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 December 31, 1997
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____ to _____.
Commission File Number: 0-25360
AG-CHEM EQUIPMENT CO., INC.
(Exact Name of Registrant as Specified in Its Charter)
Minnesota 41-0872842
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
5720 Smetana Drive
Minnetonka, Minnesota 55343-9688
(Address of Principal Executive Offices)
(612)933-9006
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Exchange Act during
the past 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 of
the past 90 days.
__X__ Yes _____ No
As of January 31, 1998, there were outstanding 9,666,768 shares of the
issuers' Common Stock, $.01 par value per share.
<PAGE>
TABLE OF CONTENTS
Page
PART I
ITEM 1. FINANCIAL STATEMENTS.............................. 2
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS
OF OPERATIONS................................... 8
PART II
ITEM 1. LEGAL PROCEEDINGS................................. 10
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.................. 10
SIGNATURES .................................................. 11
EXHIBITS .................................................. 12
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
AG-CHEM EQUIPMENT CO., INC. AND SUBSIDIARIES
(Dollars in Thousands)
(UNAUDITED)
- --------------------------------------------------------------------------------
December 31, September 30,
ASSETS 1997 1997
-------- --------
CURRENT ASSETS:
Cash $ 287 $ --
Accounts receivable, less allowance for
doubtful accounts of $676 and $576, respectively 18,591 23,728
Notes receivable, current portion, and
accrued interest receivable 3,556 3,188
Inventories (note 2) 114,357 99,894
Deferred income tax benefits 5,073 4,550
Prepaid expenses and other current assets 838 881
-------- --------
Total current assets 142,702 132,241
PROPERTY, PLANT AND EQUIPMENT, NET OF ACCUMULATED
DEPRECIATION OF $31,844 AND $30,257, RESPECTIVELY 46,559 46,260
OTHER ASSETS:
Notes receivable, long-term portion 5,380 5,213
Bond funds held by trustees -- 745
Intangible and other assets, net of accumulated
amortization of $2,593 and $2,392, respectively 3,205 3,540
-------- --------
Total other assets 8,585 9,498
-------- --------
Total assets $197,846 $187,999
======== ========
- --------------------------------------------------------------------------------
SEE ACCOMPANYING CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
CONSOLIDATED BALANCE SHEETS
AG-CHEM EQUIPMENT CO., INC. AND SUBSIDIARIES
(Dollars in Thousands)
(UNAUDITED)
- --------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY December 31, September 30,
1997 1997
--------- ---------
CURRENT LIABILITIES:
Current installments of long-term debt $ 4,035 $ 4,994
Notes payable to banks 34,070 32,685
Accounts payable 18,422 15,049
Checks outstanding in excess of cash balances -- 7
Customer prepayments 13,422 7,718
Accrued expenses (note 3) 12,704 17,504
Deferred income 1,021 563
Accrued income taxes -- 224
--------- ---------
Total current liabilities 83,674 78,744
LONG-TERM DEBT, LESS CURRENT INSTALLMENTS 51,426 45,368
--------- ---------
Total liabilities 135,100 124,112
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value
Authorized, 40,000,000 shares; issued and
outstanding, 9,666,768 shares 97 97
Additional paid in capital 2,142 2,188
Retained earnings 60,987 62,082
Foreign currency translation adjustment (480) (480)
--------- ---------
Total stockholders' equity 62,746 63,887
--------- ---------
Total liabilities and stockholders' equity $ 197,846 $ 187,999
========= =========
- --------------------------------------------------------------------------------
SEE ACCOMPANYING CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
AG-CHEM EQUIPMENT CO., INC. AND SUBSIDIARIES
(Dollars in Thousands Except Per Share Amounts)
(UNAUDITED)
- --------------------------------------------------------------------------------
Three Months Ended December 31,
1997 1996
----------- -----------
Net sales $ 62,537 $ 56,290
Cost of sales 45,565 39,151
----------- -----------
Gross profit 16,972 17,139
Selling, general and administrative expenses 17,619 14,637
----------- -----------
Operating income (loss) (647) 2,502
Other income (expense):
Other income 717 863
Interest expense (1,717) (1,731)
----------- -----------
Earnings (loss) before income taxes (1,647) 1,634
Income tax expense (benefit) (552) 640
----------- -----------
Net earnings (loss) $ (1,095) $ 994
=========== ===========
Basic earnings (loss) per share $ (0.11) $ 0.10
=========== ===========
Weighted average common shares
outstanding 9,669,883 9,695,768
=========== ===========
- --------------------------------------------------------------------------------
SEE ACCOMPANYING CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
AG-CHEM EQUIPMENT CO., INC. AND SUBSIDIARIES
(Dollars In Thousands)
(UNAUDITED)
- --------------------------------------------------------------------------------
Three Months ended December 31,
1997 1996
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) ($ 1,095) $ 994
ADJUSTMENTS TO RECONCILE NET EARNINGS (LOSS) TO CASH
USED IN OPERATING ACTIVITIES:
Depreciation and amortization 1,904 1,997
Loss (gain) on sale of assets (2) 14
Increase in deferred income tax benefits (523) (586)
Changes in operating assets and liabilities:
Accounts receivable 5,137 (1,796)
Operating notes receivable (535) 956
Inventories (14,463) (15,014)
Other current assets 43 (125)
Accounts payable 3,373 2,142
Customer prepayments and deferred income 6,162 5,434
Accrued expenses (4,800) (6,941)
Income taxes (224) (997)
-------- --------
Cash used in operating activities (5,023) (13,922)
CASH FLOWS FROM INVESTING ACTIVITIES:
Retirement of short-term investments
for industrial revenue bond 745 9
Purchase of property, plant and equipment (1,682) (1,026)
Decrease (increase) in rental equipment (276) (693)
Proceeds from sale of equipment 2 2
Increase in other assets 90 (60)
-------- --------
Cash used in investing activities (1,121) (1,768)
(CONTINUED ON NEXT PAGE)
- --------------------------------------------------------------------------------
SEE ACCOMPANYING CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
AG-CHEM EQUIPMENT CO., INC. AND SUBSIDIARIES
(In Thousands)
(UNAUDITED)
- --------------------------------------------------------------------------------
Three months ended December 31,
1997 1996
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in checks outstanding in
excess of cash balances (7) 2,340
Proceeds from notes payable - banks 26,150 --
Repayments of notes payable - banks (24,765) --
Proceeds from long-term borrowings 6,250 32,625
Repayments of long-term borrowings (1,151) (19,279)
Purchase of common stock (46) --
-------- --------
Cash provided by financing activities 6,431 15,686
Foreign currency translation adjustment -- 4
-------- --------
Net increase in cash 287 --
Cash at beginning of period -- --
-------- --------
Cash at end of period $ 287 $ --
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 1,717 $ 1,731
Income taxes $ 223 $ 2,255
- --------------------------------------------------------------------------------
SEE ACCOMPANYING CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AG-CHEM EQUIPMENT CO., INC. AND SUBSIDIARIES
(In Thousands)
(UNAUDITED)
- --------------------------------------------------------------------------------
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions in Rule 10-01 of Regulation S-X.
Accordingly, they do not include all of the footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. For further
information, refer to the consolidated financial statements and footnotes
thereto for the year ended September 30, 1997 included in the Company's annual
report on Form 10-K. Results of the interim periods are not necessarily
indicative of the results for an entire year.
(2) INVENTORIES
Inventories consist of the following:
December 31, September 30,
1997 1997
--------- ---------
Finished goods $ 55,026 $ 46,278
Resale parts 25,088 22,116
Work in process 8,148 7,542
Raw materials 27,500 25,700
--------- ---------
Total 115,762 101,636
Less LIFO reserve (12,808) (12,454)
--------- ---------
Total 102,954 89,182
Used equipment 11,403 10,712
--------- ---------
Total inventories $ 114,357 $ 99,894
========= =========
If the first in, first out (FIFO) method utilizing current costs had
been used for inventories valued using the LIFO method, inventories would have
been higher by $12,808 at December 31, 1997 and $12,454 at September 30, 1997.
(3) ACCRUED EXPENSES
Accrued expenses consist of the following:
December 31, September 30,
1997 1997
------- -------
Compensation $ 4,782 $ 9,396
Warranty 1,578 1,385
Taxes other than income 925 1,790
Insurance 2,237 1,861
Interest 1,247 1,755
Other 1,935 1,317
------- -------
Total $12,704 $17,504
======= =======
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(DOLLARS IN THOUSANDS)
RESULTS OF OPERATIONS - THREE-MONTH PERIOD ENDED DECEMBER 31, 1997 COMPARED TO
THREE-MONTH PERIOD ENDED DECEMBER 31, 1996
Consolidated net sales increased by $6,247 or 11.1 percent in the
three-month period ended December 31, 1997 from the three-month period ended
December 31, 1996 to $62,537. The increase was primarily the result of an
increase in pre-emergence and used equipment sales due to increased unit
shipments, rather than pricing changes. The increased unit shipments of
pre-emergence equipment were largely due to demand for the new model 8103,
introduced in August 1997. Used equipment sales increased as a percent of net
sales, and the remaining product mix remained substantially unchanged.
Consolidated gross profit for the three-month period ended December 31,
1997 decreased $167 or 1.0 percent as compared to the comparable period in the
prior year. Consolidated gross profit as a percent of net sales was 27.1 percent
and 30.4 percent for the three-month periods ended December 31, 1997 and 1996,
respectively. The primary reasons for the lower margin percentage were higher
product costs due to start-up expenditures on the new model 8103, lower
absorption of manufacturing expenses, and higher levels of used equipment sales
as a percent of total sales. Used equipment sales have lower margins than new
equipment. The Company has not yet fully utilized the capacity of the latest
plant expansions. The Company expects margins to improve as plant utilization
grows with increased sales and production.
Consolidated sales, general and administrative ("S,G&A") expenses
increased $2,982 or 20.4 percent in the three-month period ended December 31,
1997 as compared to the comparable period in the prior year. This increase is
largely attributed to a 21.2 percent or $2,114 increase in compensation,
employee benefits and employee-related expenses resulting from an increase in
the number of employees to support the Company's sales growth and new product
development that the Company anticipated. Similarly, all other S,G&A expenses
increased by 21.9 percent or $991. Of the overall increase in S,G&A expenses,
costs to support the Company's sales growth increased $2,397 or 19.6 percent,
and costs to support product development increases $585 or 24.2 percent. S,G&A
expenses as a percent of net sales was 28.2 percent and 26.0 percent in the
three-month periods ended December 31, 1997 and 1996, respectively. The Company
expects that S,G&A expenses may increase slightly as a percentage of sales
compared to previous periods, on an annual basis, depending on sales during
fiscal 1998.
As a result of the above, operating income (loss) was $(647) and $2,502
in the three-month periods ended December 31, 1997 and 1996, respectively.
Other income decreased 16.9 percent to $717 in the current three-month
period as compared to the prior-year three-month period. The decrease was
primarily due to reduced earnings from the Company's rental property. The
reduced earnings were the result of a one-time charge, and the Company does not
expect the decrease to be a continuing trend.
Interest expense decreased 0.8 percent to $1,717 in the current
three-month period ended as compared to the comparable period in the prior year.
Borrowings and base interest rates remained similar to the prior year.
<PAGE>
The effective tax rate in the three-month periods ended December 31,
1996 and 1995 was 33.5 percent and 39.2 percent, respectively. The decrease in
the effective tax rate was primarily the result of lower losses incurred by the
Company's Dutch subsidiary which do not reduce U.S. income taxes, and a
reduction in the net operating loss valuation reserve.
As a result of the above, net earnings (losses) were $(1,095) and $994
in the three-month periods ended December 31, 1997 and 1996, respectively.
Earnings (losses) per share were $(0.11) and $.10 for the three-month periods
ended December 31, 1997 and 1996, respectively.
LIQUIDITY AND FINANCIAL POSITION - THREE MONTH PERIOD ENDED DECEMBER 31, 1997
COMPARED TO THREE-MONTH PERIOD ENDED DECEMBER 31, 1996
Net cash used in operating activities decreased to $5,023 in the
three-month period ended December 31, 1997, compared to $13,922 in the
three-month period ended December 31, 1996. The major reason for this change was
a decrease in cash used in operating assets and liabilities to $5,307 from
$16,344 in the three-month period ended December 31, 1997 and 1996,
respectively. Accounts receivable decreased $5,137 during the three months ended
December 31, 1997, compared to an increase of $1,796 during the comparable
period in the prior year. The Company normally experiences the highest sales
levels in the second quarter of the fiscal year. The Company expects that cash
will be provided by operating activities through net earnings during the
remainder of fiscal year 1998, and this cash will be used to satisfy the current
portion of long-term debt.
Accounts receivable turnover has remained relatively stable in recent
periods, and has not significantly affected liquidity. Inventory turnover
improved slightly during the three-month period ended December 31, 1997,
compared to the comparable period in the prior year. The Company intends to
continue to work to improve inventory turnover to further improve liquidity.
Cash used in investing activities in the three-month period ended
December 31, 1997 was $1,121 compared to $1,768 in the comparable period in the
prior year. The decrease in cash used in investing activities was the result of
the Company's refinancing of certain debt which eliminated the Company's
pre-funding of bond payments.
Cash provided by financing activities was $6,431 in the three-month
period ended December 31, 1997, compared to $15,686 in the prior-year period.
The decrease in cash provided by financing activities was primarily the result
of improved cash flows from operations which resulted in proceeds from notes
payable and long-term borrowings, net of repayments, of $6,464 compared to
$13,346 during the three-month periods ended December 31, 1997 and 1996,
respectively.
Working capital at December 31, 1997 was $59.0 million. As of December
31, 1997 the Company had $38.8 million of unused credit line available. The
Company periodically receives prepayments from customers to secure either more
favorable pricing or a desired delivery date. If the Company did not receive
customer prepayments, it believes its line of credit provides sufficient
liquidity to meet working capital requirements.
In November 1997, the Company refinanced its industrial revenue bonds.
The new bonds carry the same principal balance as the original bonds, with lower
interest rates.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Reference is made to the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1997 on file with the Securities and Exchange
Commission. During the quarter ended December 31, 1997, the Company was not a
party to any newly initiated legal proceedings and there have been no material
developments during such period to existing legal proceedings.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
See the index to exhibits immediately preceding the exhibits
filed with this report.
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the quarter for
which this report was filed.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AG-CHEM EQUIPMENT CO., INC.
Date: February 13, 1998 By: /s/ Alvin E. McQuinn
--------------------
Alvin E. McQuinn
Its: Chief Executive Officer
Date: February 13, 1998 By: /s/ John C. Retherford
----------------------
John C. Retherford
Its: Chief Financial Officer
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Title Page
- ----------- ----- ----
11.1 Statement Regarding Computation of Per Share Earnings (Loss) 13
27 Financial Data Schedule 14
Exhibit 11.1
STATEMENT RE: COMPUTATION OF EARNINGS (LOSS) PER SHARE
AG-CHEM EQUIPMENT CO., INC. AND SUBSIDIARIES
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
The per share computation are based on the weighted average number of common
shares outstanding during the periods.
Three Months Ended December 31,
--------------------------
1997 1996
----------- -----------
Shares outstanding at beginning of period 9,670,268 9,695,768
Purchase of common stock (3,500) --
----------- -----------
Shares outstanding at end of period 9,666,768 9,695,768
=========== ===========
Weighted average shares outstanding 9,669,883 9,695,768
=========== ===========
Net earnings (loss) $ (1,095) $ 994
=========== ===========
Basic earnings (loss) per common share $ (0.11) $ 0.10
=========== ===========
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 287
<SECURITIES> 0
<RECEIVABLES> 18,591
<ALLOWANCES> (676)
<INVENTORY> 114,357
<CURRENT-ASSETS> 142,702
<PP&E> 46,559
<DEPRECIATION> (31,844)
<TOTAL-ASSETS> 197,846
<CURRENT-LIABILITIES> 83,674
<BONDS> 0
0
0
<COMMON> 9,666,768
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 197,846
<SALES> 62,537
<TOTAL-REVENUES> 62,537
<CGS> 45,565
<TOTAL-COSTS> 45,565
<OTHER-EXPENSES> 17,619
<LOSS-PROVISION> 120
<INTEREST-EXPENSE> 1,717
<INCOME-PRETAX> (1,647)
<INCOME-TAX> (552)
<INCOME-CONTINUING> (1,095)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,095)
<EPS-PRIMARY> (0.11)
<EPS-DILUTED> (0.11)
</TABLE>
