AGCO Reports First Quarter Results; Earnings Growth and Valtra Acquisition Highlight Results.Business Editors DULUTH Duluth (dəl  th`), city (1990 pop. 85,493), seat of St. Louis co., NE Minn., at the west end of Lake Superior, at the head of lake navigation and opposite Superior, Wis.; inc. 1870. , Ga.--(BUSINESS WIRE)--April 28, 2004AGCO AGCO Alcohol and Gaming Commission of Ontario AGCO Anderson, Greenwood, & Company AGCO After Google Check-Out Corporation (NYSE NYSE See: New York Stock Exchange :AG), a worldwide designer, manufacturer and distributor of agricultural equipment, reported adjusted net income, excluding restructuring restructuring - The transformation from one representation form to another at the same relative abstraction level, while preserving the subject system's external behaviour (functionality and semantics). expenses and restricted stock compensation, of $0.27 per share for the first quarter ended March 31, 2004. For the first three months of 2003, AGCO reported adjusted net income, excluding restructuring expenses and restricted stock compensation, of $0.23 per share. Reported earnings per share including all items was $0.33 per share for the first quarter ended March 31, 2004 compared to $0.17 per share for the same period in 2003. Net sales Net Sales The amount a seller receives from the buyer after costs associated with the sale are deducted. Notes: This amount is calculated by subtracting the following items from gross sales: merchandise returned for credit, allowances for damaged or missing goods, freight for the first quarter of 2004 were $1.1 billion, an increase of 47% over the comparable period in 2003. "Our first quarter results were better than expected primarily as a result of a strong performance in our South America South America, fourth largest continent (1991 est. pop. 299,150,000), c.6,880,000 sq mi (17,819,000 sq km), the southern of the two continents of the Western Hemisphere. operations," stated Robert Robert, Henry Martyn 1837-1923. American army engineer and parliamentary authority. He designed the defenses for Washington, D.C., during the Civil War and later wrote Robert's Rules of Order (1876). Noun 1. J. Ratliff Ratliff is a surname of English origin. Variations include Ratcliff, Radcliff, Ratcliffe, Radcliffe, and others. In the United States, the surname can be found in all parts of the country but it is not common. , Chairman of the Board. "In addition, our quarterly results include the newly acquired Valtra Valtra is a Finnish based manufacturer of tractors owned by the AGCO Corporation. Valtra traces its origin to Valmet, Bolinder, Munktell and Volvo. Bolinder-Munktell merged with Volvo in 1950 to form BM Volvo. tractor tractor, in agriculture, vehicle used to pull such equipment as plows, cultivators, and mowers; to power stationary devices such as saws and winches; and to push snowplows and earth-moving implements. and diesel engine business. We welcome this fine organization into the AGCO system. Overall, we are pleased with our performance to date and continue to forecast improved earnings and cash flow in 2004." First Quarter Results For the first quarter of 2004, AGCO reported net sales of $1,115.7 million and net income of $25.0 million, or $0.33 per share. Adjusted net income, excluding restructuring expenses and restricted stock compensation, was $20.7 million, or $0.27 per share. For the first quarter of 2003, AGCO reported net sales of $757.2 million and net income of $12.5 million, or $0.17 per share. Adjusted net income, excluding restructuring expenses and restricted stock compensation, in 2003 was $17.1 million, or $0.23 per share. The following is a reconciliation of adjusted operating income Operating Income The profit realized from a business' own operations. Notes: This would not include income from things such as investments in other firms. Also referred to as operating profit or recurring profit. , net income and earnings per share to reported operating income, net income and earnings per share for the quarters ended March 31, 2004 and 2003:
2004 2003
-------------------------- -------------------------
(in millions, except per share data)
Earnings Earnings
Operating Net Per Operating Net Per
Income Income Share Income Income Share
--------- ------- -------- --------- ------ --------
As adjusted $57.9 $20.7 $0.27 $45.0 $17.1 $0.23
Restructuring and
other infrequent
(income) expenses(1) (6.6) (4.6) (0.06) 7.0 4.5 0.06
Restricted stock
compensation(1) 0.3 0.3 -- 0.1 0.1 --
--------- ------- -------- --------- ------ --------
As reported $64.2 $25.0 $0.33 $37.9 $12.5 $0.17
========= ======= ======== ========= ====== ========
(1) Net income and earnings per
share amounts are after tax
The restructuring and other infrequent in·fre·quent adj. 1. Not occurring regularly; occasional or rare: an infrequent guest. 2. (income) expenses recorded in the first quarter of 2004 relate primarily to the gain on the sale of the Company's Coventry Coventry, city, England Coventry (kŏv`əntrē, kŭv`–), city (1991 pop. 318,718) and metropolitan district, central England. Coventry is an industrial center noted for its automobile production. , England England, the largest and most populous portion of the United Kingdom of Great Britain and Northern Ireland (1991 pop. 46,382,050), 50,334 sq mi (130,365 sq km). It is bounded by Wales and the Irish Sea on the west and Scotland on the north. facility, which occurred in January January: see month. 2004. The land, buildings and improvements were sold for approximately $41 million, of which $34.4 million was received in the first quarter of 2004, with the balance to be received in the first quarter of 2005. The restructuring and other infrequent expenses in the first quarter of 2003 relate primarily to the closure of the Coventry facility as well as other rationalization rationalization, in psychology: see defense mechanism. plans. AGCO's net sales for the first quarter increased 47% primarily due to the acquisition of Valtra in January 2004, higher sales in South America, and positive currency translation impacts. Excluding Valtra, which generated net sales of approximately $225.2 million in the first quarter, the consolidation of the GIMA transmission joint venture and the impact of currency translation, net sales increased approximately 4% in 2004 over 2003. Adjusted operating income improved to $57.9 million in the first quarter of 2004 compared to $45.0 million in 2003, primarily resulting from the contribution of Valtra and increases in South America. Operating income in AGCO's South America operations increased as a result of the addition of Valtra as well as sales growth and margin improvements aided by strong market conditions in the region. In Europe/Africa/Middle East, operating income was slightly lower than the prior year due to weaker first quarter market conditions and unfavorable sales mix sales mix See product mix. which negatively impacted margins. In North America North America, third largest continent (1990 est. pop. 365,000,000), c.9,400,000 sq mi (24,346,000 sq km), the northern of the two continents of the Western Hemisphere. , AGCO's retail sales activity improved in 2004 due to stronger market conditions. Operating income in North America was lower than 2003 resulting from the timing of wholesale deliveries to dealers compared to 2003 and the unfavorable margin impact of the strong Euro on products sourced from European European emanating from or pertaining to Europe. European bat lyssavirus see lyssavirus. European beech tree fagussylvaticus. European blastomycosis see cryptococcosis. production facilities. AGCO's Asia/Pacific region reported higher operating income in 2004 resulting from improved market conditions in key markets. Adjusted operating income was also negatively impacted by additional non-cash amortization of purchased intangibles resulting from the Valtra acquisition. Reported operating income and net income also improved in the first quarter of 2004 compared to 2003 from lower restructuring and other infrequent expenses in 2004 and the gain recorded related to the sale of the Coventry facility. Regional Market Results North America - Industry unit retail sales of tractors for the first quarter of 2004 increased approximately 19% over the comparable prior year period resulting from increases in all tractor segments. Industry unit retail sales of combines were approximately 6% higher than the prior year. AGCO's unit retail sales of tractors and combines were also higher in the first quarter of 2004 over 2003. Western Europe Western Europe The countries of western Europe, especially those that are allied with the United States and Canada in the North Atlantic Treaty Organization (established 1949 and usually known as NATO). - Industry unit retail sales of tractors for the first quarter of 2004 decreased approximately 5% over the comparable prior period. Results were unfavorable with moderate increases in the United Kingdom offset by declines in Germany Germany (jûr`mənē), Ger. Deutschland, officially Federal Republic of Germany, republic (2005 est. pop. 82,431,000), 137,699 sq mi (356,733 sq km). , France, Scandinavia Scandinavia (skăn'dĭnā`vēə), region of N Europe. It consists of the kingdoms of Sweden, Norway, and Denmark; Finland and Iceland are usually considered part of Scandinavia. , Spain Spain, Span. España (āspä`nyä), officially Kingdom of Spain, constitutional monarchy (2005 est. pop. 40,341,000), 194,884 sq mi (504,750 sq km), including the Balearic and Canary islands, SW Europe. and Italy Italy (ĭt`əlē), Ital. Italia, officially Italian Republic, republic (2005 est. pop. 58,103,000), 116,303 sq mi (301,225 sq km), S Europe. . Including the impact of Valtra sales in both periods, AGCO's unit retail sales for the first quarter of 2004 increased slightly when compared to the prior year period. South America - Industry unit retail sales of tractors in the first quarter of 2004 increased approximately 25% over the prior year. Tractor demand increased moderately in the large market of Brazil Brazil (brəzĭl`), Port. Brasil, officially Federative Republic of Brazil, republic (2005 est. pop. 186,113,000), 3,286,470 sq mi (8,511,965 sq km), E South America. with more significant increases in Argentina Argentina (ärjəntē`nə, Span. ärhāntē`nä), officially Argentine Republic, republic (2005 est. pop. 39,538,000), 1,072,157 sq mi (2,776,889 sq km), S South America. and other South American American, river, 30 mi (48 km) long, rising in N central Calif. in the Sierra Nevada and flowing SW into the Sacramento River at Sacramento. The discovery of gold at Sutter's Mill (see Sutter, John Augustus) along the river in 1848 led to the California gold rush of markets. Industry retail sales of combines for the first quarter were 62% higher than the prior year, with significant increases in both Brazil and Argentina. Including the impact of Valtra sales in both periods, AGCO's South American unit retail sales of tractors and combines also increased significantly in the first quarter of 2004 compared to the same period in 2003. Rest of World Markets - Outside of North America, Western Europe and South America, AGCO's net sales for the first quarter of 2004, excluding Valtra, were below the prior year primarily due to lower sales in the Middle East. "In general, high commodity prices and improving farm income has generated stronger retail activity in North and South America in 2004," stated Mr. Ratliff. "In Europe Europe (y  r`əp), 6th largest continent, c.4,000,000 sq mi (10,360,000 sq km) including adjacent islands (1992 est. pop. 512,000,000). , the market results for
the first quarter reflect the continued effects of the drought drought, abnormally long period of insufficient rainfall. Drought cannot be defined in terms of inches of rainfall or number of days without rain, since it is determined by such variable factors as the distribution in time and area of precipitation during and before which
occurred in 2003. AGCO's positive retail sales performance in the
first quarter reflects the favorable fa·vor·a·ble adj. 1. Advantageous; helpful: favorable winds. 2. Encouraging; propitious: a favorable diagnosis. 3. customer response to our new products introduced in 2004." Valtra Acquisition Completed On January 5, 2004, AGCO acquired the Valtra tractor and diesel engine operations of Kone Corporation, a Finnish company, for EUR EUR In currencies, this is the abbreviation for the Euro. Notes: The currency market, also known as the Foreign Exchange market, is the largest financial market in the world, with a daily average volume of over US $1 trillion. 600.6 million, net of cash acquired of approximately EUR 21.4 million (or approximately $755.9 million, net), subject to customary closing adjustments. Valtra is a market leader for tractors in the Nordic region of Europe and has a strong presence in the Latin America Latin America, the Spanish-speaking, Portuguese-speaking, and French-speaking countries (except Canada) of North America, South America, Central America, and the West Indies. tractor market. Valtra also produces off-road off-road adj. Existing, taking place, or designed for use off paved or public roads or in rugged terrain: off-road sports such as snowmobiling. diesel engines, sold under the SisuDiesel name. The Valtra acquisition provides several strategic and financial opportunities to AGCO including access to Valtra's customer base and a quality source of engines. In addition, AGCO plans to benefit from the combination of both companies' technology, supply, production and distribution capabilities. "We believe Valtra will complement our other strategies to improve the long-term Long-term Three or more years. In the context of accounting, more than 1 year. long-term 1. Of or relating to a gain or loss in the value of a security that has been held over a specific length of time. Compare short-term. competitiveness and profitability of AGCO," stated Mr. Ratliff. Equity and Debt Offerings Completed On April 7, 2004, AGCO sold 14,720,000 shares of its common stock in an underwritten public offering and received net proceeds Net Proceeds The amount received after all costs are deducted from the sale of a piece of property or security. Notes: In the case of an investor selling a security, net proceeds represent the proceeds from the sale minus any trading costs (i.e. commissions). of approximately $300 million. AGCO used the net proceeds to repay a $100.0 million interim bridge loan facility, to repay borrowings under its credit facilities credit facilities npl → facilidades fpl de crédito credit facilities npl → facilités fpl de paiement credit facilities , and to pay offering related fees and expenses. On April 23, 2004, AGCO completed an offering of EUR 200.0 million of 6 7/8% senior subordinated notes, and received net proceeds of approximately $234 million. AGCO will use the net proceeds of the offering and available cash to redeem redeem v. to buy back, as when an owner who had mortgaged his/her real property pays off the debt. The term also refers to paying the amount due and all charges after a foreclosure (due to failure to make payments when due) has begun. its $250.0 million 8 1/2% senior subordinated notes on May 24, 2004. "We are pleased to complete the permanent financing Permanent financing Long-term financing using either debt or equity. permanent financing The long-term financing that supports a long-term asset. plan for the Valtra acquisition and the favorable refinancing Refinancing An extension and/or increase in amount of existing debt. of our existing subordinated debt Subordinated Debt A loan (or security) that ranks below other loans (or securities) with regard to claims on assets or earnings. Also known as "junior security" or "subordinated loan". issue," stated Mr. Ratliff. "These financings provide AGCO with a well-balanced well-bal·anced adj. 1. Evenly proportioned, balanced, or regulated. 2. Mentally stable; sensible or sound. well-balanced Adjective sensible and emotionally stable Adj. capital structure and significant currency and tax benefits." Outlook North American North American named after North America. North American blastomycosis see North American blastomycosis. North American cattle tick see boophilusannulatus. industry demand in 2004 is expected to benefit from relatively high commodity prices and improving farm income. In Western Europe, industry demand is expected to continue to be negatively impacted by the effect of unfavorable weather conditions during the first half of 2004, but improve relative to 2003 in the second half of 2004. In South America, industry demand in 2004 is expected to remain strong in Brazil due to high farm income and continued availability of subsidized financing Subsidized financing Funding provided by a government or other entity that is available at a below-market interest rate. . In addition, continued recovery of industry demand is anticipated in Argentina and other markets outside of Brazil. For the full year of 2004, AGCO expects to increase adjusted earnings per share by approximately 25% - 30% over 2003 from the achievement of sales growth and cost reduction initiatives. Adjusted earnings per share in 2003 was $1.25 per share. Reported earnings per share is expected to increase by 60% to 65% due the reduction of restructuring and other infrequent expenses incurred in 2003 related to plant closures. For the second quarter of 2004, AGCO expects to improve adjusted earnings per share by approximately 10% to 20% over 2003. Second quarter earnings are expected to benefit from sales and margin growth offset by one-time one-time adj. 1. or one·time a. Occurring or undertaken only once: a one-time winner in 1995. b. costs related to the redemption of AGCO's 8 1/2% senior subordinated notes. Adjusted earnings per share for the second quarter of 2003 was $0.38 per share. Reported earnings per share for the second quarter is also expected to be higher than 2003 and should approximate adjusted earnings per share. Safe Harbor Safe Harbor 1. A legal provision to reduce or eliminate liability as long as good faith is demonstrated. 2. A form of shark repellent implemented by a target company acquiring a business that is so poorly regulated that the target itself is less attractive. Statement Statements which are not historical facts, including projections of future results, earnings, cashflow, industry demand, restructuring and other infrequent expenses and margin improvement 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 Form 10-K A report required by the SEC from exchange-listed companies that provides for annual disclosure of certain financial information. Form 10-K See 10-K. for the year ended December December: see month. 31, 2003. The Company disclaims any obligation to update any forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. . The Company will be hosting a conference call with respect to this earnings announcement at 11:00 a.m. Eastern Time on Wednesday, April 28, 2004. 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 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 Duluth is a city in Gwinnett County, Georgia, and a suburb of Atlanta located in the Metro Atlanta area. Unincorporated portions of northeast Fulton County and Forsyth County also have Duluth as a mailing address, though this area is technically outside city limits. , 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, diesel engines, forage forage Vegetable food, including corn and hay, of wild or domestic animals. Harvested, processed, and stored forage is called silage. Forage should be harvested in early maturity to avoid a decrease in protein and fibre content as crops mature. , tillage equipment and implements through more than 9,200 independent dealers and distributors around the world. AGCO products are distributed under the brand names AGCO(R), Agco Allis AGCO-Allis agricultural equipment were what AGCO Corporation renamed the Deutz-Allis ag equipment after AGCO purchased the business from Deutz-Fahr and KHD of Germany. The brand traces its roots back to the Allis-Chalmers company. (R), AgcoStar(R), Challenger(R), Farmhand(R), Fendt(R), Fieldstar(R), Gleaner(R), Glencoe(R), Hesston(R), LOR LOR Letter Of Reprimand (military) LoR Lord of the Rings (J.R.R. Tolkien) LOR Learning Object Repository LOR Linux.Org. *AL(R), Massey Ferguson Massey Ferguson Limited is a major agricultural equipment manufacturer. Originally started in Canada it became one of the country's largest industrial concerns in the 1960s. (R), New Idea(R), RoGator(R), SisuDiesel(TM), Soilteq(TM), Spra-Coupe(R), Sunflower sunflower, any plant of the genus Helianthus of the family Asteraceae (aster family), annual or perennial herbs native to the New World and common throughout the United States. (R), TerraGator(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 and Brazil. In 2003, AGCO had net sales of $3.5 billion. Please visit our website at www.agcocorp.com.
AGCO CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited and in millions)
March 31, December 31,
2004 2003
--------- ------------
ASSETS
Current Assets:
Cash and cash equivalents $ 50.3 $ 147.0
Accounts and notes receivable, net 742.1 553.6
Inventories, net 1,133.4 803.6
Other current assets 186.4 180.3
--------- ----------
Total current assets 2,112.2 1,684.5
Property, plant and equipment, net 563.9 434.2
Investment in affiliates 94.9 91.6
Deferred tax assets 149.5 147.5
Other assets 74.8 63.8
Intangible assets, net 236.3 86.1
Goodwill 674.4 331.7
--------- ----------
Total assets $ 3,906.0 $ 2,839.4
========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 6.8 $ 2.2
Accounts payable 572.3 393.2
Accrued expenses 533.3 490.2
Other current liabilities 42.5 43.5
--------- ----------
Total current liabilities 1,154.9 929.1
Long-term debt 1,496.5 711.1
Pensions and postretirement health care benefits 220.6 197.5
Other noncurrent liabilities 127.7 95.6
--------- ----------
Total liabilities 2,999.7 1,933.3
--------- ----------
Stockholders' Equity:
Common stock 0.8 0.8
Additional paid-in capital 590.9 590.3
Retained earnings 660.0 635.0
Unearned compensation (0.4) (0.5)
Accumulated other comprehensive loss (345.0) (319.5)
--------- ----------
Total stockholders' equity 906.3 906.1
--------- ----------
Total liabilities and stockholders' equity $ 3,906.0 $ 2,839.4
========= ==========
See accompanying notes to condensed con·dense v. con·densed, con·dens·ing, con·dens·es v.tr. 1. To reduce the volume or compass of. 2. To make more concise; abridge or shorten. 3. Physics a. consolidated financial statements Consolidated Financial Statements The combined financial statements of a parent company and its subsidiaries. Notes: Because consolidated financial statements present an aggregated look at the financial position of a parent and its subsidiaries, they enable you to gauge .
AGCO CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited and in millions, except per share data)
Three Months Ended
March 31,
------------------
2004 2003
-------- --------
Net sales $1,115.7 $ 757.2
Cost of goods sold 908.0 617.2
-------- --------
Gross profit 207.7 140.0
Selling, general and administrative expenses 119.6 78.7
Engineering expenses 26.2 15.9
Restricted stock compensation expense 0.3 0.1
Restructuring and other infrequent (income) expenses (6.6) 7.0
Amortization of intangibles 4.0 0.4
-------- --------
Income from operations 64.2 37.9
Interest expense, net 22.8 15.0
Other expense, net 5.1 6.7
-------- --------
Income before income taxes and equity in net
earnings of affiliates 36.3 16.2
Income tax provision 16.2 8.1
-------- --------
Income before equity in net earnings of affiliates 20.1 8.1
Equity in net earnings of affiliates 4.9 4.4
-------- --------
Net income $ 25.0 $ 12.5
======== ========
Net income per common share:
Basic $ 0.33 $ 0.17
======== ========
Diluted $ 0.33 $ 0.17
======== ========
Weighted average number of common and common
equivalent shares outstanding:
Basic 75.3 75.1
======== ========
Diluted 75.8 75.6
======== ========
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,
----------------
2004 2003
------- -------
Cash flows from operating activities:
Net income $ 25.0 $ 12.5
------- -------
Adjustments to reconcile net income to net cash used
in operating activities:
Depreciation 20.9 14.0
Deferred debt issuance cost amortization 2.9 0.8
Amortization of intangibles 4.0 0.4
Restricted stock compensation 0.1 0.1
Equity in net earnings of affiliates, net of cash
received (2.4) (1.8)
Deferred income tax expense 3.0 0.6
Gain on sale of property, plant and equipment (7.0) --
Changes in operating assets and liabilities net of
effects
from purchase of businesses:
Accounts and notes receivable, net (26.8) (84.9)
Inventories, net (180.0) (90.6)
Other current and noncurrent assets (1.4) (0.5)
Accounts payable 98.8 8.4
Accrued expenses (36.8) (54.9)
Other current and noncurrent liabilities (22.3) 1.3
------- -------
Total adjustments (147.0) (207.1)
------- -------
Net cash used in operating activities (122.0) (194.6)
------- -------
Cash flows from investing activities:
Purchase of property, plant and equipment (13.9) (9.3)
Proceeds from sales of property, plant and
equipment 34.7 7.1
(Purchase)/sale of businesses, net of cash acquired (760.9) 0.2
------- -------
Net cash used for investing activities (740.1) (2.0)
------- -------
Cash flows from financing activities:
Proceeds from debt obligations, net 780.7 182.2
Payment of debt issuance costs (16.2) --
Proceeds from issuance of common stock 0.4 0.1
------- -------
Net cash provided by financing activities 764.9 182.3
------- -------
Effect of exchange rate changes on cash and cash
equivalents 0.5 1.0
------- -------
Decrease in cash and cash equivalents (96.7) (13.3)
Cash and cash equivalents, beginning of period 147.0 34.3
------- -------
Cash and cash equivalents, end of period $ 50.3 $ 21.0
======= =======
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 Accordance is Bible Study Software for Macintosh developed by OakTree Software, Inc.[] As well as a standalone program, it is the base software packaged by Zondervan in their Bible Study suites for Macintosh. with accounting principles generally accepted in the United States of America UNITED STATES OF AMERICA. The name of this country. The United States, now thirty-one in number, are Alabama, Arkansas, Connecticut, Delaware, Florida, Georgia, Illinois, Indiana, Iowa, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Mississippi, Missouri, New Hampshire, 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 re·cur intr.v. re·curred, re·cur·ring, re·curs 1. To happen, come up, or show up again or repeatedly. 2. To return to one's attention or memory. 3. To return in thought or discourse. 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 there·to adv. 1. To that, this, or it. 2. Archaic In addition to that; furthermore. thereto Adverb Formal 1. to that or it 2. included in the Company's Annual Report on Form 10-K for the year ended December 31, 2003. Certain reclassifications of previously reported financial information were made to conform to Verb 1. conform to - satisfy a condition or restriction; "Does this paper meet the requirements for the degree?" fit, meet coordinate - be co-ordinated; "These activities coordinate well" the current presentation. Results for interim periods are not necessarily indicative of the results for the year. 2. ACQUISITIONS On January 5, 2004, the Company acquired the Valtra tractor and diesel engine operations of Kone Corporation, a Finnish company, for EUR 600.6 million, net of approximately EUR 21.4 million cash acquired (approximately $755.9 million, net). The purchase price is subject to final customary closing adjustments. Valtra is a global tractor and off-road engine manufacturer in the Nordic region of Europe and Latin America. The acquisition of Valtra provides the Company with the opportunity to expand its business in significant global markets by utilizing Valtra's technology and productivity leadership in the agricultural equipment market. The acquired assets and liabilities consist primarily of inventories, accounts receivable accounts receivable n. the amounts of money due or owed to a business or professional by customers or clients. Generally, accounts receivable refers to the total amount due and is considered in calculating the value of a business or the business' problems in paying , property, plant and equipment, technology, tradenames, trademarks, customer relationships and patents. The results of operations for the Valtra acquisition have been included in the Company's Condensed Consolidated Financial Statements from the date of acquisition. The Valtra acquisition was accounted for in accordance with SFAS SFAS Statement of Financial Accounting Standards SFAS Special Forces Assessment and Selection SFAS Student Financial Aid Services SFAS Sport Fishing Association of Singapore SFAS Safety Features Actuation System SFAS Statewide Fixed Assets System No. 141, "Business Combinations," and accordingly, the Company has allocated the purchase price to the assets acquired and the liabilities assumed based on a preliminary estimate of fair values as of the acquisition date. This allocation The apportionment or designation of an item for a specific purpose or to a particular place. In the law of trusts, the allocation of cash dividends earned by a stock that makes up the principal of a trust for a beneficiary usually means that the dividends will be treated as is subject to adjustment and will be completed in 2004. The Company recorded approximately $353.9 million of goodwill and approximately $156.9 million of other identifiable intangible assets Intangible Asset An asset that is not physical in nature. Notes: Examples are things like copyrights, patents, intellectual property, and goodwill. These are the opposite of tangible assets. such as tradenames, trademarks, technology and related patents, and customer relationship intangibles as part of the purchase price allocation. The Company completed the initial funding of the EUR 600.6 million cash purchase price of Valtra through the issuance of $201.3 million principal amount of convertible senior subordinated notes in December 2003, funds borrowed under the Company's new revolving credit Revolving Credit A line of credit where the customer pays a commitment fee and is then allowed to use the funds when they are needed. It is usually used for operating purposes, fluctuating each month depending on the customers current cash flow needs. and term loan facilities, which were entered into January 5, 2004, and $100.0 million borrowed under an interim bridge facility that also closed on January 5, 2004 (Note 5). 3. RESTRUCTURING AND OTHER INFREQUENT EXPENSES 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 RELOCATION, Scotch law, contracts. To let again to renew a lease, is called a relocation. 2. When a tenant holds over after the expiration of his lease, with the consent of his landlord, this will amount to a 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
----- ------ ------- ------ -------
First quarter 2004
provision -- -- -- -- --
First quarter 2004 cash
activity -- (0.3) (0.9) (0.4) (1.6)
Foreign currency
translation -- -- 0.1 -- 0.1
----- ------ ------- ------ -------
Balances as of
March 31, 2004 $ -- $ 0.2 $ 1.2 $ 1.2 $ 2.6
===== ====== ======= ====== =======
The write-down Write-Down Reducing the book value of an asset because it is overvalued compared to the market value. Notes: This is usually reflected in the company's income statement as an expense, thereby reducing net income. of property, plant and equipment represents the impairment Impairment 1. A reduction in a company's stated capital. 2. The total capital that is less than the par value of the company's capital stock. Notes: 1. This is usually reduced because of poorly estimated losses or gains. 2. 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 Carrying Value Also know as "book value," it is a company's total assets minus intangible assets and liabilities, such as debt. Notes: This is different than market value, as it can be higher or lower depending on the circumstances. . The estimated fair value of the equipment was determined based on current conditions in the market. The severance The act of dividing, or the state of being divided. The term severance has unique meanings in different branches of the law. Courts use the term in both civil and criminal litigation in two ways: first, when dividing a lawsuit into two or more parts, and second, when costs relate to the termination of 1,051 employees. As of March 31, 2004, 1,030 employees have been terminated. The employee retention payments relate to incentives paid to Coventry employees who remain employed until certain future termination dates termination date, n See expiration date. and are accrued ac·crue v. ac·crued, ac·cru·ing, ac·crues v.intr. 1. To come to one as a gain, addition, or increment: interest accruing in my savings account. 2. over the term of the retention period. The facility closure costs include certain noncancelable operating lease Operating Lease A lease contract that allows the use of an asset, but does not convey rights similar to ownership of the asset. Notes: An operating lease is not capitalized it is accounted for as a rental expense. terminations 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 was reflected in "Restructuring and other infrequent expenses" in the Company's Consolidated Statements of Operations for the year ended December 31, 2003. On January 30, 2004, the Company sold the land, buildings and improvements of the Coventry facility for approximately $41 million, and as a result of that sale, recognized a net gain of approximately $6.9 million. This gain has been reflected in "Restructuring and other infrequent expenses in the Company's Condensed Consolidated Statements of Operations for the quarter ended March 31, 2004. The Company will lease part of the facility back from the buyers for a period of three years, with the ability to exit the lease within two years from the date of the sale. The Company received approximately $34.4 million of the sale proceeds on January 30, 2004, with the remainder to be paid on January 30, 2005. The $2.6 million of restructuring costs accrued at March 31, 2004 are expected to be incurred during 2004. In October 2002, the Company applied to the High Court in London, England, for clarification of a provision in its U.K. pension plan that governs the value of pension payments payable to an employee who is over 50 years old and who retires from service in certain circumstances CIRCUMSTANCES, evidence. The particulars which accompany a fact. 2. The facts proved are either possible or impossible, ordinary and probable, or extraordinary and improbable, recent or ancient; they may have happened near us, or afar off; they are public or 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 representatives of the beneficiaries of the pension plan sought the right to appeal to the House of Lords House of Lords: see Parliament. , and on March 26, 2004, the House of Lords denied their request. As a result of the High Court's ruling in that case, certain employees who took early retirement in prior years under voluntary retirement arrangements would be entitled en·ti·tle tr.v. en·ti·tled, en·ti·tling, en·ti·tles 1. To give a name or title to. 2. To furnish with a right or claim to something: 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. In addition, during 2002 and 2003, the Company initiated several rationalization plans and recorded restructuring and other infrequent expenses in total of approximately $4.6 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, certain components of the Company's German manufacturing facilities located in Kempten and Marktoberdorf, Germany, as well as a European combine engineering rationalization that was initiated during 2003. During the first quarter ended March 31, 2004, the Company recorded $0.2 million of restructuring and other infrequent expenses associated with these European rationalization initiatives, as well as $0.1 million related to the closure and consolidation of Valtra's U.S. and Canadian Canadian (kənā`dēən), river, 906 mi (1,458 km) long, rising in NE New Mexico. and flowing E across N Texas and central Oklahoma into the Arkansas River in E Oklahoma. sales offices into the Company's existing U.S. and Canadian sales organizations. A total of $3.9 million of severance costs have been recorded associated with these activities, and relate to the termination of approximately 200 employees in total. At March 31, 2004, a total of approximately $4.0 million of expenses had been incurred and paid. The remaining accrued balance of $0.9 million as of March 31, 2004 is expected to be incurred during 2004. 4. GOODWILL AND OTHER INTANGIBLE ASSETS The Company's acquired intangible assets are as follows:
March 31, 2004 December 31, 2003
--------------------- ---------------------
Gross Gross
Carrying Accumulated Carrying Accumulated
Amounts Amortization Amounts Amortization
-------- ------------ -------- ------------
Amortized intangible
assets:
Trademarks and tradenames $ 32.8 $(2.8) $31.8 $(2.5)
Customer relationships 74.9 (3.0) 3.5 (1.0)
Patents and technology 46.8 (1.9) 1.1 (0.2)
------ ----- ----- -----
Total $154.5 $(7.7) $36.4 $(3.7)
====== ===== ===== =====
Unamortized intangible
assets:
Trademarks $ 89.5 $53.4
====== =====
Changes in the carrying amount of goodwill during the three months ended March 31, 2004 are summarized as follows:
North South Europe/Africa/
America America Middle East Consolidated
------- ------- ------------ ------------
Balance as of December 31,
2003 $165.5 $ 42.3 $123.9 $331.7
Acquisition -- 69.6 284.3 353.9
Foreign currency translation -- (1.8) (9.4) (11.2)
------ ------ ------- ------
Balance as of March 31, 2004 $165.5 $110.1 $398.8 $674.4
====== ====== ======= ======
5. LONG-TERM DEBT Long-Term Debt Loans and financial obligations lasting over one year. Notes: For example debts obligations such as bonds and notes which have maturities greater than one year would be considered long-term debt. Long-term debt consisted of the following at March 31, 2004 and December 31, 2003:
March 31, December 31,
2004 2003
--------- ------------
Credit facility $ 689.8 $ --
9 1/2% Senior notes due 2008 250.0 250.0
8 1/2% Senior subordinated notes due 2006 249.4 249.3
1 3/4% Convertible senior subordinated notes due
2033 201.3 201.3
Bridge loan facility 100.0 --
Other long-term debt 12.8 12.7
--------- ---------
1,503.3 713.3
Less: current portion of long-term debt (6.8) (2.2)
--------- ---------
Total long-term debt, less current portion $ 1,496.5 $ 711.1
========= =========
On January 5, 2004, the Company entered into a new credit facility and borrowed $100.0 million under an interim bridge facility to fund the acquisition of Valtra (Note 2). The Company's new credit facility provides for a $300.0 million multi-currency revolving credit facility, a $300.0 million U.S. dollar denominated term loan and a EUR 120.0 million (or approximately $150.0 million) Euro denominated term loan. The revolving credit facility will mature in January 2006. The maturity date of the revolving credit facility may be extended to March 2008 if the Company's existing 8 1/2% senior subordinated notes due 2006 are refinanced on terms specified by the lenders prior to such date and further extended to December 2008 if the Company's existing 9 1/2% senior notes due 2008 are refinanced on terms specified by the lenders prior to such date. Both term loans will amortize amortize To write off gradually and systematically a given amount of money within a specific number of time periods. For example, an accountant amortizes the cost of a long-term asset by deducting a portion of that cost against income in each period. at the rate of one percent per annum Per annum Yearly. until the maturity date. The maturity date for the term loans will be January 2006. The maturity date of the term loans may be extended to March 2008 if the subordinated notes are refinanced on terms specified by the lender prior to such date and further extended to June 2009 if the senior notes are refinanced on terms specified by the lenders prior to such date. The revolving credit and term facilities are secured by a majority of the Company's U.S., Canadian, Finnish and U.K. based assets and a pledge of a portion of the stock of the Company's domestic and material foreign subsidiaries. Interest accrues on amounts outstanding under the facility, at the Company's option, at either (1) LIBOR LIBOR See: London Interbank Offered Rate LIBOR See London interbank offered rate (LIBOR). plus a margin ranging between 1.50% and 2.25% based upon the Company's senior debt ratio or (2) the higher of the administrative agent's base lending rate or one-half of one percent over the federal funds rate Federal Funds Rate The interest rate at which a depository institution lends immediately available funds (balances at the Federal Reserve) to another depository institution overnight. plus a margin ranging between 0.25% and 1.0% based on the Company's senior debt ratio. The facility contains covenants restricting, among other things, the incurrence In`cur´rence n. 1. The act of incurring, bringing on, or subjecting one's self to (something troublesome or burdensome); as, the incurrence of guilt, debt, responsibility, etc. s> Noun 1. of indebtedness INDEBTEDNESS. The state, of being in debt, without regard to the ability or inability of the party to pay the same. See 1 Story, Eq. 343; 2 Hill. Ab. 421. 2. and the making of certain payments, including dividends. The Company must also fulfill ful·fill also ful·fil tr.v. ful·filled, ful·fill·ing, ful·fills also ful·fils 1. To bring into actuality; effect: fulfilled their promises. 2. financial covenants including, among others, a total debt to EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) A metric used to show a company's profitability, but not its cash flow. EBITDA became popular in the 1980s to show the potential profitability of leveraged buyouts, but has become ratio, a senior debt to EBITDA ratio and a fixed charge coverage ratio, as defined in the facility. The Company borrowed $100.0 million under a bridge financing Bridge Financing A method of financing, used by companies before their IPO, to obtain necessary cash for the maintenance of operations. Notes: These funds are usually supplied by the investment bank underwriting the new issue. facility on January 5, 2004 as discussed above. The loans under the bridge facility constitute unsecured Unsecured A loan or equity interest that is given without any guarantee of payment, performance, satisfaction or opportunity for return from the recipient. No property, interest or security is used as collateral in either a guarantee or a pledge. senior subordinated obligations. The bridge loan facility matures on January 5, 2005, and interest accrues on borrowings at an increasing rate of interest, subject to a maximum rate. On April 7, 2004, the bridge loan facility was repaid with proceeds from a common stock offering as described below. On April 7, 2004, the Company sold 14,720,000 shares of its common stock in an underwritten public offering, and received net proceeds of approximately $300.1 million from the offering. The Company used the net proceeds to repay the $100.0 million interim bridge loan facility, to repay borrowings under its credit facility, and to pay offering related fees and expenses. On April 23, 2004, the Company completed its offering of EUR 200.0 million of 6 7/8% senior subordinated notes due 2014, and received proceeds of approximately $234 million, after offering related fees and expenses. The Company intends to use the net proceeds and available cash to redeem its $250.0 million principal amount of 8 1/2% senior subordinated notes on May 24, 2004. The 6 7/8% senior subordinated notes are unsecured obligations and are subordinated in right of payment to the Company's 9 1/2% senior notes, and any existing or future senior indebtedness. Interest is payable on the notes at 6 7/8% per annum, payable semi-annually on April 15 and October 15 of each year, beginning October 15, 2004. Beginning April 15, 2009, the Company may redeem the notes, in whole or in part, initially at 103.438% of their principal amount, plus accrued interest Accrued Interest The interest that has accumulated on a bond since the last interest payment up to but not including the settlement date. There are two methods for calculating accrued interest: 1) 360-day year method, used for corporate and municipal bonds. , declining to 100% of their principal amount, plus accrued interest, at any time on or after April 15, 2012. In addition, before April 15, 2009, the Company may redeem the notes, in whole or in part, at a redemption price Redemption price See: Call price redemption price 1. The price at which an open-end investment company will buy back its shares from the owners. In most cases, the redemption price is the net asset value per share. 2. equal to 100% of the principal amount, plus accrued interest plus a make-whole premium. Before April 15, 2007, the Company may also redeem up to 35% of the notes at 106.875% of their principal amount using the proceeds from sales of certain kinds of capital stock. The notes include certain covenants restricting the incurrence of indebtedness and the making of certain restrictive payments, including dividends. 6. INVENTORIES Inventories are valued at the lower of cost or market lower of cost or market A method for determining an asset's value such that either the original cost or the current replacement cost, whichever is lowest, is used for financial reporting purposes. using the first-in, first-out first-in, first-out n. A method of inventory accounting in which the oldest remaining items are assumed to have been the first sold. In a period of rising prices, this method yields a higher ending inventory, a lower cost of goods sold, a higher gross method. Market is net realizable value Net realizable value (NRV) is a commonly used method of evaluating an asset's worth in the field of inventory accounting. NRV is part of GAAP rules that apply to valuing inventory, so as to not overstate or understate the value of inventory goods. for finished goods and repair and replacement parts. For work in process, production parts and raw materials, market is replacement cost. Inventories at March 31, 2004 and December 31, 2003 were as follows:
March 31, December 31,
2004 2003
--------- ------------
Finished goods $ 517.4 $ 285.3
Repair and replacement parts 297.1 270.2
Work in process, production parts and raw
materials 318.9 248.1
--------- ---------
Inventories, net $ 1,133.4 $ 803.6
========= =========
7. ACCOUNTS RECEIVABLE SECURITIZATION Securitization The process of creating a financial instrument by combining other financial assets and then marketing them to investors. Notes: Mortgage backed securities are a perfect example of securitization. May also be spelled as "securitisation. At March 31, 2004, the Company had accounts receivable securitization facilities in the United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. , Canada, and Europe totaling approximately $445.5 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 $445.3 million at March 31, 2004 and $448.4 million at December 31, 2003. The funded balance has the effect of reducing accounts receivable and short-term Short-term Any investments with a maturity of one year or less. short-term 1. Of or relating to a gain or loss on the value of an asset that has been held less than a specified period of time. liabilities by the same amount. Losses on sales of receivables Receivables An asset designation applicable to all debts, unsettled transactions or other monetary obligations owed to a company by its debtors or customers. Receivables are recorded by a company's accountants and reported on the balance sheet, and they and include all debts owed primarily from securitization facilities included in other expense, net for the three months ended March 31, 2004 and 2003 were $3.8 million and $2.9 million, respectively. 8. SEGMENT REPORTING segment reporting A type of financial reporting in which the firm discloses information by identifiable industry segments. For example, Union Pacific Corporation reports revenues, income, assets, depreciation, and capital expenditures for each of four The Company has four reportable segments: North America; South America; Europe/Africa/Middle East and Asia/Pacific. Each regional 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 regional segment are based on the location of the third-party customer. During the first quarter of 2004, the Company modified its segment reporting from five reportable segments to four reportable segments. The Company no longer considers the Sprayers division a reportable segment under the requirements of SFAS No. 131 "Disclosures about Segments of an Enterprise and Related Information," due to organizational changes and changes in the distribution and servicing of certain Sprayer products which became effective January 1, 2004. Therefore, the results for 2003 have been reclassified to conform to the current presentation. All intercompany transactions Intercompany transaction Transaction carried out between two units of the same corporation. 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, 2004 and 2003 are as follows:
Three Months Ended North South Europe/Africa Asia/
March 31, America America /Middle East Pacific Consolidated
-------------------- ------- ------- ------------ ------- ------------
2004
Net sales $293.7 $174.9 $601.3 $45.8 $1,115.7
Income from operations 6.2 31.1 25.3 6.9 69.5
2003
Net sales $280.1 $ 68.9 $385.0 $23.2 $ 757.2
Income from operations 9.8 8.9 29.3 3.0 51.0
A reconciliation from the segment information to the consolidated balances for income from operations is set forth below:
Three Months Ended
March 31,
----------------
2004 2003
------- -------
Segment income from operations $ 69.5 $ 51.0
Corporate expenses (7.6) (5.6)
Restricted stock compensation expense (0.3) (0.1)
Restructuring and other infrequent income (expenses) 6.6 (7.0)
Amortization of intangibles (4.0) (0.4)
------- -------
Consolidated income from operations $ 64.2 $ 37.9
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