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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 September 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 1-12930
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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 30096
(Address of principal executive
offices including zip code)
Registrant's telephone number, including area code: (770) 813-9200
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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: 62,906,921 shares outstanding as of
September 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 - September 30, 1997 and December 31, 1996 . . . . . . . . . . . . . . . . . .3
Condensed Consolidated Statements
of Income for the Three Months
Ended September 30, 1997 and 1996 . . . . . . . . . . . . . . . . . . . . . . . . . .4
Condensed Consolidated Statements
of Income for the Nine Months
Ended September 30, 1997 and 1996 . . . . . . . . . . . . . . . . . . . . . . . . . .5
Condensed Consolidated Statements
of Cash Flows for the Nine Months
Ended September 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 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)
September 30, December 31,
1997 1996
------------------ -------------------
ASSETS: (Unaudited)
Current Assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . $ 43,262 $ 41,707
Accounts and notes receivable, net of allowances. . . . . . . . . . . . . 1,025,440 856,985
Receivables from affiliates . . . . . . . . . . . . . . . . . . . . . . . 12,676 12,486
Inventories, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . 643,019 473,844
Other current assets. . . . . . . . . . . . . . . . . . . . . . . . . . . 72,528 81,440
------------------ -------------------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . 1,796,925 1,466,462
Property, plant and equipment, net . . . . . . . . . . . . . . . . . . . . . 321,299 292,437
Investments in affiliates. . . . . . . . . . . . . . . . . . . . . . . . . . 83,939 80,501
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73,409 71,488
Intangible assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . 410,136 205,643
------------------ -------------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,685,708 $ 2,116,531
================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 331,454 $ 361,512
Payables to affiliates. . . . . . . . . . . . . . . . . . . . . . . . . . 14,764 14,567
Accrued expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 397,791 316,958
Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . 17,173 22,951
------------------ -------------------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . 761,182 715,988
------------------ -------------------
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 864,442 567,055
Postretirement health care benefits. . . . . . . . . . . . . . . . . . . . . 24,845 24,445
Other noncurrent liabilities . . . . . . . . . . . . . . . . . . . . . . . . 47,594 34,378
------------------ -------------------
Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,698,063 1,341,866
Stockholders' Equity:
Common stock; $0.01 par value, 150,000,000 shares authorized, 62,906,921
and 57,260,151 shares issued and outstanding at September 30, 1997 and
December 31, 1996, respectively . . . . . . . . . . . . . . . . . . . . . 629 573
Additional paid-in capital. . . . . . . . . . . . . . . . . . . . . . . . 514,799 360,119
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 528,250 411,422
Unearned compensation . . . . . . . . . . . . . . . . . . . . . . . . . . (22,451) (17,779)
Cumulative translation adjustment . . . . . . . . . . . . . . . . . . . . (33,582) 20,330
------------------ -------------------
Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . 987,645 774,665
------------------ -------------------
Total liabilities and stockholders' equity . . . . . . . . . . . . . . . $ 2,685,708 $ 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 September 30,
---------------------------------------
1997 1996
-------------- ------------
Revenues:
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$ 759,505 $ 588,859
-------------- ------------
Costs and Expenses:
Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . 590,003 465,319
Selling, general and administrative expenses . . . . . . . . . . . . . . . 70,009 56,222
Engineering expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,181 7,089
Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,517 10,571
Other expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,402 4,337
Nonrecurring expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,853 6,161
-------------- ------------
694,965 549,699
-------------- ------------
Income before income taxes and equity in net earnings of affiliates . . . . . . 64,540 39,160
Provision for income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . 23,322 13,305
-------------- ------------
Income before equity in net earnings of affiliates . . . . . . . . . . . . . . . 41,218 25,855
Equity in net earnings of affiliates . . . . . . . . . . . . . . . . . . . . . . 2,964 5,444
-------------- ------------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$ 44,182 $ 31,299
============== ============
Net income per common share:
Primary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.70 $ 0.54
============== ============
Fully diluted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.70 $ 0.54
============== ============
Weighted average number of common and common equivalent shares outstanding:
Primary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63,291 57,572
============== ============
Fully diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63,291 57,598
============== ============
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)
Nine Months Ended September 30,
---------------------------------------
1997 1996
-------------- --------------
Revenues:
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$ 2,335,766 $ 1,627,424
-------------- --------------
Costs and Expenses:
Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,856,143 1,294,350
Selling, general and administrative expenses . . . . . . . . . . . . . . . 199,189 151,114
Engineering expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 39,502 20,805
Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,736 23,718
Other expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,352 8,005
Nonrecurring expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,659 12,878
-------------- --------------
2,161,581 1,510,870
-------------- --------------
Income before income taxes, equity in net earnings of
affiliates and extraordinary loss . . . . . . . . . . . . . . . . . . . . . 174,185 116,554
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 62,133 40,488
-------------- --------------
Income before equity in net earnings of affiliates and
extraordinary loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112,052 76,066
Equity in net earnings of affiliates . . . . . . . . . . . . . . . . . . . . . . 8,684 13,336
-------------- --------------
Income before extraordinary loss . . . . . . . . . . . . . . . . . . . . . . . . 120,736 89,402
Extraordinary loss, net of taxes . . . . . . . . . . . . . . . . . . . . . . . . (2,080) (3,503)
-------------- --------------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$ 118,656 $ 85,899
============== ==============
Net income per common share:
Primary:
Income before extraordinary loss. . . . . . . . . . . . . . . . . . . . .$ 1.95 $ 1.64
Extraordinary loss . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.03) (0.06)
-------------- --------------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$ 1.92 $ 1.58
============== ==============
Fully diluted:
Income before extraordinary loss. . . . . . . . . . . . . . . . . . . . .$ 1.95 $ 1.57
Extraordinary loss . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.03) (0.06)
-------------- --------------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$ 1.92 $ 1.51
============== ==============
Weighted average number of common and common equivalent shares outstanding:
Primary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61,746 54,374
============== ==============
Fully diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61,780 57,341
============== ==============
Dividends declared per common share . . . . . . . . . . . . . . . . . . . . . .$ 0.03 $ 0.03
============== ==============
See accompanying notes to condensed consolidated financial statements.
5
AGCO CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited and in thousands)
Nine Months Ended September 30,
--------------------------------------
1997 1996
---------------- ------------------
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$ 118,656 $ 85,899
----------------- ------------------
Adjustments to reconcile net income to net cash (used for) provided by
operating activities:
Extraordinary loss, net of taxes. . . . . . . . . . . . . . . . . . . 2,080 3,503
Depreciation and amortization. . . . . . . . . . . . . . . . . . . . . 36,878 20,398
Equity in net earnings of affiliates, net of cash received . . . . . . (8,684) (13,336)
Deferred income tax provision . . . . . . . . . . . . . . . . . . . . 11,730 14,593
Amortization of intangibles. . . . . . . . . . . . . . . . . . . . . . 9,469 3,833
Amortization of unearned compensation . . . . . . . . . . . . . . . . 8,092 11,981
Changes in operating assets and liabilities, net of effects from
purchase of businesses:
Accounts and notes receivable, net. . . . . . . . . . . . . . . . . (126,691) (1,674)
Inventories, net. . . . . . . . . . . . . . . . . . . . . . . . . . (123,195) (72,905)
Other current and noncurrent assets . . . . . . . . . . . . . . . . 3,449 (10,326)
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . (19,663) (42,759)
Accrued expenses. . . . . . . . . . . . . . . . . . . . . . . . . . 15,594 24,682
Other current and noncurrent liabilities . . . . . . . . . . . . . (11,410) 661
---------------- ------------------
Total adjustments . . . . . . . . . . . . . . . . . . . . . . . . (202,351) (61,349)
---------------- ------------------
Net cash (used for) provided by operating activities . . . . . . . (83,695) 24,550
---------------- ------------------
Cash flows from investing activities:
Purchase of businesses, net of cash acquired . . . . . . . . . . . . . . (267,707) (287,426)
Purchase of property, plant and equipment . . . . . . . . . . . . . . . (37,304) (26,484)
Proceeds from disposition of affiliates . . . . . . . . . . . . . . . . - 1,181
---------------- ------------------
Net cash used for investing activities . . . . . . . . . . . . . . (305,011) (312,729)
---------------- ------------------
Cash flows from financing activities:
Proceeds from long-term debt, net . . . . . . . . . . . . . . . . . . . 256,827 305,918
Payment of debt issuance costs . . . . . . . . . . . . . . . . . . . . . (3,503) (10,590)
Proceeds from issuance of common stock. . . . . . . . . . . . . . . . . 141,972 1,680
Dividends paid on common stock . . . . . . . . . . . . . . . . . . . . . (1,827) (1,599)
---------------- ------------------
Net cash provided by financing activities . . . . . . . . . . . . 393,469 295,409
---------------- ------------------
Effect of exchange rate changes on cash and cash equivalents . . . . . . . . . . (3,208) (494)
Increase in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . 1,555 6,736
Cash and cash equivalents, beginning of period . . . . . . . . . . . . . . . . . 41,707 20,023
---------------- ------------------
Cash and cash equivalents, end of period . . . . . . . . . . . . . . . . . . . .$ 43,262 $ 26,759
================ ==================
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 September 30, 1997 and December 31, 1996 and for the
three and nine months ended September 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 $4.9 million, or $0.05 per common share on a fully diluted basis, for the
three months ended September 30, 1997 and $12.7 million, or $0.13 per common
share on a fully diluted basis, for the nine months ended September 30, 1997.
The nonrecurring charge for the three and nine months ended September 30, 1997
included $1.7 million and $9.5 million, respectively, related to the
restructuring of the Company's European operations, acquired in the acquisition
of Massey Ferguson (the "Massey Acquisition") in June 1994 and 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
charges consisted primarily of employee related costs. In addition, the
nonrecurring charge for the three and nine months ended September 30, 1997
included $3.2 million related to executive severance costs.
7
The results of operations for the three and nine months ended September 30,
1996 included a charge for nonrecurring expenses of $6.2 million, or $0.07 per
common share on a fully diluted basis, and $12.9 million, or $0.15 per common
share on a fully diluted basis, respectively, primarily related to the
restructuring of the Company's European operations acquired in the Massey
Acquisition in June 1994 and the integration and restructuring of the
agricultural and industrial equipment business of Iochpe-Maxion S.A. in Brazil,
acquired in June 1996 (the "Maxion Acquisition").
4. LONG-TERM DEBT
Long-term debt consisted of the following at September 30, 1997 and
December 31, 1996 (in thousands):
September 30, December 31,
1997 1996
--------------------- --------------------
Revolving credit facility . . . . . . . . . . . . . . . . . . . . . . . $ 595,687 $ 317,439
Senior subordinated notes . . . . . . . . . . . . . . . . . . . . . . . 248,069 247,957
Other long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . 20,686 1,659
--------------------- --------------------
$ 864,442 $ 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 September 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 September 30, 1997, approximately $595.7 million
was outstanding under the January 1997 Credit Facility and available borrowings
were approximately $458.8 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 $140.7 million, after deduction of
underwriting discounts and commissions and other 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 September 30, 1997 and December 31, 1996 were as
follows (in thousands):
September 30, December 31,
1997 1996
------------------ -------------------
Finished goods. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 274,810 $ 171,105
Repair and replacement parts. . . . . . . . . . . . . . . . . . . . . 248,720 222,601
Work in process, production parts and raw materials . . . . . . . . . 202,702 134,734
------------------ -------------------
Gross inventories . . . . . . . . . . . . . . . . . . . . . . . . . . 726,232 528,440
Allowance for surplus and obsolete inventories. . . . . . . . . . . . (83,213) (54,596)
------------------ -------------------
Inventories, net . . . . . . . . . . . . . . . . . . . . . . . . . . $ 643,019 $ 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 third quarter of 1997 of $44.2
million compared to $31.3 million for the third quarter of 1996. Net income per
common share on a fully diluted basis was $0.70 and $0.54 for the third quarter
of 1997 and 1996, respectively. Net income for the nine months ended September
30, 1997 was $118.7 million compared to $85.9 million for the same period in the
prior year. Net income per common share on a fully diluted basis was $1.92 and
$1.51 for the nine months ended September 30, 1997 and 1996, respectively. Net
income for the three and nine months ended September 30, 1997 included
nonrecurring expenses of $4.9 million, or $0.05 per share on a fully diluted
basis, and $12.7 million, or $0.13 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, the integration of the Deutz
Argentina and Fendt operations, acquired in December 1996 and January 1997,
respectively, and executive severance costs (see "Charges for Nonrecurring
Expenses"). In addition, net income for the nine months ended September 30, 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
Capital Resources"). Net income for the three and nine months ended September
30, 1996 included nonrecurring expenses of $6.2 million, or $0.07 per share on a
fully diluted basis, and $12.9 million, or $0.15 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 nine months ended September 30, 1996 included an extraordinary after-tax
charge of $3.5 million, or $0.06 per share on a fully diluted basis, for the
10
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 and improved
operating margins, particularly in the Company's South American operations,
partially offset by the translation effect of the strengthening dollar against
most European currencies.
RETAIL SALES
In the United States and Canada, industry unit retail sales of
tractors, combines and hay and forage equipment for the nine months ended
September 30, 1997 increased approximately 13%, 12% and 11%, respectively, over
the same period in 1996. 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 domestic and 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 an increase of 1.3% for
the first nine 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 and by
competitor discounting which the Company chose not to match. Company unit retail
sales of combines and hay and forage equipment increased 4.4% and 5.4%,
respectively, for the first nine months of 1997 compared to the prior year.
In Western Europe, industry unit retail sales of tractors decreased
approximately 2% for the nine months ended September 30, 1997 compared to the
same period in the prior year primarily due to decreases in retail sales 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 2%, including
sales of Fendt tractors in both periods. Company unit retail sales increases in
Spain, Scandinavia, Germany and Italy were offset by declines in most other
Western European markets. Industry unit retail sales of tractors in South
America increased approximately 29% over the prior year. This increase was
primarily in Brazil due to increasingly favorable economic conditions resulting
from strong commodity prices, improved farm debt and financing terms 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 21% and were negatively impacted by competitor
discounting which the Company chose not to match. In other international
markets, Company retail unit sales of tractors increased approximately 6%,
consistent with the industry.
REVENUES
Net sales for the third quarter of 1997 were $759.5 million,
representing an increase of 29.0% over net sales of $588.9 million for the same
period in 1996. Net sales for the nine months ended September 30, 1997 were
$2,335.8 million, representing an increase of 43.5% over net sales of $1,627.4
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. Net sales for the three and nine months
ended September 30, 1997 were approximately $60 million and $126 million,
respectively, lower than they would have been at 1996 foreign exchange rates. In
Western Europe, net sales increased $101.5 million, or 46.0%, and $434.1
million, or 63.2%, for the three and nine months ended September 30, 1997,
respectively, compared to the same periods in 1996 primarily resulting from the
11
Fendt Acquisition, which was acquired effective January 1, 1997. Net sales in
South America increased $38.6 million and $189.0 million for the three and nine
months ended September 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 $2.2 million, or 2.2%, and $50.1 million, or 19.7%, over the
three and nine months ended September 30, 1996, respectively, primarily related
to increased sales in Eastern Europe and the Middle East. Net sales in North
America increased $28.3 million, or 12.9%, and $35.2, or 5.6%, for the three and
nine months ended September 30, 1997, respectively. For the third quarter of
1997, the Company's increased sales in North America were primarily due to
strong sales of combines and hay tools. For the nine months ended September 30,
1997, the Company experienced strong sales of combines and implements partially
offset by planned decreases in certain product lines to reduce the level of
dealer inventories.
COSTS AND EXPENSES
Cost of goods sold for the third quarter of 1997 was $590.0 million
(77.7% of net sales) compared to $465.3 million (79.0% of net sales) for the
same period in 1996. Gross profit, defined as net sales less cost of goods sold,
was $169.5 million (22.3% of net sales) for the third quarter of 1997 compared
to $123.5 million (21.0% of net sales) for the same period in the prior year.
Gross margins were favorably impacted by cost reduction efforts, particularly in
the Company's South American operations, and favorable product mix. For the nine
months ended September 30, 1997, cost of goods sold was $1,856.1 million (79.5%
of net sales) compared to $1,294.4 million (79.5% of net sales) for the same
period in 1996. Gross profit for the nine months ended September 30, 1997 was
$479.6 million (20.5% of net sales) compared to $333.1 million (20.5% of net
sales) for the same period in 1996. Gross margins were favorably impacted by
gross margin improvements due to cost reduction efforts offset by 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.
Selling, general and administrative expenses for the third quarter of
1997 were $70.0 million (9.2% of net sales) compared to $56.2 million (9.5% of
net sales) for the same period in 1996. For the nine months ended September 30,
1997, selling, general and administrative expenses were $199.2 million (8.5% of
net sales) compared to $151.1 million (9.3% 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 a decrease in the amortization of stock-based compensation expense of
$2.8 million and $5.5 million for the three and nine months ended September 30,
1997, respectively, compared to the same periods in the prior year.
Engineering expenses were $12.2 million (1.6% of net sales) for the
third quarter of 1997 compared to $7.1 million (1.2% of net sales) for the same
period in 1996. Engineering expenses for the nine months ended September 30,
1997 were $39.5 million (1.7% of net sales) compared to $20.8 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.
12
Interest expense, net was $13.5 million for the third quarter of 1997
compared to $10.6 million for the same period in the prior year. The higher
interest expense, net primarily resulted from additional borrowings related to
the acquisitions of Deutz Argentina and Fendt, completed in December 1996 and
January 1997, respectively. Interest expense, net for the nine months ended
September 30, 1997 increased from $23.7 million to $40.7 million compared to the
same period in 1996 due to additional borrowings related to the Maxion
Acquisition in Brazil, completed in June 1996, in addition to the acquisitions
of Deutz Argentina and Fendt.
Other expense, net was $4.4 million for the third quarter of 1997
compared to $4.3 million for the same period in 1996. The Company experienced an
increase in other expense, net relating to increased amortization of intangibles
relating to the acquisitions of Deutz Argentina and Fendt offset by foreign
exchange gains in the Company's European operations. For the nine months ended
September 30, 1997, other expense, net was $13.4 million compared to $8.0
million for the same period in the prior year. The increase in other expense,
net compared to the prior year was primarily due to increased amortization of
intangibles related to the Maxion, Deutz Argentina and Fendt Acquisitions.
Nonrecurring expenses were $4.9 million and $12.7 million for the three
and nine months ended September 30, 1997, respectively. For the three and nine
months ended September 30, 1996, nonrecurring expenses were $6.2 million and
$12.9 million, respectively. The nonrecurring charge recorded in 1997 related to
the restructuring of the Company's European operations, acquired in the Massey
Acquisition in June 1994, the integration of the Deutz Argentina and Fendt
operations, acquired in December 1996 and January 1997, respectively, and
executive severance costs. The nonrecurring charge recorded in 1996 primarily
related to costs associated with the restructuring of the Company's European
operations and the integration and restructuring of the Company's Brazilian
operations acquired in the Maxion Acquisition in June 1996. See "Charges for
Nonrecurring Expenses" for further discussion.
The Company recorded an income tax provision of $23.3 million and $13.3
million for the third quarter of 1997 and 1996, respectively. For the nine
months ended September 30, 1997 and 1996, the Company recorded an income tax
provision of $62.1 million and $40.5 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 $3.0 million
and $5.4 million for the third quarter of 1997 and 1996, respectively. Equity in
net earnings of unconsolidated affiliates was $8.7 million and $13.3 million for
the first nine months of 1997 and 1996, respectively. The decrease in 1997
compared to the prior year for both periods primarily 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 nine months ended September 30, 1997 compared to
100% for the same periods 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
13
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 September 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 September 30, 1997,
approximately $595.7 million was outstanding under the January 1997 Credit
Facility and available borrowings were approximately $458.8 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 $140.7 million, after deduction of
underwriting discounts and commissions and other 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 September 30, 1997, the
Company had $1,035.7 million of working capital, an increase of $285.2 million
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.
Operating cash flow was an $83.7 million use of cash compared to a
$24.6 million source of cash for the nine months ended September 30, 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 increase in inventory compared to the prior year was
primarily the result of the recent introduction of new tractors sourced from the
Company's U.K. and France production facilities. For the nine months ended
September 30, 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. The 1995 international
receivables were unusually high due to the timing of shipments of tractors in
Western Europe which were delayed until the fourth quarter of 1995 due to tire
supply shortages resulting from a labor strike of a major supplier. While this
impacted the Company's cash flow at that time, the Company has alternative
sources of supply and adequate borrowing availability should a similar situation
occur in the future.
Capital expenditures for the nine months ended September 30, 1997 were
$37.3 million compared to $26.5 million for the same period in 1996. The Company
anticipates that additional capital expenditures for the remainder of 1997 will
range from approximately $30 million to $40 million and will primarily be used
to support the development and enhancement of new and existing products.
In October 1997, the Company's Board of Directors declared a dividend
of $0.01 per share of common stock for the fourth 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.
14
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 $9.5 million of nonrecurring expenses during the
nine months ended September 30, 1997 related to the restructuring of the
Company's European operations, acquired in June 1994 as a result of the Massey
Acquisition and the integration of the operations of Deutz Argentina and Fendt
acquired in December 1996 and January 1997, respectively, (see Note 3 of the
Notes to the Condensed Consolidated Financial Statements). The costs related to
the restructuring of the Company's European operations primarily related to the
centralization of certain administrative functions, and savings are expected to
result primarily in reduced general and administrative expenses. The costs
related to the integration of the Deutz Argentina and Fendt operations primarily
related to the rationalization of manufacturing and administrative functions,
and savings are expected to result primarily in reduced cost of goods sold and
selling, general and administrative expenses. In addition, the Company recorded
$3.2 million of nonrecurring expenses during the nine months ended September 30,
1997 related to executive severance costs.
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 nine months ended September 30, 1996, the Company recorded
nonrecurring expenses of $12.9 million primarily related to the restructuring of
the Company's European operations and the integration and restructuring of the
Company's Brazilian operations acquired in June 1996 in the Maxion Acquisition.
The costs related to the restructuring of the Company's European operations
primarily related to the centralization and rationalization of its
administrative, sales, and marketing functions. The costs related to the
integration and restructuring of the Company's Brazilian operations primarily
related to the rationalization of manufacturing, sales and administrative
functions designed to resize the operations to current sales and production
volumes.
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
15
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 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: November 14, 1997 /s/ 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
AGCO CORPORATION AND SUBSIDIARIES
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS (1)
(in thousands, except per share data)
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------- --------------------------
PRIMARY EARNINGS PER SHARE 1997 1996 1997 1996
------------ ------------ ------------ -----------
Weighted average number of common shares outstanding . . . . . . . 62,913 57,208 61,368 53,913
Shares issued upon assumed exercise of outstanding
stock options . . . . . . . . . . . . . . . . . . . . . . . . . 378 364 378 461
------------ ------------ ------------ -----------
Weighted average number of common and common
equivalent shares outstanding . . . . . . . . . . . . . . . . . 63,291 57,572 61,746 54,374
============ ============ ============ ===========
Income before extraordinary loss . . . . . . . . . . . . . . . . . $ 44,182 $ 31,299 $ 120,736 $ 89,402
Extraordinary loss . . . . . . . . . . . . . . . . . . . . . . . . - - (2,080) (3,503)
------------ ------------ ------------ -----------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 44,182 $ 31,299 $ 118,656 $ 85,899
============ ============ ============ ===========
Net income per common share:
Income before extraordinary loss . . . . . . . . . . . . . . $ 0.70 $ 0.54 $ 1.95 $ 1.64
Extraordinary loss . . . . . . . . . . . . . . . . . . . . . - - (0.03) (0.06)
------------ ------------ ------------ -----------
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.70 $ 0.54 $ 1.92 $ 1.58
============ ============ ============ ===========
FULLY DILUTED EARNINGS PER SHARE
Weighted average number of common shares outstanding . . . . . . . 62,913 57,208 61,368 53,913
Shares issued upon assumed conversion of the convertible
subordinated debentures . . . . . . . . . . . . . . . . . . . . 378 - 412 2,969
Shares issued upon assumed exercise of outstanding
stock options (2) . . . . . . . . . . . . . . . . . . . . . . . - 390 - 459
------------ ------------ ------------ -----------
Weighted average number of common and common
equivalent shares outstanding . . . . . . . . . . . . . . . . . 63,291 57,598 61,780 57,341
============ ============ ============ ===========
Income before extraordinary loss . . . . . . . . . . . . . . . . . $ 44,182 $ 31,299 $ 120,736 $ 89,402
Extraordinary loss . . . . . . . . . . . . . . . . . . . . . . . . - - (2,080) (3,503)
------------ ------------ ------------ -----------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44,182 31,299 118,656 85,899
Interest expense on convertible subordinated debentures, net of
applicable income taxes . . . . . . . . . . . . . . . . . . . . . - - - 529
------------ ------------ ------------ -----------
Net income available for common stockholders . . . . . . . . . . . $ 44,182 $ 31,299 $ 118,656 $ 86,428
============ ============ ============ ===========
Net income per common share:
Income before extraordinary loss . . . . . . . . . . . . . . .$ 0.70 $ 0.54 $ 1.95 $ 1.57
Extraordinary loss . . . . . . . . . . . . . . . . . . . . . . - - (0.03) (0.06)
------------ ------------ ------------ -----------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . .$ 0.70 $ 0.54 $ 1.92 $ 1.51
============ ============ ============ ===========
(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
9-MOS
DEC-31-1997
JAN-01-1997
SEP-30-1997
43,262
0
1,025,440
0
643,019
72,528
321,299
0
2,685,708
761,182
864,442
0
0
629
987,016
2,685,708
2,335,766
2,335,766
1,856,143
1,856,143
39,502
3,931
40,736
174,185
62,133
120,736
0
(2,080)
0
118,656
1.92
1.92
