SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
__X__ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1999
_____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____ to _____.
Commission File Number: 0-25360
AG-CHEM EQUIPMENT CO., INC.
(Exact Name of Registrant as Specified in Its Charter)
Minnesota 41-0872842
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
5720 Smetana Drive
Minnetonka, Minnesota 55343-9688
(Address of Principal Executive Offices)
(612) 933-9006
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Exchange Act during
the past 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
__X__ Yes _____ No
As of January 31, 2000, there were outstanding 9,580,868 shares of the
issuers' Common Stock, $.01 par value per share.
<PAGE>
TABLE OF CONTENTS
Page
----
PART I
ITEM 1. FINANCIAL STATEMENTS......................................... 2
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.............................................. 9
PART II
ITEM 1. LEGAL PROCEEDINGS............................................ 12
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K............................. 12
SIGNATURES ............................................................. 13
EXHIBITS ............................................................. 14
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
AG-CHEM EQUIPMENT CO., INC. AND SUBSIDIARIES
(Dollars in Thousands)
<TABLE>
<CAPTION>
(UNAUDITED)
- -------------------------------------------------------------------------------------------
December 31, September 30,
ASSETS 1999 1999
------ ------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 4,213 $ --
Accounts receivable, less allowance for
doubtful accounts of $907 and $874, respectively 16,679 18,922
Notes receivable, current portion, and
accrued interest receivable 3,093 5,296
Inventories (note 2) 113,992 109,463
Deferred income tax benefits 5,695 4,400
Prepaid expenses and other current assets 425 628
------------ ------------
Total current assets 144,097 138,709
------------ ------------
PROPERTY, PLANT AND EQUIPMENT, NET OF ACCUMULATED
DEPRECIATION OF $42,889 AND $42,235, RESPECTIVELY 38,618 42,470
OTHER ASSETS:
Notes receivable, long-term portion 4,845 7,046
Intangible and other assets, net of accumulated
amortization of $4,361 and $4,142, respectively 2,457 1,704
------------ ------------
Total other assets 7,302 8,750
------------ ------------
Total assets $ 190,017 $ 189,929
============ ============
</TABLE>
SEE ACCOMPANYING CONDENSED NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS.
2
<PAGE>
CONSOLIDATED BALANCE SHEETS
AG-CHEM EQUIPMENT CO., INC. AND SUBSIDIARIES
(Dollars in Thousands)
<TABLE>
<CAPTION>
(UNAUDITED)
- ---------------------------------------------------------------------------------------------------------
December 31, September 30,
LIABILITIES AND STOCKHOLDERS' EQUITY 1999 1999
------------------------------------ ------------ ------------
<S> <C> <C>
CURRENT LIABILITIES:
Current installments of long-term debt $ 6,221 $ 6,381
Note payable to banks 12,676 35,225
Accounts payable 20,336 10,859
Checks outstanding in excess of cash balances -- 138
Customer prepayments 22,769 5,183
Accrued expenses (note 3) 12,361 13,262
Deferred income 1,097 1,359
------------ ------------
Total current liabilities 75,460 72,407
------------ ------------
LONG-TERM DEBT, LESS CURRENT INSTALLMENTS 43,419 44,299
------------ ------------
Total liabilities 118,879 116,706
------------ ------------
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value
Authorized, 40,000,000 shares; issued and
outstanding, 9,591,868 and 9,595,468 shares, respectively 96 96
Additional paid-in capital 1,236 1,274
Retained earnings 70,296 72,318
Accumulated other comprehensive loss (490) (465)
------------ ------------
Total stockholders' equity 71,138 73,223
------------ ------------
Total liabilities and stockholders' equity $ 190,017 $ 189,929
============ ============
</TABLE>
SEE ACCOMPANYING CONDENSED NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS.
3
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
AG-CHEM EQUIPMENT CO., INC. AND SUBSIDIARIES
(Amounts in Thousands except Per Share Amounts)
(UNAUDITED)
- --------------------------------------------------------------------------------
Three Months Ended December 31,
1999 1998
----------- -----------
Net sales $ 58,708 $ 53,529
Cost of sales 44,622 38,053
----------- -----------
Gross profit 14,086 15,476
Selling, general and administrative expenses 16,220 16,021
----------- -----------
Operating loss (2,134) (545)
----------- -----------
Other income (expense):
Other income 738 1,062
Interest expense (1,778) (1,084)
----------- -----------
Loss before income taxes (3,174) (567)
Income tax benefit (1,150) (211)
----------- -----------
Net loss $ (2,024) $ (356)
=========== ===========
Loss per share $ (0.21) $ (0.04)
=========== ===========
Weighted average common shares outstanding 9,592 9,639
=========== ===========
SEE ACCOMPANYING CONDENSED NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS.
4
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
AG-CHEM EQUIPMENT CO., INC. AND SUBSIDIARIES
(Dollars in Thousands)
<TABLE>
<CAPTION>
(UNAUDITED)
- ----------------------------------------------------------------------------------------
Three Months ended December 31,
-------------------------------
1999 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (2,024) $ (356)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH
PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Depreciation and amortization 943 1,568
Gain on sale of assets (21) (75)
Increase in deferred income tax benefits (1,295) (148)
Changes in operating assets and liabilities:
Accounts receivable 2,243 4,400
Operating notes receivable 4,404 445
Inventories (4,529) (17,700)
Other current assets 203 (202)
Accounts payable 9,477 2,331
Customer prepayments and deferred income 17,324 2,974
Accrued expenses (901) (3,678)
Income taxes -- (374)
----------- -----------
Cash provided by (used in) operating activities 25,824 (10,815)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Retirement of short-term investments
for industrial revenue bond -- 23
Purchase of property, plant and equipment (873) (343)
Decrease in rental equipment 4,000 1,207
Proceeds from sale of equipment 21 110
Increase (decrease) in other assets (970) 118
----------- -----------
Cash provided by investing activities 2,178 1,115
----------- -----------
</TABLE>
(CONTINUED ON NEXT PAGE)
SEE ACCOMPANYING CONDENSED NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS.
5
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
AG-CHEM EQUIPMENT CO., INC. AND SUBSIDIARIES
(Dollars in Thousands)
<TABLE>
<CAPTION>
(UNAUDITED)
- ----------------------------------------------------------------------------------------
Three Months ended December 31,
-------------------------------
1999 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in checks outstanding in excess of
cash balances $ (138) $ (127)
Proceeds from notes payable - banks 29,100 29,200
Repayments of notes payable - banks (51,649) (18,402)
Proceeds from long-term borrowings 9,500 60,000
Repayments of long-term borrowings (10,540) (60,836)
Purchase of common stock (38) (135)
----------- -----------
Cash provided by (used in) financing activities (23,764) 9,700
----------- -----------
Foreign currency translation adjustment (25) --
----------- -----------
Increase in cash 4,213 --
Cash at beginning of period -- --
----------- -----------
Cash at end of period $ 4,213 $ --
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid (received) during the period for:
Interest $ 797 $ 1,878
Income taxes $ 1,293 $ 400
</TABLE>
6
<PAGE>
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AG-CHEM EQUIPMENT CO., INC. AND SUBSIDIARIES
(Dollars in Thousands)
(UNAUDITED)
- --------------------------------------------------------------------------------
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited interim consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions in Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included. For
further information, refer to the consolidated financial statements and
footnotes thereto for the year ended September 30, 1999 included in the
Company's annual report on Form 10-K. Results of the interim periods are not
necessarily indicative of the results for an entire year.
(2) INVENTORIES
Inventories consist of the following:
December 31, September 30,
1999 1999
------------ ------------
Finished goods $ 43,619 $ 45,033
Resale parts 25,103 25,815
Work in process and raw materials 42,767 36,330
------------ ------------
Total 111,489 107,178
Less LIFO reserve (12,296) (12,077)
------------ ------------
Total 99,193 95,101
Used equipment 14,799 14,362
------------ ------------
Total inventories $ 113,992 $ 109,463
============ ============
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 higher by $219 at December 31, 1999 and $71 at September 30, 1999.
(3) ACCRUED EXPENSES
Accrued expenses consist of the following:
December 31, September 30,
1999 1999
------------ -------------
Compensation $ 5,089 $ 6,471
Warranty 996 1,165
Taxes other than income 620 897
Insurance 2,027 1,784
Interest 797 1,253
Other 2,832 1,692
---------- ----------
Total $ 12,361 $ 13,262
========== ==========
7
<PAGE>
(4) COMPREHENSIVE INCOME
Comprehensive income and its components, including all changes in
equity during a period except those resulting from investments by owners or
distributions to owners are as follows:
Three months ended December 31,
-------------------------------
1999 1998
-------- --------
Net loss $ (2,024) $ (356)
Other comprehensive loss
Foreign currency translation adjustment (25) --
-------- --------
Total comprehensive loss $ (2,049) $ (356)
========= ========
8
<PAGE>
5. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
RESULTS OF OPERATIONS - THREE-MONTH PERIOD ENDED DECEMBER 31, 1999 COMPARED TO
THREE-MONTH PERIOD ENDED DECEMBER 31, 1998
Consolidated net sales increased by $5,179 or 9.7% in the three-month
period ended December 31, 1999 from the three-month period ended December 31,
1998. The increase was primarily the result of increases in post-emergence
equipment unit shipments. This increase was partially offset by a decrease in
sales of pre-emergence equipment. As a result of the recession in the
agricultural economy, customers are holding on to equipment longer. The Company
expects competition to continue to be a factor and is uncertain about the impact
on future net sales and product mix. Additionally, the farm supply industry is
experiencing consolidation which has reduced capital purchases, with a resulting
decrease in the demand for equipment in the short-term. The Company anticipates
that once the consolidation slows and the economy improves, customers will
resume capital purchases at a level comparable to prior periods.
Consolidated gross profit for the three-month period ended December 31,
1999 decreased $1,390 or 9.0% as compared to the prior-year period. Consolidated
gross profit as a percent of net sales was 24.0% and 28.9% for the three-month
periods ended December 31, 1999 and 1998, respectively. The decrease in gross
profit as a percentage of net sales was primarily the result of changes in
product mix, reduced margins on prior-year models and increased manufacturing
costs per unit resulting from a decrease in unit production in the three months
ending December 31, 1999 compared to the prior-year period. The decrease in unit
production is the result of the Company's effort to reduce inventory levels
during fiscal 2000. The inventory of prior year models was significantly reduced
in the first quarter of fiscal 2000.
Consolidated selling, general and administrative ("S,G&A") expenses
increased $199 or 1.2% in the three-month period ended December 31, 1999 as
compared to the prior-year period. Compensation, employee benefits and
employee-related expenses increased 4.4% or $491. The largest factors
contributing to this increase were an increase in commission expense, which is
directly related to the increase in net sales and increased health benefits
costs. All other S,G&A expenses decreased by 5.9% or $292. S,G&A expenses as a
percent of net sales were 27.6% and 29.9% in the three-month periods ended
December 31, 1999 and 1998, respectively. The Company expects that its efforts
to contain such costs will hold annual S,G&A expenses relatively stable as a
percentage of sales during the remainder of fiscal 2000.
As a result of the above, operating loss was $2,134 and $545 in the
three-month periods ended December 31, 1999 and 1998, respectively.
Other income decreased 30.5% to $738 in the three-month period ended
December 31, 1999 as compared to the prior-year three-month period. This
reduction is primarily the result of unfavorable foreign currency adjustments
and reduced interest income. The foreign currency adjustment is largely the
result of the increasing value of the U.S. dollar relative to the Euro. The
reduction in interest income compared to the prior year three month period ended
December 31, 1998 is the result of the Company carrying fewer notes receivable
from its customers in the current year. During the current three month period
ended December 31, 1999 the Company sold a portion of its notes receivable to a
third party in an effort to reduce working capital requirements. These notes
were sold without recourse to the Company.
Interest expense increased 64.0% to $1,778 in the three-month period
ended December 31, 1999 as compared to the prior-year three-month period. This
increase is the result of higher interest rates in the three months ended
December 31, 1999 compared to the prior year-period. The Company decreased its
debt during the
9
<PAGE>
current period to reduce borrowing costs and expects to keep it below last years
level, but believes that interest rates will continue to be higher than the
prior year.
The effective tax benefit rate in the three-month periods ended
December 31, 1999 and 1998 was 36.2% and 37.2%, respectively.
As a result of the above, the net loss was $2,024 and $356 in the
three-month periods ended December 31, 1999 and 1998, respectively. Loss per
share was $.21 and $.04 for such periods.
LIQUIDITY AND FINANCIAL POSITION - THREE-MONTH PERIOD ENDED DECEMBER 31, 1999
COMPARED TO THREE-MONTH PERIOD ENDED DECEMBER 31, 1998
Net cash provided by operating activities was $25,824 in the
three-month period ended December 31, 1999, compared to net cash used of $10,815
in the three-month period ended December 31, 1998. The major reason for this
change was an increase in cash provided by customer prepayments and inventories,
net of accounts payable. The increase in customer pre-payments was due to an
effort by customers to increasingly take advantage of more favorable pricing by
prepaying for future shipments. A reduction in inventories, together with
increased accounts payable balances, provided cash of $4,948 compared to cash
used of $15,369 during the three months ended December 31, 1999 and 1998,
respectively because of higher sales and a reduction in production in the first
quarter of fiscal 2000. The Company traditionally experiences the highest
inventory levels in the first quarter and highest sales levels in the second
quarter of the fiscal year. The Company expects cash will continue to be
provided by operating activities through net earnings, and this cash will be
used to satisfy the current portion of long-term debt. Accounts receivable and
inventory turnover have remained relatively stable in recent periods, and have
not significantly affected liquidity.
Cash provided by investing activities in the three-month period ended
December 31, 1999 was $2,178 compared to $1,115 in the prior-year period. This
increase in cash provided was primarily due to the Company renting less
equipment to customers during the period ended December 31, 1999, requiring a
smaller additional investment.
Cash used in financing activities was $23,764 in the three-month period
ended December 31, 1999, compared to cash provided of $9,700 in the prior-year
period. The decrease in cash provided by financing activities was primarily the
result of the net repayments of notes payable and long-term borrowings of
$23,589 during the three-month period ended December 31, 1999, compared to net
proceeds of $9,962 during the three-month period ended December 31, 1998. This
increase in net proceeds is primarily due to the Company's efforts to decrease
working capital requirements in the current period as compared to the prior
year period.
Working capital at December 31, 1999 was $68,637. As of December 31,
1999 the Company had $52,100 of unused credit line available. The Company
periodically receives prepayments from customers to secure either more favorable
pricing or a desired delivery date. If the Company did not receive customer
prepayments, it believes its line of credit provides sufficient liquidity to
meet working capital requirements.
The terms of the Company's amended credit line 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 $57,500 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. The Company does not anticipate any difficulty in meeting these
covenants.
10
<PAGE>
IMPACT OF YEAR 2000
The Company has not experienced any material adverse effects from the
Year 2000 issues. The Company estimates that the expenses incurred to-date in
fiscal 2000 to address Year 2000 issues were approximately $25. The Company
estimates that it will incur minimal additional expense related to Year 2000
issues, but will continue to monitor the Y2k transition. Contingency plans have
been completed and will be used if necessary.
FORWARD-LOOKING STATEMENTS
Certain information included in this Report is "forward looking" 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. This includes factors that affect all businesses, as well as matters
specific to the Company and markets it serves. A more complete discussion of
such factors is included in the Company's Form 10-K for the year-ended September
30, 1999.
11
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Reference is made to the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1999 on file with the Securities and Exchange
Commission. During the quarter ended December 31, 1999, the Company was not a
party to any newly initiated material legal proceedings.
ITEM 3. MARKET RISK MANAGEMENT
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's risk to
interest rate and foreign currency exchange rate fluctuations has not materially
changed since September 30, 1999.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
See the index to exhibits immediately preceding the exhibits
filed with this report.
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the quarter for
which this report was filed.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AG-CHEM EQUIPMENT CO., INC.
Date: February 14, 2000 By: /s/ Alvin E. McQuinn
------------------------------------
Alvin E. McQuinn
Its: Chief Executive Officer
Date: February 14, 2000 By: /s/ John C. Retherford
------------------------------------
John C. Retherford
Its: Chief Financial Officer
13
<PAGE>
INDEX TO EXHIBITS
- --------------------------------------------------------------------------------
EXHIBIT NO. TITLE
- ----------- -----
- --------------------------------------------------------------------------------
11.1 Computation of Earnings Per Share
- --------------------------------------------------------------------------------
27 Financial Data Schedule
- --------------------------------------------------------------------------------
14
Exhibit 11.1
STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
AG-CHEM EQUIPMENT CO., INC. AND SUBSIDIARIES
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
The per share computations are based on the weighted average number of common
shares outstanding during the periods.
Three Months Ended
------------------
December 31,
------------
1999 1998
-------- -------
Shares outstanding at beginning of period 9,595 9,640
Repurchase and retirement of common stock (3) (13)
-------- -------
Shares outstanding at end of period 9,592 9,627
======== =======
Weighted average shares outstanding 9,592 9,639
======== =======
Net loss $ (2,024) $ (356)
======== =======
Loss per common share $ (0.21) $ (0.04)
======== =======
The Company has no potentially dilutive common shares.
15
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-START> OCT-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 4,213
<SECURITIES> 0
<RECEIVABLES> 16,679
<ALLOWANCES> (907)
<INVENTORY> 113,992
<CURRENT-ASSETS> 144,097
<PP&E> 38,618
<DEPRECIATION> (42,889)
<TOTAL-ASSETS> 190,017
<CURRENT-LIABILITIES> 75,460
<BONDS> 0
0
0
<COMMON> 9,592
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 190,017
<SALES> 58,708
<TOTAL-REVENUES> 58,708
<CGS> 44,622
<TOTAL-COSTS> 44,622
<OTHER-EXPENSES> 16,220
<LOSS-PROVISION> 112
<INTEREST-EXPENSE> 1,778
<INCOME-PRETAX> (3,174)
<INCOME-TAX> (1,150)
<INCOME-CONTINUING> (2,024)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,024)
<EPS-BASIC> (0.21)
<EPS-DILUTED> (0.21)
</TABLE>
