1.	BASIS OF PRESENTATION

The condensed consolidated financial statements of AGCO Corporation and its subsidiaries (the "Company" or "AGCO") included herein have been prepared in accordance with United States generally accepted accounting principles ("U.S. GAAP") for interim financial information and the rules and regulations of the Securities and Exchange Commission ("SEC"). In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, which are of a normal recurring nature, necessary 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, 2010. Results for interim periods are not necessarily indicative of the results for the year. Certain prior period amounts have been reclassified to conform to the current period presentation.

Recent Accounting Pronouncements

In June 2011, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2011-05, "Comprehensive Income (Topic 220): Presentation of Comprehensive Income" ("ASU 2011-05"). ASU 2011-05 eliminates the option to present other comprehensive income and its components in the statement of stockholders' equity. Accordingly, this standard increases the prominence of other comprehensive income in financial statements by requiring comprehensive income to be presented in either a single continuous statement or in two consecutive statements reporting net income and other comprehensive income. ASU 2011-05 does not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. This standard also requires the presentation of components of other comprehensive income in interim and annual financial statements. ASU 2011-05 is effective for fiscal years and interim periods beginning after December 15, 2011 and is to be applied retrospectively. Early adoption is permitted. The Company will adopt ASU 2011-05 by presenting two separate but consecutive statements reporting net income and other comprehensive income commencing during the three months ended March 31, 2012.

In May 2011, the FASB issued ASU 2011-04, "Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs" ("ASU 2011-04"). ASU 2011-04 clarifies existing fair value measurement concepts and continues the convergence towards a uniform framework for applying fair value measurement principles. This standard requires additional disclosures for fair value measurements, primarily Level 3 measurements. ASU 2011-04 is effective for fiscal years and interim periods beginning after December 15, 2011 and is to be applied prospectively. Early adoption is prohibited. The Company does not expect the adoption of ASU 2011-04 to have a material effect on the Company's consolidated financial position or results of operations. The Company is currently evaluating the potential impact of the adoption of ASU 2011-04 on its disclosures.

2.	JOINT VENTURE AND ACQUISITION

On January 3, 2011, the Company acquired 50% of AGCO-Amity JV, LLC ("AGCO-Amity JV") for approximately $25.0 million, net of approximately $5.0 million cash acquired, thereby creating a joint venture between the Company and Amity Technology LLC. The joint venture had approximately $6.2 million of indebtedness as of the date of acquisition. AGCO-Amity JV is located in North Dakota and manufactures air-seeding and tillage equipment. The investment was funded with available cash on hand. As the Company has a controlling voting interest to direct the activities that most significantly impact the joint venture, the Company has consolidated the joint venture's operations in the Company's results of operations and financial position commencing as of and from the date of the formation of the joint venture. The Company allocated the purchase price to the assets acquired and liabilities assumed based on a preliminary estimate of their fair values as of the acquisition date. The acquired net assets consist primarily of accounts receivable, property, plant and equipment, inventories, trademarks and other intangible assets. The Company recorded approximately $20.1 million of goodwill and approximately $22.9 million of tradename, technology and distribution network intangible assets, representing 100% of the value of these assets within the joint venture's financial position. The goodwill is reported within the Company's North American geographical reportable segment.

The acquired other identifiable intangible assets of AGCO-Amity JV are summarized in the following table (in millions):

 

Intangible Asset		Amount				Weighted-Average Useful Life
Tradenames and trademarks		$	1.4				5 years
Technology			17.1				15 years
Distribution network			4.4				5 years
		$	22.9

On March 3, 2011, the Company acquired the remaining 50% of Laverda SpA ("Laverda") for approximately €63.8 million, net of approximately €1.2 million cash acquired (or approximately $88.3 million, net). Laverda, previously an operating joint venture between AGCO and the Italian ARGO group, is located in Breganze, Italy and manufactures harvesting equipment. In addition to producing Laverda-branded combines, the Breganze factory manufactures mid-range combine harvesters for the Company's Massey Ferguson, Fendt and Challenger brands for distribution in Europe, Africa and the Middle East. The Company's 100% ownership of Laverda includes ownership in Fella-Werke GMBH, a German manufacturer of grass and hay machinery. The Company allocated the purchase price to the assets acquired and liabilities assumed based on a preliminary estimate of their fair values as of the acquisition date. The acquired net assets consist primarily of accounts receivable, property, plant and equipment, inventories, tradename and other intangible assets. The Company recorded approximately $40.9 million of goodwill and approximately $33.4 million of trademark and distribution network intangible assets associated with the acquisition. The goodwill recorded is reported within the Company's Europe/Middle East/Africa geographical reportable segment. In addition, the Company recorded a gain of approximately $0.7 million on the remeasurement of the previously held equity interest during the six months ended June 30, 2011 within the Company's Condensed Consolidated Statements of Operations as a result of the acquisition.

 

The acquired other identifiable intangible assets of Laverda are summarized in the following table (in millions):

 

Intangible Asset		Amount				Weighted-Average Useful Life
Tradenames		$	6.6				30 years
Distribution network			26.8				16 years
		$	33.4

On December 15, 2010, the Company acquired Sparex Holdings Ltd ("Sparex"), a U.K. company, for approximately £51.6 million, net of approximately £2.7 million cash acquired (or approximately $81.5 million, net). Sparex, headquartered in Exeter, United Kingdom, is a global distributor of accessories and tractor replacement parts serving the agricultural aftermarket, with operations in 17 countries. The acquisition was financed with available cash on hand. The Company recorded approximately $25.9 million of goodwill and approximately $28.6 million of preliminary estimated tradename and customer relationship intangible assets associated with the acquisition of Sparex. The results of operations for the Sparex acquisition have been included in the Company's Condensed Consolidated Financial Statements as of and from the date of acquisition.

The following pro forma data summarizes the results of operations for the three months ended June 30, 2010 and six months ended June 30, 2011 and 2010, respectively, as if the Laverda and Sparex acquisitions had occurred as of January 1, 2010. The unaudited pro forma information has been prepared for comparative purposes only and does not purport to represent what the results of operations of the Company actually would have been had the transaction occurred on the date indicated or what the results of operations may be in any future period (in millions, except per share data):

 

		Three Months Ended June 30, 2010
Net sales		$	1,833.7
Net income attributable to AGCO Corporation and subsidiaries			67.1
Net income per common share attributable to AGCO Corporation and subsidiaries:
Basic		$	0.72
Diluted		$	0.70

 

		Six Months Ended June 30,
		2011				2010
Net sales		$	4,189.9			$	3,232.4
Net income attributable to AGCO Corporation and subsidiaries			214.1				78.7
Net income per common share attributable to AGCO Corporation and subsidiaries:
Basic		$	2.27			$	0.85
Diluted		$	2.18			$	0.82

3.	RESTRUCTURING AND OTHER INFREQUENT EXPENSES

During 2009 and 2010, the Company announced and initiated several actions to rationalize employee headcount at various manufacturing facilities, including those located in France and Finland, as well as at the Company's administrative office located in the United Kingdom. During 2010, the Company recorded approximately $2.2 million associated with these and various other actions within the Company's Europe/Africa/Middle East geographical segment. As of December 31, 2010, approximately $1.5 million of severance and other related costs were accrued associated with such actions and 611 of 653 employees expected to be terminated had been terminated. During the six months ended June 30, 2011, the Company recorded restructuring and infrequent income of approximately $0.7 million, which included a reversal of approximately $0.9 million of previously accrued legally required severance payments associated with the rationalization of its French operations. Due to the improvement in European market conditions in 2011, employees previously identified to be terminated in France will not be terminated as planned. During the six months ended June 30, 2011, the Company paid approximately $0.4 million of severance and other related costs. A majority of the remaining $0.4 million of severance and other related costs accrued as of June 30, 2011 are expected to be paid, and the remaining two of the original 653 employees identified for termination are expected to be terminated during 2011.

In November 2009, the Company announced the closure of its assembly operations located in Randers, Denmark. The Company ceased operations in July 2010 and completed the transfer of the assembly operations to its harvesting equipment manufacturing operations, Laverda, located in Breganze, Italy, in August 2010. The Company recorded approximately $2.2 million of expenses during 2010 associated with the facility closure, primarily related to employee retention payments, which were accrued over the term of the retention period. As of December 31, 2010, approximately $0.7 million of severance, retention and other related costs were accrued associated with the closure, and 73 of the 79 employees expected to be terminated had been terminated. During the six months ended June 30, 2011, the Company paid approximately $0.6 million of severance, retention and other related costs associated with the closure. The remaining $0.1 million of severance, retention and other related costs accrued as of June 30, 2011 are expected to be paid and the remaining employees are expected to be terminated during 2011.

4.	STOCK COMPENSATION PLANS

The Company recorded stock compensation expense as follows (in millions):

 

		Three Months Ended June  30,								Six Months Ended June  30,
		2011				2010				2011				2010
Cost of goods sold		$	0.4			$	0.2			$	0.7			$	0.3
Selling, general and administrative expenses			6.6				3.3				11.0				5.2
Total stock compensation expense		$	7.0			$	3.5			$	11.7			$	5.5

Stock Incentive Plans

Under the Company's 2006 Long Term Incentive Plan (the "2006 Plan"), up to 10.0 million shares of AGCO common stock may be issued. The 2006 Plan allows the Company, under the direction of the Board of Directors' Compensation Committee, to make grants of performance shares, stock appreciation rights, stock options and restricted stock awards to employees, officers and non-employee directors of the Company.

 

Employee Plans

The weighted average grant-date fair value of performance awards granted under the 2006 Plan during the six months ended June 30, 2011 and 2010 was $53.18 and $33.65, respectively.

During the six months ended June 30, 2011, the Company granted 624,400 awards for the three-year performance period commencing in 2011 and ending in 2013, assuming the maximum target level of performance is achieved. On April 21, 2011, the Company's shareholders approved the amendment and restatement of the 2006 Plan, including an increase in the number of shares available for issuance under the 2006 Plan by 5.0 million shares, for a total of 10.0 million shares available for grant. During the three months ended June 30, 2011, the Company granted 781,500 awards for a three- to five-year performance period commencing in 2011 and ending in 2015, assuming the maximum target level of performance is achieved for operating margin improvement. The compensation expense associated with all awards granted under the 2006 Plan is amortized ratably over the vesting or performance period based on the Company's projected assessment of the level of performance that will be achieved and earned. Performance award transactions during the six months ended June 30, 2011 were as follows and are presented as if the Company were to achieve its maximum levels of performance under the plan:

 

Shares awarded but not earned at January 1			1,916,254
Shares awarded			1,405,900
Shares forfeited or unearned			(29,700	)
Shares earned			—
Shares awarded but not earned at June 30			3,292,454

As of June 30, 2011, the total compensation cost related to unearned performance awards not yet recognized, assuming the Company's current projected assessment of the level of performance that will be achieved and earned, was approximately $52.5 million, and the weighted average period over which it is expected to be recognized is approximately four years.

During the three and six months ended June 30, 2011, the Company recorded stock compensation expense of approximately $0.6 million and $1.3 million, respectively, associated with stock settled stock appreciation rights ("SSAR") awards. During the three and six months ended June 30, 2010, the Company recorded stock compensation expense of approximately $0.6 million and $1.3 million, respectively, associated with SSAR awards. The Company estimated the fair value of the grants using the Black-Scholes option pricing model. The Company utilized the "simplified" method for estimating the expected term of granted SSARs during the six months ended June 30, 2011 and 2010 as afforded by SEC Staff Accounting Bulletin ("SAB") No. 107, "Share-Based Payment (SAB Topic 14)," and SAB No. 110, "Share-Based Payment (SAB Topic 14.D.2)." The expected term used to value a grant under the simplified method is the mid-point between the vesting date and the contractual term of the SSAR. As the Company has only been granting SSARs since April 2006, it does not believe it has sufficient relevant experience regarding employee exercise behavior. The weighted average grant-date fair value of SSARs granted and the weighted average assumptions under the Black-Scholes option model were as follows for the six months ended June 30, 2011 and 2010:

 

		Six Months Ended June 30,
		2011				2010
Weighted average grant date fair value		$	22.58			$	14.51
Weighted average assumptions under Black-Scholes option model:
Expected life of awards (years)			5.5				5.5
Risk-free interest rate			2.0	%			2.5	%
Expected volatility			49.5	%			48.5	%
Expected dividend yield			—				—

 

SSAR transactions during the six months ended June 30, 2011 were as follows:

 

SSARs outstanding at January 1			798,197
SSARs granted			150,000
SSARs exercised			(123,062	)
SSARs canceled or forfeited			(500	)
SSARs outstanding at June 30			824,635
SSAR price ranges per share:
Granted		$	49.75-52.29
Exercised			21.45-37.38
Canceled or forfeited			56.98
Weighted average SSAR exercise prices per share:
Granted		$	52.23
Exercised			28.03
Canceled or forfeited			56.98
Outstanding at June 30			36.54

At June 30, 2011, the weighted average remaining contractual life of SSARs outstanding was approximately five years. As of June 30, 2011, the total compensation cost related to unvested SSARs not yet recognized was approximately $6.0 million and the weighted-average period over which it is expected to be recognized is approximately three years.

The following table sets forth the exercise price range, number of shares, weighted average exercise price and remaining contractual lives by groups of similar price:

 

		SSARs Outstanding										SSARs Exercisable
Range of Exercise Prices		Number of Shares				Weighted Average Remaining Contractual Life (Years)		Weighted Average Exercise Price				Exercisable as of June 30, 2011				Weighted Average Exercise Price
$21.45 – $24.51			262,907			4.3		$	21.68				132,938			$	21.99
$26.00 – $37.38			310,141			4.4		$	34.94				167,891			$	36.34
$44.55 – $66.20			251,587			5.4		$	54.04				75,612			$	56.88
			824,635										376,441			$	35.40

The total fair value of SSARs vested during the six months ended June 30, 2011 was $2.2 million. There were 448,194 SSARs that were not vested as of June 30, 2011. The total intrinsic value of outstanding and exercisable SSARs as of June 30, 2011 was $11.8 million and $5.8 million, respectively. The total intrinsic value of SSARs exercised during the six months ended June 30, 2011 was approximately $3.4 million. The Company realized an insignificant tax benefit from the exercise of these SSARs.

 

Director Restricted Stock Grants

The 2006 Plan provides for annual restricted stock grants of the Company's common stock to all non-employee directors. The shares are restricted as to transferability for a period of three years, but are not subject to forfeiture. In the event a director departs from the Company's Board of Directors, the non-transferability period would expire immediately. The plan allows for the director to have the option of forfeiting a portion of the shares awarded in lieu of a cash payment contributed to the participant's tax withholding to satisfy the statutory minimum federal, state and employment taxes which would be payable at the time of grant. The 2011 grant was made on April 21, 2011 and equated to 16,560 shares of common stock, of which 12,034 shares of common stock were issued, after shares were withheld for withholding taxes. The Company recorded stock compensation expense of approximately $0.9 million during the three months ended June 30, 2011 associated with these grants.

As of June 30, 2011, of the 10.0 million shares reserved for issuance under the 2006 Plan, approximately 4.3 million shares were available for grant, assuming the maximum number of shares are earned related to the performance award grants discussed above.

Stock Option Plan

There have been no grants under the Company's Option Plan since 2002, and the Company does not intend to make any grants under the Option Plan in the future. All of the Company's outstanding stock options are fully vested. Stock option transactions during the six months ended June 30, 2011 were as follows:

 

Options outstanding and exercisable at January 1			19,275
Options granted			—
Options exercised			(3,925	)
Options canceled or forfeited			—
Options outstanding and exercisable at June 30			15,350
Options available for grant at June 30			1,935,437
Option price ranges per share:
Granted		$	—
Exercised			15.12-20.85
Canceled or forfeited			—
Weighted average option exercise prices per share:
Granted		$	—
Exercised			16.58
Canceled or forfeited			—
Outstanding at June 30			16.24

At June 30, 2011, the outstanding and exercisable options had a weighted average remaining contractual life of approximately less than one year and an aggregate intrinsic value of approximately $0.5 million.

 

The following table sets forth the exercise price range, number of shares, weighted average exercise price and remaining contractual lives by groups of similar price:

 

		Options Outstanding and Exercisable as of June 30, 2011
Range of Exercise Prices		Number of Shares				Weighted Average Remaining Contractual Life (Years)		Weighted Average Exercise Price
$15.12 - $20.85			15,350			0.5		$	16.24

The total intrinsic value of options exercised during the six months ended June 30, 2011 was approximately $0.2 million. Cash received from stock option exercises was approximately $0.1 million for the six months ended June 30, 2011. The Company realized an insignificant tax benefit from the exercise of these options.

5.	GOODWILL AND OTHER INTANGIBLE ASSETS

Changes in the carrying amount of acquired intangible assets during the six months ended June 30, 2011 are summarized as follows (in millions):

 

		Trademarks and Tradenames				Customer Relationships				Patents and Technology				Total
Gross carrying amounts:
Balance as of December 31, 2010		$	38.4			$	124.9			$	50.8			$	214.1
Acquisitions			7.7				33.3				17.1				58.1
Foreign currency translation			0.6				8.9				4.1				13.6
Balance as of June 30, 2011		$	46.7			$	167.1			$	72.0			$	285.8
		Trademarks and Tradenames				Customer Relationships				Patents and Technology				Total
Accumulated amortization:
Balance as of December 31, 2010		$	11.0			$	73.7			$	50.4			$	135.1
Amortization expense			0.8				7.7				0.8				9.3
Foreign currency translation			—				5.0				3.9				8.9
Balance as of June 30, 2011		$	11.8			$	86.4			$	55.1			$	153.3
		Trademarks and Tradenames
Unamortized intangible assets:
Balance as of December 31, 2010		$	92.6
Foreign currency translation			3.3
Balance as of June 30, 2011		$	95.9

 

Changes in the carrying amount of goodwill during the six months ended June 30, 2011 are summarized as follows (in millions):

 

		North America				South America				Europe/Africa/ Middle East				Consolidated
Balance as of December 31, 2010		$	3.1			$	196.7			$	432.9			$	632.7
Acquisitions			20.1				—				39.1				59.2
Adjustments related to income taxes			—				—				(4.7	)			(4.7	)
Foreign currency translation			—				12.2				35.4				47.6
Balance as of June 30, 2011		$	23.2			$	208.9			$	502.7			$	734.8

Goodwill is tested for impairment on an annual basis and more often if indications of impairment exist. The Company conducts its annual impairment analyses as of October 1 each fiscal year.

The Company currently amortizes certain acquired intangible assets, primarily on a straight-line basis, over their estimated useful lives, which range from five to 30 years.

During the six months ended June 30, 2011, the Company reduced goodwill by approximately $4.7 million related to the realization of tax benefits associated with excess tax basis deductible goodwill resulting from its acquisition of Valtra in Finland.