 0.07 $ 0.27
================ =================
Diluted.................................................................... $ 0.07 $ 0.26
================ =================
Weighted average number of common and common equivalent shares outstanding:
Basic...................................................................... 59.1 58.5
================ =================
Diluted.................................................................... 59.7 59.6
================ =================
Dividends declared per common share............................................. $ 0.01 $ 0.01
================ =================
See accompanying notes to condensed consolidated financial statements.
</TABLE>
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,
----------------------------------------
2000 1999
---------------- -----------------
<S> <C> <C>
Net sales....................................................................... $ 1,163.5 $ 1,245.1
Cost of goods sold.............................................................. 982.0 1,055.0
---------------- -----------------
Gross profit............................................................... 181.5 190.1
Selling, general and administrative expenses.................................... 112.8 114.3
Engineering expenses............................................................ 21.3 22.9
Nonrecurring expenses........................................................... 15.0 --
---------------- -----------------
Income from operations..................................................... 32.4 52.9
Interest and financing expense, net............................................. 36.1 31.7
Other expense, net.............................................................. 16.5 15.8
---------------- -----------------
Income (loss) before income taxes and equity in net earnings
of affiliates............................................................... (20.2) 5.4
Income tax expense (benefit).................................................... (8.1) 2.0
---------------- -----------------
Income (loss) before equity in net earnings of affiliates....................... (12.1) 3.4
Equity in net earnings of affiliates............................................ 5.5 4.9
---------------- -----------------
Net income (loss)............................................................... $ (6.6) $ 8.3
================ =================
Net income (loss) per common share:
Basic...................................................................... $ (0.11) $ 0.14
================ =================
Diluted..................................................................... $ (0.11) $ 0.14
================ =================
Weighted average number of common and common equivalent shares outstanding:
Basic...................................................................... 59.0 58.5
================ =================
Diluted.................................................................... 59.0 59.6
================ =================
Dividends declared per common share............................................. $ 0.02 $ 0.02
================ =================
See accompanying notes to condensed consolidated financial statements.
</TABLE>
5
<PAGE>
AGCO CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited and in millions)
<TABLE>
<CAPTION>
Six Months Ended June 30,
-----------------------------------
2000 1999
--------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................................... $ (6.6) $ 8.3
--------------- --------------
Adjustments to reconcile net income (loss) to net cash provided by (used
for) operating activities:
Depreciation and amortization......................................... 26.1 28.8
Amortization of intangibles........................................... 7.3 7.4
Amortization of unearned compensation................................. 2.5 3.5
Equity in net earnings of affiliates,
net of cash received............................................... (5.3) (4.9)
Deferred income tax benefit .......................................... (26.7) (16.9)
Loss on write-down of property, plant and equipment................... 2.9 --
Changes in operating assets and liabilities, net of effects
from purchase of business:
Accounts and notes receivable, net................................. 134.7 (9.1)
Inventories, net................................................... (58.7) (37.6)
Other current and noncurrent assets................................ (12.0) (19.0)
Accounts payable................................................... 17.2 28.1
Accrued expenses................................................... 43.1 18.1
Other current and noncurrent liabilities........................... (17.5) (10.3)
--------------- --------------
Total adjustments................................................ 113.6 (11.9)
--------------- --------------
Net cash provided by (used for) operating activities............. 107.0 (3.6)
--------------- --------------
Cash flows from investing activities:
Purchase of property, plant and equipment............................. (14.1) (20.6)
Purchase of business.................................................. (10.0) --
Investment in unconsolidated affiliates............................... (1.2) (0.5)
--------------- --------------
Net cash used for investing activities........................... (25.3) (21.1)
--------------- --------------
Cash flows from financing activities:
(Repayments of)/proceeds from long-term debt, net..................... (86.2) 41.6
Dividends paid on common stock........................................ (1.2) (1.2)
--------------- --------------
Net cash (used for) provided by financing activities............. (87.4) 40.4
--------------- --------------
Effect of exchange rate changes on cash and cash equivalents.......... (0.6) (1.7)
--------------- --------------
(Decrease) increase in cash and cash equivalents...................... (6.3) 14.0
Cash and cash equivalents, beginning of period........................ 19.6 15.9
--------------- --------------
Cash and cash equivalents, end of period.............................. $ 13.3 $ 29.9
=============== ==============
See accompanying notes to condensed consolidated financial statements.
</TABLE>
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, 1999.
Interim results of operations are not necessarily indicative of results to be
expected for the fiscal year.
2. NONRECURRING EXPENSES
In the second quarter of 2000, the Company announced its plan to
permanently close its combine manufacturing facility in Independence, Missouri
and relocate existing production to the Company's Hesston, Kansas manufacturing
facility. The closing of the Independence facility is expected to be completed
by the end of 2000. In the fourth quarter of 1999, the Company announced its
plan to close its Coldwater, Ohio; Lockney, Texas; and Noetinger, Argentina
manufacturing facilities. The majority of production in these facilities will be
relocated to existing Company facilities or outsourced to third parties. The
Coldwater, Ohio facility was permanently closed in 1999 and the Lockney, Texas
and Noetinger, Argentina facilities are planned to close in 2000.
In connection with these facility closures, the Company recorded
nonrecurring expenses of $24.5 million in the fourth quarter of 1999 and $15.0
million for the six months ended June 30, 2000. The components of the
nonrecurring expenses are summarized in the following table (in millions):
<TABLE>
<CAPTION>
1999 2000 Reserve Balance
Nonrecurring Nonrecurring Expenses at
Expense Expense Incurred June 30, 2000
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Employee severance................. $ 1.9 $ 4.9 $ 2.1 $ 4.7
Facility closure costs............. 7.7 6.1 5.2 8.6
Write-down of property plant
and equipment, net of recoveries.. 14.9 1.1 16.0 --
Production transition costs........ -- 2.9 2.9 --
----------------- ----------------- ----------------- -----------------
$ 24.5 $ 15.0 $ 26.2 $ 13.3
================= ================= ================= =================
</TABLE>
7
<PAGE>
The severance costs relate to the termination of approximately 1,048
employees of which approximately 768 employees had been terminated as of June
30, 2000. The facility closure costs include employee costs and other exit costs
to be incurred after operations cease in addition to noncancelable operating
lease obligations. The production transition costs include costs to relocate and
integrate production into other existing AGCO facilities.
3. ACQUISITION
In May 2000, the Company entered into an agreement with CNH Global N.V.
("CNH") to purchase its 50% share in Hay and Forage Industries ("HFI") for $10
million. This agreement terminates a joint venture agreement in which CNH and
AGCO each owned 50% interests in HFI, thereby providing AGCO with sole ownership
of the facility. HFI, located in Hesston, Kansas, develops and manufactures hay
and forage equipment and implements which AGCO sells under various brand names.
As a result of the acquisition, the financial statements of HFI have been
consolidated into the Company's condensed consolidated financial statements
since the acquisition date.
4. LONG-TERM DEBT
Long-term debt consisted of the following at June 30, 2000 and December
31, 1999 (in millions):
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
----------------- -----------------
<S> <C> <C>
Revolving credit facility............................... $ 335.1 $ 431.4
Senior subordinated notes............................... 248.6 248.5
Other long-term debt.................................... 8.8 11.8
----------------- -----------------
$ 592.5 $ 691.7
================= =================
</TABLE>
In January 2000, the Company entered into a $250 million asset backed
securitization facility whereby certain U.S. wholesale accounts receivables are
sold through a wholly-owned special purpose subsidiary to a third party (the
"Securitization Facility"). Funding under the Securitization Facility is
provided on a revolving basis and is dependent upon the level of U.S. dealer
wholesale receivables eligible to be sold under the facility. The Company
initially funded $200 million under the Securitization Facility which was used
to reduce outstanding borrowings under the Company's revolving credit facility.
The $1.0 billion lending commitment under the revolving credit facility was
permanently reduced by the $200 million initial proceeds received from the
Securitization Facility and will be further reduced by any additional funding
received under the Securitization Facility. In conjunction with the closing of
the securitization transaction, the Company recorded an initial one-time loss in
the first quarter of 2000 on the sale of the receivables of approximately $8
million, or $0.08 per share. The initial loss, included as a component of
interest and financing expense, net, represents the difference between the
current and future value of the receivables sold, related transaction expenses
and the write-off of certain unamortized debt issuance costs due to the
reduction in the lending commitment of the revolving credit facility.
8
<PAGE>
The Company's revolving credit facility allows for borrowings up to
$800 million. As of June 30, 2000, $335.1 million was outstanding under the
revolving credit facility and available borrowings were $464.9 million, subject
to receivable and inventory borrowing base requirements.
The components of interest and financing expense, net are as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------------ ------------------------------
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Interest expense, net.................... $ 11.9 $ 15.2 $ 22.4 $ 31.7
Loss on sale of accounts receivable...... 3.7 -- 13.7 --
------------- ------------- ------------- -------------
$ 15.6 $ 15.2 $ 36.1 $ 31.7
============= ============= ============= =============
</TABLE>
The loss on sale of accounts receivable of $13.7 million includes a
one-time loss of $8.0 million recorded in conjunction with the closing and
initial funding of the Securitization Facility as discussed above and $5.7
million related to subsequent sales of receivables provided on a revolving basis
under the Securitization Facility.
5. 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, "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 (loss) and the weighted average number
of common shares outstanding used to calculate basic and diluted net income
(loss) per common share for the three and six months ended June 30, 2000 and
1999 is as follows (in millions, except per share data):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ ------------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Basic Earnings Per Share
Weighted average number of common shares outstanding . 59.1 58.5 59.0 58.5
========== ========== ========== ==========
Net income (loss)................................... $ 4.1 $ 15.5 $ (6.6) $ 8.3
========== ========== ========== ==========
Net income (loss) per common share.................. $ 0.07 $ 0.27 $ (0.11) $ 0.14
========== ========== ========== ==========
Diluted Earnings Per Share
Weighted average number of common shares outstanding 59.1 58.5 59.0 58.5
Assumed vesting of restricted stock.................. 0.5 1.0 -- 1.0
Assumed exercise of outstanding stock options ....... 0.1 0.1 -- 0.1
---------- ---------- ---------- ----------
Weighted average number of common and common equivalent
shares outstanding............................... 59.7 59.6 59.0 59.6
========== ========== ========== ==========
Net income (loss).................................... $ 4.1 $ 15.5 $ (6.6) $ 8.3
========== ========== ========== ==========
Net income (loss) per common share................... $ 0.07 $ 0.26 $ (0.11) $ 0.14
========== ========== ========== ==========
</TABLE>
9
<PAGE>
6. INVENTORIES
Inventories are valued at the lower of cost or market using the
first-in, first-out method. Market is net realizable value for finished goods
and repair and replacement parts. For work in process, production parts and raw
materials, market is replacement cost.
Inventory balances at June 30, 2000 and December 31, 1999 were as
follows (in millions):
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
------------------ -----------------
<S> <C> <C>
Finished goods........................................... $ 283.6 $ 248.4
Repair and replacement parts............................. 234.7 229.3
Work in process, production parts and raw materials...... 163.9 154.6
------------------ -----------------
Gross inventories................................. 682.2 632.3
Allowance for surplus and obsolete inventories........... (62.4) (71.2)
------------------ -----------------
Inventories, net.................................. $ 619.8 $ 561.1
================== =================
</TABLE>
7. 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, 2000 and 1999 was as follows (in
millions):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- ------------------------
2000 1999 2000 1999
----------- ---------- --------- -----------
<S> <C> <C> <C> <C>
Net income (loss)............................... $ 4.1 $ 15.5 $ (6.6) $ 8.3
Other comprehensive income (loss):
Foreign currency translation adjustments........ (2.9) (17.7) (20.2) (126.0)
------------ ---------- --------- -----------
Total comprehensive income (loss)............... $ 1.2 $ (2.2) $ (26.8) $(117.7)
============ ========== ========= ===========
</TABLE>
10
<PAGE>
8. 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 primarily 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, 2000 and 1999 are as follows (in millions):
<TABLE>
<CAPTION>
North South Europe/Africa/
America America Middle East Asia/Pacific Consolidated
---------------- ---------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
Three months ended June 30:
2000
Net sales $ 185.2 $ 55.2 $ 371.5 $ 21.8 $ 633.7
Income (loss) from operations 1.8 (0.9) 36.7 3.0 40.6
1999
Net sales $ 178.0 $ 54.5 $ 429.9 $ 21.1 $ 683.5
Income (loss) from operations 4.4 (3.1) 42.0 2.7 46.0
Six months ended June 30:
2000
Net sales $ 323.9 $ 102.4 $ 689.9 $ 47.3 $ 1,163.5
Income (loss) from operations (8.9) (2.1) 54.7 6.7 50.4
1999
Net sales $ 319.1 $ 103.8 $ 780.5 $ 41.7 $ 1,245.1
Income (loss) from operations (2.8) (4.6) 60.4 4.8 57.8
</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,
------------------------ ------------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Segment income from operations................... $ 40.6 $ 46.0 $ 50.4 $ 57.8
Restricted stock compensation expense............ (1.4) (2.4) (3.0) (4.9)
Nonrecurring expenses............................ (13.1) -- (15.0) --
---------- ---------- ---------- ----------
Consolidated income from operations.............. $ 26.1 $ 43.6 $ 32.4 $ 52.9
========== ========== ========== ==========
</TABLE>
11
<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
The Company recorded net income for the quarter ended June 30, 2000 of
$4.1 million compared to net income of $15.5 million for the same period in
1999. Net income per common share on a diluted basis was $0.07 and $0.26 for the
second quarter of 2000 and 1999, respectively. Net loss for the first six months
of 2000 was $6.6 million compared to net income of $8.3 million for the same
period in 1999. The Company recorded a net loss per common share on a diluted
basis of $0.11 for the first six months of 2000 compared to net income of $0.14
per common share for the same period in 1999. The results for the second quarter
and first six months of 2000 included nonrecurring expenses of $13.1 million, or
$0.13 per share and $15.0 million, or $0.15 per share, respectively, associated
with the closure of certain manufacturing facilities announced in 2000 and 1999.
The results for the first six months also included an $8.0 million loss, or
$0.08 per share, associated with the completion of an asset backed
securitization facility in January 2000 (see "Liquidity and Capital Resources").
Excluding nonrecurring expenses and the loss on the securitization facility, the
remaining decline in the Company's results for the second quarter and first six
months of 2000 was primarily related to the negative currency translation impact
of the strengthening U.S. dollar compared to the Euro of approximately $0.04 per
share and $0.08 per share, respectively.
RETAIL SALES
Global demand for agricultural equipment during the first half of 2000
showed mixed results in most major markets compared to the prior year. The
continued effects of high global commodity stocks and lower export demand for
farm commodities have resulted in low commodity prices and reduced demand for
new equipment purchases over the past 24 months.
In the United States and Canada, industry unit retail sales of tractors
for the first six months of 2000 increased approximately 8% due primarily to an
increase in the under 40 horsepower segment. Industry retail sales of combines
declined approximately 14% for the first six months of 2000 compared to the
prior year. For the first six months of 2000, Company unit retail sales of
tractors in the United States and Canada decreased, and Company unit retail
sales of combines increased slightly compared to the prior year.
12
<PAGE>
In Western Europe, industry unit retail sales of tractors declined
approximately 7% for the first six months of 2000 as compared to the prior year.
Decreases in industry unit retail sales were experienced in most significant
Western European markets. Company unit retail sales for the first six months of
2000 also declined compared to the same period in 1999 primarily due to weaker
industry demand. The Company has experienced favorable acceptance of certain new
high horsepower and utility tractor lines introduced in 1999. However, retail
unit sales of the Company's UK-built product have been negatively impacted by
the weakness of the Euro versus the British pound.
Industry unit retail sales of tractors in South America for the first
six months of 2000 decreased approximately 5% compared to the same period in
1999. In the major market of Brazil, industry unit retail sales declined
approximately 1%. A change in the Brazilian government retail financing program,
which was not fully implemented until after the first quarter of 2000, resulted
in a delay of purchases by retail customers. In addition, the remaining South
American markets decreased approximately 19% due to the continued effects of low
commodity prices, economic uncertainty and tightening credit. Company unit
retail sales of tractors in South America also decreased when compared to the
first six months of 1999.
In most other international markets, Company retail sales were higher
than the prior year particularly in the Middle East, Africa and Far East
primarily due to improved industry demand.
STATEMENTS OF INCOME
Net sales for the second quarter of 2000 were $633.7 million compared
to $683.5 million for the same period in 1999. Net sales for the first six
months of 2000 were $1,163.5 million compared to $1,245.1 million for the prior
year. Net sales for the second quarter and first six months of 2000 were
negatively impacted by approximately $43.1 million and $75.8 million,
respectively, primarily due to the currency translation effect of the
strengthening U.S. dollar in relation to the Euro. Excluding the impact of
currency translation, net sales for the second quarter and first six months were
slightly below the prior year primarily due to declines in Western Europe as a
result of weaker industry conditions.
Regionally, net sales in North America increased $7.2 million, or 4.0%,
and $4.8 million, or 1.5% for the second quarter and first six months of 2000,
respectively, compared to the same period in 1999. In the Europe/Africa/Middle
East region, net sales decreased $58.4 million, or 13.6%, and $90.6 million, or
11.6%, respectively, for the second quarter and first six months of 2000
compared to 1999, primarily due to the negative impact of foreign currency
translation from the strengthening of the U.S. dollar in relation to the Euro
and the result of industry declines in Western Europe. Net sales in South
America increased approximately $0.7 million, or 1.3%, and decreased $1.4
million, or 1.3%, for the second quarter and first six months of 2000,
respectively, compared to 1999 primarily due to unfavorable market conditions
outside of Brazil. In the Asia/Pacific region, net sales increased approximately
$0.7 million, or 3.3%, and $5.6 million, or 13.4%, respectively, for the second
quarter and first six months of 2000 compared to 1999, primarily due to
improvements in market demand.
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Gross profit was $104.4 million (16.5% of net sales) for the second
quarter of 2000 compared to $111.1 million (16.3% of net sales) for the same
period in the prior year. Gross profit was $181.5 (15.6% of net sales) for the
first six months of 2000 compared to $190.1 million (15.3% of net sales) for the
same period in the prior year. Gross margins improved for the quarter and year
to date primarily due to cost reduction initiatives and facility rationalization
benefits offset by an unfavorable mix of products sold.
Selling, general and administrative expenses ("SG&A expenses") for the
second quarter of 2000 were $54.4 million (8.6% of net sales) compared to $56.4
million (8.3% of net sales) for the same period in the prior year. For the first
six months of 2000, SG&A expenses were $112.8 million (9.7% of net sales)
compared to $114.3 million (9.2% of net sales) for the same period in the prior
year. The increase as a percentage of net sales was due to lower sales volume in
the second quarter and first six months of 2000 as compared to the same periods
in 1999. Engineering expenses for the three and six months ended June 30, 2000
were $10.8 million (1.7% of net sales) and $21.3 million (1.8% of net sales),
respectively, compared to $11.1 million (1.6% of net sales) and $22.9 million
(1.8% of net sales), respectively, for the same periods in the prior year.
The Company recorded nonrecurring expenses of $13.1 million and $15.0
million for the three and six months ended June 30, 2000, respectively, related
to the closing of its Coldwater, Ohio; Independence, Missouri; Lockney, Texas
and Noetinger, Argentina manufacturing facilities announced in 2000 and 1999.
These nonrecurring expenses related to employee severance, facility closure
costs, the write-down of property, plant and equipment and production transition
costs. The Company recorded nonrecurring expenses of $24.5 million in the fourth
quarter of 1999 related to the facility closures. The Company expects to record
an additional $13.0 million of nonrecurring expenses in the remainder of 2000
related to the closures.
Income from operations was $26.1 million (4.1% of net sales) and $32.4
(2.8% of net sales) for the three months and six months ended June 30, 2000,
respectively, compared to $43.6 million (6.4% of net sales) and $52.9 million
(4.3% of net sales), respectively, for the same period in the prior year.
Excluding nonrecurring expenses, operating income was $39.2 million (6.2% of net
sales) and $47.4 million (4.1% of net sales) for the three and six months ended
June 30, 2000, respectively. Operating income, as a percentage of net sales, was
lower primarily because of higher SG&A expenses, as a percentage of net sales,
compared to 1999.
Interest and financing expense, net was $15.6 million and $36.1 million
for the three and six months ended June 30, 2000, respectively, compared to
$15.2 million and $31.7 million, respectively, for the same period in 1999. The
increase in interest and financing expense, net for the first six months of 2000
was primarily the result of the initial one-time $8.0 million loss associated
with the accounts receivable securitization transaction completed during the
first quarter of 2000 (see "Liquidity and Capital Resources") and an increase in
interest rates, offset to some extent by lower average borrowings as compared to
the same period in 1999.
The Company recorded an income tax expense of $0.6 million and an
income tax benefit of $8.1 million for the three and six months ended June 30,
2000, respectively, compared to an income tax expense of $7.8 million and $2.0
million, respectively, for the same periods in 1999. The Company's effective tax
rate for the respective periods increased to 40% from 37% recorded in the same
period in 1999. This increase is attributable to a change in the mix of income
to jurisdictions with higher tax rates.
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Equity in earnings of affiliates was $3.2 million and $5.5 million for
the three months and six months ended June 30, 2000, respectively, compared to
$2.2 million and $4.9 million for the same periods in 1999. The increase in
equity in earnings of affiliates was related to the Company's share of net
income in certain of the Company's licensees.
In May 2000, the Company entered into an agreement with CNH Global N.V.
("CNH") to purchase its 50% share in Hay and Forage Industries ("HFI") for $10
million. This agreement terminates a joint venture agreement in which CNH and
AGCO each owned 50% interests in HFI, thereby providing AGCO with sole ownership
of the facility. HFI develops and manufactures hay and forage equipment and
implements which AGCO sells under various brand names.
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 $800 million with borrowings limited to
the sum of 90% of eligible accounts receivable and 60% of eligible inventory. As
of June 30, 2000, approximately $335.1 million was outstanding under the
Company's revolving credit facility and available borrowings were approximately
$464.9 million, subject to receivable and inventory borrowing base requirements.
In January 2000, the Company entered into a $250 million asset backed
securitization facility whereby certain U.S. wholesale accounts receivables are
sold through a wholly-owned special purpose subsidiary to a third party (the
"Securitization Facility"). The Company initially funded $200 million under the
Securitization Facility, which was used to reduce outstanding borrowings under
the revolving credit facility. The Company's lending commitment under the
revolving credit facility was permanently reduced to $800 million, representing
a decrease of the $200 million initial proceeds received from the
securitization, and will be further reduced by any additional funding received
from the Securitization Facility. In conjunction with the closing of the
securitization transaction, the Company recorded an initial one-time $8.0
million loss in the first quarter of 2000. The initial loss represents the
difference between the current and future value of the receivables sold, related
transaction expenses and the write-off of certain unamortized debt issuance
costs due to the reduction in the lending commitment of the revolving credit
facility.
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. The Company had $611.7 million
of working capital at June 30, 2000, a decrease of $122.2 million from working
capital of $733.9 million at December 31, 1999. The decrease in working capital
was primarily due to lower accounts receivables, primarily related to the $200
million sale of accounts receivable through the Securitization Facility.
15
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Cash flow provided by operating activities was $107.0 million for the
six months ended June 30, 2000 compared to a use of cash of $3.6 million for the
same period during 1999. The increase in cash flow provided by operating
activities was primarily due to a reduction in the Company's accounts receivable
levels due to the $200 million sale of accounts receivable through the
Securitization Facility. Excluding the impact of the proceeds from the
Securitization Facility, the Company's operating cash flow was lower than the
prior year due to a lower use of working capital in the first half of 1999
compared to 2000.
Capital expenditures for the six months ended June 30, 2000 were $14.1
million compared to $20.6 million for the same period in 1999. The Company
anticipates that additional capital expenditures for the remainder of 2000 will
range from approximately $40 million to $50 million and will primarily be used
to support the development and enhancement of new and existing products as well
as facility and equipment improvements.
The Company's debt to capitalization ratio was 42.4% at June 30, 2000
compared to 45.5% at December 31, 1999. The decrease is attributable to a
reduction of indebtedness of $99.2 million from December 31, 1999, primarily due
to the reduction in outstanding borrowings from proceeds from the Securitization
Facility, offset to some extent by the negative cumulative translation
adjustment to equity of $20.2 million, primarily related to the weakening of the
Euro in relation to the U.S. dollar.
In July 2000, the Company's Board of Directors declared a dividend of
$0.01 per share of common stock for the second quarter of 2000. 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.
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FORWARD LOOKING STATEMENTS
Certain statements included in Management's Discussion and Analysis of
Financial Condition and Results of Operations and elsewhere in this report are
forward looking, including certain statements set forth under the "Results of
Operations" and "Liquidity and Capital Resources" headings. Forward looking
statements include the Company's expectations with respect to future commodity
prices, export demand for commodities, farm income, demand for agricultural
equipment, production levels, the impact of cost reduction initiatives,
operating margins, overall profitability and the availability of capital.
Although the Company believes that the statements it has made are based on
reasonable assumptions, they are based on current information and beliefs and,
accordingly, the Company can give no assurance that its statements will be
achieved. In addition, these statements are subject to factors that could cause
actual results to differ materially from those suggested by the forward looking
statements. These factors include, but are not limited to, general economic and
capital market conditions, the demand for agricultural products, world grain
stocks, crop production, commodity prices, farm income, farm land values,
government farm programs and legislation, the levels of new and used field
inventories, weather conditions, interest and foreign currency exchanges rates,
the conversion to the Euro, pricing and product actions taken by competitors,
customer access to credit, production disruptions, supply and capacity
constraints, Company cost reduction and control initiatives, Company research
and development efforts, labor relations, dealer and distributor actions,
technological difficulties, changes in environmental, international trade and
other laws, and political and economic uncertainty in various areas of the
world. Further information concerning factors that could significantly affect
the Company's results is included in the Company's filings with the Securities
and Exchange Commission. The Company disclaims any responsibility to update any
forward looking statements.
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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 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 the Euro and the British pound, the Euro 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. The Company's most significant translation exposures are the British
pound, the Euro and the Brazilian real in relation to the U.S. dollar. When
practical, this translation impact is reduced by financing local operations with
local borrowings.
INTEREST RATE RISK
The Company manages interest rate risk through the use of fixed rate
debt and interest rate swap contracts. The Company has fixed rate debt from its
$250 million 8.5% Senior Subordinated Notes due 2006. In addition, the Company
uses its interest rate swap contract to further minimize the effect of potential
interest rate increases on floating rate debt in a rising interest rate
environment. The Company's floating rate debt is primarily the revolving credit
facility, which is tied to changes in U.S. and European libor rates.
18
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PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's annual meeting of stockholders was held on April
26, 2000. The following matters were voted upon and the
results of the voting were as follows:
(1) To elect two directors to serve as Class II directors
until the annual meeting in 2003 or until their
successors have been duly elected and qualified. The
nominees, Messrs. Claycamp and Sauer, were elected to
the Company's board of directors. The results follow:
Nominee Affirmative Votes Withheld Votes
Henry J. Claycamp 38,070,383 5,524,026
Wolfgang Sauer 37,628,978 5,965,431
(2) To approve certain amendments to the AGCO Corporation Amended and
Restated Long-Term Incentive Plan as follows:
There were 38,881,035 votes in favor, 3,948,367 votes
opposed and 765,007 votes abstained.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 - Financial Data Schedule - June 30, 2000
(electronic filing purposes only).
(b) Reports on Form 8-K
None
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on behalf by the
undersigned thereunto duly authorized.
AGCO CORPORATION
---------------------
Registrant
Date: August 14, 2000 /s/ John M. Shumejda
---------------------
John M. Shumejda
President and Chief Executive Officer
/s/ Andrew H. Beck
-----------------------
Andrew H. Beck
Vice President and Controller
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EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Sequentially Numbered
Number Description Page
------------ --------------------------------------- --------------------
<S> <C> <C>
Financial Data Schedule - June 30, 2000
27.1 (electronic filing purposes only). --
21
</TABLE>
