EXHIBIT 99.1
[AGCO LETTERHEAD]
FOR IMMEDIATE RELEASE
Thursday, April 24, 2003
CONTACT: Molly Dye or Andy Beck
Vice President, Corporate Relations Senior Vice President and
(770) 813-6044 Chief Financial Officer
(770) 813-6083
AGCO REPORTS FIRST QUARTER RESULTS
Sales Growth Drives Earnings Improvement
Cost Cutting Initiatives on Track
DULUTH, GA - April 24 - AGCO Corporation (NYSE:AG), a worldwide
designer, manufacturer and distributor of agricultural equipment, reported net
income, excluding restructuring expenses and restricted stock compensation, of
$0.23 per share for the first quarter ended March 31, 2003. For the first three
months of 2002, AGCO reported net income, excluding restructuring expenses,
restricted stock compensation and a cumulative effect of accounting change, of
$0.21 per share. Reported earnings per share including all items was $0.17 per
share for the first quarter ended March 31, 2003 compared to a loss of $0.36
per share for the same period in 2002. Net sales for the first quarter of 2003
increased 22% over the comparable period in 2002.
"Despite a challenging industry and operating environment, we are
pleased to report earnings improvement over the prior year," stated Robert J.
Ratliff, AGCO's Chairman, President and Chief Executive Officer. "In addition,
we remain committed to meeting our earnings targets for the full year."
FIRST QUARTER RESULTS
For the first quarter of 2003, AGCO reported net sales of $757.2
million and net income, excluding restructuring expenses and restricted stock
compensation, of $17.1 million, or $0.23 per share. Reported net income
including all items was $12.5 million, or $0.17 per share. For the first
quarter of 2002, AGCO reported net sales of $619.9 million and net income,
excluding restructuring expenses, restricted stock compensation and a
cumulative effect of accounting change, of $15.8 million, or $0.21 per share.
Reported net loss including all items in 2002 was $26.2 million, or $0.36 per
share.
The following is a reconciliation of adjusted earnings per share to reported
earnings (loss) per share for the quarters ended March 31, 2003 and 2002:
2003 2002
------------------------ -------------------------
(in millions, except per share data)
Net Earnings
Net Earnings Income (Loss)
Income Per Share (Loss) Per Share
------ --------- ------ ---------
Adjusted net income $17.1 $0.23 $15.8 $0.21
Restructuring expenses(1) 4.5 0.06 0.6 0.01
Restricted stock compensation(1) 0.1 -- 17.3 0.23
----- ----- ----- -----
Income (loss) before
cumulative effect of a change
in accounting principle 12.5 0.17 (2.1) (0.03)
Cumulative effect of a change in
accounting principle(1) -- -- (24.1) (0.33)
----- ----- ----- -----
Reported net income (loss) $12.5 $0.17 $(26.2) $(0.36)
===== ===== ====== ======
(1) After tax
The restructuring expenses recorded in the first quarter of 2003
relate primarily to the planned closure of AGCO's tractor manufacturing
facility in Coventry, England announced in June 2002. The restricted stock
compensation recorded during the first quarter of 2002 is primarily related to
AGCO's Long-Term Incentive Plan ("LTIP"). In addition, the Company recorded a
non-cash write-down of goodwill related to the adoption of SFAS No. 142
reflected as a cumulative effect of a change in accounting principle during the
first quarter of 2002.
AGCO's net sales for the first quarter increased 22% primarily due to
higher sales in the Europe/Africa/Middle East and South American regions,
incremental sales of the new Challenger product line and the acquired Sunflower
brand and positive currency translation impacts. These increases were partially
offset by lower sales in the Sprayers product line, resulting from weak market
conditions. AGCO's first quarter 2003 operating income, excluding restructuring
expenses of $7.0 million and restricted stock compensation of $0.1 million, was
$45.0 million. This compares to first quarter 2002 operating income, excluding
restructuring expenses of $0.9 million and restricted stock compensation of
$27.0 million, of $39.2 million. Higher sales in 2003 benefited operating
income although operating margins declined in 2003 compared to 2002. This
reduction in margins was the result of production inefficiencies and start-up
costs associated with manufacturing initiatives, negative currency impacts on
European exports and sales mix resulting from the growth of lower margin
Challenger sales. First quarter operating income including all items improved
to $37.9 million in 2003 from $11.3 million in 2002 primarily resulting from
decreased restricted stock compensation expense in 2003. AGCO's first quarter
2003 earnings were also negatively impacted by higher interest expense, foreign
exchange losses and a higher income tax rate compared to 2002.
REGIONAL MARKET RESULTS
North America - Industry unit retail sales of tractors for the first
quarter of 2003 increased approximately 6% over the comparable prior year
period resulting from increases in the compact tractor segment, relatively flat
demand in the utility tractor segment and a moderate decrease in the high
horsepower tractor segment. Industry unit retail sales of combines were
approximately 21% lower than the prior year. AGCO's unit retail sales of
tractors and combines for the first quarter of 2003 were higher than the prior
year. Sales of AGCO's new Challenger product line introduced in 2002
contributed to AGCO's unit retail sales results.
Western Europe - Industry unit retail sales of tractors in Western
Europe for the first quarter of 2003 decreased approximately 1% over the
comparable prior period. Results were mixed with moderate increases in the
United Kingdom, France and Italy offset by declines in Germany and Spain.
AGCO's unit retail sales for the first quarter of 2003 also decreased when
compared to the prior year period.
South America - Industry unit retail sales of tractors in the first
quarter of 2003 increased approximately 2% over the comparable prior year
period with strong increases in Argentina and other South American markets,
offset by a slight decrease in the largest market of Brazil. The Brazilian
government's subsidized retail financing program, FINAME, continues to be
available during 2003, but at lower levels than in 2002. AGCO's South American
unit retail sales also increased in the first quarter of 2003 compared to the
same period in 2002.
Rest of World Markets - Outside of North America, Western Europe and
South America, AGCO's net sales for the first quarter of 2003 were higher than
the prior year particularly in Eastern Europe, where demand has increased in
countries that have been recently invited to join the European Union.
Sprayers - Industry unit retail sales of sprayers in North America
declined approximately 20% in the first quarter of 2003 compared to 2002.
Industry unit retail sales were impacted by higher fertilizer prices and dry
conditions in certain key areas. AGCO's unit retail sales of sprayers in North
America also declined in 2003 compared to 2002.
"AGCO's first quarter sales were indirectly affected by the war in the
Middle East, including the impact on demand caused by higher fuel and
fertilizer costs and disruptions in transportation and logistics," stated Mr.
Ratliff. "Industry fundamentals and weather conditions remain positive and we
are hopeful that market conditions improve now that the conflict is
substantially concluded. Notwithstanding these issues, we were able to meet our
Challenger sales targets in the first quarter and take advantage of sales
opportunities in South America and Eastern Europe."
FACILITY CLOSURES AND COST REDUCTION PROGRAMS ON SCHEDULE
During March 2003, AGCO announced the closure of the Challenger track
tractor facility located in DeKalb, Illinois and the relocation of production
to its facility in Jackson, Minnesota. Production at the DeKalb facility is
planned to cease by late May 2003 with production to be resumed in Jackson in
July 2003. The move increases facility utilization and significantly lowers the
cost of the Challenger track tractor product line. AGCO anticipates that the
DeKalb facility
rationalization will generate annual cost savings of approximately $8 million
by the year 2004. The estimated cash closure costs of approximately $4 million
are expected to be recovered from proceeds from the sale of the DeKalb site.
In addition, AGCO remains on schedule to conclude operations in its
Coventry, England tractor facility by June 2003. Production of comparable
utility tractors has begun in AGCO's Beauvais, France and Canoas, Brazil
manufacturing facilities. Costs savings from the facility rationalization and
the introduction of high specification utility tractors produced in Beauvais
are anticipated to result in annual savings of $20 million to $25 million
commencing in 2004. AGCO's first quarter results were impacted by production
delays and inefficiencies in our Beauvais, France, Canoas, Brazil and Randers,
Denmark facilities where significant transition activities are underway.
Performance in these plants is expected to improve throughout the year as new
products and processes become more routine.
"In addition to our facility rationalization programs underway, we
continue to aggressively reduce costs through better leverage of our supply
base, product platform rationalizations and the introduction of new
cost-reduced products," stated Mr. Ratliff. "We are confident that our
manufacturing rationalization programs and other cost reduction initiatives
will allow AGCO to continue to improve its cost structure in 2003 and 2004."
OUTLOOK
Although market conditions in the first quarter of 2003 were weaker
than 2002 in most major markets, AGCO continues to expect worldwide demand to
be relatively flat for the full year. AGCO also expects to continue its trend
of earnings growth from successful execution of sales growth and cost reduction
initiatives. AGCO continues to project net income per share before
restructuring expense for 2003 to be in the range of $1.60 to $1.75. In
addition, AGCO expects to incur restructuring expenses of $0.13 per share to
$0.17 per share related to the Coventry and DeKalb closures. Second quarter net
income per share excluding restructuring expenses is expected to range from
$0.43 to $0.48. Second quarter restructuring expenses are expected to be in the
range of $0.07 to $0.09 per share.
"We remain confident that AGCO can continue to improve profitability
at current industry levels in 2003 and in the future," stated Mr. Ratliff.
SAFE HARBOR STATEMENT
Statements which are not historical facts, including net income and net sales
projections, gross margin improvement, projected cost savings, industry demand
outlook, and benefits of the rationalization of the Coventry, England and
DeKalb, Illinois facilities, are forward looking and subject to risks which
could cause actual results to differ materially from those suggested by the
statements. 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. The Company bases its outlook on key operating, economic and
agricultural data which are subject to change including, but not limited to:
farm cash income, worldwide demand for agricultural products, commodity prices,
grain stock levels, weather, crop production, farmer debt levels, existing
government programs and farm-related legislation. Additionally, the Company's
financial results are
sensitive to movement in interest rates and foreign currencies, as well as
general economic conditions, pricing and product actions taken by competitors,
customer acceptance of product introductions, the success of its facility
rationalization process and other cost cutting measures, availability of
governmental subsidized financing programs, production disruptions and changes
in environmental, international trade and other laws which impact the way in
which it conducts its business. The estimate of restructuring expenses for the
Coventry facility does not contemplate an unfavorable resolution of the
litigation discussed in Note 2 to the consolidated financial statements.
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, including its Form 10-K for the year ended December 31,
2002. The Company disclaims any responsibility to update any forward-looking
statements.
*****
The Company will be hosting a conference call with respect to this earnings
announcement at 2:00 p.m. Eastern Time on Thursday, April 24, 2003. Interested
persons can access the conference call via the Company's website at
www.agcocorp.com. A replay of the conference call will be available at that
website for twelve months. A copy of this press release will be available on
the Company's website.
*****
AGCO Corporation, headquartered in Duluth, Georgia, is a global
designer, manufacturer and distributor of agricultural equipment and related
replacement parts. AGCO products are distributed in 140 countries. AGCO offers
a full product line including tractors, combines, hay tools, sprayers, forage,
tillage equipment and implements through more than 8,450 independent dealers
and distributors around the world. AGCO products are distributed under the
brand names AGCO(R), AgcoAllis(R), AgcoStar(R), Ag-Chem(R), Challenger(R),
Farmhand(R), Fendt(R), Fieldstar(R), Gleaner(R), Glencoe(R), Hesston(R),
Lor*Al(R), Massey Ferguson(R), New Idea(R), RoGator(R), Soilteq(TM),
Spra-Coupe(R), Sunflower(R), Terra-Gator(R), Tye(R), White(R) and Willmar(R).
AGCO provides retail financing through AGCO Finance in North America and
through Agricredit in the United Kingdom, France, Germany, Ireland, Spain and
Brazil. In 2002, AGCO had net sales of $2.9 billion.
#####
Please visit our website at www.agcocorp.com.
AGCO CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions)
March 31, December 31,
2003 2002
--------- ------------
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 21.0 $ 34.3
Accounts and notes receivable, net 584.9 497.4
Inventories, net 813.9 708.6
Other current assets 171.4 171.9
-------- --------
Total current assets 1,591.2 1,412.2
Property, plant and equipment, net 348.5 343.7
Investment in affiliates 80.9 78.5
Other assets 121.1 120.0
Intangible assets, net 399.5 394.6
-------- --------
Total assets $2,541.2 $2,349.0
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 327.5 $ 312.0
Accrued expenses 404.7 445.2
Other current liabilities 24.0 27.8
-------- --------
Total current liabilities 756.2 785.0
Long-term debt 809.8 636.9
Pensions and postretirement health care benefits 135.9 131.9
Other noncurrent liabilities 78.4 77.6
-------- --------
Total liabilities 1,780.3 1,631.4
-------- --------
Stockholders' Equity:
Common stock 0.8 0.8
Additional paid-in capital 587.7 587.6
Retained earnings 573.1 560.6
Unearned compensation (0.7) (0.7)
Accumulated other comprehensive loss (400.0) (430.7)
-------- --------
Total stockholders' equity 760.9 717.6
-------- --------
Total liabilities and stockholders' equity $2,541.2 $2,349.0
======== ========
See accompanying notes to condensed consolidated financial statements.
AGCO CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited and in millions, except per share data)
Three Months Ended March 31,
----------------------------
2003 2002
------- -------
Net sales $ 757.2 $ 619.9
Cost of goods sold 617.2 502.4
------- -------
Gross profit 140.0 117.5
Selling, general and administrative expenses 78.7 65.3
Engineering expenses 15.9 12.7
Restricted stock compensation expense 0.1 27.0
Restructuring and other infrequent expenses 7.0 0.9
Amortization of intangibles 0.4 0.3
------- -------
Income from operations 37.9 11.3
Interest expense, net 15.0 14.1
Other expense, net 6.7 5.3
------- -------
Income (loss) before income taxes, equity in net earnings of affiliates
and cumulative effect of a change in accounting principle 16.2 (8.1)
Income tax provision (benefit) 8.1 (2.9)
------- -------
Income (loss) before equity in net earnings of affiliates and
cumulative effect of a change in accounting principle 8.1 (5.2)
Equity in net earnings of affiliates 4.4 3.1
------- -------
Income (loss) before cumulative effect of a change in accounting principle 12.5 (2.1)
Cumulative effect of a change in accounting principle, net of taxes -- (24.1)
------- -------
Net income (loss) $ 12.5 $ (26.2)
======= =======
Net income (loss) per common share:
Basic:
Income (loss) before cumulative effect of a change in accounting principle $ 0.17 $ (0.03)
Cumulative effect of a change in accounting principle, net of taxes -- (0.33)
------- -------
Net income (loss) $ 0.17 $ (0.36)
======= =======
Diluted:
Income (loss) before cumulative effect of a change in accounting principle $ 0.17 $ (0.03)
Cumulative effect of a change in accounting principle, net of taxes -- (0.33)
------- -------
Net income (loss) $ 0.17 $ (0.36)
======= =======
Weighted average number of common and common equivalent shares outstanding:
Basic 75.1 72.7
======= =======
Diluted 75.6 72.7
======= =======
See accompanying notes to condensed consolidated financial statements.
AGCO CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited and in millions)
Three Months Ended March 31,
----------------------------
2003 2002
------ ------
Cash flows from operating activities:
Net income (loss) $ 12.5 $(26.2)
------ ------
Adjustments to reconcile net income (loss) to net cash used in operating
activities:
Cumulative effect of a change in accounting principle, net of taxes -- 24.1
Depreciation and amortization 14.8 13.1
Amortization of intangibles 0.4 0.3
Restricted stock compensation 0.1 14.6
Equity in net earnings of affiliates, net of cash received (1.8) (1.1)
Deferred income tax expense (benefit) 0.6 (14.8)
Changes in operating assets and liabilities net of effect
from purchase of businesses:
Accounts and notes receivable, net (84.9) (31.9)
Inventories, net (90.6) (99.3)
Other current and noncurrent assets (0.5) 0.6
Accounts payable 8.4 20.5
Accrued expenses (54.9) (1.7)
Other current and noncurrent liabilities 1.3 (5.0)
------ ------
Total adjustments (207.1) (80.6)
------ ------
Net cash used in operating activities (194.6) (106.8)
------ ------
Cash flows from investing activities:
Purchase of property, plant and equipment (9.3) (7.3)
Proceeds from sales of property, plant and equipment 7.1 12.2
Sale/purchase of businesses, net of cash acquired 0.2 --
Investment in unconsolidated affiliates -- (0.2)
------ ------
Net cash (used for) provided by investing activities (2.0) 4.7
------ ------
Cash flows from financing activities:
Proceeds from long-term debt, net 182.2 84.6
Proceeds from issuance of preferred and common stock 0.1 3.2
------ ------
Net cash provided by financing activities 182.3 87.8
------ ------
Effect of exchange rate changes on cash and cash equivalents 1.0 (0.8)
------ ------
Decrease in cash and cash equivalents (13.3) (15.1)
Cash and cash equivalents, beginning of period 34.3 28.9
------ ------
Cash and cash equivalents, end of period $ 21.0 $ 13.8
====== ======
See accompanying notes to condensed consolidated financial statements.
AGCO CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, in millions, except per share data)
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 accounting principles generally accepted in the United
States of America 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, 2002.
Certain reclassifications of previously reported financial information were
made to conform to the current presentation. Results for interim periods are
not necessarily indicative of the results for the year.
2. RESTRUCTURING AND OTHER INFREQUENT EXPENSES
In March 2003, the Company announced the closure of the Challenger
track tractor facility located in DeKalb, Illinois and the relocation of
production to its facility in Jackson, Minnesota. Production at the DeKalb
facility is planned to cease by late May 2003 with production to be relocated
and resumed in July 2003. In connection with the restructuring plan, the
Company has recorded approximately $0.3 million of restructuring and other
infrequent expenses during the three months ended March 31, 2003. The
components of the restructuring expenses are summarized in the following table:
Employee
Employee Retention
Severance Payments Total
--------- --------- -----
2003 Provision $0.2 $0.1 $0.3
First quarter 2003 cash activity -- -- --
---- ---- ----
Balances as of
March 31, 2003 $0.2 $0.1 $0.3
==== ==== ====
The severance costs relate to the termination of approximately 145
employees, following the completion of production in the DeKalb facility. The
employee retention payments relate to incentives paid to DeKalb employees who
remain employed until certain future termination dates and are accrued over the
term of the retention period. The severance costs are also being accrued over
the term of the retention period, as employees are only entitled to severance
payments if they remain in service through designated retention dates. Certain
employees will relocate to the Jackson, Minnesota facility, and costs
associated with relocation will be expensed as incurred. No employees had been
terminated or relocated as of March 31, 2003. The employee severance, employee
retention and relocation payments will all be incurred and paid during 2003. A
portion of the machinery and equipment and all tooling located at DeKalb will
move to the Jackson, Minnesota facility. The remaining portion of machinery and
equipment will be sold or disposed of after production ceases. The buildings,
land and improvements will be marketed for sale. The Company estimates total
cash closure costs to be approximately $4.0 million.
During 2002, the Company announced and initiated a restructuring plan
related to the closure of its tractor manufacturing facility in Coventry,
England and the relocation of existing production at Coventry to the
Company's Beauvais, France and Canoas, Brazil manufacturing facilities. The
components of the restructuring expenses are summarized in the following table:
Write-down
of Property, Employee Facility
Plant and Employee Retention Closure
Equipment Severance Payments Costs Total
------------ --------- --------- -------- -----
2002 Provision $11.2 $ 8.3 $18.3 $ 2.4 $40.2
Less: Non-cash expense 11.2 -- -- -- 11.2
----- ----- ----- ----- -----
Cash expense -- 8.3 18.3 2.4 29.0
2002 cash activity -- (0.1) (0.3) (0.3) (0.7)
----- ----- ----- ----- -----
Balances as of
December 31, 2002 -- 8.2 18.0 2.1 28.3
2003 Provision -- -- 5.7 0.8 6.5
2003 cash activity -- (2.6) (8.6) (0.5) (11.7)
----- ----- ----- ----- -----
Balances as of
March 31, 2003 $ -- $ 5.6 $15.1 $ 2.4 $23.1
===== ===== ===== ===== =====
The severance costs relate to the termination of approximately 1,100
employees, following the completion of production in the Coventry facility.
Approximately 361 employees have been terminated as of March 31, 2003. The
employee retention payments relate to incentives paid to Coventry employees who
remain employed until certain future termination dates and are accrued over the
term of the retention period. The facility closure costs include certain
noncancelable operating lease termination and other facility exit costs. The
write-down of property, plant and equipment represents the impairment of
machinery and equipment resulting from the facility closure and was based on
the estimated fair value of the assets compared to their carrying value. The
estimated fair value of the equipment was determined based on current
conditions in the market. The machinery, equipment and tooling will be disposed
of after production ceases and the buildings, land and improvements will be
marketed for sale. The $23.1 million of restructuring costs accrued at March
31, 2003 are expected to be incurred during 2003.
In October 2002, the Company applied to the High Court in London,
England, for clarification of a rule in its U.K. pension plan that governs the
value of pension payments payable to an employee who retires from service in
certain circumstances prior to his normal retirement date. The primary matter
before the High Court was whether pension payments to such employees, including
those terminated due to the closure of the Company's Coventry facility, should
be reduced to compensate for the fact that the pension payments begin prior to
normal retirement age of 65. On December 20, 2002, the High Court ruled against
the Company's position that reduced pension payments are payable in the context
of early retirements or terminations. The High Court's ruling also granted the
Company approval to appeal the judgment in the Court of Appeal. The appeal is
currently scheduled for May 2003. The Company and its advisors maintain the
view that reduced pension payments should be payable and, as a result, have
appealed the judgment to the Court of Appeal. Under the appeal process in
England, a panel of judges who had no involvement with the High Court
proceedings will hear the appeal and determine the outcome on its merits. A
majority ruling of the Court of Appeal judges is required to overturn the
original High Court decision.
The Company, based upon advice of its legal advisors, has reassessed
the merits of its case in consideration of the High Court ruling and maintains
the opinion that the likelihood of an unfavorable resolution to this matter is
reasonably possible, but does not consider it to be probable. Consequently, the
Company has not recorded a loss as of March 31, 2003 related to this matter. In
the event that the Company's position is not ultimately upheld, the closure of
the Company's Coventry facility and past early retirement programs would
entitle certain terminated employees to receive unreduced pension payments. The
estimated impact to the Company's pension plan would be an increase in the
Company's pension plan liabilities of approximately $55 million to $60 million
and a related charge to the Company's Consolidated Statements of Operations.
The
Company presently estimates that additional funding to the pension plan related
to this increased liability would be approximately $6.5 million per annum for
the next 10 years. The timing of the Company's obligation to fund cash into the
pension plan with respect to this increased liability would depend on many
factors including the overall funded status of the plan and the investment
returns of the plan's assets.
In addition, during 2002, the Company initiated several
rationalization plans and recorded restructuring and other infrequent expenses
of $3.4 million. The expense primarily related to severance costs and certain
lease termination and other exit costs associated with the rationalization of
the Company's European engineering and marketing personnel and certain
components of the Company's German manufacturing facilities located in Kempten
and Marktoberdorf, Germany. During the first quarter ended March 31, 2003, the
Company recorded an additional $0.2 million of restructuring and other
infrequent expenses associated with the rationalization initiatives in Germany.
A total of $3.0 million of severance costs have been recorded associated with
these activities, and relate to the termination of approximately 140 employees
in total. At March 31, 2003, a total of approximately $3.1 million of expenses
had been incurred and paid. The remaining accrued balance of $0.5 million as of
March 31, 2003 is expected to be incurred during 2003.
3. GOODWILL AND OTHER INTANGIBLE ASSETS
On January 1, 2002, the Company adopted Statement of Financial
Accounting Standards No. 142 ("SFAS No. 142") "Goodwill and Other Intangible
Assets." SFAS No. 142 also establishes a new method of testing goodwill and
other indefinite-lived intangible assets for impairment on an annual basis or
on an interim basis if an event occurs or circumstances change that would
reduce the fair value of a reporting unit below its carrying value.
The goodwill in each of the Company's segments was tested for
impairment during the first quarter of 2002 as required by SFAS No. 142. The
Company utilized a combination of valuation techniques including a discounted
cash flow approach, a market multiple approach and a comparable transaction
approach. Based on this evaluation, the Company determined that goodwill
associated with its Argentina and North America reporting units was impaired.
As a result, the Company recorded a pre-tax write-down of goodwill of $27.7
million. This write-down was recognized as a cumulative effect of a change in
accounting principle of $24.1 million, net of $3.6 million of taxes, in the
first quarter of 2002. Goodwill is tested for impairment on an annual basis and
more often if indications of impairment exist. The results of the Company's
analyses conducted on October 1, 2002 indicated no further reduction in the
carrying amount of goodwill was required in 2002. The Company will perform its
next impairment analyses as of October 1, 2003, or on an interim basis if an
event occurs or circumstances change that would reduce the fair value of a
reporting unit below its carrying value.
4. LONG-TERM DEBT
Long-term debt consisted of the following at March 31, 2003 and
December 31, 2002:
March 31, December 31,
2003 2002
--------- ------------
Revolving credit facility $299.7 $126.9
9-1/2% Senior notes due 2008 250.0 250.0
8-1/2% Senior subordinated notes due 2006 249.2 249.1
Other long-term debt 10.9 10.9
------ ------
Total long-term debt $809.8 $636.9
====== ======
5. INVENTORIES
Inventories are valued at the lower of cost or market using the
first-in, first-out method. Market is net realizable value for finished goods
and repair and replacement parts. For work in process, production parts and raw
materials, market is replacement cost.
Inventory balances at March 31, 2003 and December 31, 2002 were as
follows:
March 31, December 31,
2003 2002
--------- ------------
Finished goods $351.3 $288.5
Repair and replacement parts 248.1 235.5
Work in process, production parts and raw materials 214.5 184.6
------ ------
Inventories, net $813.9 $708.6
====== ======
6. ACCOUNTS RECEIVABLE SECURITIZATION
At March 31, 2003, the Company has accounts receivable securitization
facilities in the United States, Canada, and Europe totaling approximately
$430.0 million. Under these facilities, wholesale accounts receivable are sold
on a revolving basis to commercial paper conduits either on a direct basis or
through a wholly-owned special purpose U.S. subsidiary. Outstanding funding
under these facilities totaled $428.8 million at March 31, 2003 and $423.9
million at December 31, 2002. The funded balance has the effect of reducing
accounts receivable and short-term liabilities by the same amount. Losses on
sales of receivables primarily from securitization facilities included in other
expense, net for the three months ended March 31, 2003 and 2002 were $2.9
million and $3.7 million, respectively.
7. SEGMENT REPORTING
The Company has five reportable segments: North America; South
America; Europe/Africa/Middle East; Asia/Pacific; and Sprayers. Each regional
segment distributes a full range of agricultural equipment and related
replacement parts. Sprayers manufacture and distribute self-propelled
agricultural sprayers and replacement parts. The Company evaluates segment
performance primarily based on income from operations. Sales for each regional
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 and division 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, 2003 and 2002 are as follows:
Three months ended North South Europe/Africa Asia/
March 31, America America /Middle East Pacific Sprayers Consolidated
------------------ ------- ------- ------------- ------- -------- ------------
2003
Net sales $195.8 $ 68.9 $375.0 $ 23.2 $ 94.3 $757.2
Income (loss) from operations (6.5) 8.9 28.6 3.0 11.4 45.4
2002
Net sales $133.5 $ 63.0 $296.1 $ 21.9 $105.4 $619.9
Income (loss) from operations (5.0) 6.5 19.4 3.7 14.9 39.5
A reconciliation from the segment information to the consolidated
balances for income from operations is set forth below:
Three Months Ended
March 31,
---------------------
2003 2002
----- -----
Segment income from operations $45.4 $39.5
Restricted stock compensation expense (0.1) (27.0)
Restructuring and other infrequent expenses (7.0) (0.9)
Amortization of intangibles (0.4) (0.3)
----- -----
Consolidated income from operations $37.9 $11.3
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