EXHIBIT 99.1
[AGCO LOGO] AGCO Corporation
4205 River Green Parkway Duluth, GA USA 30096-2568
www.agcocorp.com
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Telephone 770.813.9200
COMPANY NEWS RELEASE
FOR IMMEDIATE RELEASE
Thursday, February 5, 2004
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 FULL YEAR RESULTS
SALES AND EARNINGS GROWTH HIGHLIGHT ANNUAL RESULTS
EARNINGS AND CASH FLOW IMPROVEMENTS ANTICIPATED IN 2004
DULUTH, GA - February 5 - AGCO Corporation (NYSE:AG), a worldwide
designer, manufacturer and distributor of agricultural equipment, reported
adjusted net income, excluding restructuring and other infrequent expenses and
restricted stock compensation, of $1.25 per share for the year ended December
31, 2003. AGCO reported adjusted net income, excluding restructuring and other
infrequent expenses and restricted stock compensation, of $0.40 per share for
the fourth quarter of 2003. Reported earnings per share including all items was
$0.98 per share for the year ended December 31, 2003 and $0.39 per share for
the fourth quarter of 2003. These results compare to adjusted net income,
excluding restructuring and other infrequent expenses, restricted stock
compensation, a non-cash deferred tax adjustment and a cumulative effect of an
accounting change of $1.17 per share for the year ended December 31, 2002 and
adjusted net income, excluding restructuring and other infrequent expenses,
restricted stock compensation and a non-cash deferred tax adjustment, of $0.34
per share for the fourth quarter of 2002. Reported loss per share including all
items was $1.14 for the year ended December 31, 2002 and $1.09 per share for
the fourth quarter of 2002. Net sales for the full year and fourth quarter of
2003 increased approximately 20% and 23%, respectively, over the comparable
periods in 2002.
"We are pleased that our 2003 earnings were above the prior year
despite challenging market conditions in key markets and production issues
related to our plant rationalizations," stated Robert J. Ratliff, Chairman,
President and Chief Executive Officer. "During the fourth quarter, production
in the Beauvais plant stabilized as planned, but remained below optimal levels.
In addition, weaker industry demand in Western Europe was offset by improved
market conditions and profitability in South America. We believe that our
efforts in 2003 will allow us to achieve continued earnings improvement in
2004."
FOURTH QUARTER RESULTS
For the fourth quarter of 2003, AGCO reported net sales of $1,035.1
million and adjusted net income of $30.5 million, or $0.40 per share. Reported
net income including all items was $29.8 million, or $0.39 per share. For the
fourth quarter of 2002, AGCO reported net sales of
$839.9 million and adjusted net income of $25.5 million, or $0.34 per share.
Net loss including all items in 2002 was $82.0 million, or $1.09 per share.
The following is a reconciliation of adjusted operating income, net
income and earnings per share to reported operating income, net income (loss)
and earnings (loss) per share for the quarters ended December 31, 2003 and
2002:
2003 2002
----------------------------------------- ---------------------------------------
(in millions, except per share data)
Earnings
Earnings Net (Loss)
Operating Net Per Operating Income Per
Income Income Share Income (Loss) Share
--------- ------- -------- --------- ------ --------
As adjusted $63.4 $30.5 $0.40 $54.4 $25.5 $0.34
Restructuring and other
infrequent expenses (1) (0.2) 0.6 0.01 9.4 6.2 0.08
Restricted stock compensation (1) 0.1 0.1 -- 15.6 10.3 0.14
Deferred tax valuation
allowance adjustment * -- -- * 91.0 1.21
----- ----- ----- ----- ------ ------
As reported $63.5 $29.8 $0.39 $29.4 $(82.0) $(1.09)
===== ===== ===== ===== ====== ======
(1) Net income and earnings per share amounts are after tax
* Not applicable
The restructuring and other infrequent expenses recorded in the fourth
quarter of 2003 relate primarily to a net gain on auction proceeds of machinery
and equipment from the Coventry site partially offset by further property
write-downs of other closed facilities held for sale. The restructuring
expenses in the fourth quarter of 2002 primarily relate to expenses associated
with the closure of the Coventry facility. The restricted stock compensation
recorded during the fourth quarter of 2002 is primarily related to the
Company's Long-Term Incentive Plan ("LTIP").
AGCO's net sales for the fourth quarter increased 23% primarily due to
higher sales in North America and South America as well as positive currency
translation impacts resulting from the stronger Euro. Adjusted operating income
for the fourth quarter of 2003 improved to $63.4 million from $54.4 million in
2002 due to earnings improvements in South America, Asia/Pacific and Sprayers.
In South America, fourth quarter operating income increased over 100% compared
to 2002 due to improved demand in Argentina and the positive impact of
increased production. This improvement was partially offset by lower earnings
in Europe resulting from weaker margins due to higher production costs and
unfavorable sales mix. AGCO's fourth quarter gross margins declined from 17.5%
in 2002 to 17.0% in 2003. The reduction in margins was primarily the result of
higher manufacturing costs, unfavorable sales mix and negative currency impacts
on products manufactured in Europe and South America and sold in other markets.
FULL YEAR RESULTS
For the full year 2003, AGCO reported net sales of $3,495.3 million
and adjusted net income of $94.8 million, or $1.25 per share. Reported net
income including all items was $74.4
million, or $0.98 per share. For the full year of 2002, AGCO reported net sales
of $2,922.7 million and adjusted net income of $88.0 million, or $1.17 per
share. Reported net loss including all items in 2002 was $84.4 million, or
$1.14 per share.
The following is a reconciliation of adjusted operating income, net
income and earnings per share to reported operating income, net income (loss)
and earnings (loss) per share for the full year ended December 31, 2003 and
2002:
2003 2002
----------------------------------------- ----------------------------------------
(in millions, except per share data)
Earnings
Earnings Net (Loss)
Operating Net Per Operating Income Per
Income Income Share Income (Loss) Share
--------- ------- -------- --------- ------ --------
As adjusted $211.7 $94.8 $1.25 $190.8 $88.0 $1.17
Restructuring and other
infrequent expenses (1) 27.6 19.8 0.26 42.7 28.2 0.38
Restricted stock compensation (1) 0.6 0.6 0.01 44.1 29.1 0.39
Deferred tax valuation
allowance adjustment * -- -- * 91.0 1.21
------ ----- ----- ------ ----- -----
Income before cumulative
effect of a change in
accounting principle * 74.4 0.98 * (60.3) (0.81)
Cumulative effect of a change
in accounting principle (1) * -- -- * (24.1) (0.33)
------ ----- ----- ------ ----- -----
As reported $183.5 $74.4 $0.98 $104.0 $(84.4) $(1.14)
====== ===== ===== ====== ====== ======
(1) Net income and earnings per share amounts are after tax
* Not applicable
The restructuring and other infrequent expenses recorded in the full
year 2003 relate primarily to manufacturing facility closure costs and a second
quarter charge related to litigation regarding the Company's U.K. pension plan.
The restructuring and other infrequent expenses recorded in the full year of
2002 relate primarily to the closure of the Coventry, England manufacturing
facility as well as other rationalization plans. The restricted stock
compensation recorded during the full year of 2002 primarily relates to first
and fourth quarter awards earned under the Company's LTIP.
Net sales for the full year of 2003 increased approximately 20%
primarily due to higher sales in North America and South America, incremental
sales of the new Challenger product line and the acquired Sunflower brand and
positive currency translation. Adjusted operating income improved to $211.7
million for the full year of 2003 compared to $190.8 million for 2002.
Operating earnings increased in most of AGCO's markets outside Europe primarily
due to improved industry demand. In Europe, operating earnings declined as a
result of production transition inefficiencies, sales mix and higher pension
costs. AGCO's full year gross margins declined from 18.2% in 2002 to 17.6% in
2003. Production inefficiencies related to the transfer of production from the
Coventry plant as well as a new OEM supply arrangement in AGCO's Randers,
Denmark combine manufacturing facility contributed to the margin decline. In
addition, gross margins were negatively impacted by currency impacts on
European and South
American production sold in other markets. Adjusted net income in 2003 was also
negatively impacted by higher interest expense, foreign exchange losses and a
higher effective income tax rate compared to 2002. Reported operating income
and net income also improved for the full year of 2003 compared to 2002
primarily resulting from decreased restricted stock compensation expense and
lower restructuring and other infrequent expenses in 2003.
REGIONAL MARKET RESULTS
North America - Industry unit retail sales of tractors for the full
year of 2003 increased approximately 19% over the comparable prior year period
resulting from strong increases in the compact tractor and utility tractor
segments and a moderate increase in the high horsepower tractor segment.
Industry unit retail sales of combines were approximately 2% lower than the
prior year. Conditions in the North American market generally improved
throughout 2003 due to higher commodity prices and improved weather conditions
relative to 2002. AGCO's unit retail sales of tractors for the full year of
2003 were up slightly while combines were lower than the prior year.
Western Europe - Industry unit retail sales of tractors in Western
Europe for the full year of 2003 decreased approximately 2% over the comparable
prior period. Sales results were mixed with more significant declines in
Germany and Spain where dry weather conditions impacted demand. Unit sales in
AGCO's key market of Germany were 8% below 2002 due to severe drought
conditions and economic uncertainty. AGCO's unit retail sales for the full year
of 2003 also decreased when compared to the prior year period.
South America - Industry unit retail sales of tractors and combines
for the full year of 2003 increased approximately 1% and 25%, respectively,
over the comparable prior year period primarily resulting from strong increases
in the Argentina market. Industry tractor sales in the largest market of Brazil
declined due to revisions in government financing subsidies. AGCO's South
American unit retail sales of tractors and combines also increased in the full
year 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 full year of 2003 were higher than the
prior year particularly in Eastern Europe and Australia.
Sprayers - Industry unit retail sales of sprayers in North America
were up approximately 5% for the full year of 2003 compared to 2002. AGCO's
unit retail sales of sprayers in 2003 in North America were flat compared to
2002. Industry sales recovered in the second half to offset declines in the
first half of 2003.
"We saw many positive signs for improved industry demand in 2003 in
many of our markets," stated Mr. Ratliff. "However, the drought conditions in
Europe impacted our profitability particularly due to the weak high horsepower
tractor demand in Germany."
VALTRA ACQUISITION COMPLETED
On January 5, 2004, AGCO completed the acquisition of Valtra from Kone
Corporation, a Finnish company. The purchase price was 600.6 million Euros, net
of acquired cash of approximately 21.4 million Euros (or approximately $755.9
million, net) and is subject to customary closing adjustments.
Valtra is a global tractor and off-road engine manufacturer with net
sales of approximately $902.2 million for the twelve months ended September 30,
2003. Valtra is the market leader for tractors in the Nordic region of Europe
and also has a significant presence in the Latin America tractor market. Valtra
also produces off-road diesel engines, sold under the Sisu Diesel brand.
The acquisition was funded with proceeds from a new $450.0 million
term loan, a $100.0 million bridge loan facility and a $201.3 million
convertible notes offering completed in December 2003. Concurrent with the
transaction, AGCO also completed a new five-year $300.0 million revolving
credit facility which refinanced its existing $350.0 million revolving credit
facility. AGCO intends to refinance the bridge loan facility and a portion of
its other outstanding borrowings with common stock and debt offerings in the
next several months, although the timing of the refinancing has not been
determined and is subject to satisfactory market conditions.
Mr. Ratliff commented, "We are pleased to add Valtra and Sisu Diesel
to the AGCO group of brands and companies. This acquisition provides an
unequalled opportunity for AGCO to expand its business in significant global
markets by utilizing the technology and productivity leadership present in this
outstanding company. We have started the process of integrating Valtra in our
operating plans and strategies as well as identifying opportunities to exchange
technology and leverage our combined distribution."
OUTLOOK
Current industry fundamentals are favorable entering into 2004 with
relatively high commodity prices contributing to strong farm income. In North
America, high farm income and favorable tax incentives are expected to
stimulate an improvement in equipment demand in 2004. In Europe, industry
demand is expected to remain at or slightly below current levels due to the
impact of drought conditions in 2003, uncertainty surrounding CAP reforms, and
the impact of the strong Euro on export demand. Increased demand from new EU
entrants is expected to continue in 2004. South America industry demand is also
expected to be at or slightly below 2003 levels. Brazilian government
subsidized financing programs are expected to be reduced in 2004, which is
likely to moderate demand.
AGCO expects to increase adjusted earnings per share by 20 - 30% in
2004. This growth is expected to be achieved from the impact of new products,
cost reduction initiatives and the elimination of production inefficiencies
experienced in 2003. Reported earnings per share are expected to grow by 50 to
60% during 2004 due to the reduction in restructuring and other infrequent
expenses related to plant closures incurred in 2003. For 2004, the addition of
Valtra is expected to be dilutive only after the impact of non-cash
amortization of purchased intangibles. AGCO also expects to generate free cash
flow (operating cash flow less capital expenditures) of $75 million to $100
million in 2004. Capital expenditures are expected to be $90 to $100 million
during 2004. For the first quarter of 2004, AGCO's earnings per share is
expected to be negatively impacted relative to 2003 by the addition of Valtra's
seasonally low first quarter results and one-time costs related to the
acquisition and debt refinancing. As a result, AGCO's first quarter adjusted
earnings per share is expected be between $0.10 and $0.15 per share. Reported
earnings per share is also expected to be between $0.10 and $0.15 per share.
"We are optimistic that we can demonstrate sales growth and margin
improvement in 2004," stated Mr. Ratliff. "With the addition of Valtra and our
other growth initiatives, we also believe we are improving the long-term
competitiveness and profitability of AGCO."
SEC INQUIRY
Subsequent to year end, AGCO received an informal inquiry from the SEC
asking AGCO for its policies and related information with regard to AGCO's
accounting for revenue recognition (particularly bill and hold transactions),
sales and sales returns and allowances, plant and facility closing costs and
reserves, and personal use of corporate aircraft.
In some cases, AGCO recognizes revenue when equipment remains on its
premises after having been invoiced to the dealer (referred to as bill and hold
transactions). These transactions occur at a dealer's request, usually in order
to arrange for its own transportation of the equipment. At December 31, 2003 and
2002, AGCO had recorded sales (before discounts and allowances) of approximately
$32.8 million and $29.9 million, respectively, where equipment was invoiced but
remained on AGCO's premises. For 2003, if AGCO had recognized revenue only upon
shipment of equipment, this would have resulted in an increase in sales of
approximately $29.9 million in the first quarter of 2003 and a decrease in sales
of approximately $32.8 million in the fourth quarter of 2003. The impact to
prior years would be similar, although the amounts would differ depending on the
actual level of bill and hold transactions at year end.
AGCO does not generally permit returns other than returns during
annual parts return programs or upon a dealer's termination where applicable
law requires AGCO to accept the returns. AGCO provides for sales incentive and
parts return allowances at the time of sale or at the time at the program is
put in place.
Since its inception, AGCO has acquired new businesses and closed excess
facilities. AGCO incurs costs and has established reserves in connection with
these facility closures. These costs are reflected as "restructuring and other
infrequent expenses" in our consolidated statements of operations and the
related reserve activity is disclosed in the footnotes of our consolidated
financials statements (see also footnote 2 to these financial statements).
AGCO permits personal use of its corporate aircraft in accordance with
a policy authorized by the Board of Directors in 1999. This use is reported to
the IRS as compensation to the executive in accordance with IRS regulations and
is taken into account - at the IRS amounts - in determining perquisites for
purposes of proxy statement disclosure.
AGCO has responded to the SEC's inquiry and intends to cooperate
fully with the SEC going forward.
SAFE HARBOR STATEMENT
Statements which are not historical facts, including future results, earnings
and cash flow projections and expectations regarding the Valtra acquisition,
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. 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, February 5, 2004.
Interested persons can access the conference call via the Company's website at
www.agcocorp.com. A replay will be available beginning approximately two hours
after the conclusion of the conference call for twelve months following the
call. 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 over 140 countries. AGCO
offers a full product line including tractors, combines, hay tools, sprayers,
forage, tillage equipment and implements through more than 8,600 independent
dealers and distributors around the world. AGCO products are distributed under
the brand names AGCO(R), Agco Allis(R), AgcoStar(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), SISU(TM) Diesel,
Soilteq(TM), Spra-Coupe(R), Sunflower(R), Terra-Gator(R), Tye(R), Valtra(R),
White(TM), 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 2003, AGCO had net sales of $3.5 billion.
# # # # #
Please visit out website at www.agcocorp.com.
AGCO CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited, in millions)
December 31, December 31,
2003 2002
------------ ------------
ASSETS
Current Assets:
Cash and cash equivalents $ 147.0 $ 34.3
Accounts and notes receivable, net 553.6 497.4
Inventories, net 803.6 708.6
Other current assets 180.3 171.9
---------- ----------
Total current assets 1,684.5 1,412.2
Property, plant and equipment, net 434.2 343.7
Investment in affiliates 91.6 78.5
Other assets 211.3 120.0
Intangible assets, net 417.8 394.6
---------- ----------
Total assets $ 2,839.4 $ 2,349.0
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 393.2 $ 312.0
Accrued expenses 490.2 445.2
Other current liabilities 45.7 27.8
---------- ----------
Total current liabilities 929.1 785.0
Long-term debt 711.1 636.9
Pensions and postretirement health care benefits 197.5 131.9
Other noncurrent liabilities 95.6 77.6
---------- ----------
Total liabilities 1,933.3 1,631.4
---------- ----------
Stockholders' Equity:
Common stock 0.8 0.8
Additional paid-in capital 590.3 587.6
Retained earnings 635.0 560.6
Unearned compensation (0.5) (0.7)
Accumulated other comprehensive loss (319.5) (430.7)
---------- ----------
Total stockholders' equity 906.1 717.6
---------- ----------
Total liabilities and stockholders' equity $ 2,839.4 $ 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 December 31,
-------------------------------
2003 2002
----------- ----------
Net sales $ 1,035.1 $ 839.9
Cost of goods sold 859.2 693.1
----------- ----------
Gross profit 175.9 146.8
Selling, general and administrative expenses 92.0 76.2
Engineering expenses 20.1 15.8
Restricted stock compensation expense 0.1 15.6
Restructuring and other infrequent expenses (0.2) 9.4
Amortization of intangibles 0.4 0.4
----------- ----------
Income from operations 63.5 29.4
Interest expense, net 14.3 15.2
Other expense, net 6.0 6.9
----------- ----------
Income before income taxes and equity in net earnings
of affiliates 43.2 7.3
Income tax provision 16.4 93.5
----------- ----------
Income (loss) before equity in net earnings of affiliates 26.8 (86.2)
Equity in net earnings of affiliates 3.0 4.2
----------- ----------
Net income (loss) $ 29.8 $ (82.0)
============ ===========
Net income (loss) per common share:
Basic $ 0.40 $ (1.09)
============ ===========
Diluted $ 0.39 $ (1.09)
============ ===========
Weighted average number of common and common equivalent
shares outstanding:
Basic 75.3 74.9
============ ===========
Diluted 75.7 74.9
============ ===========
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)
Year Ended December 31,
--------------------------
2003 2002
----------- -----------
Net sales $ 3,495.3 $ 2,922.7
Cost of goods sold 2,878.9 2,390.9
----------- -----------
Gross profit 616.4 531.8
Selling, general and administrative expenses 331.6 282.4
Engineering expenses 71.4 57.2
Restricted stock compensation expense 0.6 44.1
Restructuring and other infrequent expenses 27.6 42.7
Amortization of intangibles 1.7 1.4
----------- -----------
Income from operations 183.5 104.0
Interest expense, net 60.0 57.4
Other expense, net 25.2 20.8
----------- -----------
Income before income taxes, equity in net earnings of affiliates and
cumulative effect of a change in accounting principle 98.3 25.8
Income tax provision 41.3 99.8
----------- -----------
Income (loss) before equity in net earnings of affiliates and cumulative
effect of a change in accounting principle 57.0 (74.0)
Equity in net earnings of affiliates 17.4 13.7
----------- -----------
Income (loss) before cumulative effect of a change in accounting principle 74.4 (60.3)
Cumulative effect of a change in accounting principle, net of taxes -- (24.1)
----------- -----------
Net income (loss) $ 74.4 $ (84.4)
=========== ===========
Net income (loss) per common share:
Basic:
Income (loss) before cumulative effect of a change in accounting principle $ 0.99 $ (0.81)
Cumulative effect of a change in accounting principle, net of taxes -- (0.33)
----------- -----------
Net income (loss) $ 0.99 $ (1.14)
=========== ===========
Diluted:
Income (loss) before cumulative effect of a change in accounting principle $ 0.98 $ (0.81)
Cumulative effect of a change in accounting principle, net of taxes -- (0.33)
----------- -----------
Net income (loss) $ 0.98 $ (1.14)
=========== ===========
Weighted average number of common and common equivalent shares outstanding:
Basic 75.2 74.2
=========== ===========
Diluted 75.6 74.2
=========== ===========
See accompanying notes to condensed consolidated financial statements.
AGCO CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited and in millions)
Year Ended December 31,
--------------------------
2003 2002
--------- ---------
Cash flows from operating activities:
Net income (loss) $ 74.4 $ (84.4)
--------- ---------
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Cumulative effect of a change in accounting principle, net of taxes -- 24.1
Depreciation and amortization 64.2 50.9
Amortization of intangibles 1.7 1.4
Restricted stock compensation 0.4 24.4
Equity in net earnings of affiliates, net of cash received (0.8) (2.7)
Deferred income tax (benefit) provision (12.3) 48.4
Loss on write-down of property, plant and equipment 1.6 11.6
Changes in operating assets and liabilities net of effect
from purchase of businesses:
Accounts and notes receivable, net 11.5 43.4
Inventories, net 13.8 (119.0)
Other current and noncurrent assets (20.4) 2.2
Accounts payable (16.5) 7.4
Accrued expenses (50.9) 66.2
Other current and noncurrent liabilities 21.3 (0.7)
--------- ---------
Total adjustments 13.6 157.6
--------- ---------
Net cash provided by operating activities 88.0 73.2
--------- ---------
Cash flows from investing activities:
Purchase of property, plant and equipment (78.7) (54.9)
Proceeds from sales of property, plant and equipment 14.9 13.8
Sale/(purchase) of businesses, net of cash acquired 1.5 (60.7)
Sale of unconsolidated affiliates 4.5 1.2
--------- ---------
Net cash used in investing activities (57.8) (100.6)
--------- ---------
Cash flows from financing activities:
Proceeds from long-term debt, net 84.3 22.2
Proceeds from issuance of common stock 2.6 10.3
Payment of debt issuance costs (9.9) --
--------- ---------
Net cash provided by financing activities 77.0 32.5
--------- ---------
Effect of exchange rate changes on cash and cash equivalents 5.5 0.3
--------- ---------
Increase in cash and cash equivalents 112.7 5.4
Cash and cash equivalents, beginning of period 34.3 28.9
--------- ---------
Cash and cash equivalents, end of period $ 147.0 $ 34.3
========= =========
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.
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 ceased in May 2003 and was relocated and resumed in the Minnesota
facility in June 2003. In connection with the restructuring plan, the Company
recorded approximately $2.5 million of restructuring and other infrequent
expenses during 2003. The components of the restructuring expenses are
summarized in the following table:
Write-down Facility
of Relocation
Property, Employee and Facility
Plant and Employee Retention Transition Closure
Equipment Severance Payments Costs Costs Total
--------- --------- --------- ---------- -------- -------
2003 provision $ 0.5 $ 0.5 $ 0.2 $ 0.8 $ 0.5 $ 2.5
Less: Non-cash expense 0.5 -- -- -- -- 0.5
------ ------ ------ ------ ------ ------
Cash expense -- 0.5 0.2 0.8 0.5 2.0
2003 cash activity -- (0.5) (0.2) (0.8) (0.5) (2.0)
------ ------ ------ ------ ------ ------
Balances as of
December 31, 2003 $ -- $ -- $ -- $ -- $ -- $ --
====== ====== ====== ====== ====== ======
The write-down of property, plant and equipment represents the
impairment of real estate resulting from the facility closure and based upon the
estimated fair value of the assets compared to their carrying value. The
estimated fair value of the real estate was determined based on current
conditions in the market. The severance costs relate to the termination of 134
employees, following the completion of production at the DeKalb facility. As of
December 31, 2003, all employees have been terminated. The employee retention
payments relate to incentives paid to DeKalb employees who remain employed until
certain future termination dates and were accrued over the term of the retention
period. The severance costs were also accrued over the term of the retention
period, as employees were entitled to severance payments only if they remained
in service through their scheduled termination dates. Certain employees
relocated to the Jackson, Minnesota facility, and costs associated with
relocation were expensed as incurred. A portion of the machinery and equipment
and all tooling located at DeKalb were relocated to the Jackson, Minnesota
facility during the second quarter. The remaining portion of machinery and
equipment will be sold or disposed. The buildings, land and improvements are
being marketed for sale.
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 -- -- 10.2 1.8 12.0
2003 cash activity -- (8.9) (26.7) (2.5) (38.1)
Foreign currency translation -- 1.2 0.5 0.2 1.9
Balances as of
------- ------- ------- ------- -------
December 31, 2003 $ -- $ 0.5 $ 2.0 $ 1.6 $ 4.1
======= ======= ======= ======= =======
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 are being
marketed for sale. The severance costs relate to the termination of 1,054
employees. As of December 31, 2003, 1,024 employees have been terminated. 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. During
the fourth quarter of 2003, the Company sold machinery and equipment at auction
and as a result of those sales, recognized a net gain of approximately $2.0
million. This gain has been reflected in "Restructuring and other infrequent
expenses" in the Company's Condensed Consolidated Statements of Operations. The
$4.1 million of restructuring costs accrued at December 31, 2003 are expected to
be incurred during 2004.
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 who take early retirement and 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 a normal retirement age of 65. In December
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
Company appealed the High Court's ruling, and in July 2003, the Court of Appeal
ruled that employees terminated as a result of the closure of the Coventry
facility do not qualify for full pensions, thereby reversing the earlier High
Court ruling for this aspect of the case, but ruled that other employees might
qualify. The Court of Appeal ruling is subject to further appeal.
As a result of the ruling, certain employees terminated in prior years
under voluntary retirement arrangements may be entitled to additional payments,
and therefore the Company recorded a charge in the second quarter of 2003,
included in "Restructuring and other infrequent expenses", of approximately
$12.4 million to reflect its current estimate of the additional pension
liability associated with previous early retirement programs. The timing of the
Company's obligation to fund cash into the pension plan with respect to this
increased liability, as well as the Company's existing liability, depends on
many factors including the overall funded status of the plan and the investment
returns of the plan's assets and is the subject of ongoing
negotiations with representatives of the beneficiaries of the pension plan.
In addition, during 2002, the Company initiated several rationalization
plans and recorded restructuring and other infrequent expenses of $3.4 million.
The expenses 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 year ended December 31, 2003, the Company recorded an
additional $1.2 million of restructuring and other infrequent expenses
associated with the rationalization initiatives in Germany as well as a European
combine engineering rationalization that was initiated during 2003. A total of
$3.6 million of severance costs have been recorded associated with these
activities, and relate to the termination of approximately 180 employees in
total. At December 31, 2003, a total of approximately $3.8 million of expenses
had been incurred and paid. The remaining accrued balance of $0.8 million as of
December 31, 2003 is expected to be incurred during 2004.
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. The Company expensed approximately $4.5 million and $24.9
million associated with these rationalizations during 2001 and 2000,
respectively, and had $1.0 million of costs accrued related to these
rationalizations as of December 31, 2001. The Company did not record any
additional restructuring and other infrequent expenses in 2002 or 2003 related
to these closures. The Company incurred approximately $0.5 million of expenses
in each of the years ending December 31, 2002 and 2003, respectively. There are
no remaining costs accrued related to these rationalizations as of December 31,
2003.
During 2001, the Company rationalized certain facilities as part of the
Ag-Chem acquisition integration. The Company consolidated its existing Willmar,
Minnesota manufacturing facility as part of this rationalization into Ag-Chem's
Jackson, Minnesota manufacturing plant and since that date have been marketing
the Willmar facility and real estate for sale. During the fourth quarter of
2003, the Company wrote down the carrying value of the real estate to its
estimated fair value. The estimated fair value of the real estate was determined
based on current conditions in the market. The write-down of the real estate of
approximately $1.5 million was reflected in "Restructuring and other infrequent
expenses" in the Company's Condensed Consolidated Statements of Operations.
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, 2003 indicated no further reduction in the
carrying amount of goodwill was required in 2003. The Company will conduct
analyses on an interim basis if an event occurs or circumstances change that
would result in the reduction of the fair value of a reporting unit below its
carrying value.
4. LONG-TERM DEBT
Long-term debt consisted of the following at December 31, 2003 and
2002, respectively:
2003 2002
--------- ---------
Revolving credit facility $ -- $ 126.9
1 3/4% Convertible senior subordinated notes due 2033 201.3 --
9 1/2% Senior notes due 2008 250.0 250.0
8 1/2% Senior subordinated notes due 2006 249.3 249.1
Other long-term debt 10.5 10.9
--------- ---------
Total long-term debt $ 711.1 $ 636.9
========= =========
On December 23, 2003, the Company issued $201.3 million of 1 3/4%
convertible senior subordinated notes due 2033 under a private placement
offering. The convertible senior subordinated notes are unsecured obligations
and are convertible into shares of the Company's common stock upon satisfaction
of certain conditions, as discussed below. Interest is payable on the notes at 1
3/4% per annum, payable semi-annually in arrears in cash on June 30 and December
31 of each year, beginning June 30, 2004.
The convertible senior subordinated notes are convertible into shares
of the Company's common stock at an effective price of $22.36 per share, subject
to adjustment. Holders of the notes may convert the notes into shares of the
Company's common stock at a conversion rate of 44.7193 shares per $1,000
principal amount of notes, subject to adjustment, before close of business on
December 31, 2033, only under the following circumstances: (1) during any fiscal
quarter commencing after March 31, 2004, if the closing sales price of the
Company's common stock exceeds 120% of the conversion price for at least 20
trading days in the 30 consecutive trading days ending on the last trading day
of the preceding fiscal quarter; (2) during the five business day period after a
five consecutive trading day period in which the trading price per note for each
day of that period was less than 98% of the product of the closing sale price of
the Company's common stock and the conversion rate; (3) if the notes have been
called for redemption; or (4) upon the occurrence of certain corporate
transactions, as defined. Beginning January 1, 2011, the Company may redeem any
of the notes at a redemption price of 100% of their principal amount, plus
accrued interest. Holders of the notes may require the Company to repurchase the
notes at a repurchase price of 100% of their principal amount, plus accrued
interest on December 31 of 2010, 2013, 2018, 2023 and 2028.
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 December 31, 2003 and 2002, respectively, were as
follows:
2003 2002
---------- ----------
Finished goods $ 285.3 $ 288.5
Repair and replacement parts 270.2 235.5
Work in process, production parts and raw materials 248.1 184.6
---------- ----------
Inventories, net $ 803.6 $ 708.6
========== ==========
6. ACCOUNTS RECEIVABLE SECURITIZATION
At December 31, 2003, the Company had accounts receivable
securitization facilities in the United States, Canada, and Europe totaling
approximately $448.5 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 approximately
$448.4 million and $423.9 million at December 31, 2003 and 2002, respectively.
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 years ended
December 31, 2003 and 2002 were $14.6 million and $14.8 million, respectively.
7. CONSOLIDATION OF JOINT VENTURE
In January 2003, the FASB issued Interpretation No. 46, "Consolidation
of Variable Interest Entities" ("FIN 46"), as revised in December 2003, which
addresses the consolidation by business enterprises of variable interest
entities, to which the usual condition of consolidation, a controlling financial
interest, does not apply. FIN 46 requires an entity to assess its equity
investments to determine if they are variable interest entities. As defined in
FIN 46, variable interests are contractual, ownership or other interests in an
entity that change with changes in the entity's net asset value. Variable
interests in an entity may arise from financial instruments, service contracts,
guarantees, leases or other arrangements with the variable interest entity. An
entity that will absorb a majority of the variable interest entity's expected
losses or expected residual returns, as defined in FIN 46, is considered the
primary beneficiary of the variable interest entity. The primary beneficiary
must include the variable interest entity's assets, liabilities and results of
operations in its consolidated financial statements. FIN 46 is immediately
effective for all variable interest entities created after January 31, 2003. For
variable interest entities created prior to this date, the provisions of FIN 46
must be applied no later than the first interim period beginning after December
15, 2003; however, all public companies must apply the unmodified provisions of
FIN 46 to entities considered "special purpose entities" by the end of the first
reporting period after December 15, 2003.
The Company currently has equity interests in joint ventures with other
entities. For those joint ventures where the Company is not the primary
beneficiary as determined under FIN 46, the Company accounts for its investments
under the equity method of accounting. The Company analyzed the provisions of
FIN 46 as they relate to the accounting for its investments in joint ventures
and determined that it is the primary beneficiary of one of its joint ventures,
GIMA.
GIMA was established in 1994 between the Company and Renault
Agriculture S.A. ("Renault") to cooperate in the field of purchasing, design and
manufacturing of components for agricultural tractors. Each party has a current
investment of $4.8 million in the joint venture. GIMA has no third party debt
obligations.
Under the terms of the GIMA agreement, either party may give notice
that it wishes to sell its shares to the other party. The party receiving notice
is obligated to purchase the shares within eighteen months. Per the GIMA
agreement, the share price will be 25% of the net worth of the joint venture.
On July 1, 2003, the Company began consolidating the accounts of GIMA.
Historically, the Company accounted for its investment in GIMA under the equity
method. The consolidation of GIMA did not have a material impact on the results
of operations or financial position of the Company. The equity interest of
Renault is reported as a minority interest, included in "Other noncurrent
liabilities" in the accompanying Condensed Consolidated Balance Sheet for the
year ended December 31, 2003.
8. SEGMENT REPORTING
The Company has five reportable segments: North America; South America;
Europe/Africa/Middle East; Asia/Pacific; and Sprayer Division. Each regional
segment distributes a full range of agricultural equipment and related
replacement parts. The Sprayer division manufactures and distributes
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 and year
ended December 31, 2003 and 2002 are as follows:
Three Months Ended North South Europe/Africa Asia/ Sprayer
December 31, America America /Middle East Pacific Division Consolidated
- ------------------------------- ----------- --------- --------------- ---------- ---------- --------------
2003
Net sales $ 270.5 $ 125.7 $ 516.7 $ 50.8 $ 71.4 $1,035.1
Income (loss) from operations (3.6) 21.1 33.7 8.4 4.2 63.8
2002
Net sales $ 239.0 $ 71.2 $ 434.4 $ 31.3 $ 64.0 $ 839.9
Income (loss) from operations (4.0) 9.6 40.4 6.5 2.3 54.8
North South Europe/Africa Asia/ Sprayer
Year Ended December 31, America America /Middle East Pacific Division Consolidated
- ------------------------------- ----------- --------- --------------- ---------- ---------- --------------
2003
Net sales $ 925.3 $ 416.3 $ 1,734.2 $ 144.0 $ 275.5 $3,495.3
Income (loss) from operations (2.4) 60.5 112.8 23.2 19.3 213.4
2002
Net sales $ 791.0 $ 270.8 $ 1,486.4 $ 107.1 $ 267.4 $2,922.7
Income (loss) from operations (6.9) 30.5 133.0 19.4 16.2 192.2
A reconciliation from the segment information to the consolidated
balances for income from operations is set forth below:
Three Months Ended Year Ended
December 31, December 31,
--------------------------- ---------------------------
2003 2002 2003 2002
--------- --------- --------- ---------
Segment income from operations $ 63.8 $ 54.8 $ 213.4 $ 192.2
Restricted stock compensation expense (0.1) (15.6) (0.6) (44.1)
Restructuring and other infrequent expenses 0.2 (9.4) (27.6) (42.7)
Amortization of intangibles (0.4) (0.4) (1.7) (1.4)
--------- --------- --------- ---------
Consolidated income from operations $ 63.5 $ 29.4 $ 183.5 $ 104.0
========= ========= ========= =========
9. SUBSEQUENT EVENT
On January 5, 2004, the Company acquired the Valtra tractor and diesel
engine operations of Kone Corporation, a Finnish company, for (Euro)600.6
million net of approximately (Euro)21.4 million cash acquired (approximately
$755.9 million net) subject to customary closing adjustments. Valtra is a global
tractor and off-road engine manufacturer with market leadership positions in the
Nordic region of Europe and Latin America. Valtra's revenues for the twelve
months ended September 30, 2003 were approximately $902.2 million. The Valtra
acquisition will be accounted for in accordance with SFAS No. 141, "Business
Combinations," and accordingly, the Company will allocate the purchase price to
the assets acquired and the liabilities assumed based on a preliminary estimate
of fair values as of the acquisition date. The Company completed the initial
funding of the (Euro)600.6 million cash purchase price of Valtra through the
issuance of $201.3 million principal amount of convertible senior subordinated
notes (Note 4), funds borrowed under the Company's new credit facility and term
loan facility (with availability up to $750.0 million) which was entered into
January 5, 2004, and $100.0 million borrowed under an interim bridge facility
also closed on January 5, 2004.