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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, 1999
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
--- ---
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: 59,535,921 shares outstanding as of
March 31, 1999.
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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, 1999 and December 31, 1998 . . . . . . . . . . . . . . . . . . . . . 3
Condensed Consolidated Statements
of Income for the Three Months
Ended March 31, 1999 and 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Condensed Consolidated Statements
of Cash Flows for the Three Months
Ended March 31, 1999 and 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Notes to Condensed Consolidated
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
Item 3. Quantitative and Qualitative Disclosures about Market Risk. . . . . . . . . . . . . . . .15
PART II. OTHER INFORMATION:
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
2
Part I. Financial Information
Item 1. Financial Statements
AGCO CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions, except share data)
March 31 December 31,
1999 1998
----------------- -----------------
ASSETS (Unaudited)
Current Assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . $ 21.0 $ 15.9
Accounts and notes receivable, net of allowances . . . . . . . . . . . . . . 1,001.3 1,016.3
Inventories, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 685.1 671.6
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95.3 86.7
------------------ -------------------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,802.7 1,790.5
Property, plant and equipment, net . . . . . . . . . . . . . . . . . . . . . . . 356.9 417.6
Investments in affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . 96.6 95.2
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83.3 76.6
Intangible assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . 325.9 370.5
------------------ -------------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,665.4 $ 2,750.4
================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 264.7 $ 287.0
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 376.4 428.0
Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . 24.7 45.6
------------------ -------------------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . 665.8 760.6
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,056.5 924.2
Postretirement health care benefits. . . . . . . . . . . . . . . . . . . . . . . 24.7 24.5
Other noncurrent liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . 50.7 59.0
------------------ -------------------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,797.7 1,768.3
------------------ -------------------
Stockholders' Equity:
Common stock: $0.01 par value, 150,000,000 shares authorized,
59,535,921 shares issued and outstanding
at March 31, 1999 and December 31, 1998 . . . . . . . . . . . . . . . . . 0.6 0.6
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . 427.3 427.3
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 627.9 635.8
Unearned compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . ( 9.3) (11.1)
Accumulated other comprehensive income. . . . . . . . . . . . . . . . . . . . (178.8) (70.5)
------------------ -------------------
Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . . 867.7 982.1
------------------ -------------------
Total liabilities and stockholders' equity . . . . . . . . . . . . . . . . $ 2,665.4 $ 2,750.4
================== ===================
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,
------------------------------------
1999 1998
-------------- --------------
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 561.6 $ 701.5
Cost of goods sold. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 482.6 557.0
-------------- --------------
Gross profit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79.0 144.5
Selling, general and administrative expenses. . . . . . . . . . . . . . . . . . 57.9 63.0
Engineering expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.8 13.6
-------------- --------------
Income from operations. . . . . . . . . . . . . . . . . . . . . . . . . . 9.3 67.9
Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.5 15.0
Other expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.5 5.4
-------------- --------------
Income (loss) before income taxes and equity in net earnings of
affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (15.7) 47.5
Provision (benefit) for income taxes. . . . . . . . . . . . . . . . . . . . . . ( 5.8) 17.6
-------------- --------------
Income (loss) before equity in net earnings of affiliates . . . . . . . . . . . ( 9.9) 29.9
Equity in net earnings of affiliates. . . . . . . . . . . . . . . . . . . . . . 2.7 2.8
-------------- --------------
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ ( 7.2) $ 32.7
============== ==============
Net income (loss) per common share:
Basic. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (0.12) $ 0.53
============== ==============
Diluted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (0.12) $ 0.52
============== ==============
Weighted average number of common and common equivalent shares outstanding:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58.5 61.5
============== ==============
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58.5 63.3
============== ==============
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,
----------------------------------
1999 1998
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Cash flows from operating activities:
Net income (loss). . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (7.2) $ 32.7
-------------- -------------
Adjustments to reconcile net income (loss) to net cash used for operating
activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . 14.5 13.8
Equity in net earnings of
affiliates, net of cash received . . . . . . . . . . . . . . . . . . ( 2.7) ( 2.8)
Deferred income tax provision (benefit). . . . . . . . . . . . . . . . . ( 2.7) 0.1
Amortization of intangibles. . . . . . . . . . . . . . . . . . . . . . . 3.7 3.0
Amortization of unearned compensation . . . . . . . . . . . . . . . . . 1.8 2.4
Changes in operating assets and liabilities, net of effects from
sale of business:
Accounts and notes receivable, net. . . . . . . . . . . . . . . . . . (22.6) (119.5)
Inventories, net. . . . . . . . . . . . . . . . . . . . . . . . . . . (42.2) ( 91.9)
Other current and noncurrent assets . . . . . . . . . . . . . . . . . (20.0) ( 8.7)
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . ( 8.8) ( 44.9)
Accrued expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . (43.2) ( 31.7)
Other current and noncurrent liabilities . . . . . . . . . . . . . . ( 9.1) 1.1
-------------- -------------
Total adjustments. . . . . . . . . . . . . . . . . . . . . . . . . . (131.3) (279.1)
-------------- -------------
Net cash used for operating activities. . . . . . . . . . . . . . . . (138.5) (246.4)
-------------- -------------
Cash flows from investing activities:
Purchase of property, plant and equipment. . . . . . . . . . . . . . . . . ( 6.9) ( 13.8)
Proceeds from sale of business . . . . . . . . . . . . . . . . . . . . . . - 9.3
-------------- -------------
Net cash used for investing activities. . . . . . . . . . . . . . . . ( 6.9) ( 4.5)
-------------- -------------
Cash flows from financing activities:
Proceeds from long-term debt, net . . . . . . . . . . . . . . . . . . . . 153.4 227.0
Proceeds from issuance of common stock. . . . . . . . . . . . . . . . . . - 0.1
Dividends paid on common stock . . . . . . . . . . . . . . . . . . . . . . ( 0.6) ( 0.6)
-------------- -------------
Net cash provided by financing activities . . . . . . . . . . . . . . 152.8 226.5
-------------- -------------
Effect of exchange rate changes on cash and cash equivalents . . . . . . . . . . ( 2.3) ( 0.4)
Increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . . . 5.1 ( 24.8)
Cash and cash equivalents, beginning of period . . . . . . . . . . . . . . . . . 15.9 31.2
-------------- -------------
Cash and cash equivalents, end of period . . . . . . . . . . . . . . . . . . . $ 21.0 $ 6.4
============== =============
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, 1998.
Interim results of operations are not necessarily indicative of results to be
expected for the fiscal year.
2. NONRECURRING EXPENSES
In the fourth quarter of 1998, the Company recorded nonrecurring expenses
of $40.0 million primarily related to costs associated with reductions in the
Company's worldwide permanent workforce. As of March 31, 1999, the Company had
terminated approximately 1,330 of the 1,400 employees identified for
termination. Of the $40.0 million total expense, $19.8 million had been incurred
as of March 31, 1999.
3. LONG-TERM DEBT
Long-term debt consisted of the following at March 31, 1999 and December
31, 1998 (in millions):
March 31, December 31,
1999 1998
--------------------- ---------------------
Revolving credit facility . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 795.2 $ 661.2
Senior subordinated notes . . . . . . . . . . . . . . . . . . . . . . . . . . . 248.3 248.3
Other long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.0 14.7
--------------------- ---------------------
$ 1,056.5 $ 924.2
===================== =====================
The Company's revolving credit facility allows for borrowings of up to $1.0
billion. As of March 31, 1999, $795.2 million was outstanding under the
revolving credit facility and available borrowings were $204.8 million.
6
4. NET INCOME PER COMMON SHARE
The computation, presentation and disclosure requirements for earnings per
share are presented in accordance with Statement of Financial Accounting
Standards No. 128 ("SFAS 128"), "Earnings per Share." Basic earnings per common
share is computed by dividing net income (loss) 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 when the effects of such assumptions are dilutive.
A reconciliation of net income (loss) 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, 1999 and 1998 is as follows
(in millions, except per share data):
Three Months Ended
March 31
1999 1998
------------ -------------
Basic Earnings Per Share
Weighted average number of common shares outstanding. . . . . . . . . . 58.5 61.5
============ =============
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (7.2) $ 32.7
============ =============
Net income per common share . . . . . . . . . . . . . . . . . . . . . . $ (0.12) $ 0.53
============ =============
Diluted Earnings Per Share
Weighted average number of common shares outstanding. . . . . . . . . . 58.5 61.5
Assumed vesting of restricted stock. . . . . . . . . . . . . . . . . . - 1.5
Assumed exercise of outstanding stock options . . . . . . . . . . . . . - 0.3
------------ -------------
Weighted average number of common and common equivalent
shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . 58.5 63.3
============ =============
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (7.2) $ 32.7
============ =============
Net income per common share . . . . . . . . . . . . . . . . . . . . . . $ (0.12) $ 0.52
============ =============
5. 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, 1999 and December 31, 1998 were
as follows (in millions):
March 31, December 31,
1999 1998
--------------- ---------------
Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 286.3 $ 271.2
Repair and replacement parts . . . . . . . . . . . . . . . . . . . . . 254.7 256.7
Work in process, production parts and
raw materials . . . . . . . . . . . . . . . . . . . . . . . . . . . 215.5 222.6
--------------- ---------------
Gross inventories . . . . . . . . . . . . . . . . . . . . . . 756.5 750.5
Allowance for surplus and obsolete inventories . . . . . . . . . . . . (71.4) (78.9)
--------------- ---------------
Inventories, net . . . . . . . . . . . . . . . . . . . . . . . $ 685.1 $ 671.6
=============== ===============
7
6. COMPREHENSIVE INCOME (LOSS)
The Company follows the provisions of SFAS No. 130, "Reporting
Comprehensive Income," which requires companies to disclose components of
comprehensive income (loss), defined as the total of net income (loss) and all
other nonowner changes in equity. Total comprehensive income (loss) for the
three months ended March 31, 1999 and 1998 was as follows (in millions):
Three Months Ended
March 31,
------------------------------
1999 1998
-------------- --------------
Net income (loss). . . . . . . . . . . . . . . . . . . . . . . . . . . $ (7.2) $ 32.7
Other comprehensive income (loss):
Foreign currency translation adjustments . . . . . . . . . . . . . (108.3) (27.5)
-------------- --------------
Total comprehensive income (loss). . . . . . . . . . . . . . . . . . . $ (115.5) $ 5.2
============== =============
7. SEGMENT REPORTING
The Company has four geographic reportable segments: North America;
South America; Europe/Africa/Middle East; and Asia/Pacific. Each segment
distributes a full range of agricultural equipment and related replacement
parts. The Company evaluates segment performance based on income from
operations. Sales for each segment are based on the location of the third-party
customer. All intercompany transactions between the segments have been
eliminated. The Company's selling, general and administrative expenses and
engineering expenses are charged to each segment based on the region where the
expenses are incurred. As a result, the components of operating income for one
segment may not be comparable to another segment. Segment results for the three
months ended March 31, 1999 and 1998 are as follows (in millions):
Europe/
North South Africa/ Asia/
America America Middle East Pacific Consolidated
------- ------- ----------- ------- ------------
1999
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $141.1 $49.3 $350.6 $20.6 $561.6
Income from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7.2) (1.5) 18.4 2.1 11.8
1998
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $227.5 $80.9 $370.3 $22.8 $701.5
Income from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22.5 4.6 39.6 4.4 71.1
8
A reconciliation from the segment information to the consolidated balances for
income from operations is set forth below (in millions):
Three Months Ended
March 31,
----------------------------------
1999 1998
---------------- ----------------
Segment income from operations . . . . . . . . . . . . . . . . . . . . . . . . . $ 11.8 $ 71.1
Restricted stock compensation expense . . . . . . . . . . . . . . . . . . . . . (2.5) (3.2)
---------------- ----------------
Consolidated income from operations . . . . . . . . . . . . . . . . . . . . . . $ 9.3 $ 67.9
================ ================
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 and are
expected to continue to be affected by changes in net cash farm income, farm
land values, weather conditions, the demand for agricultural commodities,
commodity prices and general economic conditions. 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 a net loss for the three months ended March 31, 1999
of $7.2 million compared to net income of $32.7 million for the same period in
1998. Net earnings (loss) per common share on a diluted basis was $(0.12) and
$0.52 for the first quarter of 1999 and 1998, respectively. The results for the
three months ended March 31, 1999 were negatively impacted by unfavorable
industry conditions which resulted in lower net sales in the majority of markets
throughout the world and lower operating margins primarily due to unfavorable
absorption of fixed manufacturing overhead costs and lower price realization due
to a more competitive pricing environment.
RETAIL SALES
High global commodity stock levels and reduced export demand continue to
depress commodity prices, adversely affecting agricultural demand in most major
markets. These unfavorable industry conditions have negatively impacted demand
since the third quarter of 1998.
In the United States and Canada, industry unit retail sales of tractors and
combines for the first quarter of 1999 decreased approximately 2% and 42%,
respectively, compared to the same period in 1998. Company unit retail sales of
tractors in the United States and Canada decreased more than the industry
compared to the same period in 1998, and Company unit retail sales of combines
decreased in line with the industry decrease. Retail sales declines for both the
industry and the Company were more significant in the high horsepower tractor
and combine segments.
10
In Western Europe, industry unit retail sales of tractors experienced mixed
results with an overall decrease of approximately 3% for the first quarter of
1999 as compared to the prior year. Decreases in industry unit retail sales in
the UK, Scandinavia and Spain, were offset to some extent by increases in
France, Germany and Italy. Company unit retail sales results were also mixed
with an overall decrease in excess of the industry compared to the same period
in 1998. Availability of the Company's new Massey Ferguson high horsepower
tractor line was limited during the first quarter, which affected the Company's
retail sales.
Industry unit sales of tractors in South America for the first quarter of
1999 decreased approximately 8% compared to the same period in 1998 primarily
due to significant declines in Argentina and other South American markets offset
to some extent by a strong increase in the major market of Brazil. Company unit
retail sales of tractors in South America decreased more than the industry. The
increased demand in the Brazilian market has been significantly impacted by the
devaluation of the Brazilian currency, which has caused an increase in farm
income and advanced purchasing of equipment due to inflationary fears.
In other international markets, industry and company retail sales decreased
compared to the prior year in most markets including Africa, Australia and
Asia/Pacific.
STATEMENT OF INCOME
Net sales for the first quarter of 1999 were $561.6 million compared to
$701.5 million for the same period in 1998. The decrease in net sales primarily
reflects lower retail demand in most markets throughout the world. Net sales
were also impacted by the negative translation effect of currency exchange
offset by the 1998 acquisitions of Massey Ferguson Argentina, Spra-Coupe and
Willmar, which were not included in the 1998 results. Excluding the impact of
currency translation and acquisitions, net sales for the first quarter of 1999
decreased approximately 21% compared to the prior year.
Regionally, net sales in North America for the first quarter of 1999
decreased $86.4 million, or 38.0%, primarily due to unfavorable market
conditions and a smaller seasonal increase in dealer inventories than the prior
year. The decline was partially offset by the impact of the Spra-Coupe and
Willmar acquisitions. In the Europe/Africa/Middle East region, net sales
decreased $19.7 million, or 5.3%, for the three months ended March 31, 1999
compared to the prior year primarily due to unfavorable market conditions. Net
sales in South America decreased approximately $31.6 million, or 39.0%, for the
first quarter of 1999 compared to the prior year primarily due to unfavorable
industry conditions and to the negative impact of foreign currency translation
due to the Brazilian currency devaluation. In the East Asia/Pacific region, net
sales decreased approximately $2.2 million, or 9.7%, for the three months ended
March 31, 1999 compared to the prior year primarily due to continued unfavorable
market conditions.
11
Gross profit was $79.0 million (14.1% of net sales) for the first quarter
of 1999 compared to $144.5 million (20.6% of net sales) for the same period in
the prior year. Gross margins were negatively impacted by: (1) lower production
overhead absorption resulting from lower production volumes in the first quarter
of 1999 compared to the prior year; (2) lower price realization in the majority
of markets; and (3) an unfavorable sales mix of higher margin products.
Selling, general and administrative expenses ("SG&A expenses") for the
first quarter of 1999 were $57.9 million (10.3% of net sales) compared to $63.0
million (9.0% of net sales) for the same period in the prior year. While gross
expenses decreased by $5.1 million, SG&A expenses increased as a percentage of
net sales primarily due to lower sales volumes for the three months ended March
31, 1999 compared to the same period in 1998. Engineering expenses for the three
months ended March 31, 1999 were $11.8 million (2.1% of net sales) compared to
$13.6 million (1.9% of net sales) for the same period in the prior year.
Engineering expenses as a percentage of net sales were higher in 1999 primarily
due to lower sales volumes.
Income from operations was $9.3 million (1.7% of net sales) for the three
months ended March 31, 1999 as compared to $67.9 million (9.7% of net sales) for
the same period in 1998. Operating income, as a percentage of net sales, was
adversely affected by lower gross margins, and higher SG&A expenses and
engineering expenses as a percentage of net sales.
Interest expense, net was $16.5 million for the first quarter of 1999
compared to $15.0 million for the same period in 1998. The increased interest
expense, net was a result of higher debt levels in 1999 due to the Company's
1998 acquisitions and common stock repurchases in the second quarter of 1998.
The Company recorded an income tax benefit of $5.8 million for the three
months ended March 31, 1999 compared to an income tax provision of $17.6 million
for the same period in 1998. The Company's effective tax rate remained constant
over the two periods.
Equity in earnings of affiliates was $2.7 million for the three months
ended March 31, 1999 compared to $2.8 million for the same period in the prior
year.
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. The current lending commitment under the
Company's revolving credit facility is $1.0 billion with borrowings limited to
the sum of 90% of eligible accounts receivable and 60% of eligible inventory. As
of March 31, 1999, approximately $795.2 million was outstanding under the
Company's revolving credit facility and available borrowings were approximately
$204.8 million.
12
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. The Company had $1,136.9 million of
working capital at March 31, 1999, an increase of $107.0 million over working
capital of $1,029.9 million at December 31, 1998. The increase in working
capital was primarily due to lower current liabilities primarily related to the
reduction of certain accrued expenses including those related to seasonal sales
programs and nonrecurring expenses.
Cash flow used for operating activities was $138.5 million and $246.4
million for the three months ended March 31, 1999 and 1998, respectively. The
decrease in cash flow used for operating activities was primarily due to a lower
seasonal increase in accounts receivable and inventory compared to the prior
year. The improved cash flow compared to the prior year reflects the impact of
the Company's initiatives to reduce receivable and inventory levels during 1999.
Capital expenditures for the three months ended March 31, 1999 were $6.9
million compared to $13.8 million for the same period in 1998. The Company
anticipates that additional capital expenditures for the remainder of 1999 will
range from approximately $45.0 million to $55.0 million and will primarily be
used to support the development and enhancement of new and existing products as
well as facility and equipment maintenance.
The Company's debt to capitalization ratio was 54.9% at March 31, 1999
compared to 48.5% at December 31, 1998. The increase in the debt to
capitalization ratio was primarily due to higher debt levels to fund seasonal
working capital requirements and a negative cumulative translation adjustment to
equity of $108.3 million primarily related to the devaluation of the Brazilian
currency and a weakening of the Euro.
In April 1999, the Company's Board of Directors declared a dividend of
$0.01 per share of common stock for the second quarter of 1999. 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.
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.
13
YEAR 2000
The Company has assessed the impact of the Year 2000 issue on its reporting
systems and operations. Based on its assessment, the Company has developed a
Year 2000 compliance plan, in which all key information systems are being tested
and all non-compliant software or technology is being modified or replaced. This
review included all information technology systems and embedded systems located
in the Company's manufacturing equipment, facility equipment and in the
Company's products. The Company is also reviewing the Year 2000 compliance
status and compatibility of customers' and suppliers' systems which interface
with the Company's systems or could impact the Company's operations.
The Company has implemented the majority of necessary modifications to its
information technology systems and expects to complete testing of its systems
for Year 2000 compliance during 1999. During 1998, the Company reviewed a
majority of its embedded systems and identified a small percentage of systems
with Year 2000 problems. The Company expects to have these affected systems
replaced or corrected by mid-1999 and to complete testing of all systems during
1999. Based on its reviews, the Company estimates that the required costs to
modify existing computer systems and applications will be approximately $10
million to $12 million of which $6.9 million has been incurred to date. The
remaining costs will be incurred in the remainder of 1999.
While the Company believes that its plans are adequate to ensure that the
Year 2000 issue will not materially impact future operations, the risks of these
plans not being adequate or the risk that the Company's major customers and
suppliers do not modify or replace their affected systems could have a material
adverse impact on the Company's results of operations or financial condition in
the future. Failure by the Company or its customers or suppliers to resolve the
Year 2000 problem could result in a temporary slowdown or cessation of
manufacturing operations at one or more of the Company's facilities and a
temporary inability of the Company to process some orders and to deliver some
finished products to customers. The Company is currently identifying and
considering various contingency options, to minimize the risks of any Year 2000
problems.
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.
14
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 and Brazil, 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. The Company's most
significant transactional foreign currency exposures are the the British pound
in relation to other European currencies and the Canadian dollar in relation to
the U.S. dollar. 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 transactional foreign exchange exposure
by hedging identifiable foreign currency cash flow 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. The Company's translation exposure resulting from translating
the financial statements of foreign subsidiaries into U.S. dollars is not
hedged. When practical, this translation impact is reduced by financing local
operations with local borrowings.
15
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 - Financial Data Schedule - March 31, 1999
(electronic filing purposes only).
27.2 - Amended Financial Data Schedule -
December 31, 1998 (electronic filing
purposes only).
(b) Reports on Form 8-K
None
16
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 14, 1999 /s/ Patrick S. Shannon
---------------- ------------------------
Patrick S. Shannon
Vice President and Chief
Financial Officer
17
EXHIBIT INDEX
Sequentially
Exhibit Numbered
Number Description Page
- -------- ---------------------------------------- ------------
27.1 Financial Data Schedule - March 31, 1999
(electronic filing purposes only).
27.2 Amended Financial Data Schedule - December 31, 1998
(electronic filing purposes only).
18
5
1,000,000
3-MOS
DEC-31-1999
JAN-01-1999
MAR-31-1999
21
0
1,001
0
685
1,803
357
0
2,665
666
1,057
0
0
1
867
2,665
562
562
483
483
12
1
17
(16)
(6)
(7)
0
0
0
(7)
(0.12)
(0.12)
5
1,000,000
12-MOS
DEC-31-1998
JAN-01-1998
DEC-31-1998
16
0
1,016
108
672
1,791
418
151
2,750
761
924
0
0
1
982
2,750
2,941
2,941
2,404
2,404
56
5
68
74
28
61
0
0
0
61
1.01
0.99
