AGCO Reports Second Quarter Results; Adjusted Earnings Improve On 12% Sales Gain.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. -- AGCO AGCO Alcohol and Gaming Commission of OntarioAGCO Anderson, Greenwood, & Company AGCO After Google Check-Out Corporation (NYSE NYSE See: New York Stock Exchange :AG), a worldwide manufacturer and distributor of agricultural equipment, reported net income of $0.47 per share for the second quarter of 2005. Adjusted net income, which excludes 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). and other infrequent in·fre·quent adj. 1. Not occurring regularly; occasional or rare: an infrequent guest. 2. expenses and costs associated with a June June: see month. 2005 bond redemption The liberation of an estate in real property from a mortgage. Redemption is the process by which land that has been mortgaged or pledged is bought back or reclaimed. It is accomplished through a payment of the debt owed or a fulfillment of the other conditions. , was $0.61 per share for the second quarter of 2005. These results compare to reported net income of $0.50 per share and adjusted net income of $0.57 per share for the second quarter of 2004. 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 second quarter of 2005 were $1.6 billion, an increase of approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. 12% over 2004. For the first six months of 2005, net income was $0.70 per share compared to $0.83 per share in 2004. Adjusted net income was $0.84 per share for the first six months of 2005 compared to $0.85 per share in 2004. Net sales for the first six months of 2005 increased approximately 12% to $2.8 billion. "We are pleased that second quarter improvements in Western Europe Western Europe The countries of western Europe, especially those that are allied with the United States and Canada in the North Atlantic Treaty Organization (established 1949 and usually known as NATO). and North America North America, third largest continent (1990 est. pop. 365,000,000), c.9,400,000 sq mi (24,346,000 sq km), the northern of the two continents of the Western Hemisphere. were able to offset the impact of continued weak market conditions in South America South America, fourth largest continent (1991 est. pop. 299,150,000), c.6,880,000 sq mi (17,819,000 sq km), the southern of the two continents of the Western Hemisphere. ," stated Martin Richenhagen, President and Chief Executive Officer. "In our Europe/Africa/Middle East region, we achieved productivity and margin improvement while sales growth contributed to our improvement in North America. Despite challenging market conditions in South America, our worldwide sales for the second quarter were 7% higher than 2004, excluding currency impacts." "We expect market conditions to remain weak in South America as further strengthening of the Brazilian Real The real (IPA: [xe'aw] or [ʁe'aɫ], symbol: R$, ISO 4217 code: BRL, plural: reais) is the currency of Brazil. It is also the name of the earliest Brazilian currency (see from the Colonial period to 1942. in the second quarter will result in lower farm income," stated Mr. Richenhagen. "In addition, conditions in the Western European European emanating from or pertaining to Europe. European bat lyssavirus see lyssavirus. European beech tree fagussylvaticus. European blastomycosis see cryptococcosis. market are less certain in the second half of 2005, as farmers may delay equipment purchases due to European Union European Union (EU), name given since the ratification (Nov., 1993) of the Treaty of European Union, or Maastricht Treaty, to the European Community farm subsidy subsidy, financial assistance granted by a government or philanthropic foundation to a person or association for the purpose of promoting an enterprise considered beneficial to the public welfare. reforms and 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 in certain regions. These conditions will make the second half of the year more challenging. While we focus on these short term developments, we are also working on initiatives in product development, manufacturing, purchasing and marketing which we believe will strengthen AGCO's 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. worldwide market position and cost structure." Second Quarter and Year-to-Date Year-to-date (YTD) The period beginning at the start of the calendar year up to the current date. Results For the second quarter of 2005, AGCO reported net sales of $1,574.3 million and net income of $46.1 million, or $0.47 per share. Adjusted net income, excluding restructuring and other infrequent income and bond redemption costs, was $59.2 million, or $0.61 per share. For the second quarter of 2004, AGCO reported net sales of $1,407.0 million and net income of $48.3 million, or $0.50 per share. Adjusted net income, excluding restructuring and other infrequent expenses, in the second quarter of 2004 was $55.0 million, or $0.57 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 June 30, 2005 and 2004:
2005 2004
---------------------------- ----------------------------
(in millions, except per share data)
Earnings Earnings
Operating Net Per Operating Net Per
Income Income(1) Share (1) Income Income Share (1)
-------- -------- -------- -------- ------ ----------
As adjusted $108.4 $59.2 $0.61 $103.9 $55.0 $0.57
Restructuring
and other
infrequent
(income)
expenses(2) (0.8) (1.0) (0.01) 6.0 6.7 0.07
Bond
redemption
costs(3) -- 14.1 0.14 -- -- --
--------- --------- -------- -------- --------- ----------
As reported $109.2 $46.1 $0.47 $97.9 $48.3 $0.50
========= ========= ======== ======== ========= ==========
(1) Net income and earnings per share amounts are after tax (rounding
may impact the summation of certain line items).
(2) The restructuring and other infrequent income recorded in the
second quarter of 2005 relates primarily to the gain on sale of
machinery and equipment associated with the rationalization of the
Company's Randers, Denmark combine manufacturing operations. This
gain was offset by charges incurred associated with the Randers
rationalization as well as the Company's rationalization of its
Valtra European sales operations. The Company did not record a tax
provision or benefit associated with the gain or charges relating
to the Randers rationalization. The restructuring and other
infrequent expenses recorded in the second quarter of 2004
primarily related to the write-down of property, plant and
equipment associated with the Randers rationalization, offset in
part by gains on the sale of machinery and equipment from the
Company's Coventry, England facility, which was closed in 2003, as
well as the reversal of certain Coventry closure reserves. See
Note 1 to our Condensed Consolidated Financial Statements for
further explanation.
(3) On June 23, 2005, AGCO redeemed its $250 million 9 1/2% Senior
Notes due 2008 at a price of approximately $261.9 million, which
included a premium of 4.75% over the face amount of the notes. At
the time of the redemption, AGCO recorded interest expense for the
premium of approximately $11.9 million, or $0.12 per share, and
approximately $2.2 million, or $0.02 per share, for the write-off
of the remaining balance of deferred debt issuance costs.
For the first six months of 2005, AGCO reported net sales of $2,831.2 million and net income of $67.6 million, or $0.70 per share. Adjusted net income, excluding restructuring and other infrequent income and bond redemption costs, was $81.6 million, or $0.84 per share. For the first six months of 2004, AGCO reported net sales of $2,522.7 million and net income of $73.3 million, or $0.83 per share. Adjusted net income, excluding restructuring and other infrequent expenses, in the first six months of 2004 was $75.4 million, or $0.85 per share. The following is a reconciliation of adjusted operating income, net income and earnings per share to reported operating income, net income and earnings per share for the six months ended June 30, 2005 and 2004:
2005 2004
---------------------------- ----------------------------
(in millions, except per share data)
Earnings Earnings
Operating Net Per Operating Net Per
Income Income(1) Share (1) Income Income Share (1)
-------- -------- -------- -------- ------ ----------
As
adjusted $162.4 $81.6 $0.84 $161.5 $75.4 $0.85
Restructuring
and other
infrequent
expenses
(income)(2) 0.2 (0.1) -- (0.6) 2.1 0.02
Bond redemption
costs(3) -- 14.1 0.14 -- -- --
--------- --------- -------- -------- --------- ----------
As reported 162.2 $67.6 $0.70 $162.1 $73.3 $0.83
========= ========= ======== ======== ========= ==========
(1) Net income and earnings per share amounts are after tax.
(2) The restructuring and other infrequent income recorded in the
first six months of 2005 relates primarily to the gain on sale of
machinery and equipment associated with the rationalization of the
Company's Randers, Denmark combine manufacturing operations of
$1.5 million on a pre-tax basis ($1.5 million after-tax). This
gain was offset by $0.9 million of pre-tax charges ($0.9 million
after-tax) associated with the Randers rationalization as well as
$0.8 million of pre-tax charges ($0.5 million after-tax) related
to the Company's rationalization of its Finnish tractor
manufacturing, sales and parts operations. The Company did not
record a tax benefit associated with the charges relating to the
Randers rationalization. The restructuring and other infrequent
expenses recorded in the first six months of 2004 primarily
related to the write-down of property, plant and equipment
associated with the Randers rationalization, offset by gains on
the sale of the Company's Coventry, England facility and related
machinery and equipment, which was closed in 2003, as well as the
reversal of certain Coventry closure reserves. See Note 1 to our
Condensed Consolidated Financial Statements for further
explanation.
(3) On June 23, 2005, AGCO redeemed its $250 million 9 1/2% Senior
Notes due 2008 at a price of approximately $261.9 million, which
included a premium of 4.75% over the face amount of the notes. At
the time of the redemption, AGCO recorded interest expense for the
premium of approximately $11.9 million, or $0.12 per share, and
approximately $2.2 million, or $0.02 per share, for the write-off
of the remaining balance of the deferred debt issuance costs.
AGCO's net sales increased 11.9% for the second quarter and 12.2% for the first six months of 2005 primarily due to sales growth in the North America and Europe/Africa/Middle East regions, as well as positive currency translation impacts. This growth offset significant sales declines in South America due to weaker end markets. The impact of currency translation contributed approximately 5% of the sales growth for the quarter and approximately 4% for the first six months of 2005. Adjusted operating income increased $4.5 million for the second quarter and $0.9 million for the first six months of 2005 compared to 2004 primarily due to increased income in our Europe/Africa/Middle East operations offsetting declines in South America. Operating margins Operating Margin A ratio used to measure a company's pricing strategy and operating efficiency. Calculated by: declined in 2005 as a result of reduced margins in South America primarily due to a significant reduction in industry demand and the impact of the strengthening Brazilian Real. In AGCO's Europe/Africa/Middle East operations, operating income improved $25.9 million in the second quarter and $45.9 million for the first six months compared to 2004. Margin improvement was the key contributor to the increase, which was achieved from productivity improvements, new products, expense control and pricing. Operating income in AGCO's South America operations decreased by $26.3 million for the second quarter and $44.9 million for the first six months. Weaker market conditions in South America in 2005 contributed to a sales decline, excluding currency impact, of 26% for the second quarter and 22% for the first six months compared to 2004. In addition, operating margins in South America declined significantly in 2005 resulting from lower production, unfavorable sales mix sales mix See product mix. and the impact of the continued strengthening of the Brazilian Real on sales outside 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. . In North America, operating income increased $5.5 million in the second quarter and $2.0 million for the first six months of 2005 compared to 2004. The increase was primarily due to a sales growth, excluding currency impact, of 17% for the second quarter and 24% for the first six months achieved from strong retail sales and improved product availability. Margins in North America continue to be negatively impacted by the weak dollar on products produced 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). and Brazil.
Operating income in the Asia Pacific region decreased $0.5 million in
the second quarter and increased $0.1 million in the first six months of
2005 compared to 2004, resulting from slightly lower margins in the
second quarter of 2005.Regional Market Results North America - Industry unit retail sales of tractors for the first six months of 2005 increased slightly over the comparable prior year period resulting from increases in the utility and high horsepower horsepower, unit of power in the English system of units. It is equal to 33,000 foot-pounds per minute or 550 foot-pounds per second or approximately 746 watts. segments offsetting a decline in the compact 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. segment. Industry unit retail sales of combines were approximately 14% higher than the prior year. AGCO's unit retail sales of tractors and combines were also higher for the first six months of 2005 over 2004. Western Europe - Industry unit retail sales of tractors for the first six months of 2005 were relatively flat when compared to the comparable prior year period. Retail demand improved in 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. and 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. but declined in France, the United Kingdom and Finland Finland, Finnish Suomi (swô`mē), officially Republic of Finland, republic (2005 est. pop. 5,223,000), 130,119 sq mi (337,009 sq km), N Europe. . AGCO's unit retail sales for the first six months of 2005 were also relatively flat when compared to the comparable prior year period. South America - Industry unit retail sales of tractors and combines for the first six months of 2005 decreased approximately 18% and 63%, respectively, compared to the prior year. Retail sales in the major market of Brazil declined approximately 32% for tractors and 72% for combines compared to 2004. AGCO's 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 unit retail sales of tractors and combines also declined in the first six months of 2005 compared to 2004. Rest of World Markets - Outside of North America, Western Europe and South America, AGCO's net sales for the first six months of 2005 were approximately 45% higher than 2004 due to higher sales in the Middle East and Eastern Europe Eastern Europe The countries of eastern Europe, especially those that were allied with the USSR in the Warsaw Pact, which was established in 1955 and dissolved in 1991. . In South America, market demand has declined significantly in 2005 primarily due to drought conditions "Drought Conditions" is episode 126 of The West Wing. Plot Senator Rafferty, a new presidential candidate garnered much media attention with a ground-breaking speech about health care. in southern Brazil, lower commodity prices, and the strengthening of the Brazilian Real. Despite recent increases in soybean soybean, soya bean, or soy pea, leguminous plant (Glycine max, G. soja, or Soja max) of the family Leguminosae (pulse family), native to tropical and warm temperate regions of Asia, where it has been prices, the further strengthening of the Brazilian currency in the second quarter will continue to negatively impact farm profits. As a result, industry demand in South America is expected to be below previous forecasts and remain significantly lower than 2004 for the second half of 2005. North America equipment demand is expected to continue to remain strong in 2005 supported by record farm income in 2004. In Western Europe, the market conditions are mixed with dry weather affecting some sections of southern Europe Southern Europe or sometimes Mediterranean Europe is a region of the European continent. There is no clear definition of the term which can vary depending on whether geographic, cultural, linguistic or historical factors are taken into account. . In addition, the introduction of single farm payments as part of the Common Agricultural Policy Agricultural policy describes a set of laws relating to domestic agriculture and imports of foreign agricultural products. Governments usually implement agricultural policies with the goal of achieving a specific outcome in the domestic agricultural product markets. reform is causing some uncertainty with farmers. As a result, full-year industry sales in Western Europe are expected to be flat or below 2004. Financing Transactions Completed In the second quarter of 2005, AGCO completed two transactions which will reduce interest costs and earnings per share dilution Dilution A reduction in earnings per share of common stock that occurs through the issuance of additional shares or the conversion of convertible securities. Notes: Adding to the number of shares outstanding reduces the value of holdings of existing shareholders. in future periods. First, AGCO completed the redemption of its $250 million 9 1/2% Senior Notes due 2008 on June 23, 2005. The Company redeemed re·deem tr.v. re·deemed, re·deem·ing, re·deems 1. To recover ownership of by paying a specified sum. 2. To pay off (a promissory note, for example). 3. the notes at a price of approximately $261.9 million, which includes a premium of 4.75% over the face amount of the notes. The premium of approximately $11.9 million, or $0.12 per share, and the write-off Write-Off A reduction in the value of an asset or earnings by the amount of an expense or loss. Companies are able to write off certain expenses that are required to run the business, or have been incurred in the operation of the business and detract from retained revenues. of the remaining balance of deferred debt issuance costs of approximately $2.2 million, or $0.02 per share, were recognized in interest expense, net in the second quarter of 2005. The funding source for the redemption was a combination of cash generated from the transfer of North American North American named after North America. North American blastomycosis see North American blastomycosis. North American cattle tick see boophilusannulatus. wholesale interest-bearing Adj. 1. interest-bearing - of financial obligations on which interest is paid 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 to AGCO's retail finance joint venture, AGCO Finance, as well as from 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. facility borrowings and available cash on hand. AGCO expects to reduce future interest costs as a result of this redemption. In addition, AGCO completed an exchange of its $201.3 million aggregate principal amount of 1 3/4% Convertible Senior Subordinated Subordinated A claim ranked lower in priority than other claims. Common stock claims are always subordinated to debt. Notes on June 30, 2005. AGCO exchanged its existing convertible notes for new notes which provide for (i) the settlement upon conversion in cash up to the principal amount of the converted new notes with any excess conversion value settled in shares of AGCO common stock, and (ii) the conversion rate to be increased if the new notes are converted in connection with certain change of control transactions, but otherwise are substantially the same as the old notes. The impact of the exchange will reduce the diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. weighted average shares outstanding in future periods. The initial reduction in the diluted shares is estimated to be approximately 9.0 million shares but will vary in the future based on AGCO's stock price. Outlook For the full year of 2005, AGCO expects adjusted net income per share, which excludes restructuring and other infrequent expenses and the June 2005 bond redemption costs, to be relatively flat compared to 2004. Higher operating income in Europe/Africa/Middle East and North America along with the positive impacts of the bond redemption and lower share dilution are expected to be offset by lower profitability in South America resulting from continued anticipated market declines. In addition, the Company plans to fund an increase in engineering expense in 2005 for new product introductions, common product platform designs and the expansion of the Company's engine production. Reported net income per share for 2005 including all items is expected to be approximately 10% below 2004 primarily due to the bond redemption costs incurred in 2005. Third quarter adjusted net income per share in 2005 is expected to range from $0.30 to $0.33 per share compared to third quarter 2004 adjusted net income per share of $0.38. Reported net income per share in the third quarter of 2005 is expected to be approximately $0.29 to $0.32 per share. "Despite some challenging market conditions, we will focus on growing our market position, improving productivity and achieving strong cash flow in 2005," stated Mr. Richenhagen. 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 net income, earnings, operating income, interest costs, engineering expenses, market position and cost structure, are forward-looking for·ward-look·ing adj. Concerned with or making provision for the future: forward-looking educators; a forward-looking corporate plan. Adj. 1. 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 COMPETITORS, French law. Persons who compete or aspire to the same office, rank or employment. As an English word in common use, it has a much wider application. Ferriere, Dict. de Dr. h.t. , customer acceptance of product introductions, the success of its facility rationalization rationalization, in psychology: see defense mechanism. process and other cost cutting measures, availability of governmental subsidized financing Subsidized financing Funding provided by a government or other entity that is available at a below-market interest rate. 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, 2004. 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 10:00 a.m. Eastern Time on Tuesday Tuesday: see week. , July July: see month. 26, 2005. 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 manufacturer and distributor of agricultural equipment and related replacement parts. AGCO products are distributed in more than 140 countries. AGCO offers a full product line including tractors, combines, hay tools, sprayers, 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 3,900 independent dealers and distributors around the world. AGCO products are distributed under the various well-known well-known adj. 1. Widely known; familiar or famous: a well-known performer. 2. Fully known: well-known facts. brand names AGCO(R), Challenger(R), Fendt Fendt is a German manufacturer of agricultural tractors and machines. It is part of AGCO Corporation. It was founded in 1937 by Xaver Fendt and purchased by AGCO in 1997. (R), Gleaner(R), Hesston(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), 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), Terra-Gator(R), 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. (R), and White(TM) Planters Planters is an American snack food company under Kraft Foods manufacturing, best known for its nuts and the Mr. Peanut icon that symbolizes them. Started by Italian immigrants Amedeo Obici and Mario Peruzzi in Wilkes-Barre, Pennsylvania, in 1906, it was incorporated in 1908 . AGCO provides retail financing through AGCO Finance in North America and Australia Australia (ôstrāl`yə), smallest continent, between the Indian and Pacific oceans. With the island state of Tasmania to the south, the continent makes up the Commonwealth of Australia, a federal parliamentary state (2005 est. pop. and through Agricredit in the United Kingdom, France, 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). , Ireland Ireland, Irish Eire (âr`ə) [to it are related the poetic Erin and perhaps the Latin Hibernia], island, 32,598 sq mi (84,429 sq km), second largest of the British Isles. , and Brazil. In 2004, AGCO had net sales of $5.3 billion. Please visit our website at www.agcocorp.com.
AGCO CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited and in millions)
June 30, Dec. 31,
2005 2004
----------- ----------
ASSETS
Current Assets:
Cash and cash equivalents $46.9 $325.6
Accounts and notes receivable, net 835.2 823.2
Inventories, net 1,291.6 1,069.4
Deferred tax assets 109.8 127.5
Other current assets 76.0 58.8
----------- ----------
Total current assets 2,359.5 2,404.5
Property, plant and equipment, net 547.9 593.3
Investment in affiliates 150.3 114.5
Deferred tax assets 132.5 146.1
Other assets 71.8 70.1
Intangible assets, net 221.7 238.2
Goodwill 700.2 730.6
----------- ----------
Total assets $4,183.9 $4,297.3
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $6.6 $6.9
Accounts payable 673.4 601.9
Accrued expenses 588.3 660.3
Other current liabilities 108.7 89.9
----------- ----------
Total current liabilities 1,377.0 1,359.0
Long-term debt, less current portion 980.7 1,151.7
Pensions and postretirement health care benefits 232.6 247.3
Other noncurrent liabilities 106.1 116.9
----------- ----------
Total liabilities 2,696.4 2,874.9
----------- ----------
Stockholders' Equity:
Common stock 0.9 0.9
Additional paid-in capital 894.0 893.2
Retained earnings 861.4 793.8
Unearned compensation (0.2) (0.2)
Accumulated other comprehensive loss (268.6) (265.3)
----------- ----------
Total stockholders' equity 1,487.5 1,422.4
----------- ----------
Total liabilities and stockholders' equity $4,183.9 $4,297.3
=========== ==========
See accompanying ac·com·pa·ny v. ac·com·pa·nied, ac·com·pa·ny·ing, ac·com·pa·nies v.tr. 1. To be or go with as a companion. 2. 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
June 30,
-------------------
2005 2004
--------- ---------
Net sales $1,574.3 $1,407.0
Cost of goods sold 1,303.1 1,153.2
--------- ---------
Gross profit 271.2 253.8
Selling, general and administrative expenses
(includes restricted stock compensation expense
of $0.0 million and $0.0 million for the three
months ended June 30, 2005 and 2004,
respectively) 127.3 121.2
Engineering expenses 31.4 24.9
Restructuring and other infrequent (income)
expenses (0.8) 6.0
Amortization of intangibles 4.1 3.8
--------- ---------
Income from operations 109.2 97.9
Interest expense, net 31.9 22.6
Other expense, net 12.2 3.2
--------- ---------
Income before income taxes and equity in net
earnings of affiliates 65.1 72.1
Income tax provision 25.6 28.8
--------- ---------
Income before equity in net earnings of affiliates 39.5 43.3
Equity in net earnings of affiliates 6.6 5.0
--------- ---------
Net income $46.1 $48.3
========= =========
Net income per common share:
Basic $0.51 $0.54
========= =========
Diluted $0.47 $0.50
========= =========
Weighted average number of common and common
equivalent shares outstanding:
Basic 90.4 89.0
========= =========
Diluted 99.6 98.4
========= =========
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)
Six Months Ended
June 30,
-------------------
2005 2004
--------- ---------
Net sales $2,831.2 $2,522.7
Cost of goods sold 2,340.5 2,061.2
--------- ---------
Gross profit 490.7 461.5
Selling, general and administrative expenses
(includes restricted stock compensation expense
of $0.1 million and $0.3 million for the six
months ended June 30, 2005 and 2004,
respectively) 257.9 241.1
Engineering expenses 62.1 51.1
Restructuring and other infrequent expenses
(income) 0.2 (0.6)
Amortization of intangibles 8.3 7.8
--------- ---------
Income from operations 162.2 162.1
Interest expense, net 48.9 45.4
Other expense, net 19.0 8.3
--------- ---------
Income before income taxes and equity in net
earnings of affiliates 94.3 108.4
Income tax provision 37.9 45.0
--------- ---------
Income before equity in net earnings of affiliates 56.4 63.4
Equity in net earnings of affiliates 11.2 9.9
--------- ---------
Net income $67.6 $73.3
========= =========
Net income per common share:
Basic $0.75 $0.89
========= =========
Diluted $0.70 $0.83
========= =========
Weighted average number of common and common
equivalent shares outstanding:
Basic 90.4 82.2
========= =========
Diluted 99.7 91.6
========= =========
See accompanying notes to condensed consolidated financial statements.
AGCO CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited and in millions)
Six Months
Ended June 30,
---------------
2005 2004
------- -------
Cash flows from operating activities:
Net income $67.6 $73.3
------- -------
Adjustments to reconcile net income to net cash used
in operating activities:
Depreciation 45.2 41.2
Deferred debt issuance cost amortization 5.1 9.5
Amortization of intangibles 8.3 7.8
Restricted stock compensation 0.1 0.2
Equity in net earnings of affiliates, net of cash
received (11.2) (4.7)
Deferred income tax (benefit) provision (3.0) 1.4
(Gain on sale) write-down of property, plant and
equipment (1.6) 0.3
Changes in operating assets and liabilities, net of
effects from purchase of businesses:
Accounts and notes receivable, net (49.7) (100.0)
Inventories, net (262.6) (143.5)
Other current and noncurrent assets (23.2) (1.6)
Accounts payable 122.9 117.8
Accrued expenses (15.2) 10.6
Other current and noncurrent liabilities (28.6) (21.3)
------- -------
Total adjustments (213.5) (82.3)
------- -------
Net cash used in operating activities (145.9) (9.0)
------- -------
Cash flows from investing activities:
Purchase of property, plant and equipment (25.8) (25.0)
Proceeds from sales of property, plant and equipment 8.8 36.8
Purchase of businesses, net of cash acquired -- (765.4)
(Investments in) proceeds from the sale of
unconsolidated affiliates (22.5) 1.8
------- -------
Net cash used in investing activities (39.5) (751.8)
------- -------
Cash flows from financing activities:
(Payment of) proceeds from debt obligations, net (86.6) 409.2
Payment of debt issuance costs -- (21.1)
Proceeds from issuance of common stock 0.8 301.0
------- -------
Net cash (used in) provided by financing
activities (85.8) 689.1
------- -------
Effect of exchange rate changes on cash and cash
equivalents (7.5) (1.0)
------- -------
Decrease in cash and cash equivalents (278.7) (72.7)
Cash and cash equivalents, beginning of period 325.6 147.0
------- -------
Cash and cash equivalents, end of period $46.9 $74.3
======= =======
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)
A[paragraph] 1. RESTRUCTURING AND OTHER INFREQUENT EXPENSES
A[paragraph] During the first six months of 2005, the Company recorded
restructuring and other infrequent expenses of approximately $0.2
million. The net charges include a $1.5 million gain on the sale of
property, which was recorded during the second quarter of 2005,
related to the completion of auctions of machinery and equipment
associated with the rationalization of the Randers, Denmark combine
manufacturing operations. The gain was offset by $0.6 million and $0.3
million of costs, recorded in the first quarter and second quarter of
2005, respectively, associated with the Randers rationalization. These
charges consisted primarily of employee retention payments and other
facility closure costs. In addition, during the first quarter of 2005,
the Company incurred and recorded approximately $0.3 million of
contract termination costs associated with the rationalization of its
Valtra European parts distribution operations and $0.1 million of
severance costs associated with the rationalization of certain
administrative functions of its Finnish tractor manufacturing
operations. The Company also recorded approximately $0.4 million of
costs during the second quarter of 2005 associated with the announced
closure of several of its Valtra European sales offices.
A[paragraph] During the first six months of 2004, the Company recorded
restructuring and other infrequent income of approximately $0.6
million, primarily related to a $6.9 million net gain on the sale of
land, buildings and improvements associated with the rationalization
of the Company's Coventry, England tractor manufacturing facility and
a $2.0 million gain on the sale of machinery and equipment and reserve
reversals related to the Coventry closure. These gains were offset by
an $8.0 million write-down of property, plant and equipment associated
with the Randers rationalization and $0.3 million of restructuring
charges associated with various European and U.S. rationalization
initiatives.
A[paragraph] 2. LONG-TERM DEBT
A[paragraph] Long-term debt consisted of the following at June 30, 2005 and
December 31, 2004 (in millions):
June 30, Dec. 31,
2005 2004
------- ---------
Credit facility $534.0 $424.7
1 3/4% Convertible senior subordinated notes due 2033 201.3 201.3
9 1/2% Senior notes due 2008 -- 250.0
6 7/8% Senior subordinated notes due 2014 242.1 271.1
Other long-term debt 9.9 11.5
------- ---------
987.3 1,158.6
Less: Current portion of long-term debt (6.6) (6.9)
------- ---------
Total long-term debt, less current portion $980.7 $1,151.7
======= =========
On June 23, 2005, the Company completed the redemption of its $250 million 9 1/2% Senior Notes due 2008. The Company redeemed the notes at a price of approximately $261.9 million, which included a premium of 4.75% over the face amount of the notes. The premium of approximately $11.9 million and the write-off of the remaining balance of deferred debt issuance costs of approximately $2.2 million, were recognized in interest expense, net during the second quarter of 2005. The funding source for the redemption was a combination of cash generated from the transfer of North American wholesale interest-bearing receivables to the Company'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. retail finance joint ventures, AGCO Finance LLC (Logical Link Control) See "LANs" under data link protocol. LLC - Logical Link Control and AGCO Finance Canada Canada (kăn`ədə), independent nation (2001 pop. 30,007,094), 3,851,787 sq mi (9,976,128 sq km), N North America. Canada occupies all of North America N of the United States (and E of Alaska) except for Greenland and the French islands of , Ltd., as well as from revolving credit facility borrowings and available cash on hand (Note 4). On June 30, 2005, the Company completed an exchange of its $201.3 million 1 3/4% convertible senior subordinated notes, exchanging its existing convertible notes for new notes (Note 5). 3. 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 June 30, 2005 and December 31, 2004 were as follows (in millions):
June 30, Dec. 31,
2005 2004
--------- ---------
Finished goods $677.9 $432.5
Repair and replacement parts 326.7 313.2
Work in process 84.1 103.6
Raw materials 202.9 220.1
--------- ---------
Inventories, net $1,291.6 $1,069.4
========= =========
4. 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 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. The Company sells wholesale accounts receivable on a revolving basis to commercial paper conduits either on a direct basis or through a wholly-owned special purpose U.S. subsidiary under its 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. , Canadian and European securitization facilities. Outstanding funding under these facilities totaled approximately $473.0 million at June 30, 2005 and $458.9 million at December 31, 2004. 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 primarily from securitization facilities included in other expense, net were $5.6 million and $3.8 million for the three months ended June 30, 2005 and 2004, respectively, and $10.6 million and $7.6 million for the six months ended June 30, 2005 and 2004, respectively. During the second quarter of 2005, the Company completed an agreement to transfer, on an ongoing basis, the majority of its wholesale interest-bearing receivables in North America to AGCO Finance LLC and AGCO Finance Canada, Ltd., its U.S. and Canadian retail finance joint ventures. The Company has a 49% ownership interest in these joint ventures. The transfer of the receivables is without recourse A phrase used by an endorser (a signer other than the original maker) of a negotiable instrument (for example, a check or promissory note) to mean that if payment of the instrument is refused, the endorser will not be responsible. to the Company and the Company will continue to service the receivables. The initial transfer of the wholesale interest-bearing receivables resulted in 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 $94 million, which were used 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. the Company's $250 million Senior Notes (Note 2). As of June 30, 2005, approximately $73.7 million of interest-bearing receivables had been transferred to AGCO Finance LLC and AGCO Finance Canada, Ltd. under this agreement. 5. EARNINGS PER SHARE During the fourth quarter of 2004, the Emerging Issues Task Force ("EITF EITF Emerging Issues Task Force EITF Edinburgh International Television Festival EITF Europe International Taekwon-Do Federation ") reached a consensus on EITF Issue No. 04-08, "Accounting Issues Related to Certain Features of Contingently con·tin·gent adj. 1. Liable to occur but not with certainty; possible: "All salaries are reckoned on contingent as well as on actual services" Ralph Waldo Emerson. Convertible Debt and the Effect on Diluted Earnings per Share diluted earnings per share An earnings measure calculated by dividing net income less preferred stock dividends for a period by the average number of shares of common stock that would be outstanding if all convertible securities were converted into shares of ." EITF Issue No. 04-08 requires that contingently convertible debt should be included in the calculation of diluted earnings per share using the if-converted method regardless of whether a market price trigger (1) A mechanism that initiates an action when an event occurs such as reaching a certain time or date or upon receiving some type of input. A trigger generally causes a program routine to be executed. has been met. The Company adopted the statement during the fourth quarter of 2004 and has included approximately 9.0 million additional shares of common stock that may be issued upon conversion of the Company's outstanding 1 3/4% convertible senior subordinated notes in its diluted earnings per share calculation for the three and six months ended June 30, 2004 and 2005. In addition, diluted earnings per share are required to be restated for each period that the convertible notes were outstanding. The convertible notes were issued on December 23, 2003. As the Company is not benefiting losses in the United States for tax purposes, the interest expense associated with the convertible notes included in the diluted earnings per share calculation does not reflect a tax benefit. A reconciliation of net income and weighted average common shares outstanding for purposes of calculating basic and diluted earnings per share for the three and six months ended June 30, 2005 and 2004 is as follows (in millions, except per share amounts):
Three Months Six Months
Ending June 30, Ending June 30,
--------------- ---------------
2005 2004 2005 2004
------- ------- ------- -------
Basic net income per share:
Net income $46.1 $48.3 $67.6 $73.3
======= ======= ======= =======
Weighted average number of
common shares outstanding 90.4 89.0 90.4 82.2
------- ------- ------- -------
Basic net income per share $0.51 $0.54 $0.75 $0.89
======= ======= ======= =======
Diluted net income per share:
Net income $46.1 $48.3 $67.6 $73.3
After-tax interest expense on
contingently convertible senior
subordinated notes 1.1 1.2 2.3 2.3
------- ------- ------- -------
Net income for purposes of
computing diluted net income
per share $47.2 $49.5 $69.9 $75.6
======= ======= ======= =======
Weighted average number of
common shares outstanding 90.4 89.0 90.4 82.2
Dilutive stock options and
restricted stock awards 0.2 0.4 0.3 0.4
Weighted average assumed
conversion of contingently
convertible senior subordinated
notes 9.0 9.0 9.0 9.0
------- ------- ------- -------
Weighted average number of
common and common share
equivalents outstanding for
purposes of computing diluted
earnings per share 99.6 98.4 99.7 91.6
======= ======= ======= =======
Diluted net income per share $0.47 $0.50 $0.70 $0.83
======= ======= ======= =======
On June 30, 2005, the Company completed an exchange of its $201.3 million aggregate principal amount of 1 3/4% convertible senior subordinated notes. AGCO exchanged substantially all of its existing convertible notes for new notes which provide for (i) the settlement upon conversion in cash up to the principal amount of the converted new notes with any excess conversion value settled in shares of AGCO common stock, and (ii) the conversion rate to be increased under 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 if the new notes are converted in connection with certain change of control transactions occurring prior to December 10, 2010, but otherwise are substantially the same as the old notes. The impact of the exchange will reduce the diluted weighted average shares outstanding in future periods. The initial reduction in the diluted shares is estimated to be approximately 9.0 million shares but will vary in the future based on the Company's stock price (Note 2). 6. 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. 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 six months ended June 30, 2005 and 2004 are as follows (in millions):
Three Months Ended North South Europe/Africa Asia/
June 30, America America /Middle East Pacific Consolidated
------------------- ------- ------- ------------- ------- ------------
2005
Net sales $465.2 $185.3 $876.1 $47.7 $1,574.3
Income from
operations 19.9 10.8 83.3 7.7 121.7
2004
Net sales $391.1 $213.2 $759.7 $43.0 $1,407.0
Income from
operations 14.4 37.1 57.4 8.2 117.1
Six Months Ended North South Europe/Africa Asia/
June 30, America America /Middle East Pacific Consolidated
------------------- ------- ------- ------------- ------- ------------
2005
Net sales $858.0 $337.6 $1,542.4 $93.2 $2,831.2
Income from
operations 22.5 23.3 128.7 15.2 189.7
2004
Net sales $684.8 $388.1 $1,361.0 $88.8 $2,522.7
Income from
operations 20.5 68.2 82.8 15.1 186.6
A reconciliation from the segment information to the consolidated con·sol·i·date v. con·sol·i·dat·ed, con·sol·i·dat·ing, con·sol·i·dates v.tr. 1. To unite into one system or whole; combine: balances for income from operations is set forth below (in millions):
Three Months Six Months
Ended Ended
June 30, June 30,
--------------- ---------------
2005 2004 2005 2004
------- ------- ------- -------
Segment income from operations $121.7 $117.1 $189.7 $186.6
Corporate expenses (9.2) (9.4) (18.9) (17.0)
Restricted stock compensation expense -- -- (0.1) (0.3)
Restructuring and other infrequent
income (expenses) 0.8 (6.0) (0.2) 0.6
Amortization of intangibles (4.1) (3.8) (8.3) (7.8)
------- ------- ------- -------
Consolidated income from operations $109.2 $97.9 $162.2 $162.1
======= ======= ======= =======
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