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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 March 31, 1998
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.)
4205 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: 62,991,311 shares outstanding as of
March 31, 1998.
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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 - March 31, 1998 and December 31, 1997 . . . . . . . . . . . . . . . . . . . . . 3
Condensed Consolidated Statements
of Income for the Three Months
Ended March 31, 1998 and 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Condensed Consolidated Statements
of Cash Flows for the Three Months
Ended March 31, 1998 and 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Notes to Condensed Consolidated
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Item 3. Quantitative and Qualitative Disclosures about Market Risk. . . . . . . . . . . . . . . 14
PART II. OTHER INFORMATION:
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
2
Part I. Financial Information
Item 1. Financial Statements
AGCO CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions)
March 31, December 31,
1998 1997
----------------- -----------------
ASSETS (Unaudited)
Current Assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . $ 6.4 $ 31.2
Accounts and notes receivable, net of allowances . . . . . . . . . . . . 1,072.3 978.7
Receivables from affiliates . . . . . . . . . . . . . . . . . . . . . . . 24.4 18.5
Inventories, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . 709.5 622.7
Other current assets. . . . . . . . . . . . . . . . . . . . . . . . . . . 64.7 63.7
---------------- ----------------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . 1,877.3 1,714.8
Property, plant and equipment, net . . . . . . . . . . . . . . . . . . . . . 400.1 403.7
Investments in affiliates. . . . . . . . . . . . . . . . . . . . . . . . . . 91.5 87.6
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77.9 75.8
Intangible assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . 336.8 339.0
---------------- ----------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,783.6 $ 2,620.9
================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 303.5 $ 350.1
Payables to affiliates. . . . . . . . . . . . . . . . . . . . . . . . . . 16.3 17.4
Accrued expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 402.9 430.0
Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . 31.8 33.0
---------------- ----------------
Total current liabilities. . . . . . . . . . . . . . . . . . . . . . . . 754.5 830.5
---------------- ----------------
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 957.4 727.4
Postretirement health care benefits. . . . . . . . . . . . . . . . . . . . . 24.5 24.5
Other noncurrent liabilities . . . . . . . . . . . . . . . . . . . . . . . . 48.4 46.9
---------------- ----------------
Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . 1,784.8 1,629.3
Stockholders' Equity :
Common Stock: $0.01 par value, 150,000,000 shares
authorized, and 62,991,311 and 62,972,423 shares issued and
outstanding at March 31, 1998 and December 31, 1997,
respectively. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.6 0.6
Additional paid-in capital. . . . . . . . . . . . . . . . . . . . . . . . 515.2 515.0
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 609.7 577.6
Unearned compensation. . . . . . . . . . . . . . . . . . . . . . . . . . (17.6) (20.0)
Cumulative translation adjustment . . . . . . . . . . . . . . . . . . . . (109.1) (81.6)
---------------- ----------------
Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . 998.8 991.6
---------------- ----------------
Total liabilities and stockholders' equity . . . . . . . . . . . . . . . $ 2,783.6 $ 2,620.9
================ ================
See accompanying notes to condensed consolidated financial statements.
3
AGCO CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited and in millions, except per share data)
Three Months Ended March 31,
------------------------------------
1998 1997
-------------- --------------
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 701.5 $ 704.3
Cost of goods sold. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 557.0 570.0
-------------- --------------
Gross margin. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144.5 134.3
Engineering expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.6 13.2
Selling, general and administrative expenses. . . . . . . . . . . . . . . . . . 63.0 61.9
Nonrecurring expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 2.6
-------------- --------------
Income from operations. . . . . . . . . . . . . . . . . . . . . . . . . . 67.9 56.6
Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.0 13.2
Other expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.4 4.6
-------------- --------------
Income before income taxes, equity in net earnings of
affiliates and extraordinary loss. . . . . . . . . . . . . . . . . . . . . 47.5 38.8
Provision for income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . 17.6 13.6
-------------- --------------
Income before equity in net earnings of affiliates
and extraordinary loss . . . . . . . . . . . . . . . . . . . . . . . . . . 29.9 25.2
Equity in net earnings of affiliates. . . . . . . . . . . . . . . . . . . . . . 2.8 2.6
-------------- --------------
Income before extraordinary loss. . . . . . . . . . . . . . . . . . . . . . . . 32.7 27.8
Extraordinary loss, net of taxes. . . . . . . . . . . . . . . . . . . . . . . . - (2.1)
-------------- --------------
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 32.7 $ 25.7
============== ==============
Net income per common share:
Basic:
Income before extraordinary loss . . . . . . . . . . . . . . . . . . . . $.0.53 $ 0.49
Extraordinary loss . . . . . . . . . . . . . . . . . . . . . . . . . . . - (0.04)
-------------- --------------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.53 $ 0.45
============== ==============
Diluted:
Income before extraordinary loss . . . . . . . . . . . . . . . . . . . . $ 0.52 $ 0.47
Extraordinary loss . . . . . . . . . . . . . . . . . . . . . . . . . . . - (0.03)
-------------- --------------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.52 $ 0.44
============== ==============
Weighted average number of common and common equivalent shares outstanding:
Basic. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61.5 57.3
============== ==============
Diluted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63.3 59.0
============== ==============
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 CASH FLOWS
(unaudited and in millions)
Three Months Ended March 31,
----------------------------------
1998 1997
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Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 32.7 $ 25.7
--------------- ---------------
Adjustments to reconcile net income to net cash used for operating
activities:
Extraordinary loss, net of taxes . . . . . . . . . . . . . . . . . . . - 2.1
Depreciation and amortization. . . . . . . . . . . . . . . . . . . . . 13.8 12.3
Equity in net earnings of
affiliates, net of cash received. . . . . . . . . . . . . . . . . . (2.8) (2.6)
Deferred income tax provision . . . . . . . . . . . . . . . . . . . . 0.1 4.1
Amortization of intangibles. . . . . . . . . . . . . . . . . . . . . . 3.0 3.1
Amortization of unearned compensation . . . . . . . . . . . . . . . . 2.4 1.9
Changes in operating assets and liabilities, net of effects from
purchase of businesses:
Accounts and notes receivable, net. . . . . . . . . . . . . . . . . (119.5) (79.2)
Inventories, net. . . . . . . . . . . . . . . . . . . . . . . . . . (91.9) (90.5)
Other current and noncurrent assets . . . . . . . . . . . . . . . . (8.7) 2.2
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . (44.9) (8.5)
Accrued expenses. . . . . . . . . . . . . . . . . . . . . . . . . . (31.7) (45.8)
Other current and noncurrent liabilities. . . . . . . . . . . . . . 1.1 5.7
--------------- ---------------
Total adjustments. . . . . . . . . . . . . . . . . . . . . . . . (279.1) (195.2)
--------------- ---------------
Net cash used for operating activities. . . . . . . . . . . . . . (246.4) (169.5)
--------------- ---------------
Cash flows from investing activities:
Purchase of businesses, net of cash acquired . . . . . . . . . . . . . . . - (283.8)
Proceeds from sale of businesses. . . . . . . . . . . . . . . . . . . . . 9.3 -
Purchase of property, plant and equipment. . . . . . . . . . . . . . . . . (13.8) (7.6)
--------------- ---------------
Net cash used for investing activities. . . . . . . . . . . . . . . (4.5) (291.4)
--------------- ---------------
Cash flows from financing activities:
Proceeds from long-term debt, net . . . . . . . . . . . . . . . . . . . . 227.0 310.8
Payment of debt issuance costs . . . . . . . . . . . . . . . . . . . . . . - (3.4)
Proceeds from issuance of common stock. . . . . . . . . . . . . . . . . . 0.1 141.4
Dividends paid on common stock . . . . . . . . . . . . . . . . . . . . . . (0.6) (0.6)
--------------- ---------------
Net cash provided by financing activities . . . . . . . . . . . . . 226.5 448.2
--------------- ---------------
Effect of exchange rate changes on cash and cash equivalents. . . . . . . . . . (0.4) (3.4)
Decrease in cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . (24.8) (16.1)
Cash and cash equivalents, beginning of period. . . . . . . . . . . . . . . . . 31.2 41.7
--------------- ---------------
Cash and cash equivalents, end of period. . . . . . . . . . . . . . . . . . . . $ 6.4 $ 25.6
=============== ===============
See accompanying notes to condensed consolidated financial statements.
5
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, 1997.
Interim results of operations are not necessarily indicative of results to be
expected for the fiscal year.
2. CHARGES FOR NONRECURRING EXPENSES
The results of operations for the three months ended March 31, 1997
included a charge for nonrecurring expenses of $2.6 million, or $.03 per common
share on a diluted basis. The nonrecurring charge included $1.4 million related
to the restructuring of the Company's European operations, acquired in the
acquisition of Massey Ferguson (the "Massey Acquisition") in June 1994, and $1.2
million for the integration of the operations of Deutz Argentina S.A. ("Deutz
Argentina") and Xaver Fendt GmbH & Co. KG ("Fendt"), which were acquired in
December 1996 and January 1997, respectively. The nonrecurring charge consisted
primarily of employee related costs.
3. LONG-TERM DEBT
Long-term debt consisted of the following at March 31, 1998 and
December 31, 1997 (in millions):
March 31, December 31,
1998 1997
--------------- --------------------
Revolving credit facility . . . . . . . . . . . . . . . . . . . . . . . . . . $ 691.2 $ 460.7
Senior subordinated notes . . . . . . . . . . . . . . . . . . . . . . . . . . 248.1 248.1
Other long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.1 18.6
--------------- --------------------
$ 957.4 $ 727.4
=============== ====================
6
The Company's revolving credit facility allows for borrowings of up to
$1.1 billion. Lending commitments under the revolving credit facility reduce
from the current commitment of $1.1 billion as of March 31, 1998 to $1.0 billion
on January 1, 1999. In addition, borrowings under the revolving credit facility
may not exceed the sum of 90% of eligible accounts receivable and 60% of
eligible inventory. As of March 31, 1998, approximately $691.2 million was
outstanding under the revolving credit facility and available borrowings were
approximately $365.8 million.
4. EXTRAORDINARY LOSS
During the first quarter of 1997, as part of the refinancing of the
Company's revolving credit facility in January 1997, 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.
5. NET INCOME PER COMMON SHARE
Effective December 31, 1997, the Company adopted Statement of
Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings per Share" which
specifies the computation, presentation and disclosure requirements for earnings
per share. All prior period earnings per share data has been restated to conform
with the provisions of SFAS 128. The per share amounts reported under SFAS 128
are not materially different than those calculated and presented under the
previous method of calculation as specified under Accounting Principles Board
Opinion No. 15.
Basic earnings per common share is computed by dividing net income by
the weighted average number of common shares outstanding during each period.
Diluted earnings per common share assumes exercise of outstanding stock options
and vesting of restricted stock.
A reconciliation of net income and the weighted average number of
common shares outstanding used to calculate basic and diluted earnings per
common share for the three months ended March 31, 1998 and 1997 is as follows
(in millions, except per share data):
Basic Earnings Per Share Three Months Ended
March 31,
1998 1997
---------- ----------
Weighted average number of common shares outstanding . . . . . . . . . . . 61.5 57.3
========== ==========
Income before extraordinary loss . . . . . . . . . . . . . . . . . . . . . $ 32.7 $ 27.8
Extraordinary loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . - (2.1)
---------- ----------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 32.7 $ 25.7
Net income per common share:
Income before extraordinary loss . . . . . . . . . . . . . . . . . . . . $ 0.53 $ 0.49
Extraordinary loss. . . . . . . . . . . . . . . . . . . . . . . . . . . - (0.04)
---------- ----------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.53 $ 0.45
========== ==========
Diluted Earnings Per Share
Weighted average number of common shares outstanding . . . . . . . . . . . 61.5 57.3
Shares issued upon assumed vesting of restricted stock . . . . . . . . . . 1.5 1.3
Shares issued upon assumed exercise of outstanding stock options . . . . . 0.3 0.4
---------- ----------
Weighted average number of common and common equivalent shares
outstanding. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63.3 59.0
========== ==========
Income before extraordinary loss . . . . . . . . . . . . . . . . . . . . . $ 32.7 $ 27.8
Extraordinary loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . - (2.1)
---------- ----------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 32.7 $ 25.7
Net income per common share:
Income before extraordinary loss . . . . . . . . . . . . . . . . . . . . $ 0.52 $ 0.47
Extraordinary loss . . . . . . . . . . . . . . . . . . . . . . . . . . . - (0.03)
---------- ----------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.52 $ 0.44
========== ==========
7
6. INVENTORIES
Inventories are valued at the lower of cost or market using the
first-in, first-out method. 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 March 31, 1998 and December 31, 1997 were as
follows (in millions):
March 31, December 31,
1998 1997
----------- -------------
Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 318.0 $ 267.7
Repair and replacement parts . . . . . . . . . . . . . . . . . . . . . . . 257.9 250.2
Work in process, production parts and raw materials. . . . . . . . . . . . 213.7 184.5
----------- -------------
Gross inventories . . . . . . . . . . . . . . . . . . . . . . . . . . 789.6 702.4
Allowance for surplus and obsolete inventories . . . . . . . . . . . . . . (80.1) (79.7)
----------- -------------
Inventories, net . . . . . . . . . . . . . . . . . . . . . . . . . . $ 709.5 $ 622.7
=========== =============
7. COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income," which requires
companies to disclose components of comprehensive income, defined as the total
of net income and all other nonowner changes in equity. This statement requires
disclosure only; therefore, its adoption had no effect on the Company's
financial position or results of operations.
Total comprehensive income for the three months ended March 31, 1998
and 1997 was as follows (in millions):
Three Months Ended
March 31,
1998 1997
--------- -------
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 32.7 $ 25.7
Other comprehensive income, net of tax:
Foreign currency translation adjustments. . . . . . . . . . (17.3) (20.5)
---------- --------
Total comprehensive income. . . . . . . . . . . . . . . . . . . $ 15.4 $ 5.2
========== ========
8
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.
RESULTS OF OPERATIONS
NET INCOME
The Company recorded net income for the three months ended March 31, 1998
of $32.7 million compared to $25.7 million for the same period in 1997. Net
income per common share on a diluted basis was $0.52 and $0.44 for the first
quarter of 1998 and 1997, respectively. Net income for the three months ended
March 31, 1997 included nonrecurring expenses of $2.6 million, or $0.03 per
share on a diluted basis, related to the restructuring of the Company's European
operations 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 quarter of 1997
included an extraordinary after-tax charge of $2.1 million, or $0.03 per share
on a diluted basis, for the write-off of unamortized debt costs related to the
refinancing in January 1997 of the Company's revolving credit facility (see
"Liquidity and Capital Resources"). The Company's improved results in 1998
primarily reflected improved operating margins, which resulted from cost
reduction activities, particularly in South America, new products introduced in
North America and the acquisition of Dronningborg Industries a/s
("Dronningborg") in December 1997, 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 three months ended March
31, 1998 increased approximately 10%, 39% and 14%, respectively, over the same
period in 1997. The Company believes general market conditions continue to be
positive due to favorable economic conditions. The Company believes the
significant increase in the retail sales of combines was
9
partially due to the timing of shipments in 1997 by certain competitors which
diverted their first quarter production to international markets. Company unit
retail sales of tractors in the United States and Canada increased 7% for the
first three months of 1998 compared to 1997 primarily due to increased sales of
Massey Ferguson midrange and high horsepower tractors. Company unit retail sales
of combines increased 3% for the first quarter of 1998 compared to 1997. Company
unit retail sales of hay and forage equipment decreased 2% for the first three
months of 1998 compared to the prior year primarily due to aggressive competitor
discount programs during the first quarter of 1998.
In Western Europe, industry unit retail sales of tractors decreased
approximately 5% for the three months ended March 31, 1998 compared to the same
period in the prior year resulting from decreases in retail sales in the U.K,
France, and Spain primarily a result of farm consolidation in Western Europe and
the strength of the British pound against other European currencies. Company
unit retail sales of tractors in Western Europe increased approximately 2%. The
Company experienced increases in retail sales in France and Germany which were
partially offset by declines in most other Western European markets.
Industry unit retail sales of tractors in South America increased
approximately 17% for the first quarter of 1998 over the prior year. This
increase was primarily due to a recovery in Brazil resulting from increasingly
favorable economic conditions. Company retail unit sales of tractors in South
America remained flat compared to the same period in 1997 and were negatively
impacted by competitor discounting which the Company chose not to match.
In other international markets, industry unit retail sales of tractors
decreased compared to the prior year, particularly in East Asia/Pacific markets,
due to the recent economic crisis in the region, and in the Middle East. The
Company also experienced decreases in retail sales in the these regions.
NET SALES
Net sales for the first quarter of 1998 were $701.5 million compared to
net sales of $704.3 million for the same period in 1997. The decrease in net
sales for the first quarter reflects the sale of the Fendt Caravan business in
December 1997, the disposition of 50% of the Deutz Argentina engine business in
December 1997, and the negative translation effect of the strengthening dollar
against most European currencies. Excluding the impact of these items, net sales
for the first quarter of 1998 increased approximately 7% over 1997. On a
regional basis, net sales in North America increased $43.0 million, or 23.3%,
for the three months ended March 31, 1998 compared to the same period in 1997
primarily due to favorable industry conditions and the successful acceptance of
new products. Net sales in South America increased $6.3 million, or 8.5%, for
the three months ended March 31, 1998 compared to the same period in the prior
year primarily due to improved sales of combines. Net sales decreased $30.4
million, or 8.6%, in Western Europe for the three months ended March 31, 1998
compared to the same period in 1997 primarily due to the unfavorable industry
conditions in the region and due to the sale of the Fendt caravan business in
December 1997. In the remaining international markets, net sales decreased $21.7
million, or 24.0%, compared to the three months ended March 31, 1997, primarily
due to decreased sales in the Asian markets due to the recent economic
difficulties in the region.
10
COSTS AND EXPENSES
Gross profit was $144.5 million (20.6% of net sales) for the first
quarter of 1998 compared to $134.3 million (19.1% 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, new
products introduced in North America and the acquisition of Dronningborg in
December 1997 which resulted in improved combine margins in Western Europe.
Selling, general and administrative expenses for the first quarter of
1998 were $63.0 million (9.0% of net sales) compared to $61.9 million (8.8% of
net sales) for the same period in 1997. The increase in selling, general and
administrative expenses as a percentage of net sales compared to the first
quarter of 1997 was primarily due to increased operating expenses resulting from
the acquisition of Dronningborg. Engineering expenses were $13.6 million (1.9%
of net sales) for the first quarter of 1998 compared to $13.2 million (1.9% of
net sales) for the same period in 1997.
The nonrecurring charge recorded in the first quarter of 1997 related
to the restructuring of the Company's European operations and the integration of
the Deutz Argentina and Fendt operations, acquired in December 1996 and January
1997, respectively. See "Charges for Nonrecurring Expenses" for further
discussion.
Operating income, excluding nonrecurring charges, was $67.9 million
(9.7% of net sales) for the first quarter of 1998 compared to $59.2 million
(8.4% of net sales) for the same period in 1997. The increase in operating
income as a percentage of net sales was primarily due to the improvement in
gross margins as discussed above.
Interest expense, net was $15.0 million for the first quarter of 1998
compared to $13.2 million for the same period in the prior year. The higher
interest expense, net for the three months ended March 31, 1998 primarily
resulted from the higher level of borrowings at March 31, 1998 compared to the
prior year to fund both the Dronningborg acquisition and higher levels of
working capital.
Other expense, net was $5.4 million for the first quarter of 1998
compared to $4.6 million for the same period in 1997. The Company experienced an
increase in other expense, net relating to foreign exchange losses.
The Company recorded an income tax provision of $17.6 million and $13.6
million for the first quarter of 1998 and 1997, respectively. The Company's
effective tax rate increased during the first quarter of 1998 compared to the
same period in 1997 due to a change in the mix of income to jurisdictions with
higher tax rates.
Equity in net earnings of affiliates was $2.8 million and $2.6 million
for the first quarter of 1998 and 1997, respectively. The increase in equity in
net earnings of affiliates primarily related to increased earnings for the
Company's retail finance affiliates.
11
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. Lending commitments under the Company's
revolving credit facility reduce from the current commitment of $1.1 billion as
of March 31, 1998 to $1.0 billion on January 1, 1999. In addition, borrowings
under the Company's revolving 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 revolving credit facility fluctuate
as well. As of March 31, 1998, approximately $691.2 million was outstanding
under the Company's revolving credit facility and available borrowings were
approximately $365.8 million.
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 March 31, 1998, the
Company had $1,122.8 million of working capital, an increase of $238.5 million
over working capital of $884.3 million as of December 31, 1997. The increase in
working capital was primarily due to working capital acquired in the
Dronningborg aquisition and normal seasonal requirements, particularly in
receivables and inventories.
Cash flow used for operating activities was $246.4 million and $169.5
million for the three months ended March 31, 1998 and 1997, respectively. The
increase in cash flow used for operating activities compared to the prior year
was primarily due to increases in receivables and inventories and decreases in
accounts payable. The increase in receivables compared to the prior year was
primarily the result of higher levels of dealer inventories in North America due
to the delivery of new products in the first quarter of 1998 prior to the retail
selling season. The increase in inventory compared to the prior year primarily
resulted from seasonal increases in combine inventory related to production at
Dronningborg. The decrease in payables primarily related to lower production in
the Company's European production facilities in order to compensate for
relatively high levels of inventory at December 31, 1997.
Capital expenditures for the three months ended March 31, 1998 were
$13.8 million compared to $7.6 million for the same period in 1997. The Company
anticipates that additional capital expenditures for the remainder of 1998 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 April 1998, the Company's Board of Directors declared a dividend of
$0.01 per share of common stock for the second quarter of 1998. 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 Company's
revolving 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.
12
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 $2.6 million of nonrecurring expenses during the
three months ended March 31, 1997 related to the restructuring of the Company's
European operations and the integration of the operations of Deutz Argentina and
Fendt, acquired in December 1996 and January 1997, respectively, (see Note 2 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. The costs related to the
integration of the Deutz Argentina and Fendt operations primarily related to the
rationalization of manufacturing and administrative functions. 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.
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.
13
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
FOREIGN CURRENCY RISK MANAGEMENT
The Company has significant manufacturing operations in the United
States, the United Kingdom, France, Germany, Denmark, Brazil and Argentina, and
it purchases a portion of its tractors, combines and components from third party
foreign suppliers primarily in various European countries and in Japan. The
Company also sells products in over 140 countries throughout the world.
Fluctuations in the value of foreign currencies create exposures which can
adversely affect the Company's results of operations.
The Company attempts to manage its foreign exchange exposure by
hedging identifiable foreign currency commitments arising from receivables,
payables, and expected purchases and sales. Where naturally offsetting currency
positions do not occur, the Company hedges certain of its exposures through the
use of foreign currency forward contracts. The Company's hedging policy
prohibits foreign currency forward contracts for speculative trading purposes.
14
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 - Financial Data Schedule - March 31, 1998
(electronic filing purposes only).
27.2 - Restated Financial Data Schedule - March 31,
1997 (electronic filing purposes only)
(b) Reports on Form 8-K
None
15
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: May 15, 1998 /s/ Chris E. Perkins
----------------- ----------------------
Chris E. Perkins
Vice President and Chief
Financial Officer
16
EXHIBIT INDEX
Sequentially
Exhibit Numbered
Number Description Page
- ------- -------------------------------- -------------
27.1 Financial Data Schedule March 31, 1998 (electronic filing purposes
only).
27.2 Restated Financial Data Schedule March 31, 1997 (electronic filing
purposes only).
17
5
1,000,000
3-MOS
DEC-31-1998
JAN-01-1998
MAR-31-1998
6
0
1,072
0
709
1,877
400
0
2,784
755
957
0
0
1
998
2,784
702
702
557
557
14
(1)
15
48
18
33
0
0
0
33
0.53
0.52
(EPS - Primary) denotes Basic EPS
5
1,000
3-MOS
DEC-31-1997
JAN-01-1997
MAR-31-1997
25,629
0
996,991
0
620,933
1,729,626
319,873
0
2,597,220
721,514
893,183
0
0
624
910,872
2,597,220
704,329
704,329
569,980
569,980
13,253
1,317
13,147
38,854
13,634
27,807
0
(2,080)
0
25,727
0.45
0.44
(EPS - Primary) Denotes Basic EPS
