SECURITIES & EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --------- EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended September 30, 1999
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- ----------- SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ________ to ________.
Commission File Number: 0-25360
AG-CHEM EQUIPMENT CO., INC.
(Name of Registrant as Specified in Its Charter)
Minnesota 41-0872842
(State or Other Jurisdiction of (IRS 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)
Securities Registered Under Section 12(b) of the Exchange Act: None
Securities Registered Under Section 12(g) of the Exchange Act:
Common stock, $.01 par value
(Title of Class)
Indicate by check mark whether the registrant has:
1. 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. Been subject to such filing requirements for the past 90 days.
__X__ Yes No _____
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. |X|
As of December 10, 1999, the aggregate market value of the voting stock
held by non-affiliates of the registrant, computed by reference to the closing
sales price for such stock as reported by the NASDAQ National Market System, was
approximately $37,351,300.
As of the close of business on December 10, 1999, there were
outstanding 9,591,868 shares of the registrant's common stock, $.01 par value.
DOCUMENTS INCORPORATED BY REFERENCE
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Portions of the registrant's Proxy Statement for its Annual Meeting of
Shareholders which will be filed within the Securities and Exchange Commission
within 120 days of the Company's fiscal year ended September 30, 1999 are
incorporated by reference into Part III hereof.
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PART 1
ITEM 1. BUSINESS
INTRODUCTION
Ag-Chem Equipment Co., Inc. ("Ag-Chem" or "the Company") manufactures
and distributes off-road equipment primarily for use in fertilizing agricultural
crops, the application of crop protection chemicals to crops, and to a lesser
extent, industrial waste treatment applications and other industrial uses. The
Company was incorporated in Minnesota in 1963. Its principal executive offices
are located at 5720 Smetana Drive, Minnetonka, Minnesota.
Ag-Chem generates a majority of its consolidated revenues from its line
of agricultural equipment which consists of self-propelled, three- and
four-wheeled vehicles and related equipment for use in the application of liquid
and dry fertilizers and crop protection chemicals. Ag-Chem manufactures
equipment for use both prior to planting crops ("pre-emergence") and after crops
emerge from the ground ("post-emergence"). The Company believes it holds 60 -
70% of the pre-emergence market, a position it has built by delivering
innovative products for more than 35 years.
The Company's mission is to position itself as the leading,
state-of-the-art manufacturer of agricultural application equipment, with an
emphasis on "Site-Specific Agriculture" through its SOILTEQ products,
specifically SOILECTION(R) and other high-tech hardware and software product
offerings. In order to achieve this goal, the Company has implemented a business
strategy that is focused on customer service and training. In addition to its 20
parts and service centers (discussed below), the Company provides customers with
service by offering an organization of field service repair personnel who are
stationed at various locations throughout the country. Because Ag-Chem believes
customer training in site-specific technology is of paramount importance, the
Company operates a Technology & Education Center in Jackson, Minnesota to meet
the specialized training needs of its customers. Unlike most of its competitors
which sell through distributors, Ag-Chem sells a majority of its products
directly to the end-users of the equipment, which include fertilizer dealers,
farm cooperatives, large growers, municipalities, waste disposal contractors and
mining and construction companies. Farmers are not generally the Company's
direct customers. This distribution strategy enables the Company to maintain
close ties with its customers.
Ag-Chem also maintains a network of 20 parts and service centers
located throughout the major farming regions of the United States and Canada.
These centers, combined with the Company's field service repair team and
in-house support staff, offer customers a high level of service and
responsiveness, thereby averting critical delays during periods of peak usage.
Each parts and service center operates as a separate profit center, selling
parts and servicing equipment manufactured by Ag-Chem as well as selling parts
for equipment manufactured by other companies.
The Company holds certain patents and has designed software related to
the SOILECTION process. The SOILECTION process enhances application equipment
capability by allowing it to selectively blend fertilizers, chemicals,
micro-nutrients, seed and crop protection chemicals at the point of application.
This process is computer controlled and based on a digitized map. Variable rate
delivery, based on mapping input data, combined with Global Positioning
Satellite (GPS) navigation, allows site-specific application. Although
SOILECTION has been a relatively small contributor to the Company's revenues,
such revenues continue to grow. Site-specific agriculture is central to the
Company's mission and may represent significant future revenue over the long
term.
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The Company supplements its agricultural equipment line by marketing
vehicles for various other industrial uses. Most notably, the Company
manufactures vehicles used for waste application, specifically designed for
subsurface liquid injection and surface spreading of biosolids, i.e., sewage
sludge and other farm or industrial waste that can be safely used for soil
enrichment. The Company has recently developed a version of its industrial
application that utilizes the SOILECTION process. This equipment allows
purchasers to dispose of manure from livestock confinement operations in an
environmentally sound manner.
The Company's business is highly seasonal. Approximately 50% of its net
sales occur during the period from January 1 through April 30. Accordingly, the
Company increases its inventory levels during the quarters ended September 30
and December 31 to meet this seasonality. The Company periodically receives
prepayments from customers to secure either more favorable pricing or a desired
delivery date. These prepayments partially fund the increase in inventories. If
the Company did not receive customer prepayments, it believes that its line of
credit would provide sufficient liquidity to meet working capital requirements.
As of December 1, 1999, the Company had an order backlog of
approximately $17.7 million compared to $19.7 million on December 1, 1998. The
Company expects that substantially all of such backlog orders will be filled
during the current fiscal year ending September 30, 2000.
PRODUCTS AND SERVICES
PRE-EMERGENCE APPLICATION EQUIPMENT - Pre-emergence equipment is used
to apply chemical to fields prior to crops emerging. The Company manufactures
and sells high-flotation, self-propelled vehicles and related equipment which
are used for fertilization and the spraying of crop protection chemicals under
the "Terra-Gator," "Big Wheels" and "Lor*Al" brand names. These vehicles are
primarily used prior to planting crops (i.e. "pre-emergence"). These vehicles
are made with extra wide tires to provide maximum traction and a minimum level
of soil compaction which has an adverse effect on crop yield. Ag-Chem
manufactures a full line of three- and four-wheeled vehicles equipped with
various engine sizes.
Unlike most of its competitors' vehicles, which are simply
over-the-road vehicles modified for agricultural use, the Company's Terra-Gator
models have chassis specifically designed for off-road use. Ag-Chem primarily
manufactures three-wheeled vehicles, which offer an advantage over four-wheeled
vehicles because of significantly lower soil compaction (three separate wheel
tracks instead of rear tires following front tires), which has an adverse effect
on crop yield. The new Terra-Gator models 8144 and 9103 were introduced in
fiscal 1999.
The Company manufactures pre-emergence equipment in a variety of model
sizes, engine horsepower and equipment configuration. For example, it builds
larger models with bigger tanks to reduce the need for tank refills. Similarly,
it builds increased horsepower engines to allow its vehicles to navigate rough
terrain at higher speeds and to power add-on equipment. The Company sells this
equipment, including its attachments, for between approximately $100,000 and
$225,000; prices for equipment combined with the SOILECTION system range from
$190,000 to $300,000.
The Company manufactures a variety of application systems that are
normally ordered with a chassis. The systems serve as a means to apply
fertilizer and crop protection chemicals. Ag-Chem produces several liquid and
dry fertilizer systems which offer varying widths of boom size, spraying
accuracy and ease of maintenance. Although liquid systems are often more
accurate in their application than dry systems, liquid fertilizer is often more
expensive than dry fertilizer. Liquid crop protection chemicals and fertilizers
also tend to break down more quickly than dry fertilizers.
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The Company's Lor*Al subsidiary modifies on-road trucks by adding
heavy-duty rear axles, suspensions and oversized tires. Lor*Al's product
offering consists of various modified Navistar and Ford truck chassis which sell
under the Lor*Al and Big Wheel brand names. Lor*Al's converted on-road vehicles
provide diversity to Ag-Chem's product line and provide Ag-Chem a significant
presence in the middle price segment of the fertilizer application market.
Lor*Al models have lower margins than the Terra-Gator model due to the fact that
truck chassis are purchased from other providers and the Company adds less value
during the manufacturing process.
POST-EMERGENCE APPLICATION EQUIPMENT - Post-emergence equipment is used
to apply protective chemicals to crops after they have already emerged. Ag-Chem
markets products for this purpose under the RoGator brand name. The RoGator
model has high crop clearance to avoid crop damage during the application
process. In addition, the RoGator model offers an adjustable wheel track width,
which allows it to operate in a variety of row crop spacings. These adjustments
are controlled from the cab. The RoGator model, with attachments, sells for
between $80,000 and $185,000.
Since its introduction in 1993, the RoGator model has enabled Ag-Chem
to reduce the seasonal impact of its pre-emergence equipment sales and now
accounts for a significant portion of sales. Sales of post-emergence equipment
represented 26.3 percent of total revenues during fiscal 1999. The RoGator
models are produced in three sizes - the 854 model, the smaller 550, and the
newest and largest machine, the 1254 which was first produced in summer 1999.
PARTS AND SERVICE CENTERS - The Company believes that the availability
of parts and service for its equipment is essential to the end-user. Delays
during the planting, growing or harvesting period can be critical to farmers.
Accordingly, potential customers view on-going maintenance of application
equipment as a significant factor in making a purchase decision. The Company's
customers need products that can be serviced in a minimal amount of time. For
this reason, the Company operates 20 parts and service centers across the United
States and Canada. These centers are intended to serve the Company's customers
by providing parts and technical support on a regional basis. These parts and
service centers exclusively repair the Company's products. They stock and sell
parts manufactured by the Company as well as parts which are manufactured by
other companies which have been incorporated into the Company's products. The
parts and service centers also stock and sell parts for equipment manufactured
by other companies for use in competitors' products. The Company's parts and
service centers also refurbish used Ag-Chem equipment for resale. The Company
believes that its parts and service centers are an important part of the
Company's growth because of the support they provide to its customers.
EUROPEAN OPERATIONS - The Company's subsidiary, Ag-Chem Europe B.V., a
corporation organized under the laws of the Netherlands, is engaged in the
importation, manufacture and distribution of agricultural and industrial
equipment throughout Europe. Ag-Chem Europe B.V. imports application equipment
manufactured by the Company, customizes the equipment by adding systems, and
other modifications, and then resells the equipment to European customers. It
also manufactures several models of equipment better suited for European
conditions.
SOILTEQ - The Company holds patents for and has designed software
related to the process known as SOILECTION. SOILECTION is a process that
utilizes a variety of input data to develop a site-specific application map.
Through such inputs as soil test data and soil surveys, software developed and
provided by the Company is able to generate a spreading map for each unique soil
plot. The Company has also developed and markets control systems under the
"FALCON" name which provides for site-specific application of multiple products
in a single pass. When the SOILECTION
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spreading map is used with a machine such as an applicator equipped with a
FALCON (i.e. the Company's computer-based control system), site specific
placement of multiple crop inputs products is possible.
SOILECTION technology benefits farmers by ensuring that appropriate
amounts of crop inputs, such as fertilizer, crop protection chemicals,
micronutrients and seed are applied to each section of a field based on selected
criteria. Ag-Chem's system allows the operator to allocate inputs to areas that
can support high yields and avoid over-application of inputs on soils that are
only capable of producing low yields. With SOILECTION, inputs are placed only in
areas where they can be used by the crop, and excess application is minimized.
The effects of such a process are optimal economic performance and potentially
positive environmental benefits.
CUSTOMER TRAINING - With the growth of site-specific agriculture, the
Company has recognized an increasing demand for customer training related to
this new technology. The Company operates a 40,000 square foot facility in
Jackson, Minnesota. The Ag-Chem Technology & Education Center is staffed with
dedicated instructors and equipped with state-of-the-art computer and control
system training rooms. At the facility, the Company provides a varied curriculum
of site-specific agriculture and other course offerings.
OTHER AGRICULTURAL PRODUCTS - The Company's AgTec division manufactures
and sells: (i) low volume air sprayers used for spraying crop protection
chemicals on orchards, vineyards, field crops and Christmas trees; (ii) low
volume lawn sprayers; (iii) injection systems for use by professional lawn care
contractors; (iv) high volume sprayers used by commercial tree spraying
contractors; (v) boom sprayers used in crop spraying; and (vi) a line of
lawn/garden sprayers. The AgTec Division also distributes heavy-duty flail brush
choppers and swing arm rotary mowing equipment for use by orchards and
nurseries.
INDUSTRIAL EQUIPMENT - Ag-Chem manufactures a line of equipment that is
used in the waste application industry. This equipment applies or injects sludge
from waste treatment facilities to agricultural land. Direct injection minimizes
odor and runoff problems associated with land disposal. This equipment is sold
to waste disposal companies and municipalities. In addition to its waste
disposal equipment, the Company manufactures other lines of equipment for the
drilling, mining and construction industries. Since 1998, the Company has
offered a map-based application system for its sludge equipment. This technology
has enabled customers to create map-based, variable rate applications of sludge
based on the nutrient needs of the soil.
SALES AND MARKETING
Ag-Chem has one group of sales and marketing employees specifically
devoted to the agricultural market. The Company also has other groups of sales
employees focusing primarily on fertilizer dealers and farm cooperatives,
selling industrial equipment, selling SOILECTION equipment, and selling the
Company's AgTec division products to retail dealers. In the United States, the
Company sells its Lor*Al product line to end-users through three distributors in
part of the country and through Ag-Chem sales force in other parts of the
country. Internationally, Ag-Chem sells its products through its subsidiary,
Ag-Chem Europe, B.V., as well as a network of distributors. The Company's sales
effort consists of national and regional advertising, a catalog, web-based
sales, direct mail programs, and trade shows.
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For fiscal 1999, 1998 and 1997 the members of a farming co-op accounted
for 12.6%, 13.8% and 13.8% of net sales, respectively. Such members retain
individual purchasing authority, and the Company does not consider the related
business risks to equate to one single, large customer.
Ag-Chem offers financing to customers through several different
programs that involve third-party lenders and lessors. Although Ag-Chem has no
responsibility or obligation in the event of a default by purchasers or lessors
of such equipment, the Company attempts to assist lenders and lessors in
reselling repossessed equipment.
Ag-Chem also offers its own lease and debt-financing program. Ag-Chem
retains a security interest in the financed equipment, which allows the Company,
at its option, to sell such leases or notes. Ag-Chem maintains a full time
credit and collection staff which conducts credit evaluations and administers
the customer financing activities. Since the Company began financing its own
equipment, it has experienced limited defaults. Moreover, the Company believes
an active market exists for used equipment. Ag-Chem finances equipment for terms
up to seven years. Lessees have the option of converting the rental to a
purchase.
SUPPLIERS
The Company currently relies upon single sources of supply for a number
of components that are used in the manufacture of its off-road machines and
related equipment. The Company believes that alternative sources will become
available within a reasonable time for each of the components currently obtained
from such sources. Ag-Chem generally has supply contracts with its larger
suppliers which are based on price but do not require minimum volume purchases.
INDUSTRY AND COMPETITION
In general, the agricultural equipment industry is highly competitive.
The industry continues to experience significant consolidation and retrenchment.
The United States market for custom application equipment consists
largely of retail fertilizer dealers, farm cooperatives and some farmers who
operate very large farms. Ag-Chem sells primarily to fertilizer dealers and farm
cooperatives.
The Company believes that the percentage of farmers who apply crop
inputs with their own equipment has decreased and expects it to decline further
due to a number of factors.
Increased productivity is one of the benefits of outsourcing crop input
application to independent fertilizer dealers. Tractors and pull-behind
spreaders commonly used by farmers to apply crop inputs are typically less
accurate and require significantly more time, and operate at lower speeds
(approximately 4 to 5 mph) than Ag-Chem equipment, which fertilizes at a speed
of approximately 16 mph and precisely applies the fertilizer.
Both the trend toward outsourcing crop input application and the
consolidation of the farming industry over the last decade have bolstered the
demand for Ag-Chem's products. The result of such consolidation has been fewer
but larger and financially stronger farms. Farmers are becoming increasingly
sophisticated in agro-economics and more likely to contract for applicator
services. Moreover, heightened competition motivates fertilizer dealers to stay
current with advances in fertilization technology, which can result in replacing
application equipment before the end of its useful life. Accordingly, while the
aggregate United States farm acreage planted has remained relatively stable
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in recent years, Ag-Chem, and the custom application equipment industry as a
whole, have continued to grow.
Demand for Ag-Chem's agricultural equipment can be affected by the following
factors, among others:
o Grain prices - commodity prices have an effect on customer
attitudes and purchasing decisions;
o Government regulations - many growers don't want to be
concerned with increasing regulations associated with handling
various crop inputs;
o Low-dose chemicals - changes in crop protection chemistry and
formulation have resulted in crop protection chemicals that
require very precise spray systems;
o Rural labor pool - decreasing rural populations make finding
seasonal farm labor more difficult;
o Weather - extreme conditions of drought or flood influence
purchasing decisions in affected areas;
o Trained personnel - the limited number of skilled equipment
operators is a factor for customers considering equipment
purchases;
o Interest rates - the cost of borrowing money is a factor for
customers considering equipment purchases;
o Market conditions for the ag retailer/custom applicator -
margins on crop inputs affect profitability, and therefore
influence buying decisions;
o Mandated capital expenditures - fertilizer dealers in many
states have been or will be required by law to upgrade their
facilities with costly containment measures, potentially
delaying equipment purchases.
o Genetically modified seed - There is uncertainty around
genetically modified seed and as a result there is uncertainty
in farmers' ability to market these crops.
The off-road agricultural application equipment industry, which
excludes "short-line" equipment (i.e. equipment pulled behind or mounted on a
tractor or pickup), consists of over 10 manufacturers. Competitors, who at one
time were substantially smaller than Ag-Chem, are now considerably larger. In
the recent past, Deere & Co. has entered the post-emergence market, Case
Corporation (Case) has purchased Tyler Inc. (Tyler), and AgCo Inc. (AgCo) has
purchased Willmar Manufacturing Inc. (Willmar). Although each company is smaller
in terms of equipment sold in the Company's industry, they are each supported by
a much larger parent company. Deere & Co. and Willmar manufacture and sell
post-emergence vehicles. Tyler, a Case subsidiary, markets pre-emergence and
post-emergence equipment.
With competition based largely on price, quality, technology and
service, Ag-Chem has positioned itself as a supplier of quality products with an
emphasis on service and training, as exemplified by the Company's numerous parts
and service centers and by the training provided at the Ag-Chem Technology &
Education Center.
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MANUFACTURING
The Company's manufacturing process includes machining, fabricating,
welding, assembling and painting. Off-road machines and related equipment are
manufactured in the Company's facilities in Jackson, Minnesota. The spraying
equipment produced by the Company's AgTec Division is manufactured in a plant
located in Niles, Michigan. The Lor*Al product line is manufactured in Benson,
Minnesota, as are certain components for the Ag-Chem line. The Company's Ag-Chem
Europe B.V. subsidiary manufactures sludge and agricultural equipment in
Grubbenvorst, Holland.
RESEARCH AND DEVELOPMENT
As of September 30, 1999, the Company employed a staff of employees and
contractors in research and development who are responsible for developing new
products and improvements or enhancements to existing products. Research and
development expenditures were $9.4 million in fiscal 1999, $10.8 million in
fiscal 1998 and $9.4 million in fiscal 1997. Such expenditures constituted 3.2
percent, 3.4 percent and 2.9 percent of the Company's fiscal 1999, 1998, and
1997 net sales, respectively. The Company believes its ongoing commitment to new
products and improvements and upgrades of existing products provide the Company
with a major competitive advantage and technological leadership.
PATENTS AND TRADEMARKS
The Company holds a number of patents that cover certain aspects of its
products. The Company believes that several of its patents, particularly
relating to site-specific agriculture, are significant to the Company's
business. The Company's patents generally have terms that expire twenty years
from the effective patent application filing dates, although patent terms can
differ, based on particular jurisdiction and filing date. No assurance can be
given that, if applied for by the Company, any patents will be issued or that
the patents currently held or new patents, if issued, will be valid or will
provide any significant competitive protection for the Company.
Ag-Chem has obtained federal trademark registration of the Ag-Chem logo
and the "SOILECTION(R)" trademark. In addition, the Company uses and claims
rights to and has obtained federal registration of a number of trademarks used
to identify the Company's products. The Company's prior use of an unregistered
name or trademark may entitle it an exclusive right to such usage in connection
with the sale of that Company's products in a particular market area. However,
registration of a trademark with the U.S. Patent and Trademark Office provides
such right throughout the United States and creates a presumption that the
trademark is valid. There can be no assurance that any trademark application, if
filed by the Company, will result in the receipt of a registration for the
trademark. There can also be no assurance that the Company's use of their
tradename or trademark will not infringe upon the rights of others, or that they
will be free from future challenge by others as prior use or as otherwise being
unprotectable.
REGULATIONS
The Company is subject to environmental laws and regulations concerning
emissions to the air, discharges of processed or other types of waste water and
the generation, handling, storage, transportation, treatment and disposal of
waste materials. These laws and regulations are constantly changing and it is
impossible to predict with accuracy the effect they may have on the Company in
the future.
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In 1990, certain provisions of the Clean Air Act Amendments were
adopted by Congress which require the Environmental Protection Agency (the
"EPA") to study emission from off-road engines and equipment, including the
majority of the equipment manufactured by the Company. In June 1994, the EPA
promulgated emission standards for new non-road, non-spark-ignition engines. The
EPA began implementing such regulations on January 1, 1996 for some models and
January 1, 1997 for other models. These regulations apply to equipment
manufactured on or after the January 1, 1996 and 1997 implementation dates,
respectively. The Company is currently in compliance with such regulations.
In July 1994, the EPA promulgated regulations allowing the State of
California to implement regulations concerning emissions from off-road engines
and equipment, as long as such regulations meet or exceed federal standards. The
Company is not aware of any other promulgated or proposed regulations at the
present, and cannot predict the impact, if any, of future regulations on the
operations of the Company.
The Company is subject to various federal, state, and local laws
affecting its business as well as a variety of regulations relating to matters
such as working conditions and product safety.
The Company's European shipments are subject to the rules and
regulations of the European Economic Community (the "EEC") as well as those of
the individual countries. These rules and regulations apply to self-propelled
agricultural working machines traveling on public roads. Also required by the
"EEC" is a certification that addresses operator safety and working conditions.
EMPLOYEES
The Company employs 1,445 full-time employees, of whom 825 were engaged
in manufacturing & engineering, 383 in service and parts distribution, 127 in
sales, and 110 in administration. The Company is not subject to any collective
bargaining agreement and believes that its employee relations are good.
ITEM 2. PROPERTIES
The principal properties of the Company are as follows:
LOCATION DESCRIPTION OF PROPERTY
-------- -----------------------
Minnetonka, Minnesota Corporate Office
Jackson, Minnesota Manufacturing
Jackson, Minnesota Parts/Service Support
Jackson, Minnesota Training Center
Benson, Minnesota Manufacturing
Benson, Minnesota Parts/Service Support
Grubbenvorst, Holland Manufacturing
The Company owns executive offices in the Brenwood Office Park located
in Minnetonka, Minnesota. The Company's executive offices occupy approximately
43,300 of the total 176,000 square feet of available space. Leasing operations
related to space not occupied by the Company in the Brenwood Office Park is not
deemed material to the Company's operations. The Company owns properties in
Jackson, Minnesota, and leases the others. The manufacturing facility in Benson,
Minnesota is presently operating at approximately 50% capacity, and the Jackson,
Minnesota manufacturing facility is operating at approximately 60% capacity. The
Company considers each of its facilities to be in good condition.
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The Company also has 20 parts and service centers ranging from 8,000 to
45,000 square feet, of which it owns 12, leases 5, and operates 3 on a
consignment basis (i.e. the Company contracts with a third party to service
Ag-Chem customers).
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
The Company submitted no matters to a vote of security holders during
the fourth quarter of the fiscal year ended September 30, 1999.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The common stock of the Company (ticker symbol "AGCH") currently trades
on The NASDAQ Stock Market (National Market System). The following table sets
forth, for the periods indicated, the high and low sales prices for the
Company's Common Stock for each quarter within the last two fiscal years as
reported by NASDAQ. These quotations reflect inter-dealer prices without retail
markup, markdown or commissions and may not represent actual transactions.
<TABLE>
<CAPTION>
-------------------------
SALES PRICE
-------------------------
LOW HIGH
<S> <C> <C>
FISCAL YEAR ENDED SEPTEMBER 30, 1998
First quarter....................................... $12.50 $19.88
Second quarter...................................... $12.75 $18.00
Third quarter....................................... $12.75 $22.13
Fourth quarter...................................... $12.75 $21.00
FISCAL YEAR ENDED SEPTEMBER 30, 1999
First quarter ...................................... $9.50 $13.00
Second quarter...................................... $10.00 $16.75
Third quarter....................................... $9.75 $12.19
Fourth quarter...................................... $8.50 $10.75
</TABLE>
As of December 10, 1999, there were 371 shareholders of record and
approximately 1,900 shareholders in street name.
The Company has never paid cash dividends on its Common Stock. The
Company currently intends to retain any earnings for use in its operations and
does not anticipate payment of cash dividends in the foreseeable future.
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ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data has been derived from the
Company's consolidated financial statements. The data should be read in
conjunction with the consolidated financial statements and notes thereto
included elsewhere herein and with "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
CONSOLIDATED STATEMENTS OF EARNINGS DATA: (1)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------
FOR THE FISCAL YEAR ENDED SEPTEMBER 30,
----------------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net sales.................................. $292,679 $322,122 $318,212 $280,152 $233,852
Cost of sales.............................. 214,688 234,959 232,565 200,378 166,711
Selling, general and administrative
expenses................................ 70,259 74,003 69,034 61,239 48,279
Operating income........................... 7,732 13,160 16,613 18,535 18,862
Other income............................... 2,994 3,384 3,186 3,248 2,200
Interest expense........................... 5,713 6,246 6,229 5,935 2,673
Earnings before income taxes............... 5,013 10,298 13,570 15,848 18,389
Income tax expense......................... 1,625 3,450 6,000 6,100 6,980
Net earnings............................... 3,388 6,848 7,570 9,748 11,409
Earnings per share......................... 0.35 0.71 0.78 1.01 1.19
Weighed average common shares outstanding.. 9,616 9,660 9,683 9,672 9,604
CONSOLIDATED BALANCE SHEET DATA: (1)
----------------------------------------------------------------------------
FOR THE FISCAL YEAR ENDED SEPTEMBER 30,
----------------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Working capital............................ $66,302 $76,174 $53,497 $47,873 $56,248
Property, plant and equipment, net......... 42,470 45,813 46,260 42,697 38,322
Total assets............................... 189,929 188,194 187,999 185,559 151,689
Long-term debt, less current installments.. 44,299 59,903 45,368 43,334 57,105
Stockholders' equity....................... 73,223 70,420 63,887 57,343 44,873
Average number of employees................ 1,536 1,720 1,637 1,534 1,111
Return on beginning equity (2)............. 4.8% 10.7% 13.2% 21.7% 33.7%
</TABLE>
- ------------------------------------------------
(1)Dollars and shares in thousands, except per share amounts.
(2)Return on beginning equity is calculated as net earnings for the period
divided by the equity balance at the end of the prior year.
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Dollars in thousands)
SUMMARY
The following table presents the percent of net sales for each item in
the Consolidated Statements of Earnings:
<TABLE>
<CAPTION>
------------------------------------------------
YEARS ENDED SEPTEMBER 30,
------------------------------------------------
1999 1998 1997
------- -------- --------
<S> <C> <C> <C>
Net sales................................. 100.0 100.0 100.0
Cost of sales............................. 73.4 72.9 73.1
------- -------- --------
Gross profit.............................. 26.6 27.1 26.9
Selling, general and administrative
expenses.................................. 24.0 23.0 21.7
------- -------- --------
2.6 4.1 5.2
OTHER INCOME (EXPENSE):
Other income.............................. 1.0 1.0 1.0
Interest expense.......................... (2.0) (1.9) (1.9)
------- -------- --------
Earnings before income taxes.............. 1.6 3.2 4.3
Income tax expense........................ 0.6 1.1 1.9
------- -------- --------
Net earnings.............................. 1.0 2.1 2.4
======= ======== ========
</TABLE>
- ------------------------------------------------
RESULTS OF OPERATIONS - FISCAL 1999 COMPARED TO FISCAL 1998
Consolidated net sales decreased by $29,443, or 9.1%, to $292,679 in
the fiscal year ended September 30, 1999 (fiscal 1999) from the fiscal year
ended September 30, 1998 (fiscal 1998). The decrease was primarily the result of
decreases in pre-emergence and post-emergence equipment unit shipments. The
agricultural economy has continued to suffer as a result of low commodity
prices, which has lowered demand for equipment. Additionally, the farm supply
industry is experiencing consolidation with a resulting decrease in demand for
equipment in the short-term. The Company expects these factors to continue to
affect its business in the year ending September 30, 2000 but is uncertain about
impact on future sales. The changes and factors described above are quantified
as follows:
o Post-emergence equipment net sales decreased $11,736 or 13.2%
during fiscal 1999 as compared to fiscal 1998. As a result,
sales of post-emergence equipment represented 26.2% of net
sales in fiscal 1999 compared to 27.5% in fiscal 1998.
12
<PAGE>
o Pre-emergence equipment net sales decreased $20,190, or 15.8%
during fiscal 1999 compared to fiscal 1998. As a result, sales
of pre-emergence equipment represented 36.7% of net sales in
fiscal 1999 compared to 39.6 in fiscal 1998.
o Sales of other product lines increased $2,483, primarily
because of new product lines introduced in mid 1999.
Consolidated gross profit for fiscal 1999 decreased $9,172 or 10.5%
from the prior-year. Consolidated gross profit as a percent of net sales was
26.6% and 27.1% for fiscal 1999 and 1998, respectively. Gross profit as a
percent of net sales was reduced during fiscal 1999 due to price reductions on
old-style machines and increased discounts on the current product line. The
Company expects continued reduced margins due to competitive pressures.
Additionally, higher manufacturing costs due to fewer hours of production in the
current year reduced gross profit. Gross profit as a percent of net sales was
negatively impacted in the prior fiscal year by warranty expense related to
older model equipment. The Company has made efforts to reduce warranty expense
through improved designs on newer models. Warranty expense for fiscal 1999 was
significantly lower as compared to the prior fiscal year. The Company expects
this trend to continue in fiscal 2000.
Consolidated selling, general and administrative expenses (S,G&A)
decreased $3,744 or 5.1% in fiscal 1999 as compared to fiscal 1998.
Compensation, employee benefits and employee-related expenses decreased 5.2% or
$2,688. During the three months ended December 31, 1998, the Company initiated
efforts to contain S,G&A expenses through employment reductions and other cost
control efforts. These efforts reduced S,G&A expense during fiscal 1999. All
other S,G&A expenses decreased by 4.6% or $1,056. S,G&A expenses as a percent of
net sales were 24.0% and 23.0% in fiscal 1999 and 1998, respectively.
As a result of the above, operating income was $7,732 and $13,160 in
fiscal 1999 and 1998, respectively.
The effective tax rates in fiscal 1999 and 1998 were 32.4% and 33.5%,
respectively. The decrease in the effective tax rate was primarily the result of
a lower effective state tax rate and net operating loss carry-forward
utilization by Ag-Chem Europe B.V.
Included in the results of operations discussed above are the results
of Ag-Chem Europe B.V. This subsidiary experienced a $3,651 or 20.7% increase in
net sales from fiscal 1998 to 1999. This increase was primarily the result of
increased pre-emergence equipment net sales due to an increase in unit
shipments. The increase in units shipped was the result of increased efforts by
the Company to penetrate the European market. Gross profit for this subsidiary
increased $1,442 or 52.8% in fiscal 1999, compared to the prior year. Gross
profit as a percentage of sales increased from 15.5% during fiscal 1998 to 19.6%
in fiscal 1999. Net income for this subsidiary was $610 during fiscal 1999
compared to $136 in the prior year. The remaining components of the subsidiary's
results were materially unchanged from the prior year and had no material effect
on the consolidated result of operations. The Company expects the decline in the
farming economy to continue to affect its European operations in a manner
similar to its domestic operations.
A single currency called the Euro was introduced in Europe on January
1, 1999. Although the Company has experienced no material impact, the increased
price transparency resulting from the use of
13
<PAGE>
a single currency may affect the ability of Ag-Chem and other companies to price
their products differently in the various European markets. A possible result of
this price harmonization is lower average prices for products sold in these
markets. Additionally, the Company is in the process of replacing the financial
systems used by Ag-Chem Europe B.V. so that it will be capable of converting to
the currency. The Company has put in place such new systems in the first
quarter of fiscal 2000.
LIQUIDITY AND FINANCIAL POSITION - 1999 COMPARED TO 1998
Net cash used in operating activities was $3,554 in fiscal 1999
compared to net cash provided by operating activities of $9,789 in fiscal 1998.
The major reason for this fluctuation was that changes in operating assets and
liabilities used cash of $13,058 and $5,788 in fiscal 1999 and 1998,
respectively. Increased investments in inventories used cash of $7,712 and
$1,857 in fiscal 1999 and 1998, respectively. Inventories increased to $109,463
at September 30, 1999 from $101,751 at September 30, 1998. Inventories increased
in fiscal 1999 primarily because sales did not meet expectations. The Company is
taking steps to reduce its inventories in fiscal 2000 by reducing the production
schedule and modifying the materials planning process. Accounts payable used
cash of $4,261 in fiscal 1999 compared to providing cash of $71 in fiscal 1998.
Accounts payable as of September 30, 1999 was $10,859 compared to $15,120 at
September 30, 1998. The decrease in accounts payable is related to the Company's
attempt to reduce its inventory in fiscal 2000. These uses of cash were
partially offset, primarily, by reductions in the Company's account receivables
at September 30, 1999 compared to September 30, 1998. Accounts receivable
provided $4,577 and $229 in fiscal 1999 and 1998, respectively. The Company
anticipates that in fiscal 2000, cash will be generated by operating activities
to satisfy the current portion of long-term debt.
Cash used in investing activities in fiscal 1999 was $2,136 compared to
$6,187 in the prior-year. The decrease in cash used by investing activities was
primarily the result of reductions in purchases of property, plant and
equipment. In fiscal 1999, investments in property, plant and equipment were
$1,759 compared to $3,969 in the prior year. The Company reduced its investment
in property, plant and equipment in fiscal 1999 compared to 1998 as part of its
cost control program and to conserve cash flow. The Company used $592 and $2,906
for investment in rental equipment in fiscal 1999 and 1998, respectively. The
Company experienced a much greater increase in rental equipment during fiscal
1998 than it did in fiscal 1999 as its customers looked to reduce their capital
expenditures.
Cash used in financing activities was $5,812 in fiscal 1999, compared
to $3,739 in the prior year. The increase in cash used in financing activities
was primarily the result of a decrease in checks outstanding in excess of cash
balances. The net receipts from notes payable and long-term debt were $8,283
during fiscal 1999 compared to a net repayment of $5,425 during fiscal 1998.
This increase in net borrowings was primarily due to increased working capital
requirements.
Working capital at September 30, 1999 was $66,302. As of September 30,
1999, the Company had $34,500 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 would provide sufficient liquidity
to meet working capital requirements.
14
<PAGE>
The terms of the Company's line of credit agreement include covenants
that the Company must maintain. There are a number of standard affirmative
covenants, as well as restrictive negative covenants as to additional borrowings
and requirements for the Company to maintain certain financial ratios. These
restrictive covenants include a minimum tangible net worth of $57.5 million plus
50% of each fiscal year's net earnings, a ratio of total liabilities to tangible
net worth and an interest coverage ratio. There are additional limitations on
mergers, acquisitions, disposal of assets, and capital expenditures. At
September 30, 1999, the Company was not in compliance with the interest coverage
ratio covenant with its banks. On December 22, 1999 the banks waived the events
of non-compliance and modified the debt agreement. The Company believes that it
will be in compliance with its debt covenants in fiscal 2000 as a result of the
amendment to the debt agreement. At September 30, 1999 and 1998, the weighted
average interest rate payable on this line of credit was 8.0% and 7%,
respectively.
RESULTS OF OPERATIONS -1998 COMPARED TO 1997
Consolidated net sales increased by $3,910 or 1.2 percent to $322,122
in fiscal 1998 from the year ended September 30, 1997 (fiscal 1997). The
increase was the net effect of a number of offsetting factors as follows:
o Post-emergence equipment net sales decreased $12,582,
resulting from decreased unit shipments due to increased
competition and softening of the agricultural markets.
Post-emergence equipment also decreased because the farming
economy suffered as a result of low commodity prices which
decreased demand for equipment. Finally, the farm supply
industry experienced consolidation that reduced the number of
potential customers, with a resulting decrease in the demand
for new equipment.
o Pre-emergence equipment net sales increased $6,776, primarily
the result of sales of newly designed equipment, such as the
model 8104 Terragator which was introduced in the second
quarter of fiscal 1998. These new models had higher selling
prices. As such, pre-emergence net sales increased due to
higher average selling prices rather than as a result of the
number of units shipped.
o Sales of other product lines increased $9,716, primarily as
the result of the Company's new market penetration efforts in
parts and service centers, and increased demand for used
equipment.
The net effect of the foregoing factors is that net sales of the
Company's line of post-emergence equipment decreased by 12.4% during fiscal 1998
and net sales of pre-emergence equipment increased by 5.6%. As a result, sales
of post-emergence equipment decreased from 32.0% of net sales during fiscal 1997
to 27.5% of total revenues during fiscal 1998
Consolidated gross profit for fiscal 1998 increased $1,516 or 1.8% from
the prior-year. Consolidated gross profit as a percent of net sales was 27.1%
and 26.9% for fiscal 1998 and 1997, respectively. The increase in gross profit
as a percentage of net sales was primarily the result of changes in product mix
that improved gross margin during fiscal 1998. Also, fixed costs, as a
percentage of total product costs, increased in the prior year as a result of
plant expansions during such year. These factors were offset, in part, by
operating efficiencies gained from increased production during such year. Fiscal
1998 gross profit as a percentage of net sales was negatively impacted by higher
product costs due to
15
<PAGE>
start-up expenditures in the first quarter on the Company's new model 8103
Terragator. As expected, margins improved on the new model 8103 after the second
quarter.
Consolidated selling, general and administrative expenses (S,G&A)
increased $4,969 or 7.2% in fiscal 1998 as compared to the prior year. This
increase was largely attributable to a 6.4% or $2,890 increase in compensation,
employee benefits and employee-related expenses resulting from an increase in
the number of employees to support the Company's anticipated sales growth and
new product development. All other S,G&A expenses increased by 8.7% or $2,079 as
a result of actual sales growth and support of previously anticipated sales
growth. Of the overall increase in S,G&A expenses, costs to support the
Company's sales growth increased $2,135 or 3.7%, and costs to support product
development increased $2,834 or 24.9%. S,G&A expenses as a percent of net sales
were 23.0% and 21.7% in the year ended September 30, 1998 and 1997,
respectively.
As a result of the above, operating income was $13,160 and $16,613 in
fiscal 1998 and 1997, respectively.
Interest expense increased $17 in fiscal, 1998. Base interest rates
were relatively stable and changes in such rates had a minimal effect on
interest expense. The primary cause of the increased interest expense was
increased borrowing to support working capital requirements.
The effective tax rates in fiscal 1998 and 1997 were 33.5% and 44.2%,
respectively. The factors contributing to the reduction in the rate include an
increase in the research and experimentation credit, the implementation of
several strategies to reduce federal and state taxes, and the inability to
benefit from the net loss incurred by the Company's European subsidiary in
fiscal 1997.
As a result of the above, net earnings were $6,848 and $7,570 in fiscal
1998 and 1997, and earnings per share were $.71 and $.78 for fiscal 1998 and
1997, respectively.
Included in the results of operations discussed above, are the results
of the Company's Dutch subsidiary. This subsidiary experienced a $3,132 or 21.6%
increase in net sales from fiscal 1997 to 1998. This increase was primarily the
result of increased pre-emergence equipment sales due to an increase in unit
shipments. The increase in units shipped was the result of increased efforts by
the Company to penetrate the European market. Gross profit for this subsidiary
increased $1,904 or 230% in fiscal 1998 compared to fiscal 1997. Gross profit as
a percentage of sales increased from 5.7% during fiscal 1997 to 15.5% in fiscal
1998. This increase was due to a one-time charge in fiscal 1997 that related to
used inventory valuation. Net income for this subsidiary was $136 during fiscal
1998 compared to a net loss of $1,556 in fiscal 1997. The remaining components
of the subsidiary's results were materially unchanged from fiscal 1997 and had
no material effect on the consolidated results of operations.
LIQUIDITY AND FINANCIAL POSITION - 1998 COMPARED TO 1997
Net cash provided by operating activities was to $9,789 in fiscal 1998
compared to $17,754 in fiscal 1997. The major reason for this change was that
changes in operating assets and liabilities used cash of $5,788 in fiscal 1998
while changes in operating assets and liabilities provided cash of $1,949 in
fiscal 1997. Increased investments in inventories net of an increase in accounts
payable balances, used $1,786 of cash compared to cash provided in the prior
year of $4,821. Inventories increased to $101,751 at September 30, 1998 from
$99,894 at September 30, 1997 in order to meet the forecasted fall shipment
16
<PAGE>
schedule. In addition, customer prepayments and deferred income decreased $334
in fiscal 1998 compared to $1,856 in fiscal 1997.
Cash used in investing activities in fiscal 1998 was $6,187 compared to
$10,990 in the prior-year period. This decreased use of cash was primarily due
to investments in the Company's Technology & Education Center and other
investments in property, plant and equipment in order to support the Company's
growth during fiscal 1997. In fiscal 1998, investments in property, plant and
equipment were $3,969 compared to $7,407 in fiscal 1997.
Cash used in financing activities was $3,739 in fiscal 1998, compared
to $6,249 in the prior period. The increase in cash used in financing activities
was primarily the result of an increase in checks outstanding in excess of cash
balances. The net receipts of notes payable and long-term debt were $5,425
during fiscal 1998 compared to a net repayment of $5,452 during fiscal 1997.
This increase in net borrowings was primarily due to increased working capital
requirements.
17
<PAGE>
IMPACT OF YEAR 2000
During the fourth quarter of fiscal 1999, Ag-Chem continued its
company-wide program to prepare the Company's computer systems for Year 2000
compliance. The Year 2000 issue relates to computer systems that use the last
two digits rather than all four to define a year and whether such systems will
properly and accurately process information when the year changes to 2000.
Incomplete or untimely resolution of Year 2000 issues by the Company, by its
critical suppliers and customers, by public utility providers, or by government
entities could have a material adverse impact on the Company's business,
operations, or financial condition.
STATE OF READINESS - The Company has retained an independent consultant
to assess the adequacy of the Company's Year 2000 initiatives and remediation
plans. All of the Company's essential information technology ("IT") systems have
been inventoried and remediation plans for any Year 2000 issues have been
implemented. The Company has developed Year 2000-compliant applications for the
Company's order entry and customer service systems. The Company has upgraded its
information system used in manufacturing operations, material planning,
inventory management, order processing, financial management and human resources
applications, which the Company currently believes is now Year 2000-compliant.
The Company purchased Year 2000-compliant upgrades to the Company's payroll
application and telephone system. The Company purchased Year 2000-compliant
upgrades for its software applications for customer inquiries and for processing
and tracking warranty claims and returns. These upgrades have been fully
implemented. To serve as an additional check for code non-compliance, the
Company has purchased Year 2000 scanning tools that are being used on its
computer software. With the implementation of these applications and upgrades,
the Company believes that all of its core applications and IT systems are Year
2000-compliant. Substantially all the system testing has been satisfactorily
completed.
The Company has engaged in discussions with its largest suppliers
regarding their plans to remediate Year 2000 issues. The Company sent each of
its significant suppliers a questionnaire inquiring as to the magnitude of their
Year 2000 issues and the status of their readiness. The Company has received
assurances from a significant portion of its suppliers that such third parties
will become Year 2000 compliant in a timely manner. The Company has followed up
with these third parties and does not anticipate a disruption of business.
RISKS - The Company tested its critical operating and financial systems
and remains uncertain of the risks the Year 2000 will have on its business
operations and on its financial condition. As the process of inventorying non-IT
systems proceeds, the Company may identify systems that present a Year 2000
risk. In addition, if any third parties who provide goods or services essential
to the Company's business activities, including vendors from whom the Company
has purchased Year 2000 compliant upgrades, fail to appropriately address their
Year 2000 issues, such failure could have a material adverse effect on the
Company's business, financial condition and operating results.
CONTINGENCY PLANS - The Company's Year 2000 Project Team's initiatives
included the development of contingency plans in the event the Company has not
completed all of its remediation plans in a timely manner. In addition, the Year
2000 Project Team developed contingency plans in the event that any third
parties who provide goods or services essential to the Company's business fail
to appropriately address their Year 2000 issues. The Year 2000 Project Team
concluded the development of these contingency plans by the end of the fourth
quarter of fiscal 1999.
18
<PAGE>
COSTS - The Company estimates that the expenses incurred during fiscal
1999 to address Year 2000 issues were approximately $311. The Company estimates
that it will incur minimal additional expense to complete its remediation plans
required for its IT systems, which includes systems software costs and
consulting fees.
FORWARD-LOOKING STATEMENTS
Certain statements in this Report constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such forward-looking statements can be identified by the use of words
such as "will," "intends," "expects", "should", and similar language. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors which may cause the actual results, performance, or achievements
of the Company or industry results, to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. These include factors that affect all businesses, as
well as matters specific to the Company and markets it serves.
For most companies operating in a global economy, monetary and fiscal
policies implemented in the U.S. and abroad have a significant impact on
economic growth, and, accordingly, demand for their products. For example, if
the Federal Reserve Board raises interest rates in fiscal 2000, the U.S. economy
could slow and negatively impact demand for the Company's products. If low
interest rates in Europe do not stimulate that economy or if government spending
is significantly reduced, the demand for Company products in that region could
be negatively impacted.
Political factors in the U.S. and abroad also have a major impact on
global companies. The Company anticipates significant growth in international
sales. International trade and fiscal policies implemented in the U.S. this year
could impact the Company's ability to grow its business abroad. U.S. foreign
relations with certain countries and any related restrictions imposed could also
have a significant impact on foreign sales. In addition, political instability
in regions such as Eastern Europe and South America make potential economic
growth difficult to predict for those countries.
Currency fluctuations are also a significant unknown for global
companies. If the U.S. dollar continues to strengthen against foreign
currencies, the Company's ability to realize price increases on sales could be
negatively impacted.
The rate of growth for the agricultural industry and the rate of
acceptance of new technologies, such as SOILECTION also play a significant role
in the Company's results. The Company's products are an integral component of
these activities and as they increase or decrease in the U.S. or abroad, demand
for the Company's products may be significantly impacted.
The Company operates in a highly competitive environment and the
Company's outlook depends on a forecast of the Company's share of industry
sales. A reduction in that share could result from unanticipated pricing or
product strategies pursued by competitors, unanticipated product or
manufacturing difficulties, or a failure to price the Company's products
competitively. As discussed in Management's Discussion and Analysis of Financial
Condition and Results of Operations, competitive pressures did have an effect on
share of industry sales in the U.S. and Canada in 1999 and if those pressures
continue to have an impact, sales for 2000 could fall below current projections.
19
<PAGE>
This discussion of risks, uncertainties and other factors is by no
means exhaustive but is designed to highlight important factors that may impact
the outlook for the Company. Examples of uncertainties not discussed in detail
include the many interrelated factors that affect farmers' confidence, including
world-wide demand for agricultural products, world grain stocks, commodity
prices, weather, animal diseases, crop pests, harvest yields, real estate values
and government farm programs; legislation, primarily legislation relating to
agriculture and the environment; actions of the Company's competitors;
production difficulties, including capacity and supply constraints; dealer
practices; labor relations; accounting standards; and other risks and
uncertainties. Obvious factors such as general economic conditions throughout
the world do not warrant further discussion but are noted to further emphasize
the myriad of contingencies that may cause the Company's actual results to
differ from those currently anticipated.
The Company disclaims an obligation to update statements regarding such
risks and uncertainties except to the extent required to do so in its filings
under the Securities Exchange Act of 1934.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISPOSURES ABOUT MARKET RISK.
The Company is exposed to market risk from changes in interest rates
and foreign currency exchange rates. Changes in these factors could cause
fluctuations in the Company's earnings and cash flows. The Company estimates
market risk using sensitivity analysis, which is defined as the change in the
fair value of a derivative or financial instrument assuming a hypothetical 10%
adverse change in the market rates or prices. The Company evaluates and manages
exposure to these market risks as follows:
o Interest rates - The Company manages its debt structure and
interest rate risk through the use of fixed- and floating-rate
debt and through the use of derivatives. Interest rate swaps
may be used to hedge the Company's exposure to interest rate
changes, and also to lower financing costs. Generally under
these swaps, the Company agrees with a counterpart to exchange
the difference between fixed-rate and floating rate interest
amounts based on an agreed notional principal amount. The
Company's primary exposure is to U.S. interest rates and to a
lesser extent to Dutch interest rates. The Company has no
exposure due to rate changes for fixed rate or long-term debt
obligations which aggregated $25.3 million at September 30,
1999 with interest rates ranging from 4.5 to 7.25 percent.
Based on the results of the sensitivity analysis, net earnings
would be adversely impacted by approximately $200. This impact
is based on the Company's $60.5 million of variable interest
rate borrowings outstanding at September 30, 1999.
o Foreign currency exchange rates - Foreign currency
fluctuations can affect the Company's net investments and
earnings denominated in foreign currencies. The Company
primarily uses currency forward contracts to selectively hedge
exposure to changes in exchange rates. These contracts
function as hedges since they change in value inversely to the
change created in the underlying exposure as foreign exchange
rates fluctuate. The Company's primary exchange rate exposure
is with the Dutch guilder and the Canadian dollar against the
U.S. dollar. Based on the results of the sensitivity analysis
at September 30, 1999, the Company's estimated net earnings
exposure for foreign currency exchange rates is not material.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
20
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Ag-Chem Equipment Co., Inc.
We have audited the accompanying consolidated balance sheets of Ag-Chem
Equipment Co., Inc. and subsidiaries as of September 30, 1999 and 1998 and the
related consolidated statements of earnings, stockholders' equity and
comprehensive income, and cash flows for each of the years in the three-year
period ended September 30, 1999. These consolidated financial statements are the
responsibility of the company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Ag-Chem
Equipment Co., Inc. and subsidiaries as of September 30, 1999 and 1998 and the
results of their operations and their cash flows for each of the years in the
three-year period ended September 30, 1999, in conformity with generally
accepted accounting principles.
KPMG LLP
Minneapolis, Minnesota
November 12, 1999, except as to note 7 which is as of December 22, 1999.
F-1
<PAGE>
CONSOLIDATED BALANCE SHEETS
AG-CHEM EQUIPMENT CO., INC. AND SUBSIDIARIES
(DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS
-----------------------------------------------
September 30,
-----------------------------------------------
1999 1998
------------------- -------------------
<S> <C> <C>
CURRENT ASSETS:
Accounts receivable, less allowance for doubtful accounts
of $874 and $730, respectively $18,922 $23,499
Notes receivable, current portion, and accrued interest
receivable (note 5) 5,296 4,178
Inventories (note 2) 109,463 101,751
Deferred income tax benefits, net (note 10) 4,400 4,000
Prepaid expenses and other current assets 628 617
------------------- -------------------
Total current assets 138,709 134,045
------------------- -------------------
PROPERTY, PLANT AND EQUIPMENT, NET (NOTES 3, 4 AND 8) 42,470 45,813
OTHER ASSETS:
Notes receivable, less current maturities (note 5) 7,046 5,596
Intangible and other assets, net of accumulated amortization
of $4,142 and, $3,404, respectively (note 1) 1,704 2,740
------------------- -------------------
Total other assets 8,750 8,336
------------------- -------------------
TOTAL ASSETS $189,929 $188,194
=================== ===================
</TABLE>
================================================================================
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-2
<PAGE>
CONSOLIDATED BALANCE SHEETS
AG-CHEM EQUIPMENT CO., INC. AND SUBSIDIARIES
(DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
----------------------------------------------------
September 30,
----------------------------------------------------
1999 1998
---------------------- ---------------------
<S> <C> <C>
CURRENT LIABILITIES:
Current installments of long-term debt (note 8) $6,381 $6,367
Note payable to banks (note 7) 35,225 11,352
Accounts payable 10,859 15,120
Checks outstanding in excess of cash balances 138 2,145
Customer prepayments 5,183 6,934
Accrued expenses (note 6) 13,262 14,566
Deferred revenue 1,359 1,013
Accrued income taxes --- 374
---------------------- ---------------------
Total current liabilities 72,407 57,871
LONG-TERM DEBT, LESS CURRENT INSTALLMENTS (NOTE 8) 44,299 59,903
---------------------- ---------------------
Total liabilities 116,706 117,774
---------------------- ---------------------
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value: Authorized, 40,000,000 shares; issued
and outstanding, 9,595,468 shares and 9,640,268, respectively 96 96
Additional paid-in capital 1,274 1,737
Retained earnings 72,318 68,930
Accumulated other comprehensive income (465) (343)
---------------------- ---------------------
Total stockholders' equity 73,223 70,420
---------------------- ---------------------
COMMITMENTS AND CONTINGENCIES (NOTES 12 AND 13)
Total liabilities and stockholders' equity $189,929 $188,194
====================== =====================
</TABLE>
================================================================================
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-3
<PAGE>
CONSOLIDATED STATEMENTS OF EARNINGS
AG-CHEM EQUIPMENT CO., INC. AND SUBSIDIARIES
(DOLLARS IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
---------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
---------------------------------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net sales $292,679 $322,122 $318,212
Cost of sales 214,688 234,959 232,565
------------------ ----------------- ------------------
Gross profit 77,991 87,163 85,647
Selling, general and administrative expenses 70,259 74,003 69,034
------------------ ----------------- ------------------
Operating income 7,732 13,160 16,613
Other income (expense):
Other income (note 11) 2,994 3,384 3,186
Interest expense (5,713) (6,246) (6,229)
------------------ ----------------- ------------------
Earnings before income taxes 5,013 10,298 13,570
Income tax expense (note 10) 1,625 3,450 6,000
------------------ ----------------- ------------------
Net earnings $3,388 $6,848 $7,570
================== ================= ==================
Earnings per share, basic and diluted $0.35 $0.71 $0.78
Weighed average common shares outstanding, 9,616,313 9,660,152 9,683,341
basic and diluted
</TABLE>
================================================================================
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-4
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
AG-CHEM EQUIPMENT CO., INC. AND SUBSIDIARIES
(DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TOTAL
COMMON STOCK ADDITIONAL RETAINED ACCUMULATED OTHER STOCKHOLDERS'
SHARES AMOUNT PAID-IN CAPITAL EARNINGS COMPREHENSIVE INCOME EQUITY
------ ------ --------------- -------- -------------------- ------
<S> <C> <C> <C> <C> <C> <C>
Balances at September 30, 1996 9,695,768 $97 $2,699 $54,512 $35 $57,343
Comprehensive Income:
Net earnings --- --- --- 7,570 --- 7,570
Other comprehensive loss --- --- --- --- (515) (515)
--------------------------------
Comprehensive Income 7,055
Purchases and retirement of
previously issued shares (25,500) --- (511) --- --- (511)
--------------------------------------------------------------------------------------------------
Balances at September 30, 1997 9,670,268 97 2,188 62,082 (480) 63,887
Comprehensive Income:
Net earnings --- --- --- 6,848 --- 6,848
Other comprehensive income --- --- --- --- 137 137
--------------------------------
Comprehensive Income 6,985
Purchases and retirement of
previously issued shares (30,000) (1) (451) --- --- (452)
--------------------------------------------------------------------------------------------------
Balances at September 30, 1998 9,640,268 96 1,737 68,930 (343) 70,420
COMPREHENSIVE INCOME:
NET EARNINGS --- --- --- 3,388 --- 3,388
OTHER COMPREHENSIVE LOSS --- --- --- --- (122) (122)
--------------------------------
COMPREHENSIVE INCOME 3,266
PURCHASES AND RETIREMENT OF
PREVIOUSLY ISSUED SHARES (44,800) --- (463) --- --- (463)
--------------------------------------------------------------------------------------------------
BALANCES AT SEPTEMBER 30, 1999 9,595,468 $96 $1,274 $72,318 ($465) $73,223
==================================================================================================
</TABLE>
================================================================================
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-5
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
AG-CHEM EQUIPMENT CO., INC. AND SUBSIDIARIES
(DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
----------------------------------------------------
SEPTEMBER 30,
1999 1998 1997
---------------- ---------------- ---------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $3,388 $6,848 $7,570
ADJUSTMENTS TO RECONCILE NET EARNINGS TO NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES:
Depreciation and amortization 6,726 8,330 8,259
Gain on sale of equipment (210) (151) (5)
Decrease (increase) in deferred income tax benefits (400) 550 (19)
Changes in operating assets and liabilities, net of effects of
acquisition:
Accounts receivable 4,577 229 (827)
Operating notes receivable (2,568) (1,373) (964)
Inventories (7,712) (1,857) 2,417
Other current assets 76 264 (311)
Accounts payable (4,261) 71 2,404
Customer prepayments and deferred revenue (1,405) (334) 1,856
Accrued expenses (1,304) (2,938) (682)
Income taxes (461) 150 (1,944)
---------------- ---------------- ---------------
Cash provided by (used in) operating activities (3,554) 9,789 17,754
CASH FLOWS FROM INVESTING ACTIVITIES:
Retirement of short-term investments for industrial revenue bond 23 722 ---
Purchase of property and equipment (1,759) (3,969) (7,407)
Increase in rental equipment (592) (2,906) (3,517)
Proceeds from sale of equipment 245 132 19
Increase in other assets (53) (166) (85)
---------------- ---------------- ---------------
Cash used in investing activities (2,136) (6,187) (10,990)
</TABLE>
================================================================================
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-6
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
AG-CHEM EQUIPMENT CO., INC. AND SUBSIDIARIES
(DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
-------------------------------------------------------
SEPTEMBER 30,
-------------------------------------------------------
1999 1998 1997
----------------- ---------------- ----------------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in checks outstanding in excess of cash
balances $(2,007) $2,138 $(286)
Proceeds from notes payable - banks 187,580 155,150 78,900
Repayments on notes payable - banks (163,707) (176,483) (88,950)
Proceeds from line of credit borrowings 145,000 29,750 42,975
Repayments of line of credit borrowings (160,590) (13,842) (38,377)
Purchase of common stock (464) (452) (511)
----------------- ---------------- ----------------
Cash provided by (used in) financing activities 5,812 (3,739) (6,249)
Foreign currency translation adjustment (122) 137 (515)
----------------- ---------------- ----------------
Net change in cash --- --- ---
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR --- --- ---
----------------- ---------------- ----------------
CASH AND CASH EQUIVALENTS AT END OF YEAR --- --- ---
================= ================ ================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $6,276 $6,184 $6,204
Income taxes 2,485 2,695 7,900
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
The Company entered into capital leases for computer equipment that
aggregated to $0 and $789 during both period ending as of September 30, 1999 and
1998, respectively.
===========================================================================
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999, 1998 and 1997
AG-CHEM EQUIPMENT CO., INC. AND SUBSIDIARIES
(DOLLARS IN THOUSANDS)
1. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES AND NATURE OF BUSINESS
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Ag-Chem Equipment Co., Inc. and its subsidiaries (the Company). All material
inter-company accounts and transactions have been eliminated in consolidation.
NATURE OF BUSINESS
The Company manufactures and distributes off-road equipment primarily for
agricultural fertilization, the application of crop protection chemicals, and to
a lesser extent, industrial waste treatment applications and other industrial
uses. The Company has positioned itself as the leading, state-of-the-art
manufacturer of agricultural application equipment, with an emphasis on
"Site-Specific Agriculture" and other high-tech hardware and software product
offerings. The Company generates a majority of its consolidated revenues from
its line of agricultural equipment which consists of self-propelled, three and
four-wheeled vehicles and related equipment for use in the application of liquid
and dry fertilizers and crop protection chemicals both prior to planting crops
("pre-emergence") and after crops emerge from the ground ("post-emergence"). The
Company has concluded that it operates in one operating segment.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CONCENTRATION OF CREDIT RISK
The Company extends credit primarily to agricultural cooperatives and
dealers in the United States and Canada, and to international distributors. The
Company also provides financing for the sales of equipment through notes
receivable and operating leases.
INVENTORIES
Substantially all inventories except used equipment are stated at the lower
of cost or market. Cost is determined using the last in, first out (LIFO) method
for all inventories other than used equipment. Used equipment is valued at
amounts that do not exceed estimated fair market value, less costs to sell.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost. Depreciation and
amortization of all property, plant and equipment is computed on straight-line
and accelerated methods over the following estimated useful lives:
-------------------------------------------
Years
-------------------------------------------
Land improvements 15-20
-------------------------------------------
Buildings and improvements 15-40
-------------------------------------------
F-8
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999, 1998 and 1997
AG-CHEM EQUIPMENT CO., INC. AND SUBSIDIARIES
(DOLLARS IN THOUSANDS)
-------------------------------------------
Rental property 5-40
-------------------------------------------
Machinery and equipment 5-10
-------------------------------------------
Rental equipment 5
-------------------------------------------
Transportation equipment 3-5
-------------------------------------------
Office equipment and furniture 5-10
-------------------------------------------
Computer equipment 5-7
-------------------------------------------
INTANGIBLE AND OTHER ASSETS
Intangible and other assets, net of accumulated amortization, consists of
the following:
<TABLE>
<CAPTION>
September 30,
-------------------------
1999 1998
---------------------
<S> <C> <C>
Excess of purchase price over fair market value of net assets purchased $654 $1,355
Non-compete agreements 128 224
Deferred financing costs 201 253
Manufacturing and marketing rights 456 672
Other 265 236
---------------------
Total intangible and other assets $1,704 $2,740
=====================
</TABLE>
Intangible and other assets are capitalized at cost and, except for
deferred financing costs, are amortized on a straight-line basis over periods
ranging from two to ten years. Deferred financing costs are being amortized over
the term of the financing using the effective-interest method.
RESEARCH AND DEVELOPMENT EXPENDITURES
The Company's research and development expenditures are expensed as
incurred and totaled $9,391, $10,846 and $9,361 for the years ended September
30, 1999, 1998 and 1997, respectively.
INCOME TAXES
The Company recognizes deferred tax assets and liabilities for the future
tax consequences attributable to temporary differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
FOREIGN CURRENCY TRANSLATION
For the Company's Dutch operation, the Dutch guilder is considered the
functional currency. Assets and liabilities are translated using the exchange
rates in effect at the balance sheet date. Results of operations are translated
using the average exchange rates prevailing throughout the period. Translation
effects are accumulated in the accumulated other comprehensive income caption in
stockholders' equity.
F-9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999, 1998 and 1997
AG-CHEM EQUIPMENT CO., INC. AND SUBSIDIARIES
(DOLLARS IN THOUSANDS)
EARNINGS PER SHARE
Earnings per common share are computed based upon the weighed average
number of common shares outstanding during the respective years. The Company has
no potentially dilutive common shares.
PROFIT SHARING PLAN
The Company made contributions of $0, $414 and $3,171 to its profit sharing
plan in fiscal 1999, 1998 and 1997, respectively.
STATEMENTS OF CASH FLOWS
For purposes of the statements of cash flows, the Company considers all
highly liquid debt instruments purchased with an original maturity of three
months or less to be cash equivalents.
IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
The Company reviews its long-lived assets and certain identifiable
intangibles for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the carrying amount of
an asset to future net undiscounted cash flows expected to be generated by the
asset. If such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of the asset
exceeds future discounted cash flows to be generated by the asset. Long-lived
assets to be disposed of are valued at the lower of the carrying amount or
fair value less costs to sell.
COMPREHENSIVE INCOME
The Company adopted the provisions of SFAS No. 130, "Reporting
Comprehensive Income," in fiscal1999. This statement requires companies to
classify items of other comprehensive income by their nature in a financial
statement and display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in capital in the equity
section of the balance sheet. The reporting methodology required by SFAS No. 130
has been applied to all years presented.
NEW ACCOUNTING PRONOUNCEMENTS
During fiscal 1998, the Financial Accounting Standards Board (FASB) issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities,"
and the Accounting Standards Executive Committee issued Statement of Position
(SOP) 98-1, "Accounting for the Costs of Computer Software Developed or Obtained
for Internal Use."
SFAS 133 establishes new standards for recognizing all derivatives as
either assets or liabilities, and measuring those instruments at fair value. The
Company plans to adopt the new standard beginning with the first quarter of
fiscal year 2001, as required. The Company is in the process of evaluating SFAS
133 and the impact on the Company.
SOP 98-1 provides guidance on accounting for the costs of computer software
developed or obtained for internal use and does not require additional
disclosures. The Company plans to adopt the SOP in the first quarter of fiscal
year 2000, as required. Costs incurred prior to the initial application of the
SOP will not be adjusted to conform with SOP 98-1. The adoption of SOP 98-1 is
not expected to have a material impact on the Company's consolidated financial
statements.
F-10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999, 1998 and 1997
AG-CHEM EQUIPMENT CO., INC. AND SUBSIDIARIES
(DOLLARS IN THOUSANDS)
2. INVENTORIES
Inventories consist of the following:
September 30,
------------------------------------
1999 1998
------------------------------------
Finished goods $45,033 $49,317
Resale parts 25,815 25,029
Work in process and raw materials 36,330 28,807
------------------------------------
Total 107,178 103,153
Less LIFO reserve (12,077) (12,006)
------------------------------------
Total 95,101 91,147
Used equipment 14,362 10,604
------------------------------------
Total inventories $109,463 $101,751
====================================
If the first in, first out (FIFO) method utilizing current costs had been
used for inventories valued using the LIFO method, net earnings would have been
lower by $71 and $449 at September 30, 1999 and 1998, respectively.
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
September 30,
-------------------------------
1999 1998
-------------------------------
Land $1,338 $1,369
Land improvements 3,893 3,807
Buildings and improvements 25,423 24,977
Machinery and equipment 20,532 20,322
Rental property 4,619 4,617
Rental equipment (note 4) 12,488 11,896
Transportation equipment 1,772 2,330
Office equipment and furniture 3,892 3,765
Computer equipment 10,748 10,056
-------------------------------
84,705 83,139
Less accumulated depreciation and amortization (42,235) (37,326)
-------------------------------
Net property, plant and equipment $42,470 $45,813
===============================
4. RENTAL EQUIPMENT
The Company leases equipment to customers through operating leases, the
majority of which are cancelable at the option of the lessee. The net investment
in equipment leased to customers under operating leases is as follows:
September 30,
------------------------------------
1999 1998
------------------------------------
Rental equipment $12,488 $11,896
F-11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999, 1998 and 1997
AG-CHEM EQUIPMENT CO., INC. AND SUBSIDIARIES
(DOLLARS IN THOUSANDS)
Less accumulated depreciation (3,874) (3,442)
------------------------------------
Net rental equipment $8,614 $8,454
====================================
Future minimum rentals receivable under non-cancelable operating leases at
September 30, 1999 are as follows:
Year ending September 30, Amount
--------------------------------------- -----------------
2000 $605
2001 225
2002 202
2003 82
-----------------
Total $1,114
=================
5. NOTES RECEIVABLE
The Company provides financing to customers with notes receivable, which
bear interest between 8.0% to 13.0%. These notes are payable in installments
over 1 to 7 years and are secured primarily with the equipment sold to the
customer. Principal maturity of notes receivable are as follows:
Year ending September 30, Amount
--------------------------------------- ------------------
2000 $4,766
2001 2,278
2002 1,577
2003 1,342
2004 282
------------------
Total $10,242
==================
6. ACCRUED EXPENSES
Accrued expenses consist of the following:
September 30,
----------------------------------
1999 1998
----------------------------------
Compensation $6,471 $5,966
Warranty 1,165 1,537
Taxes other than income 897 1,543
Insurance 1,784 1,557
Interest 1,253 1,816
Other 1,692 2,147
----------------------------------
Total $13,262 $14,566
==================================
7. NOTES PAYABLE TO BANKS
In June 1999, the Company entered into a new line of credit agreement with
four banks. The Company is required to pay a commitment fee of 0.125 to 0.375
percent of the average daily unused portion of the line of credit. The amended
agreement requires the Company to maintain a tangible net worth of $57.5 million
plus 50% of each fiscal year's net earnings, certain working capital, net worth
F-12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999, 1998 and 1997
AG-CHEM EQUIPMENT CO., INC. AND SUBSIDIARIES
(DOLLARS IN THOUSANDS)
and debt to net worth ratios as well as limits the amount of capital
expenditures, distributions, interest and indebtedness.
The new line of credit agreements allow aggregate borrowings up to $90
million, of which $45 million is due in June 2002 and $45 million is payable in
June 2000. As of September 30, 1999, $30,500 was outstanding compared to $12,500
in the prior year. The weighed average interest rate on short-term borrowings
outstanding was 8.35% as of September 30, 1999.
The Company's European subsidiary utilizes a portion of Ag-Chem's line of
credit agreement. The subsidiary also has its own line of credit with a bank.
The agreement allows aggregate borrowings up to 2.8 million Guilders
(approximately $1,300) which expires on March 31, 2000. Borrowings under this
line of credit bear interest at the one month LIBOR rate plus 0.85 percent and
are guaranteed by Ag-Chem Equipment Co., Inc. Borrowings outstanding under the
two facilities were $4,725 at September 30, 1999.
At September 30, 1999, the Company was not in compliance with the interest
coverage ratio covenant with its banks. On December 22, 1999 the banks waived
the events of non-compliance and modified the debt agreement. The Company
believes that it will be compliance with its debt covenants in fiscal 2000 as a
result of the amendment to the debt agreement.
8. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
September 30,
----------------------------
1999 1998
------------ ------------
<S> <C> <C>
Industrial revenue bonds with the City of Jackson, MN payable in varying annual
amounts beginning in November 1998 through 2007 with interest from
4.5% to 6.0% $5,585 $6,065
Note payable under line of credit with four banks with interest at the banks'
reference rate due June 2000 (see note 7) 25,000 34,850
Note payable in five annual installments of $3 million commencing in April
1997 with interest payable semiannually at 6.83% 6,000 9,000
Note payable in seven annual installments of $2,143 commencing in April 1999
with interest payable semiannually at 7.25% 12,857 15,000
Miscellaneous notes payable 1,238 1,355
------------ ------------
50,680 66,270
Less current installments 6,381 6,367
------------ ------------
$44,299 $59,903
============ ============
</TABLE>
Scheduled annual maturity of long-term debts is as follows:
Years ending September 30, Amount
-------------------------------------- ---------------------
2000 $ 6,381
2001 5,795
2002 27,708
2003 2,726
F-13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999, 1998 and 1997
AG-CHEM EQUIPMENT CO., INC. AND SUBSIDIARIES
(DOLLARS IN THOUSANDS)
2004 2,753
Thereafter 5,317
=====================
Total $50,680
=====================
Industrial revenue bonds are secured by a mortgage on a manufacturing plant
in Jackson, Minnesota and a security interest in equipment purchased with bond
proceeds. The industrial revenue bonds are payable in escalating yearly
installments commencing December 1, 1998 through December 1, 2007 of $480 to
$765, respectively. The bonds bear interest, which escalates from 4.5 percent
for the December 1, 1998 installment to 6.0 percent for the December 1, 2007
installment. Under the terms of the agreement, the Company is required to meet
certain debt covenants.
Some notes payable contain certain restrictive covenants as to additional
borrowings and require the Company to maintain certain financial ratios.
9. FINANCIAL INSTRUMENTS
Most of the Company's financial instruments are recorded on the balance
sheet. Quoted market prices generally are not available for all of the Company's
financial instruments. Accordingly, fair values are based on judgments regarding
current economic conditions, risk characteristics of various financial
instruments and other factors. These estimates involve uncertainties and matters
of judgment, and therefore, cannot be determined with precision. Changes in
assumptions could significantly affect the estimates.
A description of the methods and assumptions used to estimate the fair
value of each class of the Company's financial instruments is as follows:
ACCOUNTS RECEIVABLE, NET
As the average collection period for these is less than 45 days, the carrying
amount approximates fair value.
NOTES RECEIVABLE
The fair values of fixed rate notes receivable are estimated by discounting
future cash flows using current discount rates that reflect the risks associated
with similar types of loans.
NOTE PAYABLE TO BANKS
The carrying amounts approximate fair value due to the short maturity of these
instruments.
ACCOUNTS PAYABLE, CHECKS OUTSTANDING IN EXCESS OF CASH BALANCES, AND ACCRUED
EXPENSES The carrying amounts approximate fair value due to the short maturity
of these instruments.
LONG-TERM DEBT
The fair value of the Company's long-term debt was estimated based on the amount
of future cash flows associated with each instrument discounted using the
current rates offered to the Company for similar debt instruments of comparable
maturity.
The carrying amount and estimated fair values of the Company's financial
instruments at September 30, 1999 and 1998 are summarized as follows:
F-14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999, 1998 and 1997
AG-CHEM EQUIPMENT CO., INC. AND SUBSIDIARIES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998
-------------------------------------- ---------------------------------
CARRYING ESTIMATED Carrying Estimated
AMOUNT FAIR VALUE Amount Fair Value
----------------- ---------------- ------------- ----------------
<S> <C> <C> <C> <C>
Accounts receivable, net $18,922 $18,922 $23,499 $23,499
Notes receivable and accrued interest
receivable 12,342 10,330 9,774 9,843
Accounts payable 10,859 10,859 15,120 15,120
Checks outstanding in
excess of cash balances 138 138 2,145 2,145
Accrued expenses 13,262 13,262 14,566 14,566
Long-term debt 50,680 51,205 66,270 67,487
Note payable to banks 35,225 35,225 11,352 11,352
</TABLE>
The Company from time to time selectively uses derivative instruments to
reduce financial risk of interest rates and foreign currency. Interest rate swap
and foreign exchange agreements are made with highly rated financial
institutions. The Company has exposure associated with derivative agreements to
the extent these agreements have positive value. The Company does not have a
significant concentration of risk with any single party.
10. INCOME TAXES
The provision for income tax expense (benefit) consists of the following:
Federal State Total
-------------- ------------- -------------
1999
CURRENT $1,850 $315 $2,165
DEFERRED (470) (70) (540)
-------------- ------------- -------------
TOTAL $1,380 $245 $1,625
============== ============= =============
1998
Current $2,750 $550 $3,300
Deferred 125 25 150
-------------- ------------- -------------
Total $2,875 $575 $3,450
============== ============= =============
1997
Current $5,019 $1,000 $6,019
Deferred (15) (4) (19)
-------------- ------------- -------------
Total $5,004 $996 $6,000
============== ============= =============
The actual tax expense for 1999, 1998 and 1997 differs from the "expected"
tax expense for those years (computed by applying the United States federal
corporate rate of 35 percent in earnings before income taxes) as follows:
1999 1998 1997
---- ---- ----
Expected tax, at statutory rates $1,755 $3,604 $4,750
State taxes, net of federal tax effect 160 374 650
Decrease in valuation allowance for
deferred tax assets (443) (50) 545
Tax benefit of foreign sales
corporation (105) (135) (90)
Goodwill, technology rights
amortization 140 140 141
Research credit (200) (500) (200)
Other, net 318 17 204
--------- ---------- ---------
Actual tax expense $1,625 $3,450 $6,000
========= ========== =========
F-15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999, 1998 and 1997
AG-CHEM EQUIPMENT CO., INC. AND SUBSIDIARIES
(DOLLARS IN THOUSANDS)
The tax effects of temporary differences that give rise to deferred tax assets
and liabilities at September 30, 1999 and 1998 are as follows:
1999 1998
----------- -----------
Inventory $2,863 $2,449
Accrued warranty 253 329
Accrued vacation 512 505
Deferred revenue 508 390
Subsidiary's net operating tax loss carryforward 264 450
Foreign subsidiary net operating loss carryforward 245 495
Intangibles 401 239
Fixed assets 0 40
Other 138 389
----------- -----------
Gross deferred tax assets 5,184 5,286
Research and development expenditures (144) (200)
Other (98) (101)
----------- -----------
Gross deferred tax liabilities (242) (31)
----------- -----------
Valuation allowance (542) (985)
----------- -----------
Net deferred tax asset $4,400 $4,000
=========== ===========
A reconciliation of the valuation allowance for deferred taxes is as follows:
1999 1998
----------- -----------
Valuation allowance at beginning of year $985 $1,035
Decrease in valuation allowance (443) (50)
----------- -----------
Valuation allowance at end of year $542 $ 985
=========== ===========
The valuation allowance is necessary due to uncertainty over the future
utilization of the net operating loss carryforwards of Ag-Chem Manufacturing
Co., Inc. and Ag-Chem Europe B.V., subsidiaries of the Company.
11. OTHER INCOME
Other income consists of the following:
<TABLE>
<CAPTION>
Years ended September 30,
-----------------------------------------
1999 1998 1997
----------- ----------- ----------
<S> <C> <C> <C>
Interest income and finance charges $1,082 $1,394 $ 958
Gain on sale of property, plant and equipment 210 151 5
Income from rental properties, net of expenses 755 778 1,337
Miscellaneous income 947 1,061 886
----------- ----------- ----------
Total $2,994 $3,384 $3,186
=========== =========== ==========
</TABLE>
12. LEASES
F-16
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999, 1998 and 1997
AG-CHEM EQUIPMENT CO., INC. AND SUBSIDIARIES
(DOLLARS IN THOUSANDS)
Rent expense under operating leases amounted to $1,056, $900 and $893 for
offices, warehouses and equipment, and $1,869, $1,823 and $1,495 for autos and
trucks in fiscal 1999, 1998, and 1997, respectively.
The following is a schedule, by year, of future minimum rental payments
required under operating leases that have initial or remaining non cancelable
terms in excess of one year as of September 30, 1999. Commitments for autos and
trucks have not been included since most of these leases are cancelable upon
specified notice.
Years ending September 30, Amount
- --------------------------------------- ---------------------
2000 $ 514
1999 172
2000 122
2001 110
2002 110
Thereafter 589
---------------------
Total $1,617
=====================
Several parts and service centers are leased under agreements classified as
operating leases. Most leases can be renewed at current market rates for
additional periods.
The Company leases its Benson, Minnesota facility under a long-term lease,
which expires in September 2012 with monthly lease payments of $7. The Company
has the right to purchase the property subject to the lease at any time during
the lease term for an amount not greater than $100 plus an amount, defined by
the lease agreement, which approximates the remaining outstanding lease balance.
13. COMMITMENTS AND CONTINGENT LIABILITIES
The Company is involved in several legal actions at September 30, 1999, the
ultimate settlement of which is not expected to have a material effect on the
consolidated financial condition or consolidated results of the Company.
14. RELATED PARTY TRANSACTIONS
In fiscal 1999, 1998 and 1997, legal services in the amount of $445, $344
and $1,007, respectively, were provided by a law firm in which a director and
stockholder of the Company is a partner.
15. SEGMENT INFORMATION
For fiscal 1999, 1998 and 1997 the members of a farming co-op accounted for
12.6%, 13.8% and 13.8% of net sales, respectively. Export sales were 10.9%,
11.4% and 14.2% of net sales in fiscal 1999, 1998 and 1997, respectively.
The Company has a subsidiary in the Netherlands. This subsidiary had net
sales of $21,273, $17,622 and $14,490 in fiscal 1999, 1998 and 1997,
respectively. Foreign operating income (losses) for fiscal 1999, 1998 and 1997
were $610, $136 and ($1,556), respectively. Foreign currency transaction gains
or losses included in net earning for fiscal 1999, 1998 and 1997 were not
significant.
F-17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999, 1998 and 1997
AG-CHEM EQUIPMENT CO., INC. AND SUBSIDIARIES
(DOLLARS IN THOUSANDS)
16. SELECTED CONSOLIDATED FINANCIAL DATA - QUARTERLY (UNAUDITED)
<TABLE>
<CAPTION>
NET EARNINGS EARNINGS (LOSS)
1999 NET SALES GROSS PROFIT (LOSS) PER SHARE
---- --------- ------------ ------------ ---------------
<S> <C> <C> <C> <C>
1ST QUARTER $ 53,529 $15,476 $ (356) $ (.04)
2ND QUARTER 110,995 30,906 7,505 .78
3RD QUARTER 71,504 17,783 (638) (.06)
4TH QUARTER 56,651 13,826 (3,123) (.33)
-------- ------- ------- --------
TOTAL $292,679 $77,991 $ 3,388 $ .35
======== ======= ======= ========
1998
----
1st Quarter $ 62,537 $16,972 $(1,095) $ (.11)
2nd Quarter 122,500 34,147 7,930 .82
3rd Quarter 71,564 18,581 (474) (.05)
4th Quarter 65,521 17,463 487 .05
-------- ------- ------- --------
Total $322,122 $87,163 $ 6,848 $ .71
======== ======= ======= ========
</TABLE>
F-18
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There have been no changes in or disagreements with accountants for the
Company, which require reporting under this item.
21
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by Item 10 is incorporated herein by reference
to a section entitled "Principal Shareholders" in the Company's proxy statement
for its Annual Meeting of Shareholders which will be filed with Securities &
Exchange Commission within 120 days of the Company's fiscal year ended September
30, 1999.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated herein by reference
to a section entitled "Executive Compensation" in the Company's proxy statement
for its Annual Meeting of Shareholders which will be filed with Securities &
Exchange Commission within 120 days of the Company's fiscal year ended September
30, 1999.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required in Item 12 is incorporated herein by reference
to a section entitled "Principal Shareholders" in the Company's proxy statement
its 1999 Annual Meeting of Shareholders which will be filed with Securities &
Exchange Commission within 120 days of the Company's fiscal year ended September
30, 1999.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 is incorporated herein by reference
to a section entitled "Certain Relationships and Related" in the Company's proxy
statement for its Annual Meeting of Shareholders which will be filed with
Securities & Exchange Commission within 120 days of the Company's fiscal year
ended September 30, 1999.
22
<PAGE>
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
FINANCIAL STATEMENTS
The following consolidated financial statements of Ag-Chem Equipment
Co., Inc. are included herein at the indicated page numbers:
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
o Independent Auditors' Report F-1
o Consolidated Balance Sheets as of September 30, 1999 and 1998 F-2
o Consolidated Statements of Earnings for the Fiscal Years Ended September 30, F-4
1999, 1998 and 1997
o Consolidated Statements of Stockholders' Equity and Comprehensive Income for the F-5
Fiscal Years Ended September 30, 1999, 1998 and 1997
o Consolidated Statements of Cash Flows for the Fiscal Years Ended September 30, F-6
1999, 1998 and 1997
o Notes to Consolidated Financial Statements F-8
</TABLE>
FINANCIAL STATEMENT SCHEDULES
The following financial statement schedules of Ag-Chem Equipment Co.,
Inc. and subsidiaries are included herein at the indicated page number:
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
o Independent Auditors' Report FS-1
o Schedule II - Valuation and Qualifying Accounts FS-2
</TABLE>
23
<PAGE>
EXHIBITS
EXHIBIT NO. TITLE
- ----------- -----
3 Articles of incorporation and by-laws(1)
10.1 $45,000,000 Third Amended and Restated Long Term Revolving Credit
Agreement among Ag-Chem Equipment Co., Inc., certain subsidiaries
of Ag-Chem Equipment Co., Inc., as Multicurrency Subsidiary
Borrowers, The Institutions From Time to Time Hereto, as Lenders,
and The First National Bank of Chicago, as Agent(4)
10.2 $45,000,000 Short Term Revolving Credit Agreement among Ag-Chem
Equipment Co., Inc., The Institutions From Time to Time Hereto,
as Lenders, and the First National Bank of Chicago, as Agent(4)
10.3 $30,000,000 Short Term Revolving Credit Agreement among Ag-Chem
Equipment Co., Inc., NBD Bank, as Lender and Agent, Harris Trust
& Savings Bank, as Lender, Rabobank Nederland, as Lender, dated
June 12, 1998(3)
10.4 Long Term Amended and Restated Revolving Credit Notes(2)
10.5 Short Term Revolving Credit Notes(2)
10.6 Guaranty (Long Term) of Lor*Al Products, Inc.(2)
10.7 Guaranty (Long Term) of Ag-Chem Sales Co., Inc(2)
10.8 Guaranty (Long Term) of Ag-Chem Equipment Co., International
Corp.(2)
10.9 Guaranty (Long Term) of Ag-Chem Equipment Canada Ltd.(2)
10.10 Guaranty (Long Term) of Ag-Chem Manufacturing Co., Inc. (formerly
Soil Teq, Inc.)(2)
10.11 Guaranty (Long Term) of Ag-Chem Europe, B.V. (formerly Kurstjens
Terra-Gator, B.V.)(2)
10.12 Guaranty (Short Term) of Lor*Al Products, Inc.(2)
10.13 Guaranty (Short Term) of Ag-Chem Sales Co., Inc(2)
10.14 Guaranty (Short Term) of Ag-Chem Equipment Co., International
Corp.(2)
10.15 Guaranty (Short Term) of Ag-Chem Equipment Canada Ltd.(2)
10.16 Guaranty (Short Term) of Ag-Chem Manufacturing Co., Inc.
(formerly Soil Teq, Inc.)(2)
10.17 Guaranty (Short Term) of Ag-Chem Europe, B.V. (formerly Kurstjens
Terra-Gator, B.V.)(2)
10.18 Waiver and Amendment No. 1 to Third Amended and Restated Long
Term Revolving Credit Agreement and Short Term Revolving Credit
Agreement among Ag-Chem Equipment Co., Inc., The Institutions,
From Time to Time Hereto, as Lenders, and the First National Bank
of Chicago as Agent
11.1 Statement of Computation of Earnings per Share
21 Subsidiaries of the Company
27 Financial Data Schedule
- ------------------------------
(1) Incorporated by reference to the Company's September 30, 1994 Form 10/A.
(2) Incorporated by reference to the Company's June 30, 1997 Form 10Q.
24
<PAGE>
(3) Incorporated by reference to the Company's June 30, 1998 Form 10Q.
(4) Incorporated by reference to the Company's June 30, 1999 Form 10Q.
REPORTS ON FORMS 8-K
The Company did not file any reports on Form 8-K during the fourth
quarter of the fiscal year ending as of September 30, 1999.
25
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
BY: /s/ Alvin E. McQuinn
December 28,1999 Alvin E. McQuinn
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and
appoints Alvin E. McQuinn and/or John C. Retherford as thy true and lawful
attorney-in-fact and agent with the full power of substitution for
aforementioned persons in name, place, and stead, in any and all capacities, to
sign any or all amendments to this Annual Report on Form 10-K, and to file the
same, with all exhibits thereto and other documents in connection therewith,
with the Securities & Exchange Commission, granting unto said attorneys-in-fact
and agents, and each of them, full power and authority to do and perform each
and every act and duty requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as such person might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or either of them, or their substitute or substitutes, can lawfully do
or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Alvin E. McQuinn Chairman of the Board, Chief Executive Officer December 28, 1999
- --------------------- (Principal Executive Officer), Director of Marketing and Director
Alvin E. McQuinn
/s/ Don Pottinger President and Director December 28, 1999
- -----------------
Don Pottinger
/s/ John C. Retherford Senior Vice President, Chief Financial Officer December 28, 1999
- ----------------------- (Principal Financial and Accounting Officer), and Director
John C. Retherford
/s/ Robert L. Hoffman Secretary and Director December 28, 1999
- ----------------------
Robert L. Hoffman
Director December 28, 1999
- ---------------------
G. Waddy Garrett
/s/ Mary M. Jetland Vice President of Manufacturing and Corporate December 28, 1999
- -------------------- Services and Director
Mary M. Jetland
Director December 28, 1999
- --------------------
A.J. (Al) Giese
/s/ Dewalt J. Willard, Jr. Director
- -----------------------
Dewalt J. Willard, Jr. December 28, 1999
</TABLE>
FS-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
ON CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
The Board of Directors and Stockholders
Ag-Chem Equipment Co., Inc.
Under date of November 12, 1999, except as to note 7 which is as of December 22,
1999, we reported on the consolidated balance sheets of Ag-Chem Equipment Co.,
Inc. and subsidiaries as of September 30, 1999 and 1998 and the related
consolidated statements of earnings, stockholders' equity and comprehensive
income, and cash flows for each of the years in the three-year period ended
September 30, 1999, as contained in the annual report on Form 10-K for the
fiscal year 1999. In connection with our audits of the aforementioned
consolidated financial statements, we also audited the related consolidated
financial statement schedule as listed in the accompanying index. This financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion on this financial statement schedule
based on our audits.
In our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
KPMG LLP
Minneapolis, Minnesota
November 12, 1999
FS-2
<PAGE>
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
AG-CHEM EQUIPMENT CO., INC. AND SUBSIDIARIES
(DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO DEDUCTIONS BALANCE
BEGINNING OF COSTS AND FROM AT END OF
DESCRIPTION PERIOD EXPENSES RESERVES PERIOD
- ----------- ------ -------- -------- ------
<S> <C> <C> <C> <C>
ALLOWANCES FOR POSSIBLE LOSSES ON ACCOUNTS RECEIVABLE:
Year-end September 30, 1999 $730 $404 ($260)(a) $874
Year-end September 30, 1998 $576 $300 ($146)(a) $730
Year-end September 30, 1997 $393 $381 ($198)(a) $576
ALLOWANCES FOR POSSIBLE LOSSES ON ACCRUED WARRANTY:
Year-end September 30, 1999 $1,537 $3,327 ($3,699)(b) $1,165
Year-end September 30, 1998 $1,385 $4,530 ($4,378)(b) $1,537
Year-end September 30, 1997 $1,132 $3,729 ($3,476)(b) $1,385
</TABLE>
- --------------------------------------
(a)Bad debt write-offs
(b)Actual warranty claims
FS-3
EXHIBIT 10.18
WAIVER AND AMENDMENT NO. 1
TO
THIRD AMENDED AND RESTATED
LONG TERM REVOLVING CREDIT AGREEMENT
AND
SHORT TERM REVOLVING CREDIT AGREEMENT
This WAIVER AND AMENDMENT NO. 1, dated as of December 22, 1999 (the
"Amendment"), to each of (i) the SHORT TERM REVOLVING CREDIT AGREEMENT, dated as
of June 4, 1999 (the "Short Term Credit Agreement"), by and among Ag-Chem
Equipment Co., Inc. (the "Borrower"), the institutions from time to time party
thereto as lenders (the "Short Term Lenders"), and Bank One, NA (formerly known
as The First National Bank of Chicago), as Agent (the "Agent") and (ii) the
THIRD AMENDED AND RESTATED LONG TERM REVOLVING CREDIT AGREEMENT, dated as of
June 4, 1999 (the "Long Term Credit Agreement", and together with the Short Term
Credit Agreement, the "Credit Agreements"), by and among the Borrower, certain
subsidiaries of the Borrower (the "Multicurrency Subsidiary Borrowers"), the
Short Term Lenders and Bank One Canada, formerly known as First Chicago NBD
Bank, Canada, as the lenders thereunder (the "Long Term Lenders"), and the
Agent, is entered into by each of the parties to the Credit Agreements.
Capitalized terms used herein and not otherwise defined herein shall have the
meaning given to them in the Credit Agreements.
WITNESSETH
WHEREAS, the Borrower, the Short Term Lenders and the Agent are parties
to the Short Term Credit Agreement and, together with the Multicurrency
Subsidiary Borrowers and Bank One Canada, are parties to the Long Term Credit
Agreement;
WHEREAS, the Borrower and the Multicurrency Subsidiary Borrowers have
requested that the Short Term Lenders and the Long Term Lenders (together, the
"Lenders") and the Agent provide a limited waiver under each of the Credit
Agreements with respect to the financial covenant set forth in Section 5.2(c) of
each of the Credit Agreements;
WHEREAS, each of the Borrower and each of the Multicurrency Subsidiary
Borrowers also wishes to amend the Credit Agreements to which it is a party in
certain respects;
WHEREAS, the Lenders and the Agent are willing to provide such limited
waivers and amend the Credit Agreements on the terms and conditions set forth
herein;
NOW, THEREFORE, in consideration of the premises set forth above, the
terms and conditions contained herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
Borrower, the Multicurrency Subsidiary Borrowers, the Agent and the Lenders
hereby agree as follows:
<PAGE>
1. Limited Waiver. Effective as of the date hereof, as expressly
limited hereby and subject to the satisfaction of the condition precedent set
forth in Section 3 below, the Lenders and the Agent hereby agree to waive the
requirements, as existed immediately prior to the effectiveness of this
Amendment, of Section 5.2(c) of each of the Credit Agreements with respect to
the fiscal quarter ended September 30, 1999.
2. Amendment. Effective as of the date first above written and subject
to the satisfaction of the condition precedent set forth in Section 3 below, the
Credit Agreement shall be and hereby is amended as follows:
(a) The definition of "Applicable Margin" set forth in Section
1.1 of the Short Term Credit Agreement is hereby amended to delete
therefrom the phrase "Eurodollar Rate Margin" and to substitute
therefor the phrase "Eurodollar Margin".
(b) The definition of "Floating Rate Margin" set forth in
Section l.1 of each of the Credit Agreements is hereby amended to
delete therefrom the percentage "1.25%" and to substitute therefor the
percentage "1.50%".
(c) The definition of "National Currency Margin and LIBOR Rate
Margin" set forth in Section 1.1 of the Long Term Credit Agreement is
hereby amended to delete therefrom the percentage "2.50%" and to
substitute therefor the percentage "2.75%".
(d) The definition of "Eurodollar Margin" set forth in Section
1.1 of the Short Term Credit Agreement is hereby amended to delete
therefrom the percentage "2.50%" and to substitute therefor the
percentage "2.75%".
(e) Section 5.2(c) of the Long Term Credit Agreement is hereby
amended in its entirety as follows:
"Interest Coverage Ratio. Permit or suffer the Interest
Coverage Ratio to be less than: (i) 1.35 to 1.00 for period
beginning with the fiscal quarter ending December 31, 1999 and
ending with the fiscal quarter ending December 31, 2000, (ii)
1.50 to 1.00 for the period beginning with the fiscal quarter
ending March 31, 2001 and ending with the fiscal quarter
ending December 31, 2001, and (iii) 2.25 to 1.00 for the
period beginning with the fiscal quarter ending March 31, 2002
and ending on the Termination Date. "
(f) Section 5.2(c) of the Short Term Credit Agreement is
hereby amended in its entirety as follows:
"Interest Coverage Ratio. Permit or suffer to permit the
Interest Coverage Ratio to be less than 1.35 to 1.00 for the
period beginning with the fiscal quarter ending December 31,
1999 and ending on the Termination Date."
2
<PAGE>
(g) Schedule A to the Long Term Credit Agreement is hereby
deleted therefrom and Schedule A attached hereto as Exhibit 1 is hereby
substituted therefor.
(h) Schedule A to the Short Term Credit Agreement is hereby
deleted therefrom and Schedule A attached hereto as Exhibit 2 is hereby
substituted therefor.
3. Conditions of Effectiveness. This Amendment shall become effective
and be deemed effective as of the date hereof, if, and only if, the Agent shall
have received four (4) duly executed originals of this Amendment from the
Borrower, the Multicurrency Subsidiary Borrowers and the Required Lenders.
4. Representations and Warranties of the Borrower and the Multicurrency
Subsidiary Borrowers. Each of the Borrower and each Multicurrency Subsidiary
Borrower hereby represents and warrants as follows:
(a) Each of the Credit Agreements to which each of the
Borrower and each Multicurrency Subsidiary Borrower is a party as
previously executed constitutes the legal, valid and binding obligation
of the Borrower and each Multicurrency Subsidiary Borrower and is
enforceable against the Borrower and each Multicurrency Subsidiary
Borrower in accordance with its terms.
(b) Upon the effectiveness of this Amendment, each of the
Borrower and each Multicurrency Subsidiary Borrower hereby (i)
represents that no Default or Event of Default exists under the terms
of the Credit Agreements to which it is a party, (ii) reaffirms all
covenants, representations and warranties made in the Credit Agreements
to which it is a party, and (iii) agrees that all such covenants,
representations and warranties shall be deemed to have been remade as
of the effective date of this Amendment.
5. Effect on the Credit Agreement.
(a) Upon the effectiveness of this Amendment, on and after the
date hereof, each reference in each Credit Agreement to "this
Agreement," "hereunder," "hereof," "herein" or words of like import
shall mean and be a reference to such Credit Agreement, as amended
hereby.
(b) Except as specifically amended above, the Credit
Agreements and all other documents, instruments and agreements executed
and/or delivered in connection therewith shall remain in full force and
effect, and are hereby ratified and confirmed.
(c) The execution, delivery and effectiveness of this
Amendment shall neither, except as expressly provided herein, operate
as a waiver of any right, power or remedy of the Lenders or the Agent,
nor constitute a waiver of any provision of either Credit Agreement or
any other documents, instruments and agreements executed and/or
delivered in connection therewith.
6. Costs and Expenses. The Borrower agrees to pay all reasonable costs,
fees and out-of-pocket expenses (including attorneys' fees and expenses charged
to the Agent) incurred by
3
<PAGE>
the Agent and the Lenders in connection with the preparation, arrangement,
execution and enforcement of this Amendment.
7. GOVERNING, LAW. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE INTERNAL LAWS (INCLUDING, WITHOUT LIMITATION, SECTION 735
ILCS 105/5-1 ET SEQ. BUT OTHERWISE WITHOUT REGARD TO THE CONFLICTS OF LAWS
PROVISIONS) OF THE STATE OF ILLINOIS.
8. Headings. Section headings in this Amendment are included herein for
convenience of reference only and shall not constitute a part of this Amendment
for any other purpose.
9. Counterparts. This Amendment may be executed by one or more of the
parties to the Amendment on any number of separate counterparts and all of said
counterparts taken together shall be deemed to constitute one and the same
instrument.
10. No Strict Construction. The parties hereto have participated
jointly in the negotiation and drafting of this Amendment. In the event an
ambiguity or question of intent or interpretation arises, this Amendment shall
be construed as if drafted jointly by the parties hereto and no presumption or
burden of proof shall arise favoring or disfavoring any party by virtue of the
authorship of any provisions of this Amendment.
The remainder of this page is intentionally blank.
4
<PAGE>
IN WITNESS WHEREOF, this Waiver and Amendment No. 1 executed as of the
day and year first above written.
AG-CHEM EQUIPMENT CO., INC., as the AG-CHEM EUROPE, B.V., as a Multicurrency
Borrower Subsidiary Borrower.
By: /s/ JOHN C. RETHERFORD By: /s/ JOHN C. RETHERFORD
------------------------------- -------------------------------
Name: John C. Retherford Name: John C. Retherford
Title: Senior Vice President Title: Senior Vice President
AG-CHEM EQUIPMENT CANADA, LTD., as BANK ONE, NA, (formerly known as The
a Multicurrency Subsidiary Borrower First National Bank of Chicago), as a
Lender and as Agent under the Credit
By: /s/ JOHN C. RETHERFORD Agreements
-------------------------------
Name: John C. Retherford By: /s/ JENNY A. GILPIN
Title: Senior Vice President -------------------------------
Name: Jenny A. Gilpin
COOPERATIEVE CENTRALE RAIFFEISEN- Title: First Vice President
BOERENLEENBANK B. A., "RABOBANK
INTERNATIONAL", NEW YORK BRANCH, HARRIS TRUST AND SAVINGS BANK, as a
as a Lender under the Credit Lender under the Credit Agreements
Agreements
By: /s/ ANDREW PETERSON
By: /s/ THOMAS A. LEVASSURE -------------------------------
------------------------------- Name: Andrew Peterson
Name: Thomas A. Levassure Title: Managing Director
Title: Vice President
By: /s/ EDWARD PEYSER
-------------------------------
Name: Edward Peyser
Title: Vice President
BANK ONE CANADA, formerly known as
First Chicago NBD Bank, Canada, as a
Lender under the Long Term Credit
Agreement
By: /s/ JEREMIAH A. HYNES III
-------------------------------
Name: Jeremiah A. Hynes III
Title: First Vice President
By: /s/ MICHAEL N. TAM
-------------------------------
Name: Michael N. Tam
Title: Vice President
5
Signature Page to Waiver and Amendment No 1
<PAGE>
EXHIBIT 1
TO
WAIVER AND AMENDMENT NO. 1
SCHEDULE A
to the
Loan Term Credit Agreement
Pricing and Fee Schedule
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
Funded Debt to National Currency Floating Rate Margin Applicable Fee Rate
EBITDA Margin and LIBOR
Rate Margin
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Greater than 4.5 2.75% 1.50% 0.50%
- --------------------------------------------------------------------------------------------
Greater than 4.0 but 2.50% 1.25% 0.50%
less than or equal to
4.5
- --------------------------------------------------------------------------------------------
Greater than 3.5 but 2.25% 1.00% 0.50%
less than or equal to
4.0
- --------------------------------------------------------------------------------------------
Greater than 3.0 but 2.05% 0.80% 0.45%
less than or equal to
3.5
- --------------------------------------------------------------------------------------------
Greater than 2.5 but 1.625% 0.375% 0.375%
less than or equal to
3.0
- --------------------------------------------------------------------------------------------
Less or equal to 2.5 1.20% 0% 0.25%
- --------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT 2
TO
WAIVER AND AMENDMENT NO. 1
SCHEDULE A
to the
Short Term Credit Agreement
Pricing and Fee Schedule
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
Funded Debt to Eurodollar Margin Floating Rate Margin Applicable Fee Rate
EBITDA
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Greater than 4.5 2.75% 1.50% 0.45%
- -------------------------------------------------------------------------------------------
Greater than 4.0 but 2.50% 1.25% 0.45%
less than or equal to
4.5
- -------------------------------------------------------------------------------------------
Greater than 3.5 but 2.25% 1.00% 0.45%
less than or equal to
4.0
- -------------------------------------------------------------------------------------------
Greater than 3.0 but 2.05% 0.80% 0.40%
less than or equal to
3.5
- -------------------------------------------------------------------------------------------
Greater than 2.5 but 1.625% 0.375% 0.325%
less than or equal to
3.0
- -------------------------------------------------------------------------------------------
Less or equal to 2.5 1.20% 0% 0.20%
- -------------------------------------------------------------------------------------------
</TABLE>
EXHIBIT 11.1
STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
AG-CHEM EQUIPMENT CO., INC. AND SUBSIDIARIES
(DOLLARS IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Shares outstanding at beginning of year 9,640,268 9,670,268 9,695,768
Repurchase and retirement of common stock (44,800) (30,000) (25,500)
Shares outstanding at end of year 9,595,468 9,640,268 9,670,268
--------------- -------------- ----------------
Weighed average common shares outstanding 9,616,313 9,660,152 9,683,341
=============== ============== ================
Net earnings $3,388 $6,848 $7,570
=============== ============== ================
Earnings per common share $0.35 $0.71 $0.78
=============== ============== ================
</TABLE>
The Company has no potentially dilutive common shares.
FS-4
EXHIBIT 21
SUBSIDIARIES OF AG-CHEM EQUIPMENT CO., INC.
(ALL WHOLLY-OWNED, EXCEPT AG-CHEM EUROPE B.V. AT 90%)
COMPANY JURISDICTION OF INCORPORATION
------- -----------------------------
Ag-Chem Sales Co., Inc. Minnesota
Ag-Chem Manufacturing Co., Inc. Minnesota
Ag-Chem Equipment Co., International Corp. U.S. Virgin Islands
Ag-Chem Equipment Canada, Ltd. Minnesota
Ag-Chem Europe B.V. Netherlands
Lor*Al Products, Inc. Minnesota
FS-5
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
FINANCIAL DATA SCHEDULE EXHIBIT 27
AG-CHEM EQUIPMENT CO., INC. AND SUBSIDIARIES
(DOLLARS IN THOUSANDS)
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> SEP-30-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 18,922
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<PP&E> 42,470
<DEPRECIATION> (42,235)
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0
0
<COMMON> 9,595,468
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<SALES> 292,679
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<CGS> 214,688
<TOTAL-COSTS> 214,688
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<LOSS-PROVISION> 404
<INTEREST-EXPENSE> 5,713
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<INCOME-TAX> 1,625
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<EXTRAORDINARY> 0
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<EPS-BASIC> 0.35
<EPS-DILUTED> 0.35
</TABLE>
