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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q/A
(AMENDMENT NO. 1)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________________ TO ____________________
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: 59,578,628 shares outstanding as
of September 30, 2000.
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AGCO CORPORATION AND SUBSIDIARIES
INDEX
Page
Numbers
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PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Condensed Consolidated Balance
Sheets - September 30, 2000 and
December 31, 1999.............................................................. 3
Condensed Consolidated Statements
of Operations for the Three Months
Ended September 30, 2000 and 1999............................................... 4
Condensed Consolidated Statements
of Operations for the Nine Months
Ended September 30, 2000 and 1999............................................... 5
Condensed Consolidated Statements
of Cash Flows for the Nine Months
Ended September 30, 2000 and 1999............................................... 6
Notes to Condensed Consolidated
Financial Statements............................................................ 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations................................................................... 12
Item 3. Quantitative and Qualitative Disclosures
about Market Risk............................................................... 19
PART II. OTHER INFORMATION:
Item 6. Exhibits and Reports on Form 8-K................................................ 21
SIGNATURES................................................................................................. 22
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Part I Financial Information
Item I. Financial Statements
AGCO CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN MILLIONS, EXCEPT SHARE DATA)
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------ -----------
(UNAUDITED)
ASSETS
Current Assets:
Cash and cash equivalents ................................... $ 4.0 $ 19.6
Accounts and notes receivable, net .......................... 518.7 758.2
Inventories, net ............................................ 604.2 561.1
Other current assets ........................................ 88.3 77.2
---------- ----------
Total current assets ..................................... 1,215.2 1,416.1
Property, plant and equipment, net ................................ 297.9 310.8
Investment in affiliates .......................................... 90.1 93.6
Other assets ...................................................... 165.7 140.1
Intangible assets, net ............................................ 287.4 312.6
---------- ----------
Total assets ............................................. $ 2,056.3 $ 2,273.2
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable ............................................ $ 221.9 $ 244.2
Accrued expenses ............................................ 389.5 408.2
Other current liabilities ................................... 19.6 29.8
---------- ----------
Total current liabilities ................................ 631.0 682.2
Long-term debt .................................................... 582.3 691.7
Postretirement health care benefits ............................... 28.8 25.4
Other noncurrent liabilities ...................................... 39.4 44.8
---------- ----------
Total liabilities ........................................ 1,281.5 1,444.1
---------- ----------
Stockholders' Equity:
Common stock: $0.01 par value, 150,000,000 shares authorized,
59,578,628 and 59,579,559 shares issued and outstanding
at September 30, 2000 and December 31, 1999, respectively ... 0.6 0.6
Additional paid-in capital .................................. 427.0 427.7
Retained earnings ........................................... 615.8 621.9
Unearned compensation ....................................... (1.8) (5.1)
Accumulated other comprehensive income ...................... (266.8) (216.0)
---------- ----------
Total stockholders' equity ............................... 774.8 829.1
---------- ----------
Total liabilities and stockholders' equity ............... $ 2,056.3 $ 2,273.2
========== ==========
See accompanying notes to condensed consolidated financial statements.
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AGCO CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED AND IN MILLIONS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED SEPTEMBER 30,
--------------------------------
2000 1999
---------- ----------
Net sales ......................................................... $ 513.5 $ 570.5
Cost of goods sold ................................................ 423.7 473.4
---------- ----------
Gross profit ................................................. 89.8 97.1
Selling, general and administrative expenses ...................... 55.5 55.7
Engineering expenses .............................................. 12.4 11.2
Restructuring and other infrequent expenses ....................... 4.5 --
Amortization of intangibles ....................................... 3.9 3.7
Income from operations........................................ 13.5 26.5
Interest and financing expense, net ............................... 14.7 13.3
Other expense, net ................................................ 2.4 5.0
---------- ----------
Income (loss) before income taxes and equity in net earnings
of affiliates ................................................. (3.6) 8.2
Income tax expense (benefit) ...................................... (3.4) 3.8
---------- ----------
Income (loss) before equity in net earnings of affiliates ......... (0.2) 4.4
Equity in net earnings of affiliates .............................. 2.6 3.1
---------- ----------
Net income ........................................................ $ 2.4 $ 7.5
========== ==========
Net income per common share:
Basic ........................................................ $ 0.04 $ 0.13
=========== ===========
Diluted ...................................................... $ 0.04 $ 0.13
=========== ===========
Weighted average number of common and common equivalent shares
outstanding:
Basic ........................................................ 59.3 58.8
=========== ===========
Diluted ...................................................... 59.7 59.7
=========== ===========
Dividends declared per common share ............................... $ 0.01 $ 0.01
=========== ===========
See accompanying notes to condensed consolidated financial statements.
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AGCO CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED AND IN MILLIONS, EXCEPT PER SHARE DATA)
NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------
2000 1999
---------- ----------
Net sales ......................................................... $ 1,677.0 $ 1,815.6
Cost of goods sold ................................................ 1,405.7 1,528.4
---------- ----------
Gross profit ................................................. 271.3 287.2
Selling, general and administrative expenses ...................... 168.3 170.0
Engineering expenses .............................................. 33.7 34.1
Restructuring and other infrequent expenses ....................... 19.5 --
Amortization of intangibles ....................................... 11.2 11.1
---------- ----------
Income from operations........................................ 38.6 72.0
Interest and financing expense, net ............................... 50.8 45.0
Other expense, net ................................................ 11.6 13.4
---------- ----------
Income (loss) before income taxes and equity in net earnings
of affiliates ................................................. (23.8) 13.6
Income tax expense (benefit) ...................................... (11.5) 5.8
---------- ----------
Income (loss) before equity in net earnings of affiliates ......... (12.3) 7.8
Equity in net earnings of affiliates .............................. 8.1 8.0
---------- ----------
Net income (loss) ................................................. $ (4.2) $ 15.8
========== ==========
Net income (loss) per common share:
Basic ........................................................ $ (0.07) $ 0.27
========== ==========
Diluted ...................................................... $ (0.07) $ 0.27
========== ==========
Weighted average number of common and common equivalent shares
outstanding:
Basic ........................................................ 59.1 58.6
========== ==========
Diluted ...................................................... 59.1 59.6
========== ==========
Dividends declared per common share ............................... $ 0.03 $ 0.03
========== ==========
See accompanying notes to condensed consolidated financial statements.
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AGCO CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED AND IN MILLIONS)
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
2000 1999
------ ------
Cash flows from operating activities:
Net income (loss) ........................................... $ (4.2) $ 15.8
------ ------
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization ........................... 41.4 42.7
Amortization of intangibles ............................. 11.2 11.1
Amortization of unearned compensation ................... 2.6 4.9
Equity in net earnings of affiliates,
net of cash received ................................. (7.8) (7.5)
Deferred income tax benefit ............................. (33.4) (23.2)
Loss on write-down of property, plant and equipment ..... 3.1 --
Changes in operating assets and liabilities, net of effects
from purchase/sale of businesses:
Accounts and notes receivable, net ................... 193.0 118.8
Inventories, net ..................................... (60.0) (4.2)
Other current and noncurrent assets .................. (15.0) (31.9)
Accounts payable ..................................... (11.0) (37.8)
Accrued expenses ..................................... 10.0 (10.4)
Other current and noncurrent liabilities ............. (13.5) (3.2)
------ ------
Total adjustments .................................. 120.6 59.3
------ ------
Net cash provided by operating activities .......... 116.4 75.1
------ ------
Cash flows from investing activities:
Purchase of property, plant and equipment ............... (33.4) (29.4)
Purchase of business .................................... (10.0) --
Proceeds from sale/leaseback of property ................ -- 18.7
Investment in unconsolidated affiliates ................. (1.5) (0.6)
------ ------
Net cash used for investing activities ............. (44.9) (11.3)
------ ------
Cash flows from financing activities:
Repayments of long-term debt, net ....................... (84.6) (58.5)
Issuance of common stock ................................ 0.2 --
Dividends paid on common stock .......................... (1.8) (1.8)
------ ------
Net cash used for financing activities ............. (86.2) (60.3)
------ ------
Effect of exchange rate changes on cash and cash equivalents (0.9) (1.4)
------ ------
Increase (decrease) in cash and cash equivalents ........ (15.6) 2.1
Cash and cash equivalents, beginning of period .......... 19.6 15.9
------ ------
Cash and cash equivalents, end of period ................ $ 4.0 $ 18.0
====== ======
See accompanying notes to condensed consolidated financial statements.
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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, 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, 1999. Interim results of operations are not necessarily
indicative of results to be expected for the fiscal year.
2. ACQUISITION
In May 2000, the Company acquired from CNH Global N.V. ("CNH") its 50%
share in Hay and Forage Industries ("HFI") for $10 million. This agreement
terminated a joint venture agreement in which CNH and AGCO each owned 50%
interests in HFI, thereby providing AGCO with sole ownership of the facility.
HFI, located in Hesston, Kansas, develops and manufactures hay and forage
equipment and implements which AGCO sells under various brand names. As a
result of the acquisition, the financial statements of HFI have been
consolidated into the Company's condensed consolidated financial statements
since the acquisition date.
3. RESTRUCTURING AND OTHER INFREQUENT EXPENSES
In the second quarter of 2000, the Company announced its plan to
permanently close its combine manufacturing facility in Independence, Missouri
and relocate existing production to the Company's Hesston, Kansas manufacturing
facility. The closing of the Independence facility is expected to be completed
by the end of 2000. In the fourth quarter of 1999, the Company announced its
plan to close its Coldwater, Ohio; Lockney, Texas; and Noetinger, Argentina
manufacturing facilities. The majority of production in these facilities has
been relocated to existing Company facilities or outsourced to third parties.
The Coldwater, Ohio facility was permanently closed in 1999 and the Lockney,
Texas and Noetinger, Argentina facilities were closed in 2000.
In connection with these facility closures, the Company recorded
restructuring and other infrequent expenses of $24.5 million in the fourth
quarter of 1999 and $19.5 million for the nine months ended September 30, 2000.
The components of the expenses are summarized in the following table (in
millions):
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1999 2000
Restructuring Restructuring
and Other and Other Reserve Balance
Infrequent Infrequent Expenses at September 30,
Expenses Expenses Incurred 2000
------------- ------------- -------- ----------------
Employee severance ................ $ 1.9 $ 5.4 $ 3.5 $ 3.8
Facility closure costs ............ 7.7 6.1 7.8 6.0
Write-down of property plant
and equipment, net of recoveries 14.9 1.1 16.0 --
Production transition costs ....... -- 6.9 6.9 --
------- ------- ------- ------
$ 24.5 $ 19.5 $ 34.2 $ 9.8
======= ======= ======= ======
The severance costs relate to the termination of approximately 1,050
employees of which approximately 1,000 employees had been terminated as of
September 30, 2000. The facility closure costs include employee costs and other
exit costs to be incurred after operations cease in addition to noncancelable
operating lease obligations. The write down of property, plant and equipment
consisted of $.3 million related to machinery and equipment and $.8 million for
building and improvements and was based on the estimated fair value compared to
their carrying value. The production transition costs include costs to relocate
and integrate production into other existing AGCO facilities.
4. LONG-TERM DEBT
Long-term debt consisted of the following at September 30, 2000 and
December 31, 1999 (in millions):
September 30, December 31,
2000 1999
------------- ------------
Revolving credit facility............................... $ 326.3 $ 431.4
Senior subordinated notes............................... 248.6 248.5
Other long-term debt.................................... 7.4 11.8
------- -------
$ 582.3 $ 691.7
======= =======
In January 2000, the Company entered into a $250 million asset backed
securitization facility whereby certain U.S. wholesale accounts receivable are
sold through a wholly-owned special purpose subsidiary to a third party (the
"Securitization Facility"). Funding under the Securitization Facility is
provided on a revolving basis and is dependent upon the level of U.S. dealer
wholesale receivables eligible to be sold under the facility. The Company
initially funded $200 million under the Securitization Facility, which was used
to reduce outstanding borrowings under the Company's revolving credit facility.
The $1.0 billion lending commitment under the revolving credit facility was
permanently reduced by the $200 million initial proceeds received from the
Securitization Facility and will be further reduced by any additional funding
received under the Securitization Facility. In conjunction with the closing of
the securitization transaction, the Company recorded an initial one-time loss
in the first quarter of 2000 on the sale of the receivables of approximately $8
million, or $0.08 per share. The initial loss, included as a
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component of interest and financing expense, net, represents the difference
between the current and future value of the receivables sold, related
transaction expenses and the write-off of certain unamortized debt issuance
costs due to the reduction in the lending commitment of the revolving credit
facility.
The Company's revolving credit facility allows for borrowings up to
$800 million. As of September 30, 2000, $326.3 million was outstanding under
the revolving credit facility and available borrowings were $473.7 million,
subject to receivable and inventory borrowing base requirements.
The components of interest and financing expense, net are as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- --------------------
2000 1999 2000 1999
----- ----- ----- -----
Interest expense, net ............. $11.0 $13.3 $33.4 $45.0
Loss on sale of accounts receivable 3.7 -- 17.4 --
----- ----- ----- -----
$14.7 $13.3 $50.8 $45.0
===== ===== ===== =====
The loss on sale of accounts receivable of $17.4 million includes a
one-time loss of $8.0 million recorded in conjunction with the closing and
initial funding of the Securitization Facility as discussed above and $9.4
million related to subsequent sales of receivables provided on a revolving
basis under the Securitization Facility.
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 September 30, 2000 and December 31, 1999 were as
follows (in millions):
September 30, December 31,
2000 1999
------------- ------------
Finished goods ........................................... $ 282.2 $ 248.4
Repair and replacement parts ............................. 224.7 229.3
Work in process, production parts and raw materials ...... 167.3 154.6
---------- ----------
Gross inventories ................................. 674.2 632.3
Allowance for surplus and obsolete inventories ........... (70.0) (71.2)
---------- ----------
Inventories, net .................................. $ 604.2 $ 561.1
========== ==========
6. NET INCOME PER COMMON SHARE
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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 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 loss and the weighted average number of common
shares outstanding used to calculate basic and diluted net loss per common
share for the three and nine months ended September 30, 2000 and 1999 is as
follows (in millions, except per share data):
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- -----------------------
2000 1999 2000 1999
------ ------ ------ ------
BASIC EARNINGS PER SHARE
Weighted average number of common shares outstanding ....... 59.3 58.8 59.1 58.6
====== ====== ====== ------
Net income (loss) .......................................... $ 2.4 $ 7.5 $ (4.2) $ 15.8
====== ====== ====== ------
Net income (loss) per common share ......................... $ 0.04 $ 0.13 $(0.07) $ 0.27
====== ====== ====== ======
DILUTED EARNINGS PER SHARE
Weighted average number of common shares outstanding ....... 59.3 58.8 59.1 58.6
Assumed vesting of restricted stock ........................ 0.3 0.8 -- 0.9
Assumed exercise of outstanding stock options .............. 0.1 0.1 -- 0.1
------ ------ ------ ------
Weighted average number of common and common equivalent
shares outstanding ..................................... 59.7 59.7 59.1 59.6
====== ====== ====== ======
Net income (loss) .......................................... $ 2.4 $ 7.5 $ (4.2) $ 15.8
====== ====== ====== ======
Net income (loss) per common share ......................... $ 0.04 $ 0.13 $(0.07) $ 0.27
====== ====== ====== ======
For the nine months ended September 30, 2000, approximately 0.6
million shares were excluded from the calculation of diluted earnings per share
because such shares would be anti-dilutive.
7. COMPREHENSIVE INCOME
The Company follows the provisions of 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. Total comprehensive
loss for the three and nine months ended September 30, 2000 and 1999 was as
follows (in millions):
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- -----------------------
2000 1999 2000 1999
------ ------ ------ ------
Net income (loss) ................................ $ 2.4 $ 7.5 $ (4.2) $ 15.8
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Other comprehensive loss:
Foreign currency translation adjustments..... (30.6) (6.6) (50.8) (132.6)
------ ------ ------ -------
Total comprehensive loss ......................... $(28.2) $ (0.9) (55.0) $(116.8)
====== ====== ====== =======
8. 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 primarily 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
and nine months ended September 30, 2000 and 1999 are as follows (in millions):
North South Europe/Africa/
America America Middle East Asia/Pacific Consolidated
--------- ------- -------------- ------------ ------------
Three months ended September 30:
2000
Net sales ......................... $148.1 $ 65.6 $ 270.8 $29.0 $ 513.5
Income (loss) from operations ..... (5.7) 3.0 20.1 4.7 22.1
1999
Net sales ......................... $148.1 $ 52.1 $ 344.2 $26.1 $ 570.5
Income (loss) from operations ..... (3.4) (2.4) 33.7 4.2 32.1
Nine months ended September 30:
2000
Net sales ......................... $472.0 $168.0 $ 960.7 $76.3 $1,677.0
Income (loss) from operations ..... (14.6) 0.9 74.8 11.4 72.5
1999
Net sales ......................... $467.2 $155.8 $1,124.8 $67.8 $1,815.6
Income (loss) from operations ..... (6.2) (7.0) 94.1 9.0 89.9
A reconciliation from the segment information to the consolidated
balances for income from operations is set forth below (in millions):
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- -----------------------
2000 1999 2000 1999
------ ------ ------ ------
Segment income from operations ................... $ 22.1 $ 32.1 $ 72.5 $ 89.9
Restricted stock compensation expense ............ (0.2) (1.9) (3.2) (6.8)
Restructuring and other infrequent expenses ...... (4.5) -- (19.5) --
Amortization of intangibles ...................... (3.9) (3.7) (11.2) (11.1)
------ ------ ------ ------
Consolidated income from operations .............. $ 13.5 $ 26.5 $ 38.6 $ 72.0
====== ====== ====== ======
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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. The Company records sales
when the Company ships equipment and replacement parts 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 have historically been the lowest in the first quarter and have increased
in subsequent quarters.
RESULTS OF OPERATIONS
The Company recorded net income for the quarter ended September 30,
2000 of $2.4 million, or $0.04 per common share, compared to $7.5 million, or
$0.13 per common share for the same period in 1999. In the third quarter of
2000, AGCO's results included restructuring and other infrequent expenses
("restructuring expenses") of $4.5 million, or $0.05 per share, associated with
the closure of manufacturing facilities announced in 1999 and 2000. For the
first nine months of 2000, the Company recorded a net loss of $4.2 million, or
$0.07 per common share compared to net income of $15.8 million, or $0.27 per
common share, for the same period in 1999. The 2000 year-to-date results
included restructuring expenses related to plant closures of $19.5 million, or
$0.20 per share. In addition, the year-to-date results for 2000 included an
$8.0 million loss, or $0.08 per share, associated with the completion of an
accounts receivable securitization facility in January 2000 (see Liquidity and
Capital Resources). Excluding restructuring expenses and the loss on the
securitization facility, the decline in the Company's results was primarily
related to the impact of foreign currency translation of the weakening Euro and
British pound relative to the dollar.
RETAIL SALES
Demand for agricultural equipment in the first nine months of 2000
showed mixed results within the major markets of the world compared to the
prior year. The effects of high global commodity stocks and lower export demand
for farm commodities have continued to adversely affect worldwide demand for
new equipment purchases over the past two years.
In the United States and Canada, industry unit retail sales of
tractors and combines for the first nine months of 2000 increased approximately
10% and 8%, respectively, compared to the
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same period in 1999. Despite no significant changes in commodity prices, there
were moderate improvements in the core agricultural segments of the industry,
which may have been influenced by aggressive pricing actions by competitors.
When compared to the same period in 1999, Company unit retail sales of tractors
in the United States and Canada decreased, and Company unit retail sales of
combines increased slightly.
In Western Europe, industry unit retail sales of tractors declined
approximately 8% for the first nine months of 2000 as compared to the prior
year. Decreases in industry unit retail sales were experienced in most
significant Western European markets. Company unit retail sales results for the
first nine months of 2000 also declined compared to the same period in 1999.
The Company has experienced favorable acceptance of new tractor lines
introduced in 1999. However, retail unit sales of the Company's UK-built
product have been negatively impacted by the weakness of the Euro versus the
British pound.
Industry unit retail sales of tractors in South America for the first
nine months of 2000 increased approximately 12% compared to the same period in
1999. In the major market of Brazil, industry retail sales increased
approximately 19% with significant increases since June 2000 due to full
availability of the Brazilian government subsidized retail financing program.
In the remaining South American markets, including Argentina, retail unit sales
decreased due to economic uncertainty and tightening credit. Company unit
retail sales of tractors in South America also increased compared to the first
nine months of 1999.
In most other international markets, Company net sales were higher
than the prior year particularly in the Middle East, Africa and Far East
primarily due to improved industry demand.
STATEMENTS OF OPERATIONS
Net sales for the third quarter of 2000 were $513.5 million compared
to $570.5 million for the same period in 1999. Net sales for the first nine
months of 2000 were $1,677.0 million compared to $1,815.6 million for the prior
year. Net sales for the third quarter and first nine months of 2000 were
negatively impacted by approximately $40 million and $116 million,
respectively, from the foreign currency translation effect of the weakening
Euro and British pound in relation to the U.S. dollar. Excluding the impact of
currency translation, net sales for the third quarter and first nine months
were slightly below the prior year primarily due to declines in Western Europe
as a result of weaker industry conditions.
Regionally, net sales in North America were unchanged in the third
quarter and were $4.8 million or 1.0% greater on a year-to-date basis compared
to the same period in 1999. In the Europe/Africa/Middle East region, net sales
decreased $73.4 million, or 21.3%, for the third quarter and $164.1 million, or
14.6%, for the first nine months of 2000 compared to 1999, primarily due to the
negative impact of foreign currency translation and industry declines in
Western Europe. Net sales in South America increased approximately $13.5
million, or 25.9%, for the third quarter and $12.2 million, or 7.8%, for the
first nine months of 2000 compared to 1999, due to favorable market conditions
in Brazil. In the Asia/Pacific region, net sales increased approximately $2.9
million, or 11.1%, for the third quarter and $8.5 million, or 12.5%,
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for the first nine months of 2000 compared to 1999, primarily due to
improvements in market demand.
Gross profit was $89.8 million (17.5% of net sales) for the third
quarter of 2000 compared to $97.1 million (17.0% of net sales) for the same
period in the prior year. Gross profit was $271.3 (16.2% of net sales) for the
first nine months of 2000 compared to $287.2 million (15.8% of net sales) for
the same period in the prior year. Gross margins improved in 2000 primarily due
to cost reduction initiatives and facility rationalization benefits offset by
the impact of lower production in Western Europe and a less favorable mix
within tractor and parts sales.
Selling, general and administrative expenses ("SG&A expenses") for the
third quarter of 2000 were $55.5 million (10.8% of net sales) compared to $55.7
million (9.8% of net sales) for the same period in the prior year. For the
first nine months of 2000, SG&A expenses were $168.3 million (10.0% of net
sales) compared to the $170.0 million (9.4% of net sales) for the same period
in the prior year. The increase as a percentage of net sales was due to lower
sales volume in the third quarter and first nine months of 2000 compared to
1999. Engineering expenses for the three and nine months ended September 30,
2000 were $12.4 million (2.4% of net sales) and 33.7 million (2.0% of net
sales), respectively, compared to $11.2 million (2.0% of net sales) and 34.1
million (1.9% of net sales), respectively, for the same periods in the prior
year.
The Company recorded restructuring expenses of $4.5 million and $19.5
million for the three and nine months ended September 30, 2000, respectively,
related to the closing of its Coldwater, Ohio; Independence, Missouri; Lockney,
Texas and Noetinger, Argentina manufacturing facilities announced in 2000 and
1999. These restructuring expenses related to employee severance, facility
closure costs, the write-down of property, plant and equipment and production
transition costs. The Company recorded restructuring expenses of $24.5 million
in the fourth quarter of 1999 related to the facility closures.
Income from operations was $13.5 million (2.6% of net sales) for the
three months ended September 30, 2000 compared to $26.5 million (4.6% of net
sales) in the prior year. On a year-to-date basis, income from operations was
$38.6 million (2.3% of net sales) compared to $72.0 million (4.0% of net
sales). Excluding restructuring expenses, operating income was $18.0 million
(3.5% of net sales) and $58.1 million (3.5% of net sales) for the three and
nine months ended September 30, 2000. Operating income before restructuring
expenses declined primarily due to lower sales volume resulting from
unfavorable currency translation and weaker industry conditions in Western
Europe partially offset by improved gross margins.
Interest and financing expense, net was $14.7 million and $50.8
million for the three and nine months ended September 30, 2000, respectively,
compared to $13.3 million and $45.0 million, respectively, for the same periods
in 1999. The increase in interest and financing expense, net for the first nine
months of 2000 was primarily the result of the initial one-time $8.0 million
loss associated with the asset backed securitization transaction completed
during the first
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quarter of 2000 (see Liquidity and Capital Resources) and an increase in
interest rates, offset to some extent by lower average borrowings in 2000
compared to 1999.
The Company recorded an income tax benefit of $3.4 million and $11.5
million for the three and nine months ended September 30, 2000, respectively,
compared to income tax expense of $3.8 million and $5.8 million, respectively,
for the same periods in 1999. The tax benefit in the third quarter of 2000
included the recognition of a United States tax credit carryback of
approximately $2 million.
Equity in earnings of affiliates was $2.6 million and $8.1 for the
three and nine months ended September 30, 2000, respectively, compared to $3.1
million and $8.0 million for the same periods in 1999. Equity in earnings of
the Company's retail finance affiliates, which represent the largest component
of these earnings, was flat for the first nine months compared to 1999.
In May 2000, the Company acquired from CNH Global N.V. ("CNH") its 50%
share in Hay and Forage Industries ("HFI") for $10 million. This agreement
terminated a joint venture agreement in which CNH and AGCO each owned 50%
interests in HFI, thereby providing AGCO with sole ownership of the facility.
HFI, located in Hesston, Kansas, develops and manufactures hay and forage
equipment and implements, which AGCO sells under various brand names.
RESTRUCTURING AND OTHER INFREQUENT EXPENSES
In the second quarter of 2000, the Company announced its plan to
permanently close its combine manufacturing facility in Independence, Missouri
and relocate existing production to the Company's Hesston, Kansas manufacturing
facility. The closure of the Independence facility is a continuation of the
Company's strategy to reduce excess manufacturing capacity in its North America
plants which began in 1999 with the announced closure of the Company's
Coldwater, Ohio and Lockney, Texas manufacturing facilities. The Company also
announced closure of its Noetinger, Argentina manufacturing facility in 1999.
The closure of these facilities and the consolidation of production in other
AGCO facilities is expected to result in a significant cost savings and will
improve the overall competitiveness of implements, hay equipment, high
horsepower tractors and combines produced in these plants. The Company closed
the Coldwater plant in 1999 and the Independence, Lockney and Noetinger plants
in 2000. The rationalization of these production facilities is expected to
generate annual cost savings of $20 million to $25 million from the elimination
of production overhead costs. The Company expects to fully realize these
savings in 2001. In connection with these closures, the Company recorded
restructuring and other infrequent expenses of $19.5 million for the nine
months ended September 30, 2000. The components of the expenses are summarized
in the following table:
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]
1999 2000
Restructuring Restructuring
and other and other Balance at
infrequent infrequent Expenses September 30,
Expenses Expenses Incurred 2000
------------- ------------- -------- ------------
Employee severance................ $ 1.9 $ 5.4 $ 3.5 $ 3.8
Facility closure costs............ 7.7 6.1 7.8 6.0
Write-down of property, plant
and equipment, net of recoveries 14.9 1.1
Production transition costs.......... -- 6.9 6.9 --
----- ----- ----- -----
$24.5 $19.5 $34.2 $ 9.8
===== ===== ===== =====
The severance costs relate to the termination of approximately 1,050
employees of which approximately 1,000 employees had been terminated at
September 30, 2000. The facility closure costs include employee costs and other
exit costs to be incurred after operations ceased in addition to noncancelable
operating lease obligations. The write-down of property, plant and equipment
consisted of $.3 million related to machinery and equipment and $.8 million for
building and improvements and was based on the estimated fair value compared to
their carrying value. The production transition costs represent costs to
relocate and integrate production into other existing AGCO facilities. The
Company expects to record an additional $8.5 million in restructuring and other
infrequent expenses in 2000 and 2001 related to these closures.
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 $800 million with
borrowings limited to the sum of 90% of eligible accounts receivable and 60% of
eligible inventory. As of September 30, 2000, approximately $326.3 million was
outstanding under the Company's revolving credit facility and available
borrowings were approximately $473.7 million, subject to receivable and
inventory borrowing base requirements.
In January 2000, the Company entered into a $250 million asset backed
securitization facility whereby certain U.S. wholesale accounts receivables are
sold through a wholly-owned special purpose subsidiary to a third party (the
"Securitization Facility"). The Company initially funded $200 million under the
Securitization Facility, which was used to reduce outstanding borrowings under
the revolving credit facility. The Company's lending commitment under the
revolving credit facility was permanently reduced to $800 million, representing
a decrease of the $200 million initial proceeds received from the
securitization, and will be further reduced by any additional funding received
from the Securitization Facility. In conjunction with the closing of the
securitization transaction, the Company recorded an initial one-time $8.0
million loss in the first quarter of 2000. The initial loss represents the
difference between the current and future
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value of the receivables sold, related transaction expenses and the write-off
of certain unamortized debt issuance costs due to the reduction in the lending
commitment of the revolving credit facility.
The Company's working capital requirements are seasonal, with
investments in working capital typically building in the first half of the year
and then reducing in the second half of the year. The Company had $584.2
million of working capital at September 30, 2000, a decrease of $149.7 million
from working capital of $733.9 million at December 31, 1999. The decrease in
working capital was primarily due to lower accounts receivable related to the
$200 million sale of accounts receivable through the Securitization Facility.
Cash flow provided by operating activities was $116.4 million for the
nine months ended September 30, 2000 compared to $75.1 million for the same
period during 1999. The increase in cash flow provided by operating activities
was primarily due to a reduction in the Company's accounts receivable due to
the $200 million sale of accounts receivable through the Securitization
Facility.
Capital expenditures for the nine months ended September 30, 2000 were
$33.4 million compared to $29.4 million for the same period in 1999. The
Company anticipates that additional capital expenditures for the remainder of
2000 will range from approximately $25 million to $30 million and will
primarily be used to support the development and enhancement of new and
existing products as well as facility and equipment improvements.
The Company's debt to capitalization ratio (total long-term debt
divided by the sum of total long-term debt and stockholders' equity) was 42.9%
at September 30, 2000 compared to 45.5% at December 31, 1999. The decrease is
attributable to a reduction of indebtedness of $109.4 million from December 31,
1999 primarily due to the reduction in outstanding borrowings from proceeds
from the Securitization Facility offset to some extent by the negative
cumulative translation adjustment to equity of $50.8 million, primarily related
to the weakening of the Euro in relation to the U.S. dollar.
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.
ACCOUNTING CHANGES
In September 1999, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 137, providing for a one year delay of the effective date of
SFAS No. 133, "Accounting for
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Derivative Instruments and Hedging Activities." SFAS No. 133 establishes
accounting and reporting standards for derivative instruments and for hedging
activities. It requires that an entity recognize all derivatives as either
assets or liabilities on the balance sheet and measure those instruments at
fair value. SFAS No. 133 requires that changes in a derivative's fair value be
recognized currently in earnings unless specific hedge accounting treatment is
met. The Company will be required to adopt SFAS No. 133 on January 1, 2001. In
June 2000, the FASB issued SFAS No. 138 that amends the accounting and
reporting of derivatives under SFAS No. 133 to exclude, among other things,
contracts for normal purchases and normal sales. The Company has evaluated the
effect of this statement on the Company's derivative instruments, which are
primarily interest rate swaps and foreign currency forward contracts. The
impact of adjustments to fair value is not expected to be material to the
Company's consolidated financial position or results of operations.
In December 1999, the Securities and Exchange Commission ("SEC")
released Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements." SAB 101 does not change existing accounting literature on revenue
recognition but rather explains the SEC's general framework for revenue
recognition. The SEC subsequently released SAB 101B deferring implementation of
SAB 101 to the fourth quarter of 2000. The Company has evaluated SAB 101 and
believes that it is in compliance with this bulletin and that this bulletin
will not have an effect on results of operations or financial position of the
Company.
In May 2000, the Emerging Issues Task Force ("EITF") reached a final
consensus on Issue No. 00-14, "Accounting for Certain Sales Incentives,"
effective in the fourth quarter of 2000. EITF 00-14 addresses the recognition,
measurement and income statement classification for sales incentives offered.
It requires that an entity recognize the cost of the sales incentive at the
latter of the date at which the related revenue is recorded or the date at
which the sales incentive is offered. EITF 00-14 also requires that the
reduction in or refund of the selling price of the product resulting from any
sales incentive be classified as a reduction of revenue. The Company is
evaluating the effect of this Issue and believes that EITF 00-14 will not have
a material effect on the Company's expense classifications, operations or
financial position.
In September 2000, the EITF reached a final consensus on Issue No.
00-10, "Accounting for Shipping and Handling Fees and Costs." EITF 00-10 is
also effective in the fourth quarter of 2000 and addresses the income statement
classification of amounts charged to customers for shipping and handling, as
well as costs incurred related to shipping and handling. The EITF concluded
that amounts billed to a customer in a sale transaction related to shipping and
handling should be classified as revenue. The EITF also concluded that if costs
incurred related to shipping and handling are significant and not included in
cost of sales, an entity should disclose both the amount of such costs and the
line item on the income statement that includes them. The Company is evaluating
this Issue and believes that EITF 00-10 may result in reclassification of
revenue and expense amounts but will have no effect on the Company's results of
operations or financial position.
Also in September 2000, the FASB issued SFAS No. 140, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities
- a Replacement of FASB
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Statement No. 125." SFAS No. 140 revises the standards for accounting for
securitizations and other transfers of financial assets and collateral and
requires certain disclosures. This statement is effective for transfers and
servicing of financial assets and extinguishments of liabilities occurring
after March 31, 2001. SFAS No. 140 is effective for recognition and
reclassification of collateral and for disclosures relating to securitization
transactions and collateral for fiscal years ending after December 15, 2000.
The Company is currently evaluating this statement and its effect on the
Company's consolidated financial position.
FORWARD LOOKING STATEMENTS
Certain statements included in Management's Discussion and Analysis of
Financial Condition and Results of Operations and elsewhere in this report are
forward looking, including certain statements set forth under the "Results of
Operations" and "Liquidity and Capital Resources" headings. Forward looking
statements include the Company's expectations with respect to factors that
affect net sales, restructuring and other infrequent expenses, future capital
expenditures, fulfillment of working capital needs, and plans with respect to
acquisitions. Although the Company believes that the statements it has made are
based on reasonable assumptions, they are based on current information and
beliefs and, accordingly, the Company can give no assurance that its statements
will be achieved. In addition, these statements are subject to factors that
could cause actual results to differ materially from those suggested by the
forward looking statements. These factors include, but are not limited to,
general economic and capital market conditions, the demand for agricultural
products, world grain stocks, crop production, commodity prices, farm income,
farm land values, government farm programs and legislation, the levels of new
and used field inventories, weather conditions, interest and foreign currency
exchanges rates, the conversion to the Euro, pricing and product actions taken
by competitors, customer access to credit, production disruptions, supply and
capacity constraints, Company cost reduction and control initiatives, Company
research and development efforts, labor relations, dealer and distributor
actions, technological difficulties, changes in environmental, international
trade and other laws, and political and economic uncertainty in various areas
of the world. Further information concerning factors that could significantly
affect the Company's results is included in the Company's filings with the
Securities and Exchange Commission. The Company disclaims any responsibility to
update any forward looking statements.
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
majority of the Company's revenue outside the United States is denominated in
the currency of the customer location with the exception of sales in the Middle
East, Africa and Asia
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which is primarily denominated in British pounds, Euros or U.S. dollars. The
Company's most significant transactional foreign currency exposures are the
British pound in relation to the Euro and the British pound, the Euro 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 committed 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. The Company's most significant translation exposures are the British
pound, the Euro and the Brazilian real in relation to the U.S. dollar. When
practical, this translation impact is reduced by financing local operations
with local borrowings.
INTEREST RATE RISK
The Company manages interest rate risk through the use of fixed rate
debt and interest rate swap contracts. The Company has fixed rate debt from its
$250 million 8.5% Senior Subordinated Notes due 2006. In addition, the Company
uses its interest rate swap contract to further minimize the effect of
potential interest rate increases on floating rate debt in a rising interest
rate environment. The Company's floating rate debt is primarily the revolving
credit facility, which is tied to changes in U.S. and European libor rates.
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 - Financial Data Schedule - September 30, 2000
(electronic filing purposes only).
(b) Reports on Form 8-K
None
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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: March 29, 2001 /s/ Donald R. Millard
----------------------------------------------
Donald R. Millard
Sr. Vice President and Chief Financial Officer
23
EXHIBIT INDEX
Exhibit Description Sequentially Numbered
Number Page
-------- ---------------------------------------------------------- ---------------------
Financial Data Schedule - September 30, 2000 (electronic
27.1* filing purposes only).
--
* Previously filed.