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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2001
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: 71,391,305 shares outstanding as
of April 30, 2001.
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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, 2001 and
December 31, 2000.................................. 3
Condensed Consolidated Statements
of Operations for the Three Months
Ended March 31, 2001 and 2000...................... 4
Condensed Consolidated Statements
of Cash Flows for the Three Months
Ended March 31, 2001 and 2000...................... 5
Notes to Condensed Consolidated
Financial Statements............................... 6
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.................. 20
SIGNATURES........................................................................... 21
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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)
MARCH 31, DECEMBER 31,
2001 2000
--------- ------------
(UNAUDITED)
ASSETS
Current Assets:
Cash and cash equivalents ........................................ $ 5.4 $ 13.3
Accounts and notes receivable, net ............................... 569.1 602.9
Inventories, net ................................................. 586.7 531.1
Other current assets ............................................. 92.7 93.0
-------- --------
Total current assets ........................................... 1,253.9 1,240.3
Property, plant and equipment, net ................................. 291.3 316.2
Investment in affiliates ........................................... 87.3 85.3
Other assets ....................................................... 190.2 176.0
Intangible assets, net ............................................. 270.7 286.4
-------- --------
Total assets ................................................... $2,093.4 $2,104.2
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable ................................................. $ 220.5 $ 244.4
Accrued expenses ................................................. 339.2 357.6
Other current liabilities ........................................ 40.1 34.4
-------- --------
Total current liabilities ...................................... 599.8 636.4
Long-term debt ..................................................... 645.8 570.2
Postretirement health care benefits ................................ 27.6 27.5
Other noncurrent liabilities ....................................... 77.6 80.2
-------- --------
Total liabilities .............................................. 1,350.8 1,314.3
-------- --------
Stockholders' Equity:
Preferred stock: $0.01 par value, 1,000,000 shares authorized,
555 and 0 shares issued and outstanding at March 31, 2001
and December 31, 2000, respectively .............................. -- --
Common stock: $0.01 par value, 150,000,000 shares authorized,
59,591,928 and 59,589,428 shares issued and outstanding
at March 31, 2001 and December 31, 2000, respectively ............ 0.6 0.6
Additional paid-in capital ....................................... 432.4 427.1
Retained earnings ................................................ 616.6 622.9
Unearned compensation ............................................ (0.9) (1.4)
Accumulated other comprehensive loss ............................. (306.1) (259.3)
-------- --------
Total stockholders' equity ..................................... 742.6 789.9
-------- --------
Total liabilities and stockholders' equity ..................... $2,093.4 $2,104.2
======== ========
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 MARCH 31,
----------------------------
2001 2000
------- -------
Net sales ............................................. $ 532.1 $ 534.8
Cost of goods sold .................................... 449.6 457.7
------- -------
Gross profit ........................................ 82.5 77.1
Selling, general and administrative expenses .......... 56.7 58.9
Engineering expenses .................................. 11.9 10.5
Restructuring and other infrequent expenses ........... 2.3 1.9
Amortization of intangibles ........................... 3.9 3.8
------- -------
Income from operations .............................. 7.7 2.0
Interest expense, net ................................. 13.9 11.4
Other expense, net .................................... 7.6 12.3
------- -------
Loss before income taxes and equity in net earnings
of affiliates ....................................... (13.8) (21.7)
Income tax benefit .................................... (5.2) (8.7)
------- -------
Loss before equity in net earnings of affiliates ...... (8.6) (13.0)
Equity in net earnings of affiliates .................. 2.8 2.3
------- -------
Net loss .............................................. $ (5.8) $ (10.7)
======= =======
Net loss per common share:
Basic ............................................... $ (0.10) $ (0.18)
======= =======
Diluted ............................................. $ (0.10) $ (0.18)
======= =======
Weighted average number of common and common
equivalent shares outstanding:
Basic ............................................... 59.3 58.9
======= =======
Diluted ............................................. 59.3 58.9
======= =======
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 CASH FLOWS
(UNAUDITED AND IN MILLIONS)
THREE MONTHS ENDED MARCH 31,
----------------------------
2001 2000
------ -------
Cash flows from operating activities:
Net loss .............................................................. $ (5.8) $ (10.7)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Depreciation and amortization ....................................... 12.6 13.7
Amortization of intangibles ......................................... 3.9 3.8
Amortization of unearned compensation ............................... 0.5 1.5
Equity in net earnings of affiliates,
net of cash received .............................................. (2.1) (2.3)
Deferred income tax benefit ......................................... (14.4) (14.8)
Changes in operating assets and liabilities:
Accounts and notes receivable, net ................................ 0.8 142.2
Inventories, net .................................................. (77.9) (46.5)
Other current and noncurrent assets ............................... (6.5) (7.1)
Accounts payable .................................................. (3.5) 20.4
Accrued expenses .................................................. (3.9) (16.0)
Other current and noncurrent liabilities .......................... (1.0) 8.0
------ -------
Total adjustments ............................................... (91.5) 102.9
------ -------
Net cash provided by (used in) operating activities ............. (97.3) 92.2
------ -------
Cash flows from investing activities:
Purchase of property, plant and equipment ........................... (4.5) (7.5)
Investment in unconsolidated affiliates ............................. (0.5) (1.2)
------ -------
Net cash used for investing activities .......................... (5.0) (8.7)
------ -------
Cash flows from financing activities:
Proceeds from (repayments of) long-term debt, net ................... 89.3 (93.4)
Proceeds from issuance of preferred stock ........................... 5.3 --
Dividends paid on common stock ...................................... (0.6) (0.6)
------ -------
Net cash provided by (used in) financing activities ............. 94.0 (94.0)
------ -------
Effect of exchange rate changes on cash and cash equivalents ........ 0.4 1.3
------ -------
Decrease in cash and cash equivalents ............................... (7.9) (9.2)
Cash and cash equivalents, beginning of period ...................... 13.3 19.6
------ -------
Cash and cash equivalents, end of period ............................ $ 5.4 $ 10.4
====== =======
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 in
accordance with generally accepted accounting principles for interim financial
information and 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, 2000.
Interim results of operations are not necessarily indicative of results to be
expected for the fiscal year. Certain reclassifications of previously reported
financial information were made to conform to the current presentation.
2. RESTRUCTURING AND OTHER INFREQUENT EXPENSES
In 2000, the Company permanently closed its combine manufacturing
facility in Independence, Missouri and its Lockney, Texas and Noetinger,
Argentina implement manufacturing facilities. In 1999, the Company permanently
closed its Coldwater, Ohio manufacturing facility. The majority of production in
these facilities has been relocated to existing Company facilities or outsourced
to third parties.
In connection with these facility closures, the Company recorded
restructuring and other infrequent expenses of $2.3 million in the first quarter
of 2001. The components of the restructuring and other infrequent expenses are
summarized in the following table (in millions):
Reserve Balance Reserve Balance
at December 31, 2001 Amount at March 31,
2000 Expense Incurred 2001
--------------- ------- -------- ---------------
Employee severance ................... $1.9 $ -- $ 0.3 $1.6
Facility closure costs ............... 3.9 -- 1.5 2.4
Write-down of property plant
and equipment, net of recoveries ... -- (0.7) (0.7) --
Production transition costs .......... -- 3.0 3.0 --
---- ----- ----- ----
$5.8 $ 2.3 $ 4.1 $4.0
==== ===== ===== ====
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3. LONG-TERM DEBT
Long-term debt consisted of the following at March 31, 2001 and
December 31, 2000 (in millions):
March 31, December 31,
2001 2000
--------- ------------
Revolving credit facility ................... $390.4 $314.2
8 1/2% Senior Subordinated Notes due 2006 ... 248.7 248.6
Other long-term debt ........................ 6.7 7.4
------ ------
$645.8 $570.2
====== ======
In March 2001, the Company was issued a notice of default by the
trustee of its $250 million 8 1/2% Senior Subordinated Notes due 2006 (the
"Notes") regarding the violation of a covenant restricting the payment of
dividends during periods in 1999, 2000 and 2001 when an interest coverage ratio
was not met. During those periods, the Company paid approximately $4.8 million
in dividends based upon its interpretation that it did not need to meet the
interest coverage ratio but, instead, an alternative total debt test. The
Company subsequently received sufficient waivers from the holders of the Notes
for any violations of the covenant that might have resulted from the dividend
payments. In connection with the solicitation of waivers, the Company incurred
costs of approximately $2.6 million, which were expensed in the first quarter of
2001. Currently, the Company is prohibited from paying dividends until such time
as the interest coverage ratio in the indenture is met.
4. INVENTORIES
Inventory balances at March 31, 2001 and December 31, 2000 were as
follows (in millions):
March 31, December 31,
2001 2000
--------- ------------
Finished goods ........................................ $ 258.0 $ 233.0
Repair and replacement parts .......................... 226.8 222.2
Work in process, production parts and raw materials ... 166.3 143.6
------- -------
Gross inventories ................................... 651.1 598.8
Allowance for surplus and obsolete inventories ........ (64.4) (67.7)
------- -------
Inventories, net .................................... $ 586.7 $ 531.1
======= =======
5. 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 ("SFAS") No. 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
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outstanding used to calculate basic and diluted net loss per common share for
the three months ended March 31, 2001 and 2000 is as follows (in millions,
except per share data):
Three Months Ended
March 31,
-----------------------
2001 2000
------ ------
BASIC AND DILUTED EARNINGS PER SHARE
Weighted average number of common shares outstanding ... 59.3 58.9
====== ======
Net loss ............................................... $ (5.8) $(10.7)
====== ======
Net loss per common share .............................. $(0.10) $(0.18)
====== ======
For the three months ended March 31, 2001, approximately 1.4 million
shares were excluded from the calculation of diluted earnings per share because
such shares would be anti-dilutive.
6. COMPREHENSIVE LOSS
Total comprehensive loss for the three months ended March 31, 2001 and 2000 was
as follows (in millions):
Three Months Ended
March 31,
-----------------------
2001 2000
------ ------
Net loss ..................................... $ (5.8) $(10.7)
Other comprehensive loss:
Foreign currency translation adjustments ... $(45.4) $(17.3)
Unrealized loss on derivatives ............. (1.4) --
------ ------
Total comprehensive loss ....... $(52.6) $(28.0)
====== ======
7. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
Effective January 1, 2001, the Company adopted SFAS No. 133 "Accounting
for Derivative Instruments and Hedging Activities," as amended by SFAS No. 138.
The cumulative effect for adopting this standard as of January 1, 2001 resulted
in a fair value asset, net of taxes of approximately $0.5 million, which is
expected to be reclassified to earnings over the next twelve months. All
derivatives are recognized on the balance sheet at fair value. On the date the
derivative contract is entered, the Company designates the derivative as either
(1) a fair value hedge of a recognized liability, (2) a cash flow hedge of a
forecasted transaction, (3) a hedge of a net investment in a foreign operation,
or (4) a non-designated derivative instrument. The Company currently engages in
derivatives that are classified as cash flow hedges and non-designated
derivative instruments. Changes in the fair value of a derivative that is
designated as a cash flow hedge are recorded in other comprehensive income until
reclassified into earnings at the time of settlement of the forecasted
transaction. Changes in the fair value of non-designated derivative contracts
and the ineffective portion of designated derivative instruments are reported in
current earnings.
The Company formally documents all relationships between hedging
instruments and hedged items, as well as the risk management objectives and
strategy for undertaking various
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hedge transactions. The Company formally assesses, both at the hedge's inception
and on an ongoing basis, whether the derivatives that are used in hedging
transactions are highly effective in offsetting changes in fair values or cash
flow of hedged items. When it is determined that a derivative is no longer
highly effective as a hedge, hedge accounting is discontinued on a prospective
basis.
Foreign Currency Risk
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 supplies, 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
British pound in relation to the Euro and the U.S. dollar, the Euro and the
Canadian dollar in relation to the U.S. dollar.
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 uses foreign currency forward contracts to hedge
receivables and payables on the Company's balance sheet that are denominated in
foreign currencies other than the functional currency. These forward contracts
are classified as non-designated derivatives instruments. For the quarter ended
March 31, 2001, the Company recorded losses of approximately $6.8 million
included in current earnings under the caption of other expense, net. These
losses were substantially offset by gains on the remeasurement of the underlying
asset or liability being hedged.
The Company uses foreign currency forward contracts to hedge forecasted
foreign currency inflows and outflows resulting from purchases and sales. The
Company currently has hedged anticipated foreign currency cash flows up to
twelve months in the future. As of March 31, 2001, the Company had deferred
losses, net of taxes, of $1.6 million included in stockholders' equity as a
component of accumulated other comprehensive loss. The deferred loss is expected
to be reclassified to earnings during the next twelve months. The Company
recorded no gain or loss resulting from a forward contract's ineffectiveness or
discontinuance as a cash flow hedge.
Interest Rate Risk
The Company uses interest rate swap agreements to manage its exposure
to interest rate changes. Currently, the Company has an interest rate swap which
matures in December 2001 that has the effect of converting a portion of the
Company's floating rate debt to a fixed rate. The Company has designated this
swap agreement as a cash flow hedge. As of March 31, 2001, the Company had a
deferred gain, net of tax, of approximately $0.2 million included in
stockholders' equity as a component of accumulated other comprehensive loss.
This deferred loss is expected to be reclassified to current earnings over the
next twelve months. The Company had no material gain or loss resulting from the
interest rate swap agreement's ineffectiveness as a cash flow hedge. In
addition, no portion of the swap agreement was discontinued as a cash flow
hedge.
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The Company's senior management establishes the Company's foreign
currency and interest rate risk management policies. This policy is reviewed
periodically by the Audit Committee of the Board of Directors. The policy allows
for the use of derivative instruments to hedge exposures to movements in foreign
currency and interest rates. The Company's policy prohibits the use of
derivative instruments for speculative purposes.
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
months ended March 31, 2001 and 2000 are as follows (in millions):
North South Europe/Africa/
America America Middle East Asia/Pacific Consolidated
------- ------- -------------- ------------ ------------
2001
Net sales $ 150.6 $ 61.5 $296.9 $23.1 $532.1
Income (loss) from operations (12.3) 4.2 18.9 3.8 14.6
2000
Net sales $ 140.7 $ 49.9 $318.5 $25.7 $534.8
Income (loss) from operations (11.4) (0.5) 17.5 3.7 9.3
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,
----------------------
2001 2000
------ -----
Segment income from operations .......... $ 14.6 $ 9.3
Restricted stock compensation expense ... (0.7) (1.6)
Restructuring and infrequent expenses ... (2.3) (1.9)
Amortization of intangibles ............. (3.9) (3.8)
------ -----
Consolidated income from operations ..... $ 7.7 $ 2.0
====== =====
9. PREFERRED STOCK
On March 23, 2001 the Company issued 555 non-voting preferred shares,
which are convertible into shares of AGCO common stock (1 preferred share per
1,000 common shares) in a private placement with net proceeds of approximately
$5.3 million. The amount of the net proceeds exceeds the aggregate amount of
common stock dividends in 1999, 2000 and 2001 which were paid in violation of a
restricted payments covenant contained in the Indenture governing the Notes.
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10. SUBSEQUENT EVENTS
Recent Acquisition - Ag-Chem
On April 16, 2001, the Company completed the acquisition of Ag-Chem
Equipment Co., Inc. ("Ag-Chem"), a leading manufacturer and distributor of
self-propelled fertilizer and chemical sprayers for pre-emergent and
post-emergent applications. Ag-Chem shareholders received total consideration of
$247.2 million consisting of approximately 11.8 million AGCO common shares and
$147.5 million of cash. The funding of the cash component of the purchase price
was made through borrowings under the Company's existing revolving credit
facility.
Refinancings
On April 17, 2001 the Company issued $250.0 million of 9 1/2% Senior
Notes due 2008 (the "Senior Notes"). The Senior Notes are unsecured obligations
of the Company and are redeemable at the option of the Company, in whole or in
part, commencing May 1, 2005 initially at 104.75% of their principal amount,
plus accrued interest, declining to 100% of their principal amount plus accrued
interest on or after May 1, 2007. The indenture governing the Senior Notes
requires the Company to offer to repurchase the Senior Notes at 101% of their
principal amount, plus accrued interest to the date of the repurchase in the
event of a change in control. The indenture also contains certain covenants
that, among other things, limits the Company's ability (and that of its
restricted subsidiaries) to incur additional indebtedness; make restricted
payments (including dividends and share repurchases); make investments;
guarantee indebtedness; create liens; and sell assets. The proceeds were used to
repay borrowings outstanding under the Company's existing revolving credit
facility.
On April 17, 2001 the Company entered into a $350.0 million
multi-currency revolving credit facility with Rabobank that will mature October
2005. The facility is secured by a majority of the Company's U.S., Canadian and
U.K.-based assets and a pledge of the stock of the Company's domestic and
material foreign subsidiaries. Interest will accrue on borrowings outstanding
under the facility, at the Company's option, at either (1) LIBOR plus a margin
based on a ratio of the Company's senior debt to EBITDA, as adjusted, or (2) the
administrative agent's base lending rate or the federal funds rate plus a margin
ranging between .625% and 1.5%, whichever is higher. The facility contains
covenants, including covenants restricting the incurrence of indebtedness and
the making of restrictive payments, including dividends. In addition, the
Company must fulfill financial covenants including, among others, a total debt
to EBITDA ratio, a senior debt to EBITDA ratio and a fixed charge coverage
ratio, as defined in the facility. The proceeds were used to repay borrowings
outstanding under the Company's existing revolving credit facility.
New European Securitization Facility
On April 17, 2001 the Company entered into a new $100.0 million
securitization facility with Rabobank whereby certain European wholesale
accounts receivable from the Company's operations in France, Germany and Spain
may be sold to a third party on a revolving basis through a wholly-owned special
purpose subsidiary. The Company used the $100.0 million
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proceeds from the European securitization facility to reduce outstanding
borrowings under its new revolving credit facility.
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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, 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 a net loss for the quarter ended March 31, 2001 of
$5.8 million, or $0.10 per diluted share, compared to a net loss of $10.7
million, or $0.18 per diluted share for the same period in 2000. AGCO's results
included restructuring and other infrequent expenses that are associated with
the Company's North American facility rationalizations of $2.3 million, or $0.02
per share for the first quarter of 2001 compared to $1.9 million, or $0.02 per
share, for the same period in 2000.
AGCO's earnings improvement in the first quarter was the result of
higher gross margins resulting from higher production and improved margins on
new products. The first quarter results for 2001 also included approximately
$2.6 million of expenses to obtain waivers from holders of the Company's 8 1/2%
Senior Subordinated Notes regarding the payment of dividends on the Company's
common stock that was prohibited by a restricted payment covenant. In addition,
the Company incurred approximately $3.7 million of higher costs at AGCO's
Hesston, Kansas manufacturing facility associated with the initial production of
products relocated from closed facilities. In 2000, the first quarter loss
included an $8.0 million loss associated with the U.S. accounts receivable
securitization facility completed in January 2000.
RETAIL SALES
In the United States and Canada, industry unit retail sales of tractors
and combines for the first three months of 2001 increased approximately 8% and
47%, respectively, compared to the same period in 2000. Company unit retail
sales of tractors in the United States and Canada increased significantly, and
Company unit retail sales of combines declined in the first quarter of 2001
compared to the same period in the prior year. The Company's retail sales of
combines were lower due to a delayed schedule of deliveries to contract
harvesters compared to the prior year period.
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In Western Europe, industry unit retail sales of tractors declined
approximately 9% for the first three months of 2001 as compared to the prior
year. Company unit retail sales results for the first three months of 2001 also
declined compared to the same period in 2000. The Western European market was
negatively impacted by concerns over BSE (mad cow disease) and foot-and-mouth
disease. The near-term impact of these diseases is still uncertain and will be
determined by the ultimate extent and severity of the outbreak in addition to
the level of government compensation paid to farmers for the loss of livestock.
Industry unit retail sales of tractors in South America for the first
three months of 2001 increased approximately 38% compared to the same period in
2000. In the major market of Brazil, industry retail sales increased
approximately 40% due to full availability of a supplemental 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 increased significantly compared to the first three months of
2000.
In other international markets, Company net sales were higher than the
prior year particularly in the Middle Eastern markets.
STATEMENTS OF OPERATIONS
Net sales for the first quarter of 2001 were $532.1 million compared to
$534.8 million for the same period in 2000. Net sales for the first quarter of
2001 were negatively impacted by approximately $35 million by 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 first quarter were slightly above the prior year primarily due to increases
in North and South America resulting from improved industry demand.
Regionally, net sales in North America increased approximately $9.9
million, or 7.0%, in the first quarter compared to the same period in 2000. In
the Europe/Africa/Middle East region, net sales decreased $21.6 million, or
6.8%, for the first quarter compared to 2000, primarily due to the negative
impact of foreign currency translation and industry declines in Western Europe.
Net sales in South America increased approximately $11.6 million, or 23.2%, for
the first quarter compared to 2000, due to favorable market conditions in
Brazil. In the Asia/Pacific region, net sales decreased approximately $2.6
million, or 10.1%, for the first quarter compared to 2000, primarily due to the
impact of currency translation.
Gross profit was $82.5 million (15.5% of net sales) for the first
quarter of 2001 compared to $77.1 million (14.4% of net sales) for the same
period in the prior year. Gross margins improved in 2001 primarily due to cost
reduction initiatives, increased production and the impact of new higher margin
products. This margin improvement was partially offset by $3.7 million of cost
inefficiencies in the Hesston, Kansas plant incurred in the first quarter of
2001 related to the initial production of products relocated from closed
facilities.
Selling, general and administrative expenses for the first quarter of
2001 were $56.7 million (10.7% of net sales) compared to $58.9 million (11.0% of
net sales) for the same period in the prior year. Engineering expenses for the
three months ended March 31, 2001 were $11.9 million (2.2% of net sales)
compared to $10.5 million (2.0% of net sales) for the same period in
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the prior year. The increase in engineering expense for the first quarter of
2001 was primarily the result of the inclusion of engineering expenses of Hay
and Forage Industries, which was acquired in May 2000.
The Company recorded restructuring and other infrequent expenses of
$2.3 million for the three months ended March 31, 2001 related to facility
closures (Coldwater, Ohio (1999); Independence, Missouri (2000); Lockney, Texas
(2000) and Noetinger, Argentina (2000)). These expenses primarily related to
production transition costs.
Income from operations was $7.7 million (1.4% of net sales) for the
three months ended March 31, 2001 compared to $2.0 million (0.4% of net sales)
in the prior year. Excluding restructuring and other infrequent expenses,
operating income was $10.0 million (1.9% of net sales) for the three months
ended March 31, 2001 compared to $3.9 million (0.7% of net sales) for the same
period in 2000. Operating income before restructuring and other infrequent
expenses increased due to improved gross margins.
Interest expense, net was $13.9 million for the three months ended
March 31, 2001 compared to $11.4 million for the same period in 2000. Interest
expense, net for the first three months of 2001 included $2.0 million of the
$2.6 million related to the successful waiver solicitation on the Company's
8 1/2% Senior Subordinated Notes.
Other expense, net was $7.6 million for the first quarter of 2001
compared to $12.3 million for the same period in 2000. Losses on sales of
receivables related to the Company's United States accounts receivable
securitization program in the first quarter were $4.0 for 2001 and $9.1 for
2000. The 2001 amount includes $0.4 million of up-front losses associated with
increasing the funding under the securitization program from $200 million to
$235 million in the first quarter. The 2000 amount includes $7.1 million of
up-front losses and transaction fees in connection with the initial $200 million
funding of the facility.
The Company recorded an income tax benefit of $5.2 million for the
three months ended March 31, 2001 compared to $8.7 million for the same period
in 2000.
Equity in earnings of affiliates was $2.8 million for the three months
ended March 31, 2001 compared to $2.3 million for the same period in 2000.
Equity in earnings of the Company's retail finance affiliates, which represents
the largest component of these earnings, remained stable for the first quarter
of 2001 with the prior year.
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RESTRUCTURING AND OTHER INFREQUENT EXPENSES
In 2000, the Company permanently closed its combine manufacturing
facility in Independence, Missouri and its Lockney, Texas and Noetinger,
Argentina manufacturing facilities. The closure of these facilities is a
continuation of the Company's strategy to reduce excess manufacturing capacity
in its North America and South America plants which began in 1999 with the
closure of the Company's Coldwater, Ohio manufacturing facility. 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. In connection with these closures, the
Company recorded restructuring and other infrequent expenses of $2.3 million in
the first quarter of 2001. The components of the restructuring and other
infrequent expenses are summarized in the following table:
Reserve Balance Reserve Balance
at December 31, 2001 Amount at March 31,
2000 Expense Incurred 2001
--------------- ------- -------- ---------------
Employee severance ................... $1.9 $ -- $ 0.3 $1.6
Facility closure costs ............... 3.9 -- 1.5 2.4
Write-down of property plant
and equipment, net of recoveries ... -- (0.7) (0.7) --
Production transition costs .......... -- 3.0 3.0 --
---- ----- ----- ----
$5.8 $ 2.3 $ 4.1 $4.0
==== ===== ===== ====
AG-CHEM ACQUISITION
On April 16, 2001, the Company completed the acquisition of Ag-Chem
Equipment Company, Inc. ("Ag-Chem"), a leading manufacturer and distributor of
self-propelled fertilizer and chemical sprayers for pre-emergent and
post-emergent applications. Ag-Chem shareholders received total consideration of
$247.2 million consisting of approximately 11.8 million AGCO common shares and
$147.5 million of cash. The funding of the cash component of the purchase price
was made through borrowings under the Company's existing revolving credit
facility.
Subsequent to the acquisition, the Company established plans to
rationalize facilities in order to begin integrating Ag-Chem with AGCO. The
Company will consolidate its Willmar, Minnesota sprayer manufacturing plant and
Ag-Chem's Benson, Minnesota manufacturing plant into the Ag-Chem Jackson,
Minnesota manufacturing facility. In addition, AGCO will close Ag-Chem's
Minnetonka, Minnesota administrative offices and move all engineering and
administrative functions to either the Jackson plant or AGCO's Duluth, GA
headquarters. The facility rationalizations are expected to generate a portion
of the targeted $30 million in synergies to be achieved in the acquisition. The
Company expects to incur cash costs to complete the facility rationalizations of
approximately $10 - 15 million in 2001.
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
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necessary from external sources, primarily the Company's revolving credit
facility and accounts receivable securitization facilities.
In April 2001, the Company completed three transactions, which modified
the Company's capital structure and replaced the Company's existing revolving
credit facility, which was scheduled to expire in January 2002.
First, the Company entered into a $350.0 million multi-currency
revolving credit facility with Rabobank that will mature October 2005. The
facility is secured by a majority of the Company's U.S., Canadian and U.K.-based
assets and a pledge of the stock of the Company's domestic and material foreign
subsidiaries. Interest will accrue on borrowings outstanding under the facility,
at the Company's option, at either (1) LIBOR plus a margin based on a ratio of
the Company's senior debt to EBITDA, as adjusted, or (2) the administrative
agent's base lending rate or the federal funds rate plus a margin ranging
between .625% and 1.5%, whichever is higher. The facility contains covenants,
including covenants restricting the incurrence of indebtedness and the making of
restrictive payments, including dividends. In addition, the Company must fulfill
financial covenants including, among others, a total debt to EBITDA ratio, a
senior debt to EBITDA ratio and a fixed charge coverage ratio, as defined in the
facility. The proceeds were used to repay borrowings outstanding under the
Company's existing revolving credit facility.
The Company also issued $250.0 million of 9 1/2% Senior Notes due 2008
(the "Senior Notes"). The Senior Notes are unsecured obligations of the Company
and are redeemable at the option of the Company, in whole or in part, commencing
May 1, 2005 initially at 104.75% of their principal amount, plus accrued
interest, declining to 100% of their principal amount plus accrued interest on
May 1, 2007. The indenture governing the Senior Notes requires the Company to
offer to repurchase the Senior Notes at 101% of their principal amount, plus
accrued interest to the date of the repurchase in the event of a change in
control. The indenture contains certain covenants that, among other things,
limits the Company's ability (and that of its restricted subsidiaries) to incur
additional indebtedness; make restricted payments (including dividends and share
repurchases); make investments; guarantee indebtedness; create liens; and sell
assets and share repurchases. The proceeds were used to pay borrowings
outstanding under the Company's existing revolving credit facility.
Lastly, the Company entered into a new $100.0 million securitization
facility with Rabobank, whereby certain European wholesale accounts receivable
from the Company's operations in France, Germany and Spain may be sold to a
third party on a revolving basis through a wholly-owned special purpose
subsidiary. The Company used the proceeds from this securitization facility to
reduce outstanding borrowings under its new revolving credit facility.
As a result, the Company's primary financing and funding sources are
the $250 million 8 1/2% Senior Subordinated Notes due 2006, the Senior Notes, a
$350 million revolving credit facility and $350 million of accounts receivable
securitization facilities in the U.S. and Europe.
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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 $654.1 million
of working capital at March 31, 2001, an increase of $50.2 million from working
capital of $603.9 million at December 31, 2000. The increase in working capital
was primarily due to seasonal increases in inventories and lower payables and
accrued expenses. The increase was partially offset by lower accounts receivable
primarily due to a $35 million increase in funding under the U.S. securitization
facility.
Cash flow used in operating activities was $97.3 million for the three
months ended March 31, 2001 compared to $92.2 million provided by operating
activities for the same period during 2000. The decrease in cash flow provided
by operating activities was primarily due to the initial $200 million funding
under the U.S securitization facility in the first quarter of 2000.
Capital expenditures for the three months ended March 31, 2001 were
$4.5 million compared to $7.5 million for the same period in 2000. The Company
anticipates that additional capital expenditures for the remainder of 2001 will
range from approximately $50 million to $55 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 46.5%
at March 31, 2001 compared to 41.9% at December 31, 2000. The increase is
attributable to higher debt to support seasonal increases in working capital and
lower stockholders' equity due to negative currency translation adjustments.
The Company believes that available borrowings under the Company's
revolving credit facility, funding under the accounts receivable securitization
facilities, 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.
OUTLOOK
As a result of uncertainty arising from BSE and foot-and-mouth disease,
the Company has revised its outlook for Western Europe to decline between 5% to
10%. The Company continues to expect industry retail demand in 2001 to be
relatively flat in the other major markets of the world.
Ag-Chem's net sales and income from operations are heavily concentrated
in February, March and April of each year. As a result of the mid-April closing
date, AGCO's results for 2001 will not reflect Ag-Chem's seasonally strongest
period. While the Company is targeting to generate sufficient cost synergies to
neutralize earnings for the balance of 2001, the additional common shares issued
in the transaction are expected to reduce AGCO's net income per share by
approximately $0.08 per share in 2001. In addition, the Company previously
announced the
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closing of a $100 million European securitization facility in April 2001. In
connection with the closing, the Company expects to incur a one-time loss of
approximately $3.5 million in the second quarter related to the initial funding
of the facility. Despite these factors, the Company still anticipates operating
margins and overall profitability to improve in 2001 compared to 2000.
ACCOUNTING CHANGES
In the first quarter of 2001, the Company adopted SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" as amended by
SFAS No. 138. 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. 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 cumulative effect for adopting this standard as of January 1, 2001 resulted
in a fair value asset, net of taxes, of approximately $0.5 million.
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 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.
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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 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 U.S. dollar,
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.
For additional information, see the Company's most recent annual report
filed on Form 10-K (Item 7A). There has been no material change in this
information
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Certificate of Designation for Class A Convertible Preferred Stock.
4.1 Indenture dated as of April 17, 2001, among the Company, SunTrust Bank and
the other parties named therein.
4.2 Registration Rights Agreement dated as of April 11, 2001, among the Company,
Credit Suisse First Boston and the other parties named therein.
10.1 Credit Agreement dated as of April 17, 2001, among the Company, Cooperatieve
Centrale Raiffeisen-Boerenleenbank B.A. and the other parties named therein.
10.2 2001 Stock Option Plan.
(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 its behalf by the
undersigned thereunto duly authorized.
AGCO CORPORATION
Registrant
Date: May 15, 2001 /s/ Donald R. Millard
----------------------------------------------
Donald R. Millard
Sr. Vice President and Chief Financial Officer
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