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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
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EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
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EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-19898
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AGCO CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 58-1960019
(State of incorporation) (I.R.S. Employer Identification No.)
4830 River Green Parkway
Duluth, Georgia 30136
(Address of principal executive
offices including zip code)
Registrant's telephone number, including area code: (770) 813-9200
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
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Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of the latest practicable date.
Common stock par value $.01 per share: 62,520,030 shares outstanding as of
June 30, 1997.
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AGCO CORPORATION AND SUBSIDIARIES
INDEX
Page
Numbers
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PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Condensed Consolidated Balance
Sheets - June 30, 1997 and December 31, 1996 . . . . . . . . . . . . . . . . . . 3
Condensed Consolidated Statements
of Income for the Three Months
Ended June 30, 1997 and 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Condensed Consolidated Statements
of Income for the Six Months
Ended June 30, 1997 and 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Condensed Consolidated Statements
of Cash Flows for the Six Months
Ended June 30, 1997 and 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Notes to Condensed Consolidated
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
PART II. OTHER INFORMATION:
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . 17
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . 17
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
2
Part I. Financial Information
Item 1. Financial Statements
AGCO CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
June 30, December 31,
1997 1996
----------------- ------------------
ASSETS (Unaudited)
Current Assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . $ 41,100 $ 41,707
Accounts and notes receivable, net of allowances . . . . . 1,032,043 856,985
Receivables from unconsolidated subsidiary and affiliates. 11,733 12,486
Inventories, net . . . . . . . . . . . . . . . . . . . . . 645,209 473,844
Other current assets . . . . . . . . . . . . . . . . . . . 74,209 81,440
----------------- ------------------
Total current assets . . . . . . . . . . . . . . . . . . 1,804,294 1,466,462
Property, plant and equipment, net . . . . . . . . . . . . . 319,199 292,437
Investments in unconsolidated subsidiary and affiliates . . . 81,091 80,501
Other assets. . . . . . . . . . . . . . . . . . . . . . . . . 76,213 71,488
Intangible assets, net. . . . . . . . . . . . . . . . . . . . 399,920 205,643
----------------- ------------------
Total assets . . . . . . . . . . . . . . . . . . . . . . $ 2,680,717 $ 2,116,531
================= ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . $ 381,478 $ 361,512
Payables to unconsolidated subsidiary and affiliates . . . 19,813 14,567
Accrued expenses . . . . . . . . . . . . . . . . . . . . . 376,149 316,958
Other current liabilities. . . . . . . . . . . . . . . . . 27,059 22,951
----------------- ------------------
Total current liabilities . . . . . . . . . . . . . . . . 804,499 715,988
----------------- ------------------
Long-term debt. . . . . . . . . . . . . . . . . . . . . . . . 867,738 567,055
Postretirement health care benefits . . . . . . . . . . . . . 24,748 24,445
Other noncurrent liabilities. . . . . . . . . . . . . . . . . 44,043 34,378
----------------- ------------------
Total liabilities . . . . . . . . . . . . . . . . . . . . 1,741,028 1,341,866
Stockholders' Equity:
Common stock; $0.01 par value, 150,000,000 shares authorized,
62,520,030 and 57,260,151 shares issued and outstanding at
June 30, 1997 and December 31, 1996, respectively . . . . 629 573
Additional paid-in capital . . . . . . . . . . . . . . . . 514,191 360,119
Retained earnings. . . . . . . . . . . . . . . . . . . . . 484,698 411,422
Unearned compensation . . . . . . . . . . . . . . . . . . (25,031) (17,779)
Cumulative translation adjustment. . . . . . . . . . . . . (34,798) 20,330
----------------- ------------------
Total stockholders' equity. . . . . . . . . . . . . . . . 939,689 774,665
----------------- ------------------
Total liabilities and stockholders' equity. . . . . . . . $ 2,680,717 $ 2,116,531
================= ==================
See accompanying notes to condensed consolidated financial statements.
3
AGCO CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited and in thousands, except per share data)
Three Months Ended June 30,
-------------------------------------------
1997 1996
------------------- -------------------
Revenues:
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 871,932 $ 584,681
------------------- -------------------
Costs and Expenses:
Cost of goods sold. . . . . . . . . . . . . . . . . . . . . . . . . 696,162 468,887
Selling, general and administrative expenses. . . . . . . . . . . . 67,282 48,646
Engineering expenses . . . . . . . . . . . . . . . . . . . . . . . 14,068 6,737
Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . 14,072 7,183
Other expense, net . . . . . . . . . . . . . . . . . . . . . . . . 4,378 1,225
Nonrecurring expenses . . . . . . . . . . . . . . . . . . . . . . . 5,181 794
------------------- -------------------
801,143 533,472
------------------- -------------------
Income before income taxes, equity in net earnings of
unconsolidated subsidiary and affiliates. . . . . . . . . . . . . . 70,789 51,209
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . 25,175 18,150
------------------- -------------------
Income before equity in net earnings of unconsolidated
subsidiary and affiliates . . . . . . . . . . . . . . . . . . . . . 45,614 33,059
Equity in net earnings of unconsolidated subsidiary
and affiliates. . . . . . . . . . . . . . . . . . . . . . . . . . . 3,133 4,449
------------------- -------------------
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 48,747 $ 37,508
=================== ===================
Net income per common share:
Primary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.77 $ 0.69
=================== ===================
Fully diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.77 $ 0.66
=================== ===================
Weighted average number of common and common equivalent shares outstanding:
Primary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62,905 54,222
=================== ===================
Fully diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . 62,994 57,384
=================== ===================
Dividends declared per common share . . . . . . . . . . . . . . . . . . $ 0.01 $ 0.01
=================== ===================
See accompanying notes to condensed consolidated financial statements.
4
AGCO CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited and in thousands, except per share data)
Six Months Ended June 30,
---------------------------------------------
1997 1996
-------------------- --------------------
Revenues:
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$ 1,576,261 $ 1,038,565
-------------------- --------------------
Costs and Expenses:
Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . 1,266,142 829,031
Selling, general and administrative expenses . . . . . . . . . . . . 129,180 94,892
Engineering expenses . . . . . . . . . . . . . . . . . . . . . . . . 27,321 13,716
Interest expense, net. . . . . . . . . . . . . . . . . . . . . . . . 27,219 13,147
Other expense, net . . . . . . . . . . . . . . . . . . . . . . . . . 8,950 3,668
Nonrecurring expenses. . . . . . . . . . . . . . . . . . . . . . . . 7,806 6,717
-------------------- --------------------
1,466,618 961,171
-------------------- --------------------
Income before income taxes, equity in net earnings of
unconsolidated subsidiary and affiliates and
extraordinary loss . . . . . . . . . . . . . . . . . . . . . . . . . 109,643 77,394
Provision for income taxes. . . . . . . . . . . . . . . . . . . . . . . . 38,809 27,183
-------------------- --------------------
Income before equity in net earnings of unconsolidated
subsidiary and affiliates and extraordinary loss . . . . . . . . . . 70,834 50,211
Equity in net earnings of unconsolidated subsidiary
and affiliates . . . . . . . . . . . . . . . . . . . . . . . . . 5,720 7,892
-------------------- --------------------
Income before extraordinary loss. . . . . . . . . . . . . . . . . . . . . 76,554 58,103
Extraordinary loss, net of taxes. . . . . . . . . . . . . . . . . . . . . (2,080) (3,503)
-------------------- --------------------
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 74,474 $ 54,600
==================== ====================
Net income per common share:
Primary:
Income before extraordinary loss . . . . . . . . . . . . . . . . . $ 1.25 $ 1.10
Extraordinary loss . . . . . . . . . . . . . . . . . . . . . . . . (0.03) (0.07)
-------------------- --------------------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1.22 $ 1.03
==================== ====================
Fully diluted:
Income before extraordinary loss . . . . . . . . . . . . . . . . . $ 1.25 $ 1.02
Extraordinary loss . . . . . . . . . . . . . . . . . . . . . . . . (0.03) (0.06)
-------------------- --------------------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1.22 $ 0.96
==================== ====================
Weighted average number of common and common equivalent shares outstanding:
Primary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60,961 52,757
==================== ====================
Fully diluted. . . . . . . . . . . . . . . . . . . . . . . . . . . . 61,054 57,237
==================== ====================
Dividends declared per common share . . . . . . . . . . . . . . . . . . . $ 0.02 $ 0.02
==================== ====================
See accompanying notes to condensed consolidated financial statements.
5
AGCO CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited and in thousands)
Six Months Ended June 30,
--------------------------------------
1997 1996
----------------- -----------------
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 74,474 $ 54,600
----------------- -----------------
Adjustments to reconcile net income to net cash used for operating
activities:
Extraordinary loss, net of taxes . . . . . . . . . . . . . . . . . 2,080 3,503
Depreciation and amortization. . . . . . . . . . . . . . . . . . . 24,623 12,633
Equity in net earnings of unconsolidated subsidiary and affiliates,
net of cash received . . . . . . . . . . . . . . . . . . . . . . . (5,720) (7,892)
Deferred income tax provision. . . . . . . . . . . . . . . . . . . 9,944 8,931
Amortization of intangibles. . . . . . . . . . . . . . . . . . . . 6,186 2,018
Amortization of unearned compensation. . . . . . . . . . . . . . . 5,512 7,432
Changes in operating assets and liabilities, net of effects from
purchase of businesses:
Accounts and notes receivable, net.. . . . . . . . . . . . . . (115,825) (39,997)
Inventories, net . . . . . . . . . . . . . . . . . . . . . . . (121,753) (87,946)
Other current and noncurrent assets. . . . . . . . . . . . . . (7,096) (7,023)
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . 16,167 26,316
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . 4,636 13,770
Other current and noncurrent liabilities . . . . . . . . . . . (9,010) 3,173
----------------- -----------------
Total adjustments . . . . . . . . . . . . . . . . . . . . . . (190,256) (65,082)
----------------- -----------------
Net cash used for operating activities. . . . . . . . . . . . (115,782) (10,482)
----------------- -----------------
Cash flows from investing activities:
Purchase of businesses, net of cash acquired . . . . . . . . . . . (284,199) (6,417)
Purchase of property, plant and equipment . . . . . . . . . . . . . (20,059) (15,471)
----------------- -----------------
Net cash used for investing activities . . . . . . . . . . . (304,258) (21,888)
----------------- -----------------
Cash flows from financing activities:
Proceeds from long-term debt, net . . . . . . . . . . . . . . . . . 286,909 51,868
Payment of debt issuance costs. . . . . . . . . . . . . . . . . . . (3,503) (10,590)
Proceeds from issuance of common stock . . . . . . . . . . . . . . 141,364 1,454
Dividends paid on common stock. . . . . . . . . . . . . . . . . . . (1,198) (1,027)
----------------- -----------------
Net cash provided by financing activities . . . . . . . . . . 423,572 41,705
----------------- -----------------
Effect of exchange rate changes on cash and cash equivalents . . . . . . (4,139) (345)
(Decrease) increase in cash and cash equivalents . . . . . . . . . . . . (607) 8,990
Cash and cash equivalents, beginning of period. . . . . . . . . . . . . . 41,707 20,023
----------------- -----------------
Cash and cash equivalents, end of period. . . . . . . . . . . . . . . . . $ 41,100 $ 29,013
================= =================
See accompanying notes to condensed consolidated financial statements.
6
AGCO CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. BASIS OF PRESENTATION
The condensed consolidated financial statements of AGCO Corporation and
subsidiaries (the "Company" or "AGCO") included herein have been prepared by the
Company pursuant to the rules and regulations of the Securities and Exchange
Commission. In the opinion of management, the accompanying unaudited condensed
consolidated financial statements reflect all adjustments, which are of a normal
recurring nature, to present fairly the Company's financial position, results of
operations and cash flows at the dates and for the periods presented. These
condensed consolidated financial statements should be read in conjunction with
the Company's audited financial statements and notes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1996.
Interim results of operations are not necessarily indicative of results to be
expected for the fiscal year.
Effective November 1, 1996, the Company sold a 51% interest in
Agricredit Acceptance Company ("Agricredit"), the Company's retail finance
subsidiary in North America. Accordingly, the Company's condensed consolidated
financial statements as of June 30, 1997 and December 31, 1996 and for the three
and six months ended June 30, 1997 and 1996 reflect Agricredit on the equity
method of accounting for the periods presented.
2. ACQUISITIONS
Effective January 1, 1997, the Company acquired the operations of Xaver
Fendt GmbH & Co. KG ("Fendt") for approximately $283.5 million plus
approximately $38.0 million of assumed working capital debt (the "Fendt
Acquisition"). The Fendt Acquisition was financed by borrowings under the
Company's January 1997 Credit Facility (Note 4). The transaction consisted of
the purchase of the outstanding stock of Fendt and its interests in other
subsidiaries. Fendt's primary business is the manufacture and distribution of
tractors through a network of independent agricultural cooperatives, dealers and
distributors in Germany and throughout Europe and Australia.
3. CHARGES FOR NONRECURRING EXPENSES
The results of operations included a charge for nonrecurring expenses
of $5.2 million, or $0.05 per common share on a fully diluted basis, for the
three months ended June 30, 1997 and $7.8 million, or $0.08 per common share on
a fully diluted basis, for the six months ended June 30, 1997. For the six
months ended June 30,1997, this nonrecurring charge related to $5.1 million for
the restructuring of the Company's European operations, acquired in the
acquisition of Massey Ferguson (the "Massey Acquisition") in June 1994, and $2.7
million for the integration of the operations of Deutz Argentina S.A. ("Deutz
Argentina") and Fendt, which were acquired in December 1996 and January 1997,
respectively. The nonrecurring charge consisted primarily of employee related
costs.
7
The results of operations for the three and six months ended June 30,
1996 included a charge for nonrecurring expenses of $0.8 million, or $0.01 per
common share on a fully diluted basis, and $6.7 million, or $0.08 per common
share on a fully diluted basis, respectively, related to further restructuring
of the Company's European operations acquired in the Massey Acquisition in June
1994.
4. LONG-TERM DEBT
Long-term debt consisted of the following at June 30, 1997 and
December 31, 1996 (in thousands):
June 30, December 31,
1997 1996
------------------- --------------------
Revolving credit facility . . . . . . . . . . . . . . . . . . $601,440 $317,439
Senior subordinated notes . . . . . . . . . . . . . . . . . . 248,031 247,957
Other long-term debt. . . . . . . . . . . . . . . . . . . . . 18,267 1,659
------------------- --------------------
$867,738 $567,055
=================== ====================
On January 14, 1997, the Company replaced its $650.0 million unsecured
credit facility (the "March 1996 Credit Facility") with a new credit facility
(the "January 1997 Credit Facility"), which allowed for borrowings of up to $1.2
billion. In March 1997, the lending commitment for the January 1997 Credit
Facility was reduced by $141.2 million which represented the proceeds to the
Company, net of underwriting discounts, from the Company's common stock offering
(Note 5). Lending commitments under the January 1997 Credit Facility reduce from
the current commitment of $1.1 billion as of June 30, 1997 to $1.0 billion on
January 1, 1999. In addition, borrowings under the January 1997 Credit Facility
may not exceed the sum of 90% of eligible accounts receivable and 60% of
eligible inventory. As of June 30, 1997, approximately $601.4 million was
outstanding under the January 1997 Credit Facility and available borrowings were
approximately $452.9 million.
5. COMMON STOCK OFFERING
In March 1997, the Company completed a public offering of 5.2 million
shares of its common stock (the "Offering"). The net proceeds to the Company
from the Offering were approximately $140.8 million, after deduction of
underwriting discounts and commissions and estimated expenses. The Company used
the proceeds from the Offering to reduce a portion of the borrowings outstanding
under the January 1997 Credit Facility.
6. EXTRAORDINARY LOSS
During the first quarter of 1997, as part of the refinancing of the
March 1996 Credit Facility with the January 1997 Credit Facility, the Company
recorded an extraordinary loss of $2.1 million, net of taxes of $1.4 million,
for the write-off of unamortized debt costs related to the March 1996 Credit
Facility. During the first quarter of 1996, as part of the refinancing of the
Company's $550.0 million secured revolving credit facility (the "June 1994
Credit Facility") with the March 1996 Credit Facility, the Company recorded an
extraordinary loss of $3.5 million, net of taxes of $2.2 million, for the
write-off of unamortized debt costs related to the June 1994 Credit Facility.
8
7. NET INCOME PER COMMON SHARE
Primary net income per common share is computed by dividing net income
by the weighted average number of common and common equivalent shares
outstanding during each period. Common equivalent shares include shares issuable
upon the assumed exercise of outstanding stock options. Fully diluted net income
per common share assumes the elimination of interest expense, net of taxes,
related to the Company's 6 1/2% convertible subordinated debentures which were
converted into common stock in June 1996.
8. INVENTORIES
Inventories consist primarily of farm tractors, combines, implements,
hay and forage equipment and service parts and are valued at the lower of cost
or market. Cost is determined on a first-in, first-out basis. Market is net
realizable value for finished goods and repair and replacement parts. For work
in process, production parts and raw materials, market is replacement cost.
Inventory balances at June 30, 1997 and December 31, 1996 were as
follows (in thousands):
June 30, December 31,
1997 1996
------------------ -------------------
Finished goods . . . . . . . . . . . . . . . . . . . . . . . $271,096 $171,105
Repair and replacement parts . . . . . . . . . . . . . . . . 252,662 222,601
Work in process, production parts and raw materials. 205,088 134,734
------------------ -------------------
Gross inventories. . . . . . . . . . . . . . . . . . . . . . 728,846 528,440
Allowance for surplus and obsolete inventories . . . . . . . (83,637) (54,596)
------------------ -------------------
Inventories, net . . . . . . . . . . . . . . . . . . . . . . $645,209 $473,844
================== ===================
9. ACCOUNTING CHANGE
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128 ("SFAS 128"), "Earnings per Share" which specifies the
computation, presentation and disclosure requirements for earnings per share.
The Company will be required to adopt this new statement in the fourth quarter
of 1997 and all prior period earnings per share data will be restated to conform
with the provisions of SFAS 128. Based on a preliminary evaluation of this
statement's requirements, the Company does not expect the per share amounts
reported under SFAS 128 to be materially different than those calculated and
presented under Accounting Principles Board Opinion No. 15.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company's operations are subject to the cyclical nature of the
agricultural industry. Sales of the Company's equipment have been affected by
changes in net cash farm income, farm land values, weather conditions, the
demand for agricultural commodities and general economic conditions. The
Company's operations are expected to be subject to such conditions in the
future. Sales are recorded by the Company when equipment and replacement parts
are shipped by the Company to its independent dealers, distributors or other
customers. To the extent possible, the Company attempts to ship products to its
dealers and distributors on a level basis throughout the year to reduce the
effect of seasonal demands on its manufacturing operations and to minimize its
investment in inventory. Retail sales by dealers to farmers are highly seasonal
and are a function of the timing of the planting and harvesting seasons. As a
result, the Company's net sales and operating results have historically been the
lowest in the first quarter and have increased in subsequent quarters.
Effective January 1, 1997, the Company acquired the operations of Xaver
Fendt GmbH & Co. KG ("Fendt"), a manufacturer and distributor of tractors,
primarily in Germany and throughout Europe (the "Fendt Acquisition"). The Fendt
Acquisition added a new line of tractors to the Company's product offerings and
expanded the Company's market presence in Germany and throughout Europe and
Australia. See Note 2 of the Notes to the Condensed Consolidated Financial
Statements for further discussion.
RESULTS OF OPERATIONS
NET INCOME
The Company recorded net income for the second quarter of 1997 of $48.7
million compared to $37.5 million for the second quarter of 1996. Net income per
common share on a fully diluted basis was $0.77 and $0.66 for the second quarter
of 1997 and 1996, respectively. Net income for the first six months of 1997 was
$74.5 million compared to $54.6 million for the same period in the prior year.
Net income per common share on a fully diluted basis was $1.22 and $0.96 for the
first six months of 1997 and 1996, respectively. Net income for the three and
six months ended June 30, 1997 included nonrecurring expenses of $5.2 million,
or $0.05 per share on a fully diluted basis, and $7.8 million, or $0.08 per
share on a fully diluted basis, respectively, related to the restructuring of
the Company's European operations, acquired in the Massey Acquisition in June
1994, and the integration of the Deutz Argentina and Fendt operations, acquired
in December 1996 and January 1997, respectively (see "Charges for Nonrecurring
Expenses"). In addition, net income for the first six months of 1997 included an
extraordinary after-tax charge of $2.1 million, or $0.03 per share on a fully
diluted basis, for the write-off of unamortized debt costs related to the
refinancing of the Company's March 1996 Credit Facility (see "Liquidity and
10
Capital Resources"). Net income for the three and six months ended June 30, 1996
included nonrecurring expenses of $0.8 million, or $0.01 per share on a fully
diluted basis, and $6.7 million, or $0.08 per share on a fully diluted basis,
respectively, related to the restructuring of the Company's European operations
(see "Charges for Nonrecurring Expenses"). In addition, net income for the first
six months of 1996 included an extraordinary after-tax charge of $3.5 million,
or $0.06 per share on a fully diluted basis, for the write-off of unamortized
debt costs related to the refinancing of the June 1994 Credit Facility (see Note
6 of the Notes to the Condensed Consolidated Financial Statements). The
Company's improved results in 1997 primarily reflected the positive impact of
the Fendt Acquisition completed in January 1997.
RETAIL SALES
In the United States and Canada, industry unit retail sales of tractors
and hay and forage equipment for the first six months of 1997 increased
approximately 9% and 12%, respectively, over the same period in 1996, while
industry unit retail sales of combines decreased approximately 1% compared to
the prior year. The Company believes general market conditions continue to be
positive due to favorable economic conditions relating to high net cash farm
incomes, stable commodity prices, strong export demand and direct government
payments under the U.S. farm bill. Company unit retail sales of tractors in the
United States and Canada experienced a slight increase for the first six months
of 1997 compared to 1996. The Company's retail sales were negatively impacted in
1997 by a change in the timing of the year-end for the Massey Ferguson annual
volume bonus program from January to December. Company unit retail sales of
combines increased significantly for the first six months of 1997 compared to
the prior year primarily due to strong contract harvester sales, increased
dealer development activities and the continued success of the Company's
enhanced product offerings. Company unit retail sales of hay and forage
equipment exceeded the industry increase over the prior year by taking advantage
of improvements in the cattle and dairy markets.
In Western Europe, industry unit retail sales of tractors decreased
approximately 2% for the first six months of 1997 compared to the same period in
the prior year primarily due to decreases in the U.K. and France, partially a
result of farm consolidation, and the relatively strong retail sales of tractors
during the same period in 1996. Company unit retail sales of tractors in Western
Europe decreased approximately 1%, including Fendt unit sales in both periods.
Company unit retail sales increases in Spain, Scandinavia and Germany were
offset by declines in most other Western European markets. Industry unit retail
sales of tractors in South America increased approximately 23% over the prior
year. This increase was primarily in Brazil due to increasingly favorable
economic conditions and the low sales volumes experienced in the first half of
1996 during the suspension of Brazilian Central Bank loan programs. Company
retail unit sales of tractors in South America increased at slightly below
industry levels due to competitor discounting which the Company chose not to
match. In other international markets, Company retail unit sales of tractors
increased approximately 3%, consistent with the industry.
11
REVENUES
Net sales for the second quarter of 1997 were $871.9 million,
representing an increase of 49.1% over net sales of $584.7 million for the same
period in 1996. Net sales for the first six months of 1997 were $1,576.3
million, representing an increase of 51.8% over net sales of $1,038.6 million
for the same period in 1996. The increase in net sales for both periods was
primarily the result of the Company's recent acquisitions; however, net sales
were negatively impacted by the translation effect of the strengthening dollar
against most European currencies. The currency effect resulted in lower net
sales of approximately $35.0 million and $55.0 million for the three and six
months ended June 30, 1997, respectively, compared to the same periods in the
prior year. In Western Europe, net sales increased $195.8 million, or 79.1%, and
$335.3 million, or 72.4%, for the three and six months ended June 30, 1997,
respectively, compared to the same periods in 1996 primarily resulting from the
Fendt Acquisition, which was acquired effective January 1, 1997. Net sales in
South America increased $78.4 million and $150.4 million for the three and six
months ended June 30, 1997, respectively, primarily related to the impact of
acquired operations in Brazil and Argentina, which were acquired in June 1996
and December 1996, respectively. In the remaining international markets, net
sales increased $23.2 million, or 25.1%, and $45.2 million, or 28.1%, over the
three and six months ended June 30, 1996, respectively, primarily related to
increased sales in Eastern Europe, the Middle East and Africa. The Company
experienced a decrease in net sales in its North American operations of $10.2
million, or 4.3%, for the second quarter of 1997 compared to the same period in
the prior year primarily due to the timing of shipments of Massey Ferguson
combines and certain European sourced tractors compared to the same period in
1996. For the first six months of 1997, net sales in North America increased
$6.8 million, or 1.7%, compared to the same period in 1996 primarily related to
strong sales of Gleaner combines, implements and replacement parts offset by
planned decreases in certain product lines to reduce the level of dealer
inventories.
COSTS AND EXPENSES
Cost of goods sold for the second quarter of 1997 was $696.2 million (79.8%
of net sales) compared to $468.9 million (80.2% of net sales) for the same
period in 1996. For the first six months of 1997, cost of goods sold was
$1,266.1 million (80.3% of net sales) compared to $829.0 million (79.8% of net
sales) for the same period in 1996. Gross profit, defined as net sales less cost
of goods sold, was $175.8 million (20.2% of net sales) for the second quarter of
1997 compared to $115.8 million (19.8% of net sales) for the same period in the
prior year. Gross profit for the first six months of 1997 was $310.1 million
(19.7% of net sales) compared to $209.5 million (20.2% of net sales) for the
same period in 1996. For both periods, gross margins were unfavorably impacted
by the following: (1) lower margins related to the South American operations
primarily resulting from low production volumes in Brazil and (2) the negative
effect of foreign exchange related to the Company's products sourced from the
U.K. resulting from the strength of the British pound. These items were offset
in the second quarter of 1997 by the following: (1) higher margins related to
the newly acquired Fendt operations and (2) a higher mix of high margin North
American replacement parts sales.
Selling, general and administrative expenses for the second quarter of
1997 were $67.3 million (7.7% of net sales) compared to $48.6 million (8.3% of
net sales) for the same period in 1996. For the first six months of 1997,
selling, general and administrative expenses were $129.2 million (8.2% of net
sales) compared to $94.9 million (9.1% of net sales) for the same period in
1996. For both periods, the decrease in selling, general and administrative
expenses as a percentage of net sales compared to the prior year was primarily
due to cost reduction initiatives in the Company's European operations, lower
operating expense ratios related to newly acquired operations and a decrease in
the amortization of stock-based compensation expense of $0.9 million and $2.7
million for the three and six months ended June 30, 1997, respectively, compared
to the same periods in the prior year.
Engineering expenses were $14.1 million (1.6% of net sales) for the
second quarter of 1997 compared to $6.7 million (1.2% of net sales) for the
same period in 1996. Engineering expenses for the first six months of 1997 were
$27.3 million (1.7% of net sales) compared to $13.7 million (1.3% of net sales)
for the same period in 1996. For both periods, the increase in engineering
expenses as a percentage of net sales compared to the prior year primarily
related to engineering expenses in the newly acquired Fendt operations.
Interest expense, net was $14.1 million for the second quarter of 1997
compared to $7.2 million for the same period in the prior year. Interest
expense, net for the first six months of 1997 was $27.2 million compared to
$13.1 million for the same period in 1996. The Company had higher interest
expense, net during both periods of 1997 compared to 1996 resulting from
additional borrowings related to the acquisitions of the agricultural and
industrial equipment business of Iochpe-Maxion S.A. (the "Maxion Agricultural
Equipment Business"), Deutz Argentina and Fendt.
12
Other expense, net was $4.4 million for the second quarter of 1997
compared to $1.2 million for the same period in 1996. For the first six months
of 1997, other expense, net was $9.0 million compared to $3.7 million for the
same period in the prior year. For both periods, the increase in other expense,
net compared to the prior year was primarily due to increased amortization of
intangibles related to the acquisitions of the Maxion Agricultural Equipment
Business, Deutz Argentina and Fendt.
Nonrecurring expenses were $5.2 million and $7.8 million for the three
and six months ended June 30, 1997, respectively. For the three and six months
ended June 30, 1996, nonrecurring expenses were $0.8 million and $6.7 million,
respectively. The nonrecurring charge recorded in 1997 related to the further
restructuring of the Company's European operations, acquired in the Massey
Acquisition in June 1994, and the integration of the Deutz Argentina and Fendt
operations, acquired in December 1996 and January 1997, respectively. The
nonrecurring charge recorded in 1996 primarily related to costs associated with
the restructuring of the Company's European operations. See "Charges for
Nonrecurring Expenses" for further discussion.
13
The Company recorded an income tax provision of $25.2 million and $18.2
million for the second quarter of 1997 and 1996, respectively. For the first six
months of 1997 and 1996, the Company recorded an income tax provision of $38.8
million and $27.2 million, respectively. For both periods, the Company's income
tax provision approximated statutory rates, although actual income tax payments
remained at rates below statutory rates resulting from the utilization of net
operating loss carryforwards acquired in the Massey Acquisition.
Equity in net earnings of unconsolidated affiliates was $3.1 million
and $4.4 million for the second quarter of 1997 and 1996, respectively. Equity
in net earnings of unconsolidated affiliates was $5.7 million and $7.9 million
for the first six months of 1997 and 1996, respectively. The decrease in 1997
compared to the prior year for both periods relates to a decrease in net income
recognized related to Agricredit. As a result of the Company selling a 51% joint
venture interest in Agricredit in November 1996, the Company recognized only 49%
of the net income of the North American retail finance company during the three
and six months ended June 30, 1997 compared to 100% for the same period in 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company's financing requirements are subject to variations due to
seasonal changes in inventory and dealer receivable levels. Internally generated
funds are supplemented when necessary from external sources, primarily the
Company's revolving credit facility. In January 1997, the Company replaced the
$650.0 million March 1996 Credit Facility with the new $1.2 billion January 1997
Credit Facility (see Note 4 of the Notes to the Condensed Consolidated Financial
Statements). The January 1997 Credit Facility is the Company's primary source of
financing and provides increased borrowing capacity over the March 1996 Credit
Facility. In March 1997, the lending commitment for the January 1997 Credit
Facility was reduced by $141.2 million which represented the proceeds to the
Company, net of underwriting discounts, from the Company's common stock offering
(see Note 5 of the Notes to the Condensed Consolidated Financial Statements).
Lending commitments under the January 1997 Credit Facility reduce from the
current commitment of $1.1 billion as of June 30, 1997 to $1.0 billion on
January 1, 1999. In addition, borrowings under the January 1997 Credit Facility
may not exceed the sum of 90% of eligible accounts receivable and 60% of
eligible inventory. As receivables and inventories fluctuate, borrowings under
the January 1997 Credit Facility fluctuate as well. As of June 30, 1997,
approximately $601.4 million was outstanding under the January 1997 Credit
Facility and available borrowings were approximately $452.9 million.
In March 1997, the Company completed a public offering of 5.2 million
shares of its common stock (the "Offering"). The net proceeds to the Company
from the Offering were approximately $140.8 million, after deduction of
underwriting discounts and commissions and estimated expenses. The Company used
the proceeds from the Offering to reduce a portion of the borrowings outstanding
under the January 1997 Credit Facility.
The Company's working capital requirements are seasonal, with
investments in working capital typically building in the first half of the year
and then reducing in the second half of the year. As of June 30, 1997, the
Company had $999.8 million of working capital, an increase of $249.3 million
14
over working capital of $750.5 million as of December 31, 1996. The increase in
working capital was primarily due to working capital acquired in the Fendt
Acquisition and normal seasonal requirements, particularly in receivables and
inventories.
Cash flow used for operating activities was $115.8 million and $10.5
million for the first six months of 1997 and 1996, respectively. The increase in
cash flow used for operating activities in 1997 compared to the prior year was
primarily due to increases in receivables and inventories. The increases in
inventory compared to the prior year were primarily the result of the recent
introduction of new tractors sourced from the U.K. and the timing of combine
shipments in Europe. For the first six months of 1996, cash flow from operations
was favorably impacted by the collection of unusually high levels of
international accounts receivable at December 31, 1995 which were collected in
1996.
Capital expenditures for the first six months of 1997 were $20.1
million compared to $15.5 million for the same period in 1996. The Company
anticipates that additional capital expenditures for the remainder of 1997 will
range from approximately $50.0 million to $60.0 million and will primarily be
used to support the development and enhancement of new and existing products.
In July 1997, the Company's Board of Directors declared a dividend of
$0.01 per share of common stock for the third quarter of 1997. The declaration
and payment of future dividends will be at the sole discretion of the Board of
Directors and will depend upon the Company's results of operations, financial
condition, cash requirements, future prospects, limitations imposed by the
Company's credit facilities and other factors deemed relevant by the Company's
Board of Directors.
The Company believes that available borrowings under the January 1997
Credit Facility, available cash and internally generated funds will be
sufficient to support its working capital, capital expenditures and debt service
requirements for the foreseeable future.
The Company from time to time reviews and will continue to review
acquisition and joint venture opportunities as well as changes in the capital
markets. If the Company were to consummate a significant acquisition or elect to
take advantage of favorable opportunities in the capital markets, the Company
may supplement availability or revise the terms under its credit facilities or
complete public or private offerings of equity or debt securities.
CHARGES FOR NONRECURRING EXPENSES
The Company recorded $5.1 million of nonrecurring expenses during the
first six months of 1997 related to the further restructuring of the Company's
European operations, acquired in June 1994 as a result of the Massey
Acquisition. These costs primarily related to the centralization of certain
administrative functions (see Note 3 of the Notes to the Condensed Consolidated
Financial Statements). Savings from the further restructuring of the Company's
European operations are expected to result primarily in reduced general and
administrative expenses.
15
The Company recorded $2.7 million of nonrecurring expenses during the
first six months of 1997 related to the integration of the Company's Deutz
Argentina and Fendt operations, acquired in December 1996 and January 1997,
respectively. These costs primarily related to the rationalization of
manufacturing and administrative functions in the Company's South American
operations and Fendt operations in Europe (see Note 3 of the Notes to the
Condensed Consolidated Financial Statements). Savings from the integration of
the South American and Fendt operations are expected to result primarily in
reduced cost of goods sold and selling, general and administrative expenses.
The Company expects to record total nonrecurring expenses of
approximately $15.0 million in 1997 and early 1998 related to the Company's
restructuring and integration plans. While the Company believes that cost
savings from its restructuring and integration plans can be attained, there can
be no assurance that all objectives will be achieved.
In the first six months of 1996, the Company recorded nonrecurring
expenses of $6.7 million related to the restructuring of the Company's European
operations. These costs primarily related to the centralization and
rationalization of the Company's European operations' administrative, sales, and
marketing functions.
FORWARD LOOKING STATEMENTS
Certain information included in Management's Discussion and Analysis of
Financial Condition and Results of Operations constitute forward looking
statements within the meaning of Section 21E of the Securities Exchange Act of
1934. Although the Company believes that the expectations reflected in such
forward looking statements are based upon reasonable assumptions, it can give no
assurance that its expectations will be achieved. Additionally, the Company's
financial results are sensitive to movement in interest rates and foreign
currencies, as well as general economic conditions, pricing and product actions
taken by competitors, production disruptions and changes in environmental,
international trade and other laws which impact the way in which it conducts its
business.
16
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's annual meeting of stockholders was held on April 23,
1997. The following matters were voted upon and the results of the
voting were as follows:
(1) To elect two directors to serve as Class II directors until the
annual meeting in 2000 or until their successors have been duly
elected and qualified. The nominees, Messrs. Claycamp and
Johnston were elected to the Company's board of directors. There
were 46,122,380 votes for and 277,228 votes withheld for each
nominee.
(2) To approve an amendment to the Company's amended and restated
Long-Term Incentive Plan to increase the number of common stock
authorized for issuance from 3,750,000 shares to 4,750,000
shares. The votes of the stockholders on this plan were as
follows: 41,846,909 in favor, 4,479,067 opposed and 73,632
abstained. To approve the Company's amended Nonemployee Director
Stock Incentive Plan. The votes of the stockholders on this plan
were as follows: 43,880,953 in favor, 2,435,137 opposed and
83,518 abstained.
(3) To approve an amendment to the Company's 1991 Stock Option Plan.
The votes of the stockholders on this plan were as follows:
32,402,181 in favor, 13,905,277 opposed and 92,150 abstained.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11.0 - Statement re: Computation of Per Share Earnings.
27.0 - Financial Data Schedule (electronic filing purposes only).
(b) Reports on Form 8-K
None
17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on behalf by the
undersigned thereunto duly authorized.
AGCO CORPORATION
Registrant
Date: August 14, 1997 Chris E. Perkins
--------------- ------------------
Chris E. Perkins
Vice President and Chief Financial Officer
18
EXHIBIT INDEX
Sequentially
Exhibit Numbered
Number Description Page
11.0 Statement re: Computation of Per Share Earnings.
27.0 Financial Data Schedule (electronic filing purposes only).
19
Exhibit 11
AGCO CORPORATION AND SUBSIDIARIES
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS (1)
(in thousands, except per share data)
Three Months Ended
June 30,
---------------------------
PRIMARY EARNINGS PER SHARE 1997 1996
------------ ------------
Weighted average number of common shares outstanding . . . . . . . . . . . . . . 62,538 53,738
Shares issued upon assumed exercise of outstanding
stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 367 484
------------ ------------
Weighted average number of common and common
equivalent shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . 62,905 54,222
============ ============
Income before extraordinary loss . . . . . . . . . . . . . . . . . . . . . . . . $ 48,747 $ 37,508
Extraordinary loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - -
------------ ------------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 48,747 $ 37,508
============ ============
Net income per common share:
Income before extraordinary loss. . . . . . . . . . . . . . . . . . . . . . $ 0.77 $ 0.69
Extraordinary loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . - -
------------ ------------
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.77 $ 0.69
============ ============
FULLY DILUTED EARNINGS PER SHARE
Weighted average number of common shares outstanding . . . . . . . . . . . . . . 62,538 53,738
Shares issued upon assumed conversion of the convertible
subordinated debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . - 3,161
Shares issued upon assumed exercise of outstanding
stock options (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 456 485
------------ ------------
Weighted average number of common and common
equivalent shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . 62,994 57,384
============ ============
Income before extraordinary loss . . . . . . . . . . . . . . . . . . . . . . . . $ 48,747 $ 37,508
Extraordinary loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - -
------------ ------------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48,747 37,508
Interest expense on convertible subordinated debentures, net of
applicable income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 156
------------ ------------
Net income available for common stockholders . . . . . . . . . . . . . . . . . . $ 48,747 $ 37,664
============ ============
Net income per common share:
Income before extraordinary loss. . . . . . . . . . . . . . . . . . . . . . $ 0.77 $ 0.66
Extraordinary loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . - -
------------ ------------
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.77 $ 0.66
============ ============
(1) All numbers of shares in this exhibit are weighted on the basis of the
number of days the shares were outstanding or assumed to be outstanding
during each period.
(2) Based on the treasury stock method using the higher of the average or
period end market price.
Exhibit 11
AGCO CORPORATION AND SUBSIDIARIES
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS (1)
(in thousands, except per share data)
Six Months Ended
June 30,
---------------------------
PRIMARY EARNINGS PER SHARE 1997 1996
------------ ------------
Weighted average number of common shares outstanding . . . . . . . . . . . . . . 60,582 52,248
Shares issued upon assumed exercise of outstanding
stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 379 509
------------ ------------
Weighted average number of common and common
equivalent shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . 60,961 52,757
============ ============
Income before extraordinary loss . . . . . . . . . . . . . . . . . . . . . . . . $ 76,554 $ 58,103
Extraordinary loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,080) (3,503)
------------ ------------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 74,474 $ 54,600
============ ============
Net income per common share:
Income before extraordinary loss. . . . . . . . . . . . . . . . . . . . . . $ 1.25 $ 1.10
Extraordinary loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.03) (0.07)
------------ ------------
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1.22 $ 1.03
============ ============
FULLY DILUTED EARNINGS PER SHARE
Weighted average number of common shares outstanding . . . . . . . . . . . . . . 60,582 52,248
Shares issued upon assumed conversion of the convertible
subordinated debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . - 4,470
Shares issued upon assumed exercise of outstanding
stock options (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 472 519
------------ ------------
Weighted average number of common and common
equivalent shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . 61,054 57,237
============ ============
Income before extraordinary loss . . . . . . . . . . . . . . . . . . . . . . . . $ 76,554 $ 58,103
Extraordinary loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,080) (3,503)
------------ ------------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74,474 54,600
Interest expense on convertible subordinated debentures, net of
applicable income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 529
------------ ------------
Net income available for common stockholders . . . . . . . . . . . . . . . . . . $ 74,474 $ 55,129
============ ============
Net income per common share:
Income before extraordinary loss. . . . . . . . . . . . . . . . . . . . . . $ 1.25 $ 1.02
Extraordinary loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.03) (0.06)
------------ ------------
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1.22 $ 0.96
============ ============
(1) All numbers of shares in this exhibit are weighted on the basis of the
number of days the shares were outstanding or assumed to be outstanding
during each period.
(2) Based on the treasury stock method using the higher of the average or
period end market price.
5
1,000
6-MOS
DEC-31-1997
JAN-01-1997
JUN-30-1997
41,100
0
1,032,043
0
645,209
1,804,294
319,199
0
2,680,717
804,499
867,738
0
0
629
939,060
2,680,717
1,576,261
1,576,261
1,266,142
1,266,142
27,321
2,938
27,219
109,643
38,809
76,554
0
(2,080)
0
74,474
1.22
1.22
